<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM T-3
FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES
UNDER THE TRUST INDENTURE ACT OF 1939
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SASSCO FASHIONS, LTD.
(Name of applicant)
77 Metro Way
Secaucus, New Jersey 07094
(Address of principal executive offices)
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Securities to be Issued Under the Indenture to be Qualified
Title of Class Amount
-------------- ------
12.75% Senior Notes, Due 2004 $110,000,000
Approximate date of proposed public offering: On or before twenty days after the
Effective Date (as defined in the Amended Joint Plan of Reorganization of The
Leslie Fay Companies Inc., dated December 5, 1996, as further amended).
Name and Address of agent for service:
Arthur S. Levine
Chief Executive Officer
Sassco Fashions, Ltd.
77 Metro Way
Secaucus, New Jersey 07094
(201) 863-1153
Copy to:
Richard G. Mason, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
(212) 403-1000
<PAGE>
GENERAL
1. GENERAL INFORMATION. Furnish the following information as to the applicant:
(a) Form of organization:
A corporation.
(b) State or other sovereign power under the laws of which organized:
Delaware.
2. SECURITIES ACT EXEMPTION APPLICABLE. State briefly the facts relied upon by
the applicant as a basis for the claim that registration of the indenture
securities under the Securities Act of 1933, as amended (the "Securities Act"),
is not required.
Capitalized terms not otherwise defined in this Form T-3 have
the respective meanings assigned to them in that certain Disclosure Statement
(the "Disclosure Statement"), a copy of which is included as Exhibit T3E.1
hereto.
Pursuant to the Amended Joint Plan of Reorganization for
Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code proposed by
The Leslie Fay Companies, Inc., a Delaware corporation ("LF") and the Official
Committee of Unsecured Creditors of LF dated December 5, 1996 (as further
amended, the "Plan"), LF's core businesses will be restructured and its Sassco
division will be transferred to LF's creditors as a new entity. The new entity
was formed on March 5, 1997 as a Delaware corporation under the name Sassco
Fashions, Ltd. ("Sassco"). Pursuant to the Plan, certain creditors of LF will
receive, in satisfaction of existing claims, 6,800,000 shares in the aggregate
of Sassco's common stock, .01 par value, and $110,000,000 in aggregate principal
amount of Sassco's 12.75% Senior Notes, Due 2004 (the "Notes"). By order dated
December 9, 1996, the Bankruptcy Court approved the Disclosure Statement and set
January 14, 1997 (the "Initial Confirmation Date") as the date for a hearing to
consider confirmation of the Plan (the "Confirmation Hearing"). The Confirmation
Hearing has been conducted by the Bankruptcy Court on various dates since the
Initial Confirmation Date. The next date scheduled by the Bankruptcy Court for
the Confirmation Hearing is April 21, 1997.
If the Plan is confirmed by the Bankruptcy Court on or about
April 21, 1997, Sassco presently expects that the consummation of substantially
all of the transactions contemplated by the Plan will occur on or about April
30, 1997 (the "Effective Date").
Sassco believes that the offer and exchange on the Effective
Date of the Notes as described above are exempt from the registration
requirements of the Securities Act and of equivalent state securities and "blue
sky" laws, by Section 1145(a)(1) of the Bankruptcy Code. Generally, Section
1145(a)(1) of the Bankruptcy Code exempts the offer and sale of securities under
a bankruptcy plan of reorganization from registration under the Securities Act
and under equivalent state securities and "blue sky" laws if the following
requirements are satisfied: (i) the securities are issued under a plan of
reorganization by the debtor, an affiliate participating in a joint plan with
the debtor, or a successor to the debtor under the plan; (ii) the recipients of
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the securities hold a claim against the debtor, an interest in the debtor or a
claim for an administrative expense against the debtor; and (iii) the securities
are issued entirely in exchange for the recipient's claim against or interest in
the debtor or are issued "principally" in such exchange and "partly" for cash or
property. Sassco believes that the offer and exchange of the Notes under the
Plan will satisfy such requirements of Section 1145(a)(1) of the Bankruptcy Code
and, therefore, such offer and exchange is exempt from the registration
requirements referred to above.
AFFILIATIONS
3. AFFILIATES. Furnish a list or diagram of all affiliates of the applicant and
indicate the respective percentages of voting securities or other bases of
control.
As of April 11, 1997
Sassco was incorporated on March 5, 1997 by Olivier Trouveroy,
in his capacity as Creditor Representative under the Plan. As of April 11, 1997,
Sassco has not issued and does not own any voting securities, and does not
otherwise have any affiliates.
As of the Effective Date of the Plan
As of the Effective Date of the Plan, Sassco will be under
common control with LF. In addition, as of the Effective Date of the Plan,
Sassco will own 100% of the voting securities of the following entities:
A.S.L. Retail Outlets, Inc.
Sassco Europe Ltd.
Asia Expert Limited
Tomwell Limited
As of the Effective Date of the Plan, Asia Export Limited will
own 100% of the voting securities of the following entities:
Viewmon Limited
MANAGEMENT AND CONTROL
4. DIRECTORS AND EXECUTIVE OFFICERS. List the names and complete mailing
addresses of all directors and executive officers of the applicant and all
persons chosen to become directors or executive officers. Indicate all offices
with the applicant held or to be held by each person named.
As of April 11, 1997
Name Mailing Address Office
---- --------------- ------
Arthur S. Levine c/o Sassco Fashions, Ltd. Chief Executive
77 Metro Way Officer and
Secaucus, NJ 07094 Director
Lester E. Schreiber c/o Sassco Fashions, Ltd. Director
77 Metro Way
Secaucus, NJ 07094
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As of the Effective Date of the Plan
Name Mailing Address Office
---- --------------- ------
Arthur S. Levine c/o Sassco Fashions, Ltd. Chief Executive
77 Metro Way Officer and
Secaucus, NJ 07094 Director
Greg Marks c/o Sassco Fashion, Ltd. President
77 Metro Way
Secaucus, NJ 07094
Lester E. Schreiber c/o Sassco Fashions, Ltd. Chief Operating
77 Metro Way Officer and
Secaucus, NJ 07094 Director
Dennis P. Kelly c/o Sassco Fashions, Ltd. Chief Financial
77 Metro Way Officer
Secaucus, NJ 07094
L.G. Schafran c/o Sassco Fashions, Ltd. Director
77 Metro Way
Secaucus, NJ 07094
William J. Nightingale c/o Sassco Fashions, Ltd. Director
77 Metro Way
Secaucus, NJ 07094
Clifford B. Cohn c/o Sassco Fashions, Ltd. Director
77 Metro Way
Secaucus, NJ 07094
Robert L. Sind c/o Sassco Fashions, Ltd. Director
77 Metro Way
Secaucus, NJ 07094
Olivier Trouveroy c/o Sassco Fashions, Ltd. Director
77 Metro Way
Secaucus, NJ 07094
5. PRINCIPAL OWNERS OF VOTING SECURITIES. Furnish the following information as
to each person owning 10% or more of the voting securities of the applicant.
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As of April 11, 1997
No person owns 10% or more of the voting securities of the applicant.
As of the Effective Date of the Plan
It is not practicable to determine the ownership of voting securities of the
applicant as of the Effective Date due to active trading in the claims of the
creditors of LF. However, based on the claims of the creditors of LF as of April
11, 1997, the applicant believes that no person will own 10% or more of the
voting securities of the applicant as of the Effective Date.
UNDERWRITERS
6. UNDERWRITERS. Give the name and complete mailing address of (a) each person
who, within three years prior to the date of filing the application, acted as an
underwriter of any securities of the obligor which were outstanding on the date
of filing the application, and (b) each proposed principal underwriter of the
securities proposed to be offered. As to each person specified in (a), give the
title of each class of securities underwritten.
(a) No person within the three years prior to the date hereof has acted
as an underwriter of any securities of Sassco which are outstanding
on the date hereof.
(b) No person will act as a principal underwriter of the Notes.
CAPITAL SECURITIES
7. CAPITALIZATION.
(a) Furnish the following information as to each authorized class of
securities of the applicant.
As of April 11, 1997
Title of Class Amount Authorized Amount Outstanding
- -------------- ----------------- ------------------
Common Stock, $.01 par value 500 shares 0
On the Effective Date of the Plan
Title of Class Amount Authorized Amount Outstanding
- -------------- ----------------- ------------------
Common Stock, $.01 par value 20,000,000 shares 6,800,000
Preferred Stock, $.01 par value 1,000,000 shares 0
Notes $110,000,000 aggregate $110,000,000 aggregate
principal amount principal amount
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(b) Give a brief outline of the voting rights of each class of voting
securities referred to in paragraph (a) above.
Each share of Common Stock of Sassco will be entitled to one
vote, and Sassco's Amended and Restated Certificate of Incorporation will not
provide for cumulative voting. The Preferred Stock (except as may otherwise be
provided in a certificate designating the preferred stock) and the Notes are not
entitled to any voting rights.
INDENTURE SECURITIES
8. ANALYSIS OF INDENTURE PROVISIONS. Insert at this point the analysis of
indenture provisions required under Section 305(a)(2) of the Trust Indenture Act
of 1939, as amended.
All references to the Indenture herein refer to the Indenture
(the "Indenture") to be dated as of the Effective Date between Sassco and IBJ
Schroeder Bank & Trust Company, as trustee (the "Trustee"). Capitalized terms
used in this Section 8 which are not otherwise defined below or elsewhere in
this Application on Form T-3 have the respective meanings assigned to them in
the Indenture. The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all of the provisions of the Indenture. A copy of the
Indenture, including the form of Notes, is included as Exhibit T3C hereto.
(A) EVENTS OF DEFAULT. The following are Events of Default under the
Indenture: (i) failure to pay interest on any Security when the same becomes due
and payable, which failure to pay continues for a period of five Business Days;
(ii) failure to pay principal when due at maturity, upon redemption, or
otherwise; (iii) failure to observe, perform or comply with any covenant,
condition, agreement or obligation in the Securities or the Indenture, subject
in certain cases to a 10-day or 30-day grace period; (iv) material breach of a
representation or warranty; (v) a default in the payment of any principal,
interest or penalty on any instrument of Indebtedness of Sassco or any of its
Subsidiaries having a principal amount, together withe the principal amount of
any other Indebtedness of Sassco under which there exists such a default, in
excess of $500,000, after the expiration of any applicable grace period; (vi) a
final judgment entered against Sassco or any of its Subsidiaries remains
undischarged for 90 days, if the aggregate of all such judgements exceeds
$500,000 (net of insurance proceeds); (vii) a Lien holder takes possession of
all or substantially all of the properties, assets or revenues of Sassco for at
least 30 days; or (viii) the occurrence of certain bankruptcy related events.
If an Event of Default occurs and is continuing, then, either
the Trustee or the Holders of at least 25% in principal amount of the
then-outstanding Securities, by notice to Sassco (and to the Trustee if given by
Holders), may, and the Trustee upon the request of the Holders of at least 25%
in principal amount of the then-outstanding Securities shall, declare the unpaid
principal of and premium, if any, and any accrued interest on all the Securities
to be due and payable, and upon any such declaration the same shall become
immediately due and payable; provided that no such declaration is required in
the case of an Event of Default specified in clause (viii) above.
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The Holders of a majority in principal amount of the
then-outstanding Securities by notice to the Trustee may (i) waive an existing
Default or Event of Default and its consequences (other than a failure to pay
principal, premium, if any, or interest when due) and (ii) rescind an
acceleration and its consequences if the rescission would not conflict with any
order, judgment or decree and if all existing Events of Default (except
nonpayment of principal, premium, if any, or interest that has become due solely
because of the acceleration) have been cured or waived.
The Indenture provides that if a Default occurs and is
continuing, the Trustee shall promptly give the Securityholders notice of the
Default promptly after the Trustee has knowledge thereof. There are no
provisions in the Indenture with respect to the withholding of notice to the
Securityholders of any Default or Event of Default.
(B) AUTHENTICATION AND DELIVERY OF NOTES; APPLICATION OF PROCEEDS. Each
Security will be signed by two Officers of the Company. A Security will not be
valid until authenticated by the manual signature of an authorized signatory of
the Trustee, such signature to be conclusive evidence that the Security has been
authenticated under the Indenture.
There are no provisions in the Indenture with respect to the
application by Sassco of proceeds. There will be no proceeds from the initial
issuance of the Notes because such securities will be issued pursuant to a plan
of reorganization approved by the United States Bankruptcy Court in exchange for
the discharge of certain claims arising from ownership of certain securities of
and claims against the debtors involved in the bankruptcy proceeding.
(C) RELEASE OF COLLATERAL. Not Applicable
(D) SATISFACTION AND DISCHARGE. The Indenture will cease to be of
further effect when all outstanding Securities theretofore authenticated and
issued have been delivered (other than destroyed, lost or stolen Securities that
have been replaced or paid) to the Trustee for cancellation and Sassco has paid
all sums payable under the Indenture. In addition, Sassco may terminate its
obligations under the Securities and the Indenture if (i) Sassco has irrevocably
deposited in trust for the benefit of the Holders with the Trustee at any time
prior to the stated maturity of the Securities or the date of redemption of all
the Outstanding Securities, money or U.S. Government Obligations sufficient to
pay the principal of and interest on the Outstanding Securities to maturity or
redemption, as the case may be, and to pay all other sums payable by it under
the Indenture; (ii) Sassco delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel to the effect that all conditions precedent relating to
satisfaction and discharge have been complied with; (iii) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or as
a result thereof; (iv) the Company delivers to the Trustee certain rulings
and/or Opinions of Counsel relating to tax and bankruptcy matters; and (v)
Sassco's exercise of its option to terminate its obligations under the
Securities and the Indenture will not cause the Trustee to have a conflicting
interest with respect to any securities of Sassco. In the event the Securities
are defeased as aforesaid, the Company will be relieved of its obligations under
the Indenture, with certain specified exceptions.
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(E) EVIDENCE OF COMPLIANCE WITH CONDITIONS AND COVENANTS. The Company
is required to furnish the Trustee and each Requesting Holder (within 45 days
after the end of each of the first three quarters of each Fiscal Year and within
90 days after the end of each Fiscal Year) with an Officers' Certificate of
Sassco relating to the knowledge of such officers with respect to (i) the
fulfillment of Sassco's obligations under the Indenture; (ii) the existence of
any Default that occurred during the Fiscal Year, and if they do know of a
Default, describing it and its status; and (iii) the existence of any event by
reason of which payments on the Securities are prohibited.
The Indenture provides that upon any application or request by
Sassco to the Trustee to take any action under the Indenture, Sassco must
furnish to the Trustee an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent and covenants, if any, provided for in the
Indenture relating to the proposed action have been complied with. Each such
certificate must include (i) a statement that the Person making the certificate
or opinion has read such covenant or condition; (ii) a brief statement as to the
nature and scope of examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based; (iii) a statement
that, in the opinion of such Person, he has made such examination or
investigation as is necessary to entitle him to express an informed opinion as
to whether such covenant or condition has been complied with; and (iv) a
statement as to whether or not, in the opinion of such Person, such condition or
covenant has been complied with.
9. OTHER OBLIGORS. Give the name and complete mailing address of any person,
other than the applicant, who is an obligor upon the indenture securities.
There is no other person who is an obligor under the Indenture
or otherwise upon the Notes.
Contents of application for qualification. This application
for qualification comprises:
(a) Pages numbered __ to __, consecutively. (1)
(b) The statement of eligibility and qualification of the Trustee
under the Indenture to be qualified on Form T-1.
(c) The following exhibits in addition to those filed as part of
the statement of eligibility and qualification of the Trustee:
Exhibit T3A.1 Certificate of Incorporation of Sassco,
currently in effect.
Exhibit T3A.2 Form of Amended and Restated Certificate of
Incorporation of Sassco.
Exhibit T3B.1 Existing By-laws of Sassco.
Exhibit T3B.2 Form of Amended By-laws of Sassco.
Exhibit T3C Form of Indenture to be qualified (including
form of Note attached as Exhibit A thereto).
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Exhibit T3E.1 Disclosure Statement for Amended Joint Plan of
Reorganization, dated December 5, 1996 (the
"Disclosure Statement") (including the
appendices and exhibits attached thereto).
Exhibit T3E.2 Supplemental Disclosure Statement.
Exhibit T3E.3 Second Supplemental Disclosure Statement.
Exhibit T3E.4 Modification of Third Amended and Restated
Joint Plan of Reorganization.
Exhibit T3F Cross Reference Sheet showing the location in
the Indenture of the provisions inserted
therein pursuant to Sections 310 through
318(a), inclusive, of the Trust Indenture Act
of 1939, as amended (included in Exhibit T3C
hereof).
(1) Pursuant to Rule 309(a) of Regulation ST, requirements as to sequential
numbering shall not apply to this electronic format document.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
1939, as amended, the applicant, Sassco Fashions, Ltd., a corporation organized
and existing under the laws of Delaware, has duly caused this application to be
signed on its behalf by the undersigned, thereunto duly authorized, and its seal
to be hereunto affixed and attested all in the City of Secaucus, State of New
Jersey, on the 11th day of April, 1997.
SASSCO FASHIONS, LTD.
(SEAL) By: /s/ Arthur S. Levine
-----------------------------------
Name: Arthur S. Levine
Title: Chief Executive Officer
Attest: /s/ Lester E. Schreiber
----------------------------------
Name: Lester E. Schreiber
Title: Director
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-5375195
(Jurisdiction of incorporation (I.R.S. employer
or organization if not a U.S. national bank) identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
JAMES P. FREEMAN
IBJ SCHRODER BANK & TRUST COMPANY
One State Street
New York, New York 10004
(212) 858-2000
(Name, address and telephone number of agent for service)
Sassco Fashions, Ltd.
(Exact names of obligor as specified in its charter)
Delaware 22-3497645
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
77 Metro Way 07094
Secaucus, New Jersey (Zip code)
(Address of principal executive offices)
12.75% Senior Notes, Due 2004
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(Title of indenture securities)
<PAGE>
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority
to which it is subject.
New York State Banking Department, Two Rector
Street, New York, New York
Federal Deposit Insurance Corporation, Washington,
D.C.
Federal Reserve Bank of New York Second District,
33 Liberty Street, New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee,
describe each such affiliation.
The obligor is not an affiliate of the trustee.
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to
the securities under this indenture. Explain the nature of
any such default.
None
2
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(b) If the trustee is a trustee under another indenture under
which any other securities, or certificates of interest or
participation in any other securities, of the obligors are
outstanding, or is trustee for more than one outstanding
series of securities under the indenture, state whether
there has been a default under any such indenture or series,
identify the indenture or series affected, and explain the
nature of any such default.
None
Item 16. List of exhibits.
List below all exhibits filed as part of this
statement of eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust Company as amended
to date. (See Exhibit 1A to Form T-1, Securities and Exchange
Commission File No. 22-18460).
*2. A copy of the Certificate of Authority of the trustee to Commence
Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise corporate trust
powers, as amended to date (See Exhibit 4 to Form T-1, Securities and
Exchange Commission File No. 22-19146).
*4. A copy of the existing By-Laws of the trustee, as amended to date (See
Exhibit 4 to Form T-1, Securities and Exchange Commission File No.
22-19146).
5. Not Applicable
6. The consent of United States institutional trustee required by Section
321(b) of the Act.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.
3
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NOTE
In answering any item in this Statement of Eligibility which relates to matters
peculiarly within the knowledge of the obligor and its directors or officers,
the trustee has relied upon information furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of
all facts on which to base responsive answers to Item 2, the answer to said Item
is based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an amendment to
this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and
16 of this form since to the best knowledge of the trustee as indicated in Item
13, the obligor is not in default under any indenture under which the applicant
is trustee.
4
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SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
1939, the trustee, IBJ Schroder Bank & Trust Company, a corporation organized
and existing under the laws of the State of New York, has duly caused this
statement of eligibility & qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New York, and State
of New York, on the 10th day of April, 1997.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ James P. Freeman
----------------------------------
James P. Freeman
Assistant Vice President
<PAGE>
Exhibit 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, as amended, in connection with the issuance by Sassco
Fashions, Ltd. of its 12.75% Senior Notes, Due 2004, we hereby consent that
reports of examinations by Federal, State, Territorial, or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ James P. Freeman
----------------------------------
James P. Freeman
Assistant Vice President
Dated: April 10, 1997
<PAGE>
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
of New York, New York
And Foreign and Domestic Subsidiaries
Report as of December 30, 1996
<TABLE>
<CAPTION>
ASSETS Dollar Amounts
------ in Thousands
---------------
<S> <C>
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin ........................................$ 32,466
Interest-bearing balances....................................................................$ 347,310
Securities: Held-to-maturity securities.......................................................$ 175,628
Available-for-sale securities.....................................................$ 37,536
Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement subsidiaries and in
IBFs:
Federal Funds sold...........................................................................$ 13,900
Securities purchased under agreements to resell..............................................$ 4,524
Loans and lease financing receivables:
Loans and leases, net of unearned income....................................$ 1,844,295
LESS: Allowance for loan and lease losses...................................$ 57,261
LESS: Allocated transfer risk reserve.......................................$ -0-
Loans and leases, net of unearned income, allowance, and reserve.............................$ 1,787,034
Trading assets held in trading accounts..........................................................$ 403
Premises and fixed assets (including capitalized leases).........................................$ 4,123
Other real estate owned..........................................................................$ 202
Investments in unconsolidated subsidiaries and associated companies..............................$ -0-
Customers' liability to this bank on acceptances outstanding.....................................$ 463
Intangible assets................................................................................$ -0-
Other assets.....................................................................................$ 87,430
TOTAL ASSETS.....................................................................................$ 2,491,019
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
-----------
<S> <C>
Deposits:
In domestic offices..........................................................................$ 792,944
Noninterest-bearing ....................................................$ 228,711
Interest-bearing .......................................................$ 564,233
In foreign offices, Edge and Agreement subsidiaries, and IBFs................................$ 1,125,928
Noninterest-bearing ....................................................$ 20,348
Interest-bearing .......................................................$ 1,105,580
Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in
IBFs:
Federal Funds purchased......................................................................$ 185,300
Securities sold under agreements to repurchase...............................................$ -0-
Demand notes issued to the U.S. Treasury.........................................................$ 5,098
Trading Liabilities..............................................................................$ 83
Other borrowed money:
a) With a remaining maturity of one year or less.............................................$ 74,686
b) With a remaining maturity of more than one year...........................................$ 4,763
Mortgage indebtedness and obligations under capitalized leases...................................$ -0-
Bank's liability on acceptances executed and outstanding.........................................$ 463
Subordinated notes and debentures................................................................$ -0-
Other liabilities................................................................................$ 82,930
TOTAL LIABILITIES................................................................................$ 2,272,195
Limited-life preferred stock and related surplus.................................................$ -0-
EQUITY CAPITAL
--------------
Perpetual preferred stock and related surplus....................................................$ -0-
Common stock.....................................................................................$ 29,649
Surplus (exclude all surplus related to preferred stock).........................................$ 217,008
Undivided profits and capital reserves...........................................................$ (27,849)
Net unrealized gains (losses) on available-for-sale securities...................................$ 16
Cumulative foreign currency translation adjustments..............................................$ -0-
TOTAL EQUITY CAPITAL.............................................................................$ 218,824
TOTAL LIABILITIES AND EQUITY CAPITAL.............................................................$ 2,491,019
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Number and Name Page No.
Exhibit T3A.1 Certificate of Incorporation of
Sassco, currently in effect ..........................
Exhibit T3A.2 Form of Amended and Restated Certificate
of Incorporation of Sassco ...........................
Exhibit T3B.1 Existing By-laws of Sassco ...........................
Exhibit T3B.2 Form of Amended By-laws of Sassco ....................
Exhibit T3C Form of Indenture to be qualified (including
form of Note attached as Exhibit A thereto) ..........
Exhibit T3E.1 Disclosure Statement for Amended Joint Plan of
Reorganization, dated December 5, 1996 (including the
appendices and exhibits attached thereto) ............
Exhibit T3E.2 Supplemental Disclosure Statement ....................
Exhibit T3E.3 Second Supplemental Disclosure Statement .............
Exhibit T3E.4 Modification of Third Amended and Restated
Joint Plan of Reorganization .........................
Exhibit T3F T3F Cross Reference Sheet showing the location in the
Indenture of the provisions inserted therein pursuant
to Sections 310 through 318(a), inclusive, of the
Trust Indenture Act of 1939, as amended (included in
Exhibit T3C hereof) ..................................
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<PAGE>
CERTIFICATE OF INCORPORATION
OF
SASSCO FASHIONS, LTD.
I, the undersigned, for the purpose of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
hereby execute this Certificate of Incorporation and do hereby certify as
follows:
ARTICLE I
---------
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
Sassco Fashions, Ltd.
ARTICLE II
----------
The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
ARTICLE III
-----------
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware.
<PAGE>
ARTICLE IV
----------
Section 1. The Corporation shall be authorized to issue 500 shares of
capital stock, of which 500 shares shall be shares of Common Stock, $.01 par
value ("Common Stock").
Section 2. Except as otherwise provided by law the Common Stock shall
have the exclusive right to vote for the election of directors and for all other
purposes. Each share of Common Stock shall have one vote, and the Common Stock
shall vote together as a single class.
ARTICLE V
---------
Unless and except to the extent that the By-Laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
ARTICLE VI
----------
In furtherance and not in limitation of the powers conferred by law, the
Board of Directors of the Corporation (the "Board") is expressly authorized and
empowered to make, alter and repeal the By-Laws of the Corporation by a majority
vote at any regular or special meeting of the Board or by written consent,
subject to the power of the stockholders of the Corporation to alter or repeal
any By-Laws made by the Board.
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<PAGE>
ARTICLE VII
-----------
The Corporation reserves the right at any time from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article.
ARTICLE VIII
------------
Section 1. Elimination of Certain Liability of Directors. A director
of the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is
not permitted under the General Corporation Law of the State of Delaware as the
same exists or may hereafter be amended.
Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a director of the Corporation
existing hereunder with respect
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<PAGE>
to any act or omission occuring prior to such repeal or modification.
Section 2. Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, to the fullest extent permitted by law, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees,
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<PAGE>
judgments, fines, amounts paid or to be paid in settlement, and excise taxes or
penalties arising under the Employee Retirement Income Security Act of 1974)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board. The right to indemnification conferred in this Section shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the General Corporation Law of the
State of Delaware requires, the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan)
in advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not
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<PAGE>
entitled to be indemnified under this Section or otherwise. The Corporation may,
by action of the Board, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of
the Corporation (including its Board, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because
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<PAGE>
he or she has met the applicable standard of conduct set forth in the General
Corporation Law of the State of Delaware, nor an actual determination by the
Corporation (including its Board, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, By-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of Delaware.
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<PAGE>
ARTICLE IX
----------
The name and mailing address of the incorporator is Olivier Trouveroy,
c/o ING Equity Partners, L.P. I, 135 East 57th Street, New York, NY 10022.
IN WITNESS WHEREOF, I, the undersigned, being the incorporator
hereinbefore named, do hereby further certify that the facts hereinabove stated
are truly set forth and, accordingly, I have hereunto set my hand this 4th day
of March, 1997.
/s/ Olivier Trouveroy
-----------------------------
Olivier Trouveroy
Incorporator, in his capacity
as Creditor Representative
under the Amended Joint Plan
of Reorganization for Debtors
Pursuant to Chapter 11 of the
United States Bankruptcy Code
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<PAGE>
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SASSCO FASHIONS, LTD.
ARTICLE I
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
Sassco Fashions, Ltd.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware.
ARTICLE IV
(A) Authorized Stock. The total number of shares of stock which the
Corporation shall have authority to issue is Twenty-One Million (21,000,000),
consisting of Twenty Million (20,000,000) shares of common stock, par value $.01
per share ("Common Stock"), and One Million (1,000,000) shares of preferred
stock, par value $.01 per share ("Preferred Stock").
(B) Preferred Stock. The Preferred Stock may be issued from time to
time in one or more series. The Board of Directors is hereby authorized to
create and provide for the issuance of shares of Preferred Stock in series and,
by filing a certificate pursuant to the applicable law of the State of Delaware
(hereinafter referred to as a "Preferred Stock Designation"), to establish from
time to time the number of shares to be included in each such series, and to fix
the designation, power, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
<PAGE>
(i) The designation of the series, which may be by
distinguishing number, letter or title.
(ii) The number of shares of the series, which number the
Board of Directors may thereafter (except where otherwise provided in
the Preferred Stock Designation) increase or decrease (but not below
the number of shares thereof then outstanding).
(iii) Whether dividends, if any, shall be cumulative or
noncumulative and the dividend rate of the series.
(iv) The dates at which dividends, if any, shall be payable.
(v) The redemption rights and price or prices, if any, for
shares of the series.
(vi) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series.
(vii) The amounts payable on, and the preferences, if any, of
shares of the series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation.
(viii) Whether the shares of the series shall be convertible
into or exchangeable for shares of any other class or series, or any
other security, of the Corporation or any other corporation, and, if
so, the specification of such other class or series of such other
security, the conversion or exchange price or prices or rate or rates,
any adjustments thereof, the date or dates at which such shares shall
be convertible or exchangeable and all other terms and conditions upon
which such conversion may be made.
(ix) Restrictions on the issuance of shares of the same series
or of any other class or series.
(x) The voting rights, if any, of the holders of shares of the
series.
(xi) Such other powers, preferences and relative,
participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof as the Board of
Directors shall determine.
(C) Common Stock. The Common Stock shall be subject to the express
terms of the Preferred Stock and any series thereof. Each share of Common Stock
shall be equal to each other share of Common Stock. The holders of shares of
Common Stock shall be entitled to one vote for each such share upon all
questions presented to the stockholders.
(D) Vote. Except as may be provided in this Certificate of
Incorporation or in a Preferred Stock Designation, or as may be required by
applicable law, the Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes, and holders of shares of
Preferred Stock shall not be entitled to receive notice of any meeting of
stockholders at which they are not entitled to vote.
(E) Record Holders. The Corporation shall be entitled to treat the
person in whose name any share of its stock is registered as the owner thereof
for all purposes and
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<PAGE>
shall not be bound to recognize any equitable or other claim to, or interest in,
such share on the part of any other person, whether or not the Corporation shall
have notice thereof, except as expressly provided by applicable law.
(F) Non-Voting Equity Securities. In accordance with Section 1123(a)(6)
of the United States Bankruptcy Code, the Corporation shall be prohibited from
issuing any shares of stock (including any series of Preferred Stock) that have
no voting rights.
ARTICLE V
(A) In furtherance and not in limitation of the powers conferred by
law, the Board of Directors is expressly authorized and empowered:
(i) to adopt, amend or repeal the By-laws of the Corporation,
provided, however, that the By-laws may also be altered, amended or
repealed by the affirmative vote of the holders of at least 66-2/3
percent of the voting power of the then outstanding Voting Stock (as
hereinafter defined), voting together as a single class; and
(ii) from time to time to determine whether and to what
extent, and at what times and places, and under what conditions and
regulations, the accounts and books of the Corporation, or any of them,
shall be open to inspection of stockholders; and, except as so
determined, or as expressly provided in this Certificate of
Incorporation or in any Preferred Stock Designation, no stockholder
shall have any right to inspect any account, book or document of the
Corporation other than such rights as may be conferred by applicable
law.
(B) The Corporation may in its By-laws confer powers upon the Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by applicable law.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 66-2/3 percent of the
voting power of the then outstanding Voting Stock, voting together as a single
class, shall be required to amend, repeal or adopt any provision inconsistent
with subparagraph (i) of paragraph (A) of this Article V. For the purposes of
this Certificate of Incorporation, "Voting Stock" shall mean the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors of the Corporation.
ARTICLE VI
Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specific circumstances or to consent to
specific actions taken by the Corporation, any action required or permitted to
be taken by the stockholders of the Corporation must be effected at a duly
called annual or special meeting of stockholders of the Corporation and may not
be effected by any consent in writing in lieu of a meeting of such stockholders,
provided, however, that actions with respect to the approval of the Sassco
Fashions, Ltd. 1997 Management Stock Option Plan, and stock options granted with
respect to such plan, may be effected by consent in writing in lieu of a meeting
of stockholders of the Corporation. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of at least
66-2/3 percent of the voting power of the
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<PAGE>
then outstanding Voting Stock, voting together as a single class, shall be
required to amend or repeal, or adopt any provision inconsistent with, this
Article VI.
ARTICLE VII
(A) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specific circumstances, the number of
directors of the Corporation shall be fixed by the By-laws of the Corporation
and may be increased or decreased from time to time in such a manner as may be
prescribed by the By-laws.
(B) Unless and except to the extent that the By-laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
(C) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, and unless
the Board of Directors otherwise determines or the By-laws otherwise provide,
vacancies resulting from death, resignation, retirement, disqualification,
removal from office or other cause, and newly created directorships resulting
from any increase in the authorized number of directors, may be filled only by
the affirmative vote of a majority of the remaining directors, though less than
a quorum of the Board of Directors, and directors so chosen shall hold office
until the next annual meeting of stockholders and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the Whole Board shall shorten the term of
any incumbent director.
(D) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specific circumstances, any director
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 66-2/3 percent of the voting power
of the then outstanding Voting Stock, voting together as a single class.
(E) Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66-2/3 percent of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to amend or repeal, or adopt any
provision inconsistent with, this Article VII.
ARTICLE VIII
Section 1. Vote Required for Certain Business Combinations.
(A) Higher Vote for Certain Business Combinations. In addition to any
affirmative vote required by law or this Certificate of Incorporation or by any
Preferred Stock Designation, and except as otherwise expressly provided in
Section 2 of this Article VIII:
(i) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested Stockholder
(as hereinafter defined) or (b) any other person (whether or not itself
an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
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<PAGE>
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder, including all Affiliates of the
Interested Stockholder, of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as hereinafter
defined) of $10,000,000 or more; or
(iii) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder, including all Affiliates of any Interested Stockholder, in
exchange for cash, securities or other property (or a combination
thereof) having an aggregate Fair Market Value of $10,000,000 or more;
or
(iv) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliates of an Interested Stockholder;
or
(v) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not an Interested Stockholder is a party
thereto) which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any Subsidiary
which is Beneficially Owned (as hereinafter defined) by any Interested
Stockholder or any Affiliate of any Interested Stockholder;
shall require the affirmative vote of the holders of at least 80 percent of the
voting power of the then outstanding Voting Stock, voting together as a single
class, including the affirmative vote of the holders of at least 80 percent of
the voting power of the then outstanding Voting Stock not owned directly or
indirectly by any Interested Stockholder or any Affiliate of any Interested
Stockholder. Such affirmative vote shall be required notwithstanding any other
provision of this Certificate of Incorporation, any Preferred Stock Designation
or any provision of law or of any agreement with any national securities
exchange or otherwise which might otherwise permit a lesser vote or no vote.
(B) Definition of "Business Combination." The term "Business
Combination" as used in this Article VIII shall mean any transaction described
in any one or more of clauses (i) through (v) of paragraph (A) of this Section
1.
Section 2. When Higher Vote Is Not Required. The provisions of Section
1 of this Article VIII shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law or any other provision of this Certificate of
Incorporation and any Preferred Stock Designation, if, in the case of a Business
Combination that does not involve any cash or other consideration being received
by the stockholders of the Corporation, the condition specified in the following
paragraph (A) is met or, in the case of any other Business Corporation, the
conditions specified in either of the following paragraph (A) or (B) are met:
(A) Approval by Continuing Directors. The Business Combination shall
have been approved by a majority of the Continuing Directors (as hereinafter
defined); provided, however, that this condition shall not be capable of
satisfaction unless there are at least five Continuing Directors.
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<PAGE>
(B) Price and Procedure Requirements. All of the following conditions
shall have been met:
(i) The consideration to be received by holders of shares of a
particular class (or series) of outstanding capital stock (including
Common Stock and other than Excluded Preferred Stock (as hereinafter
defined)) shall be in cash or in the same form as the Interested
Stockholder or any of its Affiliates has previously paid for shares of
such class (or series) of capital stock. If the Interested Stockholder
or any of its Affiliates have paid for shares of any class (or series)
of capital stock with varying forms of consideration, the form of
consideration to be received per share by holders of shares of such
class (or series) of capital stock shall be either cash or the form
used to acquire the largest number of shares of such class (or series)
of capital stock previously acquired by the Interested Stockholder.
(ii) The aggregate amount of (x) the cash and (y) the Fair
Market Value, as of the date (the "Consummation Date") of the
consummation of the Business Combination, of the consideration other
than cash to be received per share by holders of Common Stock in such
Business Combination shall be at least equal to the higher of the
following (in each case appropriately adjusted in the event of any
stock dividend, stock split, combination of shares or similar event):
(a) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder
or any of its Affiliates for any shares of Common Stock
acquired by them within the two-year period immediately prior
to the date of the first public announcement of the proposal
of the Business Combination (the "Announcement Date") or in
any transaction in which the Interested Stockholder became an
Interested Stockholder, whichever is higher, plus interest
compounded annually from the first date on which the
Interested Stockholder became an Interested Stockholder (the
"Determination Date") through the Consummation Date at the
publicly announced base rate of interest of The Chase
Manhattan Bank (or such other major bank headquartered in the
City of New York as may be selected by the Continuing
Directors) from time to time in effect in the City of New
York, less the aggregate amount of any cash dividends paid,
and the Fair Market Value of any dividends paid in other than
cash, on each share of Common Stock from the Determination
Date through the Consummation Date in an amount up to but not
exceeding the amount of interest so payable per share of
Common Stock; and
(b) the Fair Market Value per share of Common Stock
on the Announcement Date or the Determination Date, whichever
is higher.
(iii) The aggregate amount of (x) the cash and (y) the Fair
Market Value, as of the Consummation Date, of the consideration other
than cash to be received per share by holders of shares of any class
(or series), other than Common Stock or Excluded Preferred Stock, of
outstanding capital stock shall be at least equal to the highest of the
following (in each case appropriately adjusted in the event of any
stock dividend, stock split, combination of shares or similar event),
it being intended that the requirements of this paragraph (B)(iii)
shall be required to be met with respect to every such class (or
series) of outstanding capital stock whether or not the Interested
Stockholder or any of its Affiliates has previously acquired any shares
of a particular class (or series) of capital stock:
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(a) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Stockholder
or any of its Affiliates for any shares of such class (or
series) of capital stock acquired by them within the two-year
period immediately prior to the Announcement Date or in any
transactions in which it became an Interested Stockholder,
whichever is higher, plus interest compounded annually from
the Determination Date through the Consummation Date at the
publicly announced base rate of interest of The Chase
Manhattan Bank (or such other major bank headquartered in the
City of New York as may be selected by the Continuing
Directors) from time to time in effect in the City of New
York, less the aggregate amount of any cash dividends paid,
and the Fair Market Value of any dividends paid in other than
cash, on each share of such class (or series) of capital stock
from the Determination Date through the Consummation Date in
an amount up to but not exceeding the amount of interest so
payable per share of such class (or series) of capital stock;
(b) the Fair Market Value per share of such class (or
series) of capital stock on the Announcement Date or on the
Determination Date, whichever is higher, and
(c) the highest preferential amount per share, if
any, to which the holders of shares of such class (or series)
of capital stock would be entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation.
(iv) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such Business
Combination: (a) except as approved by a majority of the Continuing
Directors, there shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding Preferred Stock; (b) there shall have
been (I) no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the Continuing
Directors, and (II) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar transaction
which has the effect of reducing the number of outstanding shares of
Common Stock, unless the failure so to increase such annual rate is
approved by a majority of the Continuing Directors; and (c) neither
such Interested Stockholder nor any of its Affiliates shall have become
the beneficial owner of any additional shares of Voting Stock except as
part of the transaction which results in such Interested Stockholder
becoming an Interested Stockholder; provided, however, that no approval
by Continuing Directors shall satisfy the requirements of this
subparagraph (iv) unless at the time of such approval there are at
least five Continuing Directors.
(v) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder and any of its Affiliates
shall not have received the benefit, directly or indirectly (except
proportionately, solely in such Interested Stockholder's or Affiliate's
capacity as a stockholder of the Corporation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or
other tax advantages provided by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise.
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<PAGE>
(vi) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (or any subsequent provisions replacing such
Act, rules or regulations) shall be mailed to all stockholders of the
Corporation at least 30 days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent provisions).
(vii) Such Interested Stockholder shall have supplied the
Corporation with such information as shall have been requested pursuant
to Section 4 of this Article VIII within the time period set forth
therein.
Section 3. For the purposes of this Article VIII:
(1) A "person" means any individual, limited partnership, general
partnership, corporation or other firm or entity.
(2) "Interested Stockholder" means any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner (as hereinafter defined), directly
or indirectly, of ten percent or more of the voting power of the
outstanding Voting Stock; or
(ii) is an Affiliate or an Associate of the Corporation and at
any time within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of ten
percent or more of the voting power of the then-outstanding Voting
Stock; or
(iii) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned by
any Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act of
1933, as amended, or any successor act thereto.
(3) A person shall be a "beneficial owner" of, or shall "Beneficially
Own", any Voting Stock:
(i) which such person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns, directly or indirectly
within the meaning of Rule 13d-3, or any successor rule thereto, under
the Securities Exchange Act of 1934, as amended, or any successor act
thereto; or
(ii) which such person or any of its Affiliates or Associates
has (a) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options or otherwise or
(b) the right to vote pursuant to any agreement, arrangement or
understanding (but neither such person nor any such Affiliate or
Associate shall be deemed to be the beneficial owner of any shares of
Voting Stock solely by reason of a revocable proxy granted for a
particular meeting of stockholders, pursuant to a public solicitation
of proxies for such meeting, and with respect to which shares neither
such
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person nor any such Affiliate or Associate is otherwise deemed the
beneficial owner); or
(iii) which are beneficially owned, directly or indirectly,
within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934, as amended, or any successor rule thereto, by any other person
with which such person or any of its Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting (other than solely by reason of a revocable proxy as
described in subparagraph (ii) of this paragraph (3)) or disposing of
any shares of Voting Stock;
provided, however, that in the case of any employee stock ownership or
similar plan of the Corporation or of any Subsidiary in which the
beneficiaries thereof possess the right to vote any shares of Voting Stock
held by such plan, no such plan nor any trustee with respect thereto (nor
any Affiliate of such trustee), solely by reason of such capacity of such
trustee, shall be deemed, for any purposes hereof, to beneficially own any
shares of Voting Stock held under any such plan.
(4) For the purposes of determining whether a person is an Interested
Stockholder pursuant to paragraph (2) of this Section 3, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned through
application of paragraph (3) of this Section 3 but shall not include any other
unissued shares of Voting Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
(5) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended, or any successor rule thereto.
(6) "Subsidiary" means any person of which a majority of any class of
equity security is owned, directly or indirectly, by the Corporation; provided,
however, that for the purposes of the definition of Interested Stockholder set
forth in paragraph (2) of this Section 3, the term "Subsidiary" shall mean only
a person of which a majority of each class of equity security is owned, directly
or indirectly, by the Corporation.
(7) "Continuing Director" means any member of the Board of Directors of
the Corporation who is unaffiliated with the Interested Stockholder and was a
member of the Board prior to the time that the Interested Stockholder became an
Interested Stockholder, and any director who is thereafter chosen to fill any
vacancy on the Board of Directors or who is elected and who, in either event, is
unaffiliated with the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment or election by a
majority of Continuing Directors then on the Board.
(8) "Fair Market Value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York Stock
Exchange Listed Stocks, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing bid quotation with respect to a
share of such stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated Quotations System
or any system then in use, or if no such quotations are available, the fair
market value on the date in question of a share of such stock as determined by
the Board in accordance with
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Section 4 of this Article VIII; and (ii) in the case of property other than cash
or stock, the fair market value of such property on the date in question as
determined by the Board of Directors in accordance with Section 4 of this
Article VIII.
(9) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used in
paragraphs (B)(ii) of Section 2 of this Article VIII shall include the shares of
Common Stock and/or the shares of any other class (or series) of outstanding
capital stock retained by the holders of such shares.
(10) "Whole Board" means the total number of directors which this
Corporation would have if there were no vacancies.
(11) "Excluded Preferred Stock" means any series of Preferred Stock
with respect to which the Preferred Stock Designation creating such series
expressly provides that the provisions of this Article VIII shall not apply.
Section 4. (a) A majority of the Whole Board, but only if a majority of
the Whole Board shall then consist of Continuing Directors or, if a majority of
the Whole Board shall not then consist of Continuing Directors, a majority of
the then Continuing Directors, shall have the power and duty to determine, on
the basis of information known to them after reasonable inquiry, all facts
necessary to determine compliance with this Article VIII, including, without
limitation, (i) whether a person is an Interested Stockholder, (ii) the number
of shares of Voting Stock beneficially owned by any person, (iii) whether a
person is an Affiliate or Associate of another, (iv) whether the applicable
conditions set forth in paragraph (B) of Section 2 have been met with respect to
any Business Combination, (v) the Fair Market Value of stock or other property
in accordance with paragraph (8) of Section 3 of this Article VIII, and (vi)
whether the assets which are the subject of any Business Combination referred to
in paragraph (1)(A)(ii) of Section 1 have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any Subsidiary
in any Business Combination referred to in paragraph (1)(A)(iii) of Section 1
has, an aggregate Fair Market Value of $10,000,000 or more.
(b) A majority of the Whole Board shall have the right to demand, but
only if a majority of the Whole Board shall then consist of Continuing
Directors, or, if a majority of the Whole Board shall not then consist of
Continuing Directors, a majority of the then Continuing Directors shall have the
right to demand, that any person who it is reasonably believed is an Interested
Stockholder (or holds of record shares of Voting Stock Beneficially Owned by any
Interested Stockholder) supply this Corporation with complete information as to
(i) the record owner(s) of all shares Beneficially Owned by such person who it
is reasonably believed is an Interested Stockholder, (ii) the number of, and
class or series of, shares Beneficially Owned by such person who it is
reasonably believed is an Interested Stockholder and held of record by each such
record owner and the number(s) of the stock certificate(s) evidencing such
shares, and (iii) any other factual matter relating to the applicability or
effect of this Article VIII, as may be reasonably requested of such person, and
such person shall furnish such information within 10 days after receipt of such
demand.
Section 5. No Effect on Fiduciary Obligations of Interested
Stockholders. Nothing contained in this Article VIII shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
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Section 6. When Stockholder Approval is Required. Notwithstanding any
other provisions of this Certificate of Incorporation (including, without
limitation, Sections 1 and 2 of this Article VIII), but in addition to any
affirmative vote required by law or this Certificate of Incorporation or by any
Preferred Stock Designation:
(i) any merger or consolidation of the Corporation with any
person (whether or not an Interested Stockholder); or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any person (whether or not an Interested Stockholder or
Affiliate thereof) of all or substantially all of the assets of the
Corporation;
shall require the affirmative vote of the holders of at least 66-2/3 percent of
the voting power of the then outstanding Voting Stock, voting together as a
single class. Such affirmative vote shall be required notwithstanding any other
provision of this Certificate of Incorporation, any Preferred Stock Designation
or any provision of law or of any agreement with any national securities
exchange or otherwise which might otherwise permit a lesser vote or no vote.
Section 7. Amendment, Repeal, etc. Notwithstanding any other provisions
of this Certificate of Incorporation or the By-laws of the Corporation (and
notwithstanding the fact that a lesser percentage may be permitted by law, this
Certificate of Incorporation, any Preferred Stock Designation or the By-laws of
the Corporation), but in addition to any affirmative vote of the holders of any
particular class of Voting Stock required by law, this Certificate of
Incorporation or any Preferred Stock Designation, (a) the affirmative vote of
the holders of 80 percent of the voting power of the shares of the then
outstanding Voting Stock voting together as a single class, including the
affirmative vote of the holders of 80 percent of the voting power of the then
outstanding Voting Stock not owned directly or indirectly by any Interested
Stockholder or any Affiliate of any Interested Stockholder, shall be required to
amend or repeal, or adopt any provisions inconsistent with, Sections 1 through 5
and this clause (a) of Section 7 of this Article VIII; and (b) the affirmative
vote of the holders of 66-2/3 percent of the voting power of the shares of the
then outstanding Voting Stock voting together as a single class shall be
required to amend or repeal, or adopt any provisions inconsistent with, Section
6 and this clause (b) of Section 7 of this Article VIII.
ARTICLE IX
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. Any repeal or modification of this Article IX
shall not adversely affect any right or protection of a director of the
Corporation existing hereunder in respect of any act or omission occurring prior
to such amendment or appeal.
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ARTICLE X
Each person who is or was or had agreed to become a director or officer
of the Corporation, or each such person who is or was serving or who had agreed
to serve at the request of the Board of Directors or an officer of the
Corporation as an employee or agent of the Corporation or as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (including the heirs, executor, administrators or
estate of such person), shall be indemnified by the Corporation, in accordance
with the By-laws of the Corporation, to the fullest extent permitted from time
to time by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment) or any other applicable laws as presently or hereafter in
effect. The Corporation may, by action of the Board of Directors, provide
indemnification to employees and agents of the Corporation, and to persons
serving as employees or agents of another corporation, partnership, joint
venture, trust or other enterprise, at the request of the Corporation, with the
same scope and effect as the foregoing indemnification of directors and
officers. The Corporation shall be required to indemnify any person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors or is a proceeding to enforce such person's claim to
indemnification pursuant to the rights granted by this Certificate of
Incorporation or otherwise by the Corporation. Without limiting the generality
or the effect of the foregoing, the Corporation may enter into one or more
agreements with any person which provide for indemnification greater or
different than that provided in this Article X. Any amendment or repeal of this
Article X shall not adversely affect any right or protection existing hereunder
in respect of any act or omission occurring prior to such amendment or repeal.
ARTICLE XI
In furtherance and not in limitation of the powers conferred by law or
in this Certificate of Incorporation, the Board of Directors (and any committee
of the Board of Directors) is expressly authorized, to the extent permitted by
law, to take such action or actions as the Board of Directors or such committee
may determine to be reasonably necessary or desirable to (A) encourage any
person (as defined in Article VIII of this Certificate of Incorporation) to
enter into negotiations with the Board of Directors and management of the
Corporation with respect to any transaction which may result in a change in
control of the Corporation which is proposed or initiated by such person or (B)
contest or oppose any such transaction which the Board of Directors or such
committee determines to be unfair, abusive or otherwise undesirable with respect
to the Corporation and its business, assets or properties or the stockholders of
the Corporation, including, without limitation, the adoption of such plans or
the issuance of such rights, options, capital stock, notes, debentures or other
evidences of indebtedness or other securities of the Corporation, which rights,
options, capital stock, notes, evidences of indebtedness and other securities
(i) may be exchangeable for or convertible into cash or other securities on such
terms and conditions as may be determined by the Board of Directors or such
committee and (ii) may provide for the treatment of any holder or class of
holders thereof designated by the Board of Directors or any such committee in
respect of the terms, conditions, provisions and rights of such securities which
is different from, and unequal to, the terms, conditions, provisions and rights
applicable to all other holders thereof.
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ARTICLE XII
Except as may be expressly provided in this Certificate of
Incorporation, the Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, or any Preferred Stock Designation, and any other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted, in the manner now or hereafter prescribed herein or by
law; and all rights, preferences and privileges of whatsoever nature conferred
upon stockholders, directors or any other persons whomsoever by and pursuant to
this Certificate of Incorporation in its present form or as hereafter amended
are granted subject to the right reserved in this Article XII; provided,
however, that any amendment or repeal of Article IX or Article X of this
Certificate of Incorporation shall not adversely affect any right or protection
existing hereunder in respect of any act or omission occurring prior to such
amendment or repeal; and provided, further, that no Preferred Stock Designation
shall be amended after the issuance of any shares of the series of Preferred
Stock created thereby, except in accordance with the terms of such Preferred
Stock Designation and the requirements of applicable law.
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BY-LAWS
of
SASSCO FASHIONS, LTD.
______________________________
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE -- The registered office of Sassco
Fashions, Ltd. (the "Corporation") shall be established and maintained at the
office of The Corporation Trust Company at The Corporation Trust Center, 1209
Orange Street in the City of Wilmington, County of New Castle, State of
Delaware, and said Corporation Trust Company shall be the registered agent of
the Corporation in charge thereof.
SECTION 2. OTHER OFFICES -- The Corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time select or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS -- Annual meetings of stockholders for the
election of directors, and for such other business as may be stated in the
notice of the meeting, shall be held at such place, either within or without the
State of Delaware, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the meeting. If
the Board of Directors fails so to determine the time, date and place of
meeting, the annual meeting of stockholders shall be held at the registered
office of the Corporation on the first Tuesday in April. If the date of the
annual meeting shall fall upon a legal holiday, the meeting shall be held on the
next succeeding business day. At each annual meeting, the stockholders entitled
to vote shall elect a Board of Directors and they may transact such other
corporate business as shall be stated in the notice of the meeting.
<PAGE>
SECTION 2. SPECIAL MEETINGS -- Special meetings of the stockholders
for any purpose or purposes may be called by the Chairman of the Board, the
President or the Secretary, or by resolution of the Board of Directors.
SECTION 3. VOTING -- Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation of the Corporation and these
By-Laws may vote in person or by proxy, but no proxy shall be voted after three
years from its date unless such proxy provides for a longer period. All
elections for directors shall be decided by plurality vote; all other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the meeting,
arranged in alphabetical order, with the address of each, and the number of
shares held by each, shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is entitled to be present.
SECTION 4. QUORUM -- Except as otherwise required by law, by the
Certificate of Incorporation of the Corporation or by these By-Laws, the
presence, in person or by proxy, of stockholders holding shares constituting a
majority of the voting power of the Corporation shall constitute a quorum at all
meetings of the stockholders. In case a quorum shall not be present at any
meeting, a majority in interest of the stockholders entitled to vote thereat,
present in person or by proxy, shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until the
requisite amount of stock entitled to vote shall be present. At any such
adjourned meeting at which the requisite amount of stock entitled to vote shall
be represented, any business may be transacted that might have been transacted
at the meeting as originally noticed; but only those stockholders entitled to
vote at the meeting as originally noticed shall be entitled to vote at any
adjournment or adjournments thereof.
SECTION 5. NOTICE OF MEETINGS -- Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to
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each stockholder entitled to vote thereat, at his or her address as it appears
on the records of the Corporation, not less than ten nor more than sixty days
before the date of the meeting. No business other than that stated in the notice
shall be transacted at any meeting without the unanimous consent of all the
stockholders entitled to vote thereat.
SECTION 6. ACTION WITHOUT MEETING -- Unless otherwise provided by the
Certificate of Incorporation of the Corporation, any action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM -- The business and affairs of the
Corporation shall be managed under the direction of a Board of Directors which
shall consist of not less than two persons. The exact number of directors shall
initially be two and may thereafter be fixed from time to time by the Board of
Directors. Directors shall be elected at the annual meeting of stockholders and
each director shall be elected to serve until his or her successor shall be
elected and shall qualify. A director need not be a stockholder.
SECTION 2. RESIGNATIONS -- Any director may resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Chairman of the Board, the President or the Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES -- If the office of any director becomes vacant,
the remaining directors in the office, though less than a quorum, by a majority
vote, may appoint any
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qualified person to fill such vacancy, who shall hold office for the unexpired
term and until his or her successor shall be duly chosen. If the office of any
director becomes vacant and there are no remaining directors, the stockholders,
by the affirmative vote of the holders of shares constituting a majority of the
voting power of the Corporation, at a special meeting called for such purpose,
may appoint any qualified person to fill such vacancy.
SECTION 4. REMOVAL -- Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of the voting power entitled to
vote for the election of directors, at an annual meeting or a special meeting
called for the purpose, and the vacancy thus created may be filled, at such
meeting, by the affirmative vote of holders of shares constituting a majority of
the voting power of the Corporation.
SECTION 5. COMMITTEES -- The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more directors of the
Corporation.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it.
SECTION 6. MEETINGS -- The newly elected directors may hold their
first meeting for the purpose of organization and the transaction of business,
if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent of
all the Directors.
Regular meetings of the Board of Directors may be held without notice
at such places and times as shall be determined from time to time by resolution
of the Board of Directors.
Special meetings of the Board of Directors may be called by the
Chairman of the Board or the President, or by the Secretary on the written
request of any director, on at least one day's notice to each director (except
that notice to any director may be waived in writing by such director) and shall
be held at such place or places as may be determined by the
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Board of Directors, or as shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation of the
Corporation or these By-Laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in any meeting
of the Board of Directors or any committee thereof by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
SECTION 7. QUORUM -- A majority of the Directors shall constitute a
quorum for the transaction of business. If at any meeting of the Board of
Directors there shall be less than a quorum present, a majority of those present
may adjourn the meeting from time to time until a quorum is obtained, and no
further notice thereof need be given other than by announcement at the meeting
which shall be so adjourned. The vote of the majority of the Directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors unless the Certificate of Incorporation of the Corporation or these
By-Laws shall require the vote of a greater number.
SECTION 8. COMPENSATION -- Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the Board of Directors a fixed fee and expenses of attendance may
be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
SECTION 9. ACTION WITHOUT MEETING -- Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if a written consent thereto is signed by all
members of the Board of Directors or of such committee, as the case may be, and
such written consent is filed with the minutes of proceedings of the Board of
Directors or such committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS -- The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Treasurer and
a Secretary, all of whom shall
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be elected by the Board of Directors and shall hold office until their
successors are duly elected and qualified. In addition, the Board of Directors
may elect such Assistant Secretaries and Assistant Treasurers as they may deem
proper. The Board of Directors may appoint such other officers and agents as it
may deem advisable, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
SECTION 2. CHAIRMAN OF THE BOARD -- The Chairman of the Board shall be
the Chief Executive Officer of the Corporation. He or she shall preside at all
meetings of the Board of Directors and shall have and perform such other duties
as may be assigned to him or her by the Board of Directors. The Chairman of the
Board shall have the power to execute bonds, mortgages and other contracts on
behalf of the Corporation, and to cause the seal of the Corporation to be
affixed to any instrument requiring it, and when so affixed the seal shall be
attested to by the signature of the Secretary or the Treasurer or an Assistant
Secretary or an Assistant Treasurer.
SECTION 3. PRESIDENT -- The President shall be the Chief Operating
Officer of the Corporation. He or she shall have the general powers and duties
of supervision and management usually vested in the office of President of a
corporation. The President shall have the power to execute bonds, mortgages and
other contracts on behalf of the Corporation, and to cause the seal to be
affixed to any instrument requiring it, and when so affixed the seal shall be
attested to by the signature of the Secretary or the Treasurer or an Assistant
Secretary or an Assistant Treasurer.
SECTION 4. VICE PRESIDENTS -- Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him or her by the
Board of Directors.
SECTION 5. TREASURER -- The Treasurer shall be the Chief Financial
Officer of the Corporation. He or she shall have the custody of the Corporate
funds and securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the Corporation. He or she shall deposit all
moneys and other valuables in the name and to the credit of the Corporation in
such depositaries as may be designated by the Board of Directors. He or she
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, the Chairman of the Board, or the President, taking proper vouchers
for such disbursements. He or she shall render to the Chairman of the Board, the
President and Board of Directors at the regular meetings of the Board of
Directors, or
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whenever they may request it, an account of all his or her transactions as
Treasurer and of the financial condition of the Corporation. If required by the
Board of Directors, he or she shall give the Corporation a bond for the faithful
discharge of his or her duties in such amount and with such surety as the Board
of Directors shall prescribe.
SECTION 6. SECRETARY -- The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and of the Board of Directors and
all other notices required by law or by these By-Laws, and in case of his or her
absence or refusal or neglect so to do, any such notice may be given by any
person thereunto directed by the Chairman of the Board or the President, or by
the Board of Directors, upon whose request the meeting is called as provided in
these By-Laws. He or she shall record all the proceedings of the meetings of the
Board of Directors, any committees thereof and the stockholders of the
Corporation in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him or her by the Board of Directors, the Chairman
of the Board or the President. He or she shall have the custody of the seal of
the Corporation and shall affix the same to all instruments requiring it, when
authorized by the Board of Directors, the Chairman of the Board or the
President, and attest to the same.
SECTION 7. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES -- Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the Board of Directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK -- A certificate of stock shall be
issued to each stockholder certifying the number of shares owned by such
stockholder in the Corporation. Certificates of stock of the Corporation shall
be of such form and device as the Board of Directors may from time to time
determine.
SECTION 2. LOST CERTIFICATES -- A new certificate of stock may be
issued in the place of any certificate theretofore issued by the Corporation,
alleged to have been lost or destroyed, and the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or such
owner's legal representatives, to give the Corporation a bond, in such sum as
they may direct, not exceeding double the value
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of the stock, to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss of any such certificate, or the
issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES -- The shares of stock of the
Corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the Corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the Board of Directors may designate, by
whom they shall be cancelled, and new certificates shall thereupon be issued. A
record shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE -- In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and which
record date: (1) in the case of determination of stockholders entitled to vote
at any meeting of stockholders or adjournment thereof, shall, unless otherwise
required by law, not be more than sixty nor less than ten days before the date
of such meeting; (2) in the case of determination of stockholders entitled to
express consent to corporate action in writing without a meeting, shall not be
more than ten days from the date upon which the resolution fixing the record
date is adopted by the Board of Directors; and (3) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (1) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; (2) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting
when no prior action of the Board of Directors is required by law, shall be the
first day on which a signed written consent
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setting forth the action taken or proposed to be taken is delivered to the
Corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(3) the record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 5. DIVIDENDS -- Subject to the provisions of the Certificate
of Incorporation of the Corporation, the Board of Directors may, out of funds
legally available therefor at any regular or special meeting, declare dividends
upon stock of the Corporation as and when they deem appropriate. Before
declaring any dividend there may be set apart out of any funds of the
Corporation available for dividends, such sum or sums as the Board of Directors
from time to time in their discretion deem proper for working capital or as a
reserve fund to meet contingencies or for equalizing dividends or for such other
purposes as the Board of Directors shall deem conducive to the interests of the
Corporation.
SECTION 6. SEAL -- The corporate seal of the Corporation shall be in
such form as shall be determined by resolution of the Board of Directors. Said
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise imprinted upon the subject document or paper.
SECTION 7. FISCAL YEAR -- The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS -- All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, or agent or agents,
of the Corporation, and in such manner as shall be determined from time to time
by resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE -- Whenever any notice is
required to be given under these By-Laws, personal notice is not required unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage
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prepaid, addressed to the person entitled thereto at his or her address as it
appears on the records of the Corporation, and such notice shall be deemed to
have been given on the day of such mailing. Stockholders not entitled to vote
shall not be entitled to receive notice of any meetings except as otherwise
provided by law. Whenever any notice is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the Corporation or of these ByLaws, a waiver thereof, in
writing and signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent to such
required notice.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered, amended or repealed at any annual
meeting of the stockholders (or at any special meeting thereof if notice of such
proposed alteration, amendment or repeal to be considered is contained in the
notice of such special meeting) by the affirmative vote of the holders of shares
constituting a majority of the voting power of the Corporation. Except as
otherwise provided in the Certificate of Incorporation of the Corporation, the
Board of Directors may by majority vote of those present at any meeting at which
a quorum is present alter, amend or repeal these By-Laws, or enact such other
By-Laws as in their judgment may be advisable for the regulation and conduct of
the affairs of the Corporation.
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FORM OF AMENDED AND RESTATED BY-LAWS
OF
SASSCO FASHIONS, LTD.
Incorporated under the Laws of the State of Delaware
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1. DELAWARE OFFICE. The principal office of Sassco Fashions,
Ltd. (the "Corporation") in the State of Delaware shall be located in the City
of Wilmington, County of New Castle, and the name and address of its registered
agent is The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware.
SECTION 1.2. OTHER OFFICES. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may from time to time designate or as the business of the Corporation
may from time to time require.
SECTION 1.3. BOOKS AND RECORDS. The books and records of the
Corporation may be kept inside or outside the State of Delaware at such place or
places as may from time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of stockholders of the
Corporation shall be held at such place, either within or without the State of
Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine for the purpose of electing directors and for the transaction of
such other business as may be properly brought before the meeting. If the Board
of Directors fails so to determine the time, date and place of meeting, the
annual meeting of stockholders shall be held at 10:00 a.m., local time, at the
principal office of the Corporation on the first Thursday in May. If the date of
the annual meeting shall fall upon a legal holiday, the meeting shall be held on
the next succeeding business day.
SECTION 2.2. SPECIAL MEETING. Subject to the rights of the holders of
any series of stock having a preference over the Common Stock of the Corporation
as to dividends or upon liquidation (the "Preferred Stock") to elect additional
directors under specific circumstances, special meetings of the stockholders may
be called only by the Chairman of the Board or by the Board of Directors
pursuant to a resolution adopted by a majority of the total number of directors
which the Corporation would have if there were no vacancies (the "Whole Board").
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SECTION 2.3. PLACE OF MEETING. The Board of Directors may designate the
place of meeting for any meeting of the stockholders. If no designation is made
by the Board of Di rectors, the place of meeting shall be the principal office
of the Corporation.
SECTION 2.4. NOTICE OF MEETING. Written or printed notice, stating the
place, day and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be prepared and delivered by the Corporation not less
than ten days nor more than sixty days before the date of the meeting, either
personally or by mail, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail with postage thereon prepaid, addressed to the
stockholder at such stockholder's address as it appears on the stock transfer
books of the Corporation. Such further notice shall be given as may be required
by law. Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Meetings may be held without notice if all
stockholders entitled to vote are present, or if notice is waived by those not
present in accordance with Section 6.4 of these By-laws. Any previously
scheduled meeting of the stockholders may be postponed, and (unless the
Certificate of Incorporation otherwise provides) any special meeting of the
stockholders may be cancelled, by resolution of the Board of Directors upon
public notice given prior to the time previously scheduled for such meeting of
stockholders.
SECTION 2.5. QUORUM AND ADJOURNMENT. Except as otherwise provided by
law or by the Certificate of Incorporation, the holders of a majority of the
voting power of the outstanding shares of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock"), represented in
person or by proxy, shall constitute a quorum at a meeting of stockholders,
except that when specified business is to be voted on by a class or series
voting as a class, the holders of a majority of the voting power of the shares
of such class or series shall constitute a quorum for the transaction of such
business. The chairman of the meeting or a majority of the shares of Voting
Stock so represented may adjourn the meeting from time to time, whether or not
there is such a quorum (or, in the case of specified business to be voted on by
a class or series, the chairman or a majority of the shares of such class or
series so represented may adjourn the meeting with respect to such specified
business). No notice of the time and place of adjourned meetings need be given
except as required by law. The stockholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.6. PROXIES. At all meetings of stockholders, a stockholder
may vote by proxy executed in writing by the stockholder or as may be permitted
by law, or by such stockholder's duly authorized attorney-in-fact. Such proxy
must be filed with the Secretary of the Corporation or such stockholder's
representative at or before the time of the meeting.
SECTION 2.7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice of meeting delivered
pursuant to Section 2.4 of
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these By-laws, (b) by or at the direction of the Chairman of the Board or the
Board of Directors or (c) by any stockholder of the Corporation who is entitled
to vote at the meeting, who complied with the notice procedures set forth in
clauses (2) and (3) of this paragraph (A) of this By-law and who was a
stockholder of record at the time such notice is delivered to the Secretary of
the Corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this By-law, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal office of the Corporation not
less than seventy days nor more than ninety days prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event
that the date of an annual meeting is advanced by more than thirty days, or
delayed by more than seventy days, from the first anniversary date of the
previous year's annual meeting, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the seventieth day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made by the Corporation. In no
event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of director in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the regulations
promulgated thereunder, including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected; (b)
as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the Corporation which are owned beneficially
and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2)
of this Bylaw to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least eighty days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this By-law shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal office of the Corporation not later than the close of business on the
tenth day following the day on which such public announcement is first made by
the Corporation.
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(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting pursuant to Section
2.4 of these By-laws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this By-law and who is a stockholder of record at the
time such notice is delivered to the Secretary of the Corporation. Nominations
by stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice as required
by paragraph (A)(2) of this By-law shall be delivered to the Secretary at the
principal office of the Corporation not earlier than the ninetieth day prior to
such special meeting and not later than the close of business on the later of
the seventieth day prior to such special meeting or the tenth day following the
day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(C) General. (1) Only persons who are nominated in accordance with the
procedures set forth in this By-law shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-law. Except as otherwise provided by law, the Certificate of
Incorporation or these By-laws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed in accordance with the
procedures set forth in this By-law and, if any proposed nomination or business
is not in compliance with this By-law, to declare that such defective proposal
or nomination shall be disregarded.
(2) For purposes of this By-law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-law. Nothing in this By-law shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 2.8. PROCEDURE FOR ELECTION OF DIRECTORS. Election of directors
at all meetings of the stockholders at which directors are to be elected shall
be by written ballot, and, except as otherwise set forth in the Certificate of
Incorporation with respect to the rights of the holders of any series of
Preferred Stock to elect additional directors under specific circumstances, a
plurality of the votes cast thereat shall elect. Except as otherwise provided by
law, the Certificate of Incorporation or these By-laws, all matters
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other than the election of directors submitted to the stockholders at any
meeting shall be decided by the affirmative vote of a majority of the shares
present in person or represented by proxy at the meeting and entitled to vote
thereon.
SECTION 2.9. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS.
(A) The Board of Directors by resolution shall appoint one or more inspectors,
which inspector or inspectors may include individuals who serve the Corporation
in other capacities, including, without limitation, as officers, employees,
agents or representatives of the Corporation, to act at a meeting of
stockholders and make a written report thereof. One or more persons may be
designated as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate has been appointed to act, or if all inspectors or
alternates who have been appointed are unable to act at a meeting of
stockholders, the chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors shall have the duties prescribed by the General Corporation Law of
the State of Delaware.
(B) The secretary of the meeting shall fix and announce at the meeting
the date and time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at a meeting.
SECTION 2.10. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Subject to the
rights of the holders of any series of Preferred Stock to elect additional
directors under specific circumstances, any action required or permitted to be
taken by the stockholders of the Corporation must be effected at an annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders, provided, however, that actions
with respect to the approval of the Sassco Fashions, Ltd. 1997 Management Stock
Option Plan, and stock options granted with respect to such plan, may be
effected by consent in writing in lieu of a meeting of stockholders of the
Corporation.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these By-laws expressly
conferred upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
Certificate of Incorporation or by these By-laws required to be exercised or
done by the stockholders.
SECTION 3.2. NUMBER, TENURE AND QUALIFICATIONS. Subject to the rights
of the holders of any series of Preferred Stock to elect directors under
specific circumstances, the number of directors shall be fixed from time to time
exclusively pursuant to a resolution adopted by a majority of the Whole Board
but shall consist of not less than seven directors. Each director shall hold
office until the next annual meeting of stockholders and until his or her
successor shall have been duly elected and qualified. At
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each annual meeting of stockholders, if authorized by a resolution of the Board
of Directors, directors may be elected to fill any vacancy on the Board of
Directors, regardless of how such vacancy shall have been created.
SECTION 3.3. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this By-law immediately after,
and at the same place as, each annual meeting of stockholders. The Board of
Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without other notice than such resolution.
SECTION 3.4. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the Chief
Executive Officer or a majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
SECTION 3.5. NOTICE. Notice of any special meeting shall be given to
each director at such director's business or residence in writing or by telegram
or by telephone communication. If mailed, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least five days before such meeting. If by telegram, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph company at least twenty-four hours before such meeting. If by
facsimile transmission, such notice shall be transmitted at least twenty-four
hours before such meeting. If by telephone, the notice shall be given at least
twelve hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting, except for
amendments to these By-laws as provided under Section 8.1 of Article VIII
hereof. A meeting may be held at any time without notice if all the directors
are present or if those not present waive notice of the meeting in accordance
with Section 6.4 hereof, either before or after such meeting.
SECTION 3.6. CONFERENCE TELEPHONE MEETINGS. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.7. QUORUM. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. The directors present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough directors to leave less than a quorum.
SECTION 3.8. VACANCIES. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specific
circumstances, and unless the Board of Directors otherwise determines, vacancies
resulting from death, resignation,
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retirement, disqualification, removal from office or other cause, and newly
created directorships resulting from any increase in the authorized number of
directors, may be filled only by the affirmative vote of a majority of the
remaining directors, though less than a quorum of the Board of Directors, and
directors so chosen shall hold office until the next annual meeting of
stockholders and until such director's successor shall have been duly elected
and qualified. No decrease in the number of authorized directors constituting
the Whole Board shall shorten the term of any incumbent director.
SECTION 3.9. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors
may, by resolution adopted by a majority of the Whole Board, designate an
Executive Committee to exercise, subject to applicable provisions of law, all
the powers of the Board in the management of the business and affairs of the
Corporation when the Board of Directors is not in session, including without
limitation the power to declare dividends, to authorize the issuance of the
Corporation's capital stock and to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of the State of Delaware,
and may, by resolution similarly adopted, designate one or more other
committees. The Executive Committee and each such other committee shall consist
of two or more directors of the Corporation. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee may to the extent permitted by law exercise such powers and shall
have such responsibilities as shall be specified in the designating resolution.
In the absence or disqualification of any member of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Each committee shall keep
written minutes of its proceedings and shall report such proceedings to the
Board of Directors when required.
A majority of any committee may determine its action and fix the time
and place of its meetings, unless the Board of Directors shall otherwise
provide. Notice of such meetings shall be given to each member of the committee
in the manner provided for in Section 3.5 of these By-laws. The Board of
Directors shall have power at any time to fill vacancies in, to change the
membership of, or to dissolve any such committee. Nothing herein shall be deemed
to prevent the Board of Directors from appointing one or more committees
consisting in whole or in part of persons who are not directors of the
Corporation; provided, however, that no such committee shall have or may
exercise any authority of the Board of Directors.
SECTION 3.10. REMOVAL. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specific
circumstances, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 66-2/3 percent of the voting power of the then
outstanding Voting Stock, voting together as a single class.
SECTION 3.11. OBSERVER. During the term of employment (the "Employment
Term") of Arthur S. Levine ("Levine") as Chairman and Chief Executive Officer of
the Corporation, Levine shall have the right to designate one observer to the
Board of Directors. Any such observer so designated by Levine shall be entitled
to receive notice
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of, and to attend meetings of, the Board of Directors, but shall not have the
right to vote at such meetings.
ARTICLE IV
OFFICERS
SECTION 4.1. ELECTED OFFICERS. The elected officers of the Corporation
shall be a Chairman of the Board, a Chief Executive Officer, a President, one or
more Vice Presidents, a Secretary, a Treasurer and such other officers
(including, without limitation, a Chief Operating Officer and a Chief Financial
Officer) as the Board of Directors from time to time may deem proper. The
Chairman of the Board shall be chosen from the directors. All officers chosen by
the Board of Directors shall each have such powers and duties as generally
pertain to their respective offices, subject to the specific provisions of this
Article IV. Such officers shall also have powers and duties as from time to time
may be conferred by the Board of Directors or by any committee thereof.
SECTION 4.2. ELECTION AND TERM OF OFFICE. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to Section
4.9 of these By-laws, each officer shall hold office until such officer's
successor shall have been duly elected and shall have qualified or until such
officer's death or until such officer shall resign.
SECTION 4.3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors. The
Chairman of the Board shall make reports to the Board of Directors and the
stockholders, and shall perform all such other duties as are properly required
of him by the Board of Directors.
SECTION 4.4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
be responsible for the general management of the affairs of the Corporation and
shall perform all duties incidental to the Chief Executive Officer's office
which may be required by law and all such other duties as are properly required
of him by the Board of Directors. The Chief Executive Officer shall see that all
orders and resolutions of the Board of Directors and of any committee thereof
are carried into effect.
SECTION 4.5. PRESIDENT. The President shall act in a general executive
capacity and shall assist the Chairman of the Board in the administration and
operation of the Corporation's business and general supervision of its policies
and affairs. The President shall, in the absence of or because of the inability
to act of the Chairman of the Board, perform all duties of the Chairman of the
Board and preside at all meetings of stockholders and of the Board of Directors.
The President may sign, alone or with the Secretary, or an Assistant Secretary,
or any other proper officer of the Corporation authorized by the Board of
Directors, certificates, contracts, and other instruments of the Corporation as
authorized by the Board of Directors.
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SECTION 4.6. VICE PRESIDENTS. Each Vice President shall have such
powers and perform such duties as from time to time may be assigned to him or
her by the Board of Directors or be delegated to him or her by the President.
The Board of Directors may assign to any Vice President general supervision and
charge over any territorial or functional division of the business and affairs
of the Corporation.
SECTION 4.7. SECRETARY. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors and all other notices
required by law or by these By-laws, and in case of the Secretary's absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the Chairman of the Board, the Chief Executive Officer, or
by the Board of Directors, upon whose request the meeting is called as provided
in these By-laws. The Secretary shall record all the proceedings of the meetings
of the Board of Directors, any committees thereof and the stockholders of the
Corporation in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the Board of Directors, the Chairman of the
Board or the Chief Executive Officer. The Secretary shall have the custody of
the seal of the Corporation and shall affix the same to all instruments
requiring it, when authorized by the Board of Directors, the Chairman of the
Board or the Chief Executive Officer, and attest to the same.
SECTION 4.8. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. The Treasurer
shall deposit all moneys and other valuables in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, the Chairman of the Board, or the Chief
Executive Officer, taking proper vouchers for such disbursements. The Treasurer
shall render to the Chairman of the Board, the Chief Executive Officer and the
Board of Directors, whenever requested, an account of all his transactions as
Treasurer and of the financial condition of the Corporation. If required by the
Board of Directors, the Treasurer shall give the Corporation a bond for the
faithful discharge of his duties in such amount and with such surety as the
Board of Directors shall prescribe.
SECTION 4.9. REMOVAL. Any officer elected by the Board of Directors may
be removed by a majority of the members of the Whole Board whenever, in their
judgment, the best interests of the Corporation would be served thereby. No
elected officer shall have any contractual rights against the Corporation for
compensation by virtue of such election beyond the date of the election of such
officer's successor or such officer's death, resignation or removal, whichever
event shall first occur, except as otherwise provided in an employment contract
or an employee plan.
SECTION 4.10. VACANCIES. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
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<PAGE>
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
SECTION 5.1. STOCK CERTIFICATES AND TRANSFERS. (A) The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares of
stock in such form as the appropriate officers of the Corporation may from time
to time prescribe, provided that the Board of Directors may provide by
resolution or resolutions that some or all of any or all classes or series of
the stock of the Corporation shall be uncertificated shares. Notwithstanding the
adoption of such a resolution by the Board of Directors, every holder of stock
represented by certificates and upon request every holder of uncertificated
shares shall be entitled to have a certificate signed by, or in the name of the
Corporation by the Chairman of the Board of Directors, the Chief Executive
Officer or the President or Vice-President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation,
representing the number of shares registered in certificate form. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of uncertificated stock and the rights and obligations of the holders of
certificates representing stock of the same class and series shall be identical.
(B) The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
(C) The shares of the stock of the Corporation represented by
certificates shall be transferred on the books of the Corporation by the holder
thereof in person or by his attorney, upon surrender for cancellation of
certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such proof of
the authenticity of the signature as the Corporation or its agents may
reasonably require. Upon receipt of proper transfer instructions from the
registered owner of uncertificated shares such uncertificated shares shall be
cancelled and issuance of new equivalent uncertificated shares or certificated
shares shall be made to the person entitled thereto and the transaction shall be
recorded upon the books of the Corporation. Within a reasonable time after the
issuance or transfer of uncertificated stock, the Corporation shall send to the
registered owner thereof a written notice containing the information required to
be set forth or stated on certificates pursuant to the Delaware General
Corporation Law or, unless otherwise provided by the Delaware General
Corporation Law, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
SECTION 5.2. LOST, STOLEN OR DESTROYED CERTIFICATES. No certificate for
shares or uncertificated shares of stock in the Corporation shall be issued in
place of any certificate alleged to have been lost, destroyed or stolen, except
on production of such evidence of such loss, destruction or theft and on
delivery to the Corporation of a bond
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of indemnity in such amount, upon such terms and secured by such surety, as the
Board of Directors or any financial officer of the Corporation may in its or his
discretion require.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first day of January and end on the thirty-first day of December of
each year.
SECTION 6.2. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Certificate of
Incorporation.
SECTION 6.3. SEAL. The corporate seal shall have inscribed thereon the
words "Corporate Seal", the year of incorporation of the Corporation and around
the margin thereof the words "Sassco Fashions, Ltd. -- Delaware."
SECTION 6.4. WAIVER OF NOTICE. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the General Corporation Law of the State of Delaware, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at, nor the purpose of, any
annual or special meeting of the stockholders or of the Board of Directors or
committee thereof need be specified in any waiver of notice of such meeting.
SECTION 6.5. AUDITS. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be made annually.
SECTION 6.6. RESIGNATIONS. Any director or any officer, whether elected
or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the Chief Executive Officer, the
President, or the Secretary, and such resignation shall be deemed to be
effective as of the close of business on the date said notice is received by the
Chairman of the Board, the Chief Executive Officer, the President, or the
Secretary or at such later date as is stated therein. No formal action shall be
required of the Board of Directors or the stockholders to make any such
resignation effective.
SECTION 6.7. INDEMNIFICATION AND INSURANCE. (A) Each person who was or
is made a party or is threatened to be made a party to or is involved in any
action, suit, or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
or a person of whom he or she is the legal representative is or was a director
or officer of the Corporation or is or was serving at the request of the
Corporation as a director or officer of another corporation or of a
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partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans maintained or sponsored by the Corporation,
whether the basis of such proceeding is alleged action in an official capacity
as a director or officer or in any other capacity while serving as a director or
officer, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended (but, if permitted by
applicable law, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that except as provided in paragraph (C) of
this By-law, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) initiated by such person
was authorized by the Board of Directors. The right to indemnification conferred
in this By-law shall be a contract right and shall include the right to be paid
by the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition, such advances to be paid by the Corporation
within 20 days after the receipt by the Corporation of a statement or statements
from the claimant requesting such advance or advances from time to time;
provided, however, that if the General Corporation Law of the State of Delaware
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this By-law or
otherwise.
(B) To obtain indemnification under this By-law, a claimant shall
submit to the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to the claimant and is
reasonably necessary to determine whether and to what extent the claimant is
entitled to indemnification. Upon written request by a claimant for
indemnification pursuant to the first sentence of this paragraph (B), a
determination, if required by applicable law, with respect to the claimant's
entitlement thereto shall be made as follows: (1) if requested by the claimant,
by Independent Counsel (as hereinafter defined), or (2) if no request is made by
the claimant for a determination by Independent Counsel, (i) by a majority vote
of the Disinterested Directors (as hereinafter defined), even though less than a
quorum, or (ii) if there are no Disinterested Directors or, if the Disinterested
Directors so direct, by Independent Counsel in a written opinion to the Board of
Directors, a copy of which shall be delivered to the claimant, or (iii) if the
Disinterested Directors so direct, by the stockholders of the Corporation. In
the event the determination of entitlement to indemnification is to be made by
Independent Counsel at the request of the claimant, the Independent Counsel
shall be selected by the Board of Directors unless there shall have occurred
within two years prior to the date of the commencement of the action, suit or
proceeding for which indemnification is claimed a "Change of Control" as defined
in the
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Sassco Fashions, Ltd. 1997 Management Stock Option Plan, in which case the
Independent Counsel shall be selected by the claimant unless the claimant shall
request that such selection be made by the Board of Directors. If it is so
determined that the claimant is entitled to indemnification, payment to the
claimant shall be made within 10 days after such determination.
(C) If a claim under paragraph (A) of this By-law is not paid in full
by the Corporation within 30 days after a written claim pursuant to paragraph
(B) of this By-law has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standard of
conduct which makes it permissible under the General Corporation Law of the
State of Delaware for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including without limitation, the
Disinterested Directors, Independent Counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the General Corporation Law of the
State of Delaware, nor an actual determination by the Corporation (including,
without limitation, the Disinterested Directors, Independent Counsel or
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(D) If a determination shall have been made pursuant to paragraph (B)
of this By-law that the claimant is entitled to indemnification, the Corporation
shall be bound by such determination in any judicial proceeding commenced
pursuant to paragraph (C) of this Bylaw.
(E) The Corporation shall be precluded from asserting in any judicial
proceeding commenced pursuant to paragraph (C) of this By-law that the
procedures and presumptions of this By-law are not valid, binding and
enforceable and shall stipulate in such proceeding that the Corporation is bound
by all the provisions of this By-law.
(F) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
By-law shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-laws, agreement, vote of stockholders or Disinterested
Directors or otherwise. No repeal or modification of this By-law shall in any
way diminish or adversely affect the rights of any director, officer, employee
or agent of the Corporation hereunder in respect of any occurrence or matter
arising prior to any such repeal or modification.
(G) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such
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<PAGE>
person against such expense, liability or loss under the General Corporation Law
of the State of Delaware. To the extent that the Corporation maintains any
policy or policies providing such insurance, each such director or officer, and
each such agent or employee to which rights to indemnification have been granted
as provided in paragraph (H) of this By-law, shall be covered by such policy or
policies in accordance with its or their terms to the maximum extent of the
coverage thereunder for any such director, officer, employee or agent.
(H) The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and rights to be paid
by the Corporation the expenses incurred in defending any proceeding in advance
of its final disposition, to any employee or agent of the Corporation, and to
persons serving as employees or agents of another corporation, partnership,
joint venture, trust or other enterprise, at the request of the Corporation, to
the fullest extent of the provisions of this By-law with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation.
(I) If any provision or provisions of this By-law shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (1) the validity,
legality and enforceability of the remaining provisions of this By-law
(including, without limitation, each portion of any paragraph of this By-law
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself held to be invalid, illegal or unenforceable) shall not in any way
be affected or impaired thereby; and (2) to the fullest extent possible, the
provisions of this Bylaw (including, without limitation, each such portion of
any paragraph of this By-law containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
(J) For purposes of this By-law:
(1) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the proceeding or matter
in respect of which indemnification is sought by the claimant.
(2) "Independent Counsel" means a law firm, a member of a law
firm, or an independent practitioner, that is experienced in matters of
corporation law and shall include any person who, under the applicable
standards of professional conduct then prevailing, would not have a
conflict of interest in representing either the Corporation or the
claimant in an action to determine the claimant's rights under this
By-law.
(K) Any notice, request or other communication required or permitted to
be given to the Corporation under this By-law shall be in writing and either
delivered in person or sent by telecopy, telex, telegram, overnight mail or
courier service, or certified or registered mail, postage prepaid, return
receipt requested, to the Secretary of the Corporation and shall be effective
only upon receipt by the Secretary.
SECTION 6.8. EXTRAORDINARY TRANSACTIONS. Notwithstanding any other
provision of these By-laws, and in addition to any affirmative vote required by
law, these Bylaws or the Certificate of Incorporation of the Corporation, during
the
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Employment Term, unless otherwise agreed by the Corporation and Levine, the
following extraordinary transactions shall require the approval of Levine:
(i) any merger or consolidation of the Corporation with any
person; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any person of all or substantially all of the assets of the
Corporation.
ARTICLE VII
CONTRACTS, PROXIES, ETC.
SECTION 7.1. CONTRACTS. Except as otherwise required by law, the
Certificate of Incorporation or these By-laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
Corporation by such officer or officers of the Corporation as the Board of
Directors may from time to time direct. Such authority may be general or
confined to specific instances as the Board of Directors may determine. The
Chairman of the Board, the Chief Executive Officer, the President or any Vice
President may execute bonds, contracts, deeds, leases and other instruments to
be made or executed for or on behalf of the Corporation. Subject to any
restrictions imposed by the Board of Directors or the Chairman of the Board, the
Chief Executive Officer, the President or any Vice President of the Corporation
may delegate contractual powers to others under such officer's jurisdiction, it
being understood, however, that any such delegation of power shall not relieve
such officer of responsibility with respect to the exercise of such delegated
power.
SECTION 7.2. PROXIES. Unless otherwise provided by resolution adopted
by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer, the President or any Vice President may from time to time appoint an
attorney or attorneys or agent or agents of the Corporation, in the name and on
behalf of the Corporation, to cast the votes which the Corporation may be
entitled to cast as the holder of stock or other securities in any other
corporation or entity, any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporation, or to consent in writing, in the name of the Corporation as
such holder, to any action by such other corporation or entity, and may instruct
the person or persons so appointed as to the manner of casting such votes or
giving such consent, and may execute or cause to be executed in the name and on
behalf of the Corporation and under its corporate seal or otherwise, all such
written proxies or other instruments as such officer may deem necessary or
proper.
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ARTICLE VIII
AMENDMENTS
SECTION 8.1. AMENDMENTS. These By-laws may be altered, amended or
repealed at any meeting of the Board of Directors or of the stockholders,
provided notice of the proposed change was given in the notice of the meeting
and, in the case of a meeting of the Board of Directors, in a notice given no
less than twenty-four hours prior to the meeting; provided, however, that, in
the case of amendments by stockholders, notwithstanding any other provisions of
these By-laws or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the stock required by law, the Certificate of
Incorporation or these By-laws, the affirmative vote of the holders of at least
66-2/3 percent of the voting power of the then outstanding Voting Stock, voting
together as a single class, shall be required to alter, amend or repeal any
provision of these By-laws.
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SASSCO FASHIONS, LTD.
$110,000,000
12.75% SENIOR NOTES, DUE 2004
INDENTURE
DATED AS OF MAY __, 1997
[-------------------------------]
as Trustee
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture Indenture
Act Section Section
- ----------- ---------
310(a)(1) ................................................ 6.10
(a)(2) ................................................ 6.10
(a)(3) ................................................ 6.11
(a)(4) ................................................ N.A.**
(a)(5) ................................................ 6.10
(b) ................................................... 6.8
(c) ................................................... N.A.
311(a) ................................................... 6.13
(b) ................................................... 6.13
(c) ................................................... N.A.
312(a) ................................................... 2.6
(b) ................................................... 6.14
(c) ................................................... 6.14
313(a) ................................................... 6.12
(b)(1) ................................................ 6.12
(b)(2) ................................................ 6.12
(c) ................................................... 6.12, 9.3
(d) ................................................... 6.12
314(a) ................................................... 4.7; 9.3
(b) ................................................... N.A.
(c)(1) ................................................ 9.5
(c)(2) ................................................ 9.5
(c)(3) ................................................ N.A.
(d) ................................................... N.A.
(e) ................................................... 9.6
(f) ................................................... N.A.
315(a) ................................................... 6.1(2)
(b) ................................................... 6.4; 9.3
(c) ................................................... 6.1(1)
(d) ................................................... 6.1(3)
(e) ................................................... 5.11
316(a)(last sentence) .................................... 2.10
(a)(1)(A) ............................................. 5.5
(a)(1)(B) ............................................. 5.4
(a)(2) ................................................ N.A.
(b .................................................... 5.7
(c) ................................................... N.A.
317(a)(1) ................................................ 5.8
(a)(2) ................................................ 5.9
(b) ................................................... 2.5
318(a .................................................... 9.2
(c) ................................................... 9.2
- ----------
* This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
** N.A. means not applicable.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
<S> <C> <C>
Section 1.1. Definitions........................................................... 1
Section 1.2. Terms Defined in TIA.................................................. 16
Section 1.3. Rules of Construction................................................. 16
ARTICLE 2
THE SECURITIES
Section 2.1. Form and Dating....................................................... 16
Section 2.2. Execution and Authentication.......................................... 16
Section 2.3. Terms................................................................. 17
Section 2.4. Registrar and Paying Agent............................................ 18
Section 2.5. Paying Agent to Hold Money in Trust................................... 18
Section 2.6. Securityholder Lists.................................................. 19
Section 2.7. Transfer and Exchange................................................. 19
Section 2.8. Replacement Securities................................................ 20
Section 2.9. Outstanding Securities................................................ 20
Section 2.10. Treasury Securities................................................... 20
Section 2.11. Temporary Securities.................................................. 21
Section 2.12. Cancellation.......................................................... 21
Section 2.13. Defaulted Interest.................................................... 21
Section 2.14. Home Office Payment Agreements........................................ 22
Section 2.15. Deposit of Moneys..................................................... 22
Section 2.16. CUSIP Number and Private
Placement Number...................................................... 22
</TABLE>
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ARTICLE 3
REDEMPTION
<TABLE>
<CAPTION>
<S> <C> <C>
Section 3.1. Certain Notices to Trustee............................................ 23
Section 3.2. Selection of Securities to Be Redeemed................................ 23
Section 3.3. Notice of Redemption.................................................. 23
Section 3.4. Effect of Notice of Redemption........................................ 25
Section 3.5. Deposit of Redemption Price........................................... 25
Section 3.6. Securities Redeemed in Part........................................... 25
Section 3.7. Optional Redemption................................................... 25
ARTICLE 4
COVENANTS
Section 4.1. Payment of Securities................................................. 26
Section 4.2. Maintenance of Office or Agency....................................... 27
Section 4.3. Corporate Existence................................................... 27
Section 4.4. Payment of Taxes and Other Claims..................................... 28
Section 4.5. Maintenance of Properties; Insurance;
Books and Records; Compliance with Law................................ 28
Section 4.6. Compliance Certificates............................................... 29
Section 4.7. Reports............................................................... 30
Section 4.8. Limitation on Additional Indebtedness................................. 32
Section 4.9. Limitation on Investments............................................. 33
Section 4.10. Limitation on Liens................................................... 33
Section 4.11. Limitation on Restricted Payments..................................... 35
Section 4.12. Change of Control..................................................... 36
Section 4.13. Limitations on Transactions with
Affiliates............................................................ 38
Section 4.14. Compliance with ERISA................................................. 39
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Section 4.15. Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries................................... 39
Section 4.16. Conflicting Agreements................................................ 40
Section 4.17. Liquidation........................................................... 40
Section 4.18. Stay, Extension and Usury Laws........................................ 41
Section 4.19. Fiscal Year........................................................... 41
Section 4.20. Limitations on Consolidations
and Mergers........................................................... 41
Section 4.21. Limitations on Sale of Assets......................................... 42
Section 4.22. Change in Business.................................................... 42
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.1. Events of Default..................................................... 43
Section 5.2. Acceleration.......................................................... 45
Section 5.3. Other Remedies........................................................ 46
Section 5.4. Waiver of Past Defaults............................................... 46
Section 5.5. Control by Majority................................................... 46
Section 5.6. Limitation on Suits................................................... 47
Section 5.7. Rights of Holders to Receive Payment.................................. 47
Section 5.8. Collection Suit by Trustee............................................ 47
Section 5.9. Trustee May File Proofs of Claim...................................... 48
Section 5.10. Priorities............................................................ 48
Section 5.11. Undertaking for Costs................................................. 49
ARTICLE 6
TRUSTEE
Section 6.1. Duties of Trustee..................................................... 49
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Section 6.2. Rights of Trustee..................................................... 51
Section 6.3. Trustee's Disclaimer.................................................. 51
Section 6.4. Notice of Defaults.................................................... 52
Section 6.5. Compensation and Indemnity............................................ 52
Section 6.6. Trustee Not Responsible for Recitals,
Disposition of Securities or Applica-
tion of Proceeds Thereof.............................................. 53
Section 6.7. Trustee and Agents May Hold Securities;
Collections, etc...................................................... 53
Section 6.8. Replacement of Trustee................................................ 53
Section 6.9. Successor Trustee by Merger, etc...................................... 54
Section 6.10. Eligibility........................................................... 55
Section 6.11. Appointment of Co-Trustee............................................. 55
Section 6.12. Reports by Trustee to Holders......................................... 55
Section 6.13. Preferential Collection of Claims
Against Company....................................................... 55
Section 6.14. Communication by Holders with Other
Holders............................................................... 56
ARTICLE 7
AMENDMENTS
Section 7.1. Without Consent of Holders............................................ 56
Section 7.2. With Consent of Holders............................................... 57
Section 7.3. Revocation and Effect of Consents..................................... 58
Section 7.4. Notation on or Exchange of Securities................................. 59
Section 7.5. Trustee to Sign Amendments, etc....................................... 59
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.1. Termination of Company's Obligations.................................. 59
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Section 8.2. Application of Trust Money............................................ 61
Section 8.3. Repayment to the Company.............................................. 62
Section 8.4. Reinstatement......................................................... 62
ARTICLE 9
MISCELLANEOUS
Section 9.1. Conflict with Trust Indenture Act..................................... 63
Section 9.2. Notices............................................................... 63
Section 9.3. Table of Contents, Headings, etc...................................... 64
Section 9.4. Certificate and Opinion as to Conditions
Precedent............................................................. 64
Section 9.5. Statements Required in Certificate.................................... 64
Section 9.6. Rules by Trustee and Agents........................................... 65
Section 9.7. Legal Holidays........................................................ 65
Section 9.8. No Recourse Against Others............................................ 65
Section 9.9. Governing Law; Submission
to Jurisdiction....................................................... 65
Section 9.10. No Adverse Integration of Other
Agreements............................................................ 66
Section 9.11. Successors............................................................ 66
Section 9.12. Severability.......................................................... 66
Section 9.13. Counterpart Originals................................................. 66
Section 9.14. Accounting Terms...................................................... 67
Section 9.15. Transfers of Securities............................................... 68
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</TABLE>
<PAGE>
Exhibits:
Exhibit A Form of Securities
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INDENTURE dated as of May __, 1997 between Sassco Fashions, Ltd., a
Delaware corporation ("Company"), and [______________________], as trustee
("Trustee").
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of 12.75% Senior Notes, Due 2004.
All things necessary have been done to make the Securities, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company.
Each party hereto agrees as follows for the benefit of the other party
and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1. Definitions.
"Accounts" shall mean, with respect to any Person, any "account" (as
such term is defined in Section 9-106 of the UCC) now owned or hereafter
acquired by such Person and, in any event, includes, without limitation, (i) all
accounts receivable, book debts and other forms of obligations now owned or
hereafter received or acquired by or belonging or owing to such Person
(including, without limitation, under any trade name, style or division thereof)
arising out of goods leased or sold or services rendered by such Person
(including, without limitation, any such obligation which might be characterized
as an account or contract right under the UCC), (ii) all of such Person's rights
in, to and under all purchase orders or receipts now owned or hereafter acquired
by it for goods or services and all of such Person's rights to any goods
represented by any of the foregoing (including, without limitation, unpaid
seller's rights of rescission, replevin, reclamation and stoppage in transit and
rights to returned, reclaimed or repossessed goods), (iii) all moneys due or to
become due to such Person under all contracts for the sale or lease of goods or
the performance of services or any such activities by such Person (whether or
not yet earned by performance on the part of such Person or in connection with
any other transaction), now in existence or hereafter occurring, including,
without limitation, the right to receive the proceeds of said purchase orders
and contracts, and (iv) all
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collateral security and guarantees of any kind given by any Person with respect
to any of the foregoing.
"Accumulated Funding Deficiency" has the meaning set forth in Section
302 of ERISA.
"Affiliate" means (i) any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
other obligor upon the Securities, (ii) any spouse, immediate family member or
other relative who has the same principal residence of any Person described in
(i) above, (iii) any trust in which any such Persons described in clause (i) or
(ii) above has a beneficial interest and (iv) any corporation or other
organization of which any such Persons described in clause (i), (ii) or (iii)
above collectively own more than 50% of the equity of such entity. For purposes
of this definition, "control" when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise. The terms "controlled" and "controlling" have meanings correlative to
the foregoing.
"Affiliate Transaction" has the meaning set forth in Section 4.13.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Appraiser" means a Person who in the course of its business appraises
property and, where Real Property is involved, who is a member in good standing
of the American Institute of Real Estate Appraisers, recognized and licensed to
do business in the jurisdiction where the applicable Real Property is situated,
reasonably acceptable to the Trustee.
"Asset Sale" means any direct or indirect sale, conveyance, exchange,
transfer, lease or other disposition to any Person, in one transaction or a
series of related transactions, of (i) any Capital Stock of any Subsidiary of
the Company or (ii) any other property or asset of the Company or any Subsidiary
of the Company.
"Bankruptcy Law" means Title 11 of the U.S. Code or any similar federal
or state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of such Board of Directors.
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"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Book Value" means, with respect to any property or asset of the
Company, the value ascribed to such property or asset on the Company's books of
record and account in the manner required by GAAP.
"Business Day" means any day other than a Saturday, a Sunday or a Legal
Holiday.
"Capital Lease" means, at the time any determination thereof is to be
made, any lease of any property, real or personal, in respect of which the
present value of the minimum rental commitment must be capitalized on a balance
sheet of the lessee in accordance with GAAP.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a Capital Lease which
would at such time be so required to be capitalized on such balance sheet in
accordance with GAAP.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in or other equivalents (however designated
and whether voting or non-voting) of such Person's capital stock and any and all
rights, warrants or options exchangeable for or convertible into such capital
stock.
"Cash Equivalents" means, at any time (i) any evidence of Indebtedness
with a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided, however, that the full faith and credit of the United States of
America is pledged in support thereof); (ii) certificates of deposits or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500,000,000 and a minimum rating
from Moody's Investors Service, Inc. of at least single A; (iii) commercial
paper with a maturity of 180 days or less issued by a corporation (except an
Affiliate) organized under the laws of any state of the United States of America
or the District of Columbia and rated at least A-1 by Standard & Poor's
Corporation or at
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least P-1 by Moody's Investors Service, Inc.; and (iv) repurchase agreements and
reverse repurchase agreements relating to marketable direct obligations issued
or unconditionally guaranteed by the United States of America or issued by any
agency thereof and backed by the full faith and credit of the United States of
America, in each case maturing within one year from the date of acquisition;
provided, however, that the terms of such agreements comply with the guidelines
set forth in the Federal Financial Agreements of Depositary Institutions with
Securities and Others, as adopted by the Comptroller of the Currency.
"Change of Control" means the occurrence of any Person or "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) acquiring
"beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 50 percent or more of the aggregate voting power of
the Capital Stock of the Company, except for any such Person or group that has
such beneficial ownership on the Effective Date.
"Change of Control Offer" has the meaning set forth in Section 4.12(a).
"Change of Control Payment Date" has the meaning set forth in Section
4.12(a).
"Change of Control Price" has the meaning set forth in Section 4.12(a).
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with the Company within the meaning
of Section 4001 of ERISA.
"Company" means Sassco Fashions, Ltd., a Delaware corporation.
"Competitor" means (i) any Person which is engaged in the business of
manufacturing, distributing or selling women's apparel or (ii) any "Affiliate"
as such term is defined in Rule 405 promulgated pursuant to the Securities Act
of 1933.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any ordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for
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taxes based on income or profits of such Person [and its Restricted
Subsidiaries] for such period, to the extent that such provision for taxes was
deducted in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person [and its Restricted Subsidiaries] for such
period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in computing
such Consolidated Net Income.
"Consolidated EBIT" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period increased (to the
extent deducted in determining Consolidated Net Income) by the sum of: (i) all
income taxes of such Person and its Subsidiaries provided in accordance with
GAAP for such period (other than income taxes attributable to extraordinary,
unusual or nonrecurring gains or losses and other than deferred taxes); (ii) all
interest expense of such Person and its Subsidiaries paid, accrued or
capitalized in accordance with GAAP (net of any interest income of such Person
and its Subsidiaries) for such period and (iii) all foreign currency losses less
foreign currency gains of such Person and its Subsidiaries for such period.
"Consolidated EBITDA" means, with respect to any Person for any period,
the Consolidated EBIT of such Person for such period plus depreciation and
amortization and any other non-cash charges for such period to the extent
deducted in determining the Consolidated EBIT of such Person and its
Subsidiaries for such period.
"Consolidated Interest Coverage Ratio" means, with respect to any
Person, the ratio of (i) Consolidated EBITDA
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of such Person for the four full fiscal quarters that immediately precede the
date of the transaction or other circumstance giving rise to the need to
calculate the Consolidated Interest Coverage Ratio (the "Transaction Date") to
(ii) all cash and non-cash interest expense of such Person and its Subsidiaries
determined in accordance with GAAP (net of any interest income of such Person
and its Subsidiaries and exclusive of amortization of deferred financing fees of
such Person and its Subsidiaries) and the aggregate amount of cash dividends or
other distributions declared or paid on Capital Stock (other than common stock)
of such Person and its Subsidiaries, in each case for such four full fiscal
quarter period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and the items referred to in
the preceding clause (ii) shall be calculated after giving effect on a pro forma
basis for the period of such calculation to the incurrence of any Indebtedness
of such Person or any of its Subsidiaries at any time during the period (the
"Reference Period") (A) commencing on the first day of the four full fiscal
quarter period that precedes the Transaction Date and (B) ending on and
including the Transaction Date, including, without limitation, the incurrence of
the Indebtedness giving rise to the need to make such calculation, as if such
incurrence occurred on the first day of the Reference Period; provided, however,
that if such Person or any of its Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the above clause shall give effect to the
incurrence of such guaranteed Indebtedness as if such Person or Subsidiary had
directly incurred such guaranteed Indebtedness.
"Consolidated Net Income" means, with respect to any Person for any
period, the net income of such Person and its Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP; provided, however, that
(i) the net income of any Person other than a Subsidiary of such Person (the
"Other Person") shall be included to the extent of the amount of cash dividends
or distributions paid by the Other Person to such Person or a Subsidiary of such
Person, (ii) the net income of any Person acquired in a pooling of interests
transaction for any period prior to the date of the acquisition of such Person
shall be excluded, (iii) extraordinary gains and losses shall be excluded, (iv)
any non-cash charges resulting from the application of, and compliance with,
Statement of Financial Accounting Standards No. 106 or any similar accounting
standard adopted by the Company shall be excluded, and (v) gains (net of related
income taxes) realized from Asset Sales shall be excluded.
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"Consolidated Total Assets" means, with respect to any Person, the
total consolidated assets of such Person as shown on the most recent balance
sheet of such Person.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 9.3 or such other address as the Trustee may give
notice of to the Company.
"Co-Trustee" means any Person appointed by the Trustee pursuant to
Section 6.11.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official charged with maintaining possession or control
over property for one or more creditors.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Default Interest" has the meaning set forth in Section 4.1.
"Default Rate" has the meaning set forth in Section 4.1.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part on, or prior to, the Maturity Date of the Securities.
"Effective Date" means the date of this Indenture.
"Equity Offering" means an underwritten public offering of Capital
Stock of the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
the rules and regulations issued thereunder, as amended from time to time.
"ERISA Affiliate" means, in relation to any Person, any trade or
business (whether or not incorporated) which is a member of a group of which
that Person is a member and which is under common control within the meaning of
the regulations promulgated under Section 414 of the Internal Revenue Code.
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"ERISA Termination Event" means (i) a Reportable Event, or (ii) the
withdrawal of the Company or any of its respective ERISA Affiliates from a Plan
during a plan year including Plans in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of
intent to terminate a Plan or the treatment of a Plan amendment as a termination
under Section 4041 of ERISA, or (iv) the institution of proceedings to terminate
a Plan by the PBGC, or (v) any other event or condition which would constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan.
"Event of Default" has the meaning set forth in Section 5.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length free market
transaction, for cash, between an informed and willing seller and an informed
and willing and able buyer, neither of whom is under undue pressure or
compulsion to complete the transaction. Fair Market Value shall be determined by
the Board of Directors acting in good faith and shall be evidenced by a Board
Resolution delivered to the Trustee except (i) any determination of Fair Market
Value made with respect to any Real Property shall be made by an Appraiser and
(ii) as otherwise indicated in this Indenture.
"Fiscal Year" means the fiscal year of the Company and its Subsidiaries
which ends on [December 31].
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are applicable as of the date of
determination.
"Governmental Authority" means any nation or government, any state or
political subdivision thereof and any entity exercising elective, legislative,
judicial, regulatory or administrative functions of or pertaining to any
government.
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"Guaranty" or "guaranty" means, as applied to any obligation, (a) a
guaranty (other than (i) by endorsement of negotiable instruments for collection
in the ordinary course of business, and (ii) a Performance Guaranty), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of any part or all of such
obligation, and (b) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of nonperformance) of any part or all of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit, but excluding any Performance Guaranty.
The amount of a guaranty shall be deemed to be the maximum amount of the
obligation guarantied for which the guarantor could be held liable under such
guaranty.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) currency exchange or interest rate swap
agreements, currency exchange or interest rate cap agreements and currency
exchange or interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in currency
exchange or interest rates.
"Holder" means a Person in whose name a Security is registered.
"Incur" or "incur" has the meaning set forth in Section 4.8.
"Indebtedness" means, with respect to any Person, without duplication,
(i) all obligations for borrowed money, (ii) all obligations evidenced by bonds,
debentures, notes or other similar instruments, (iii) all Capital Lease
Obligations, (iv) all obligations issued or assumed as the deferred purchase
price of property, all conditional sale obligations and all obligations under
any title retention agreement (but excluding trade accounts payable or accrued
expenses arising in the ordinary course of business), (v) all obligations issued
or contracted for as payment in consideration of the purchase by such Person of
the stock or substantially all the assets or a merger or consolidation, (vi) all
obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (but excluding trade letters
of credit issued in support of trade account payables arising in the ordinary
course of business and performance letters of credit), (vii) all obligations of
the type referred to in clauses (i) through (vi) of other Persons and all
dividends of other Persons for the payment of
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which, in either case, such Person is directly or indirectly responsible or
liable as obligor, guarantor or otherwise, and (viii) all obligations of the
type referred to in clauses (i) through (vii) of other Persons which are secured
by any Lien on any property or asset of such Person, the amount of such
obligation being deemed to be the lesser of the value of such property or asset
or the amount of the obligation so secured.
"Indenture" means this Indenture as supplemented, amended or otherwise
modified from time to time.
"Independent" when used with respect to any specified Person means such
a Person who (a) is in fact independent, (b) does not have any direct financial
interest or any material indirect financial interest in the Company or in any
Affiliate of the Company and (c) is not an officer, employee, promoter,
underwriter, trustee, partner or director or person performing similar functions
to any of the foregoing for the Company. Whenever it is provided in this
Indenture that any Independent Person's opinion or certificate shall be
furnished to the Trustee, such Person shall be appointed by the Company and
approved by the Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read this definition and that the
signer is Independent within the meaning thereof.
"Institutional Holder" means any bank, trust company, insurance
company, pension fund, investment company or other financial institution,
including, without limitation, any "qualified institutional buyer" within the
meaning of Rule 144A promulgated under the Securities Act, which is or becomes a
Holder.
"interest," when used with respect to any Security, means the amount of
all interest accruing on such Security at the stated interest rate and all
interest accruing on such Security at the Default Rate in accordance with
Section 4.1.
"Interest Payment Date," when used with respect to any Security, means
the stated maturity of an installment of interest specified in such Security.
"Inventory" shall mean, with respect to any Person, any "inventory" (as
such term is defined in Section 9-109(4) of the UCC) now owned or hereafter
acquired by such Person, and wherever located, and, in any event, includes,
without limitation, all inventory, merchandise, goods and other personal
property now owned or hereafter acquired by such Person which are held for sale
or lease or are furnished or are to be furnished under a contract of service or
which constitute
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raw materials, work in process or materials used or consumed or to be used or
consumed in such Person's business, or the processing, packaging, delivery or
shipping of the same, and all finished goods.
"Issue Date" means the date on which the Securities are issued.
"Legal Holiday" means any day on which banking institutions in New
York, New York are required or authorized by law or other governmental action to
be closed.
"Lien" means, with respect to any asset or property, any mortgage,
lien, pledge, charge, security interest or other encumbrance of any kind or
nature whatsoever in respect of such asset or property, whether or not filed,
recorded or otherwise perfected under applicable law (including any conditional
sale or other title retention agreement, any lease in the nature thereof, any
option or other agreement to sell and any filing of or agreement to give any
financing statement under the UCC (or equivalent statutes) of any jurisdiction).
"Maturity Date" means, when used with respect to any Security, the date
specified in such Security as the fixed date on which the principal of such
Security is due and payable (in the absence of any acceleration thereof pursuant
to Section 5.2).
"Multiemployer Plan" means a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" means, with respect to any Asset Sale or Equity
Offering, the aggregate amount of (i) cash received by the Company or such
Subsidiary, as the case may be, from such Asset Sale or Equity Offering, after
(a) provision for all income or other taxes payable as a result of such Asset
Sale or Equity Offering, and (b) payment of all brokerage commissions and other
reasonable fees and expenses related to such Asset Sale or Equity Offering and
(ii) Cash Equivalents, promissory notes or readily marketable debt or equity
securities received by the Company or such Subsidiary, as the case may be, from
such Asset Sale or Equity Offering, but only in amounts equal to cash received
on account of the liquidation or payment of such notes or securities when and as
received.
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"Obligations" means, collectively, all of the Indebtedness, obligations
and liabilities whether direct or indirect, joint or several, actual, absolute
or contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, including any
principal, interest (including post-petition interest), premiums, penalties and
fees, of the Company or any Subsidiary thereof payable under the documentation
governing any such Indebtedness.
"Officers" means the President, the Treasurer, any Assistant Treasurer,
Controller, Secretary or any Vice-President of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or any other obligor upon the Securities or to the Trustee.
"Paying Agent" has the meaning set forth in Section 2.4.
"Payment Default" has the meaning set forth in Section 5.1(7).
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Performance Guaranty" means, in respect of the Company or any of its
Subsidiaries, contingent obligations arising from the issuance of performance
guaranties, assurances, indemnities, bonds, letters of credit or similar
agreements in the ordinary course of business in respect of the contracts (other
than for borrowed money) of the Company or any of the Subsidiaries of the
Company for the benefit of surety companies or for the benefit of others to
induce such others to forgo the issuance of a surety bond in their favor.
"Permitted Investments" means (i) Restricted Investments in existence
as of the date hereof, (ii) certificates of deposit with final maturities of one
year or less issued by commercial banks chartered in the United States of
America (a "Commercial Bank") with capital and surplus in excess of
$100,000,000, (iii) commercial paper rated at least P-1 by Moody's Investors
Service, Inc. or at least A-1 by Standard & Poor's Corporation, (iv) direct
obligations issued by the United States of America or any agency thereof with a
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maturity not more than one year from the date of acquisition, (v) money market
preferred stock rated A or above, (vi) tax-exempt floating rate option tender
bonds, backed by a letter of credit issued by a Commercial Bank rated AA by
Standard & Poor's Corporation or Aa by Moody's Investors Service, Inc. and (vii)
equity or debt investments in wholly-owned Subsidiaries with lines of business
similar to that of the Company or any of its Subsidiaries' existing lines of
business.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Plan" means, at any particular time any employee benefit plan, as
defined in Section 3(3) of ERISA, in respect of which the Company or any of its
ERISA Affiliates or a Commonly Controlled Entity is (or, if such plan were
terminated at which time, would under Section 4069 of ERISA be deemed to be) an
"employer" as defined in Section 3(5) of ERISA.
"principal" of a debt security means the principal of the security.
"Prohibited Transaction" has the meaning set forth in Section 406 of
ERISA.
"Real Property" means any interest in any real property or any portion
thereof whether owned in fee or leased or otherwise owned.
"Redemption Price" means, with respect to any Security to be redeemed,
the principal and premium, if any, plus accrued interest on such Security as of
the date fixed for such redemption by or pursuant to this Indenture.
"Registrar" has the meaning set forth in Section 2.4.
"Reorganization Plan" means the Amended Joint Plan of Reorganization
for Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code Proposed
by Debtors and Creditors' Committee, in the jointly administered chapter 11
reorganization cases commenced by The Leslie Fay Companies, Inc. and its
Subsidiaries, Chapter 11 Case No. 93B 41724 (TLB), confirmed by order of the
United States Bankruptcy Court for the Southern District of New York issued
[______________] either in its form on the Effective Date or as it may
subsequently be supplemented, amended or otherwise modified from time to time
with the consent of the Required Holders and in
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accordance with the Bankruptcy Law, the Federal Rules of Bankruptcy Procedure
and the Reorganization Plan, including all appendices, exhibits and schedules
thereto.
"Reportable Event" means any of the events set forth in Section 4043(b)
of ERISA and the regulations thereunder, other than those events as to which the
thirty (30) day notice period is waived under subsection .13, .14, .16, .18, .19
or .20 of ss. 2615 of the regulations of the PBGC.
"Requesting Holder" means any Holder who delivers a written notice to
the Company requesting that the Company deliver directly to such Holder all
certificates, notices and reports required to be delivered to the Trustee under
the terms of this Indenture.
"Required Holders" means Securityholders holding, collectively, in
excess of 51% of the aggregate principal amount of the Securities.
"Restricted Investment" means any capital contribution to, or other
debt or equity investment in, any Person (other than Permitted Investments).
"Restricted Payment" with respect to any Person means (i) the payment
or declaration of any distribution on account of any class of such Person's
Capital Stock; (ii) redemptions, purchases or other acquisitions (direct or
indirect) of such Person's Capital Stock; (iii) optional prepayment of any
subordinated Indebtedness of such Person; and (iv) any Restricted Investment.
"Restricted Securities" means Securities which were acquired by the
Holder thereof other than pursuant to an effective registration statement under
the Securities Act or Rule 144 (or any successor rule) thereunder.
"SEC" means the Securities and Exchange Commission.
"Securities" means the 12.75% Senior Notes due March 31, 2004 referred
to in the preamble to this Indenture and issued pursuant hereto.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholder" means a Holder of one or more Securities.
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"Significant Subsidiary" means any Subsidiary of the Company which
would be a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X
under the Securities Act and the Exchange Act.
"Single Employer Plan" shall have the meaning set forth in Section
4001(a)(15) of ERISA.
"Subsidiary" means, with respect to any Person, (i) any corporation of
which at least a majority of the outstanding Capital Stock or other equity
interests having ordinary voting power for the election of directors or other
governing body of such corporation is owned directly or indirectly by such
Person or (ii) any other Person of which at least a majority of voting interest
is at the time, directly or indirectly, owned by such Person. Unless otherwise
specified, any reference to a Subsidiary is deemed to be a reference to a
Subsidiary of the Company.
"Supplemental Indenture" means any supplemental indenture to this
Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb), as amended.
"Trust Officer" means any officer in the Corporate Trust Division of
the Trustee, or any other officer or assistant officer of the Trustee assigned
by the Trustee to administer its corporate trust matters.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"UCC" means the Uniform Commercial Code as in effect in the State of
New York.
"U.S. Government Obligations" means direct obligations of the United
States of America for the payment of which the full faith and credit of the
United States of America is pledged.
"Working Capital Facility" means [insert definition of Bank of Boston
facility], as supplemented, amended or otherwise modified from time to time.
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Section 1.2. Terms Defined in TIA.
All terms used in this Indenture and not defined herein that are
defined by the TIA, defined by TIA reference to another statute or defined by
SEC rule under the TIA have the meanings so assigned to them.
Section 1.3. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP in the United States;
(3) "or" is not exclusive;
(4) "including" means including, but not limited to;
(5) words in the singular include the plural, and in the
plural include the singular;
(6) provisions apply to successive events and transactions;
and
(7) all references to sections and subsections are references
to sections and subsections of this Indenture, except as expressly
provided otherwise.
ARTICLE 2
THE SECURITIES
Section 2.1. Form and Dating.
The Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A, which is attached and made part of this
Indenture. The Securities may have notations, legends or endorsements required
by law, stock exchange rule or usage. Each Security shall be dated the date of
its authentication. The Securities shall be in denominations of $1,000 and
integral multiples thereof.
Section 2.2. Execution and Authentication.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal
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shall be impressed, affixed, imprinted or reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of an authorized signatory of the Trustee. Such signature shall be
conclusive evidence that the Security has been authenticated under this
Indenture. The form of Trustee's certificate of authentication to be borne by
the Securities shall be substantially as set forth in the form of Securities
attached hereto.
The Trustee shall authenticate the Securities for original issue in an
aggregate principal amount of $110,000,000. The aggregate principal amount of
Securities outstanding at any time may not exceed the amount set forth herein
except as provided in Section 2.3.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate.
Section 2.3. Terms.
(a) The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $110,000,000,
except for Securities authenticated and delivered upon registration of the
transfer of, in exchange for, or in replacement of, other Securities pursuant to
Sections 2.7 and 2.8 hereof.
(b) The Securities shall have a Maturity Date of January 1, 2004 and
shall bear interest at the rate of 12.75% per annum. Interest shall be (i)
computed on the basis of a 360-day year of twelve 30-day months and (ii) payable
in arrears on September 30, 1997 and semiannually on each March 31 and September
30 thereafter.
(c) The Securities shall be redeemable as provided in Article 3.
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Section 2.4. Registrar and Paying Agent.
The Company shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange ("Registrar"), an office
or agency where Securities may be presented for payment ("Paying Agent") and an
office or agency where notices and demands to or upon the Company in respect of
the Securities and this Indenture may be served. The Registrar shall keep a
register of the Securities and of their transfer and exchange. The Company may
appoint one or more co-registrars and one or more additional paying agents. The
term "Paying Agent" includes any additional paying agent. The Company shall
notify the Trustee of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee
shall act as such and shall be entitled to appropriate compensation in
accordance with Section 6.5. The Company or any of its Subsidiaries may act as
Registrar or co-registrar. Neither the Company nor any of its Affiliates may act
as Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which shall incorporate the provisions of
the TIA. The agreement shall implement the provisions of this Indenture that
relate to such Agent.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands in connection with the Securities.
Section 2.5. Paying Agent to Hold Money in Trust.
The Company (or any other obligor upon the Securities) shall require
each Paying Agent other than the Trustee to agree in writing that the Paying
Agent will hold in trust for the benefit of the Securityholders or the Trustee
all money held by the Paying Agent for the payment of principal of, interest on
or other amounts including premiums, if any, in respect of the Securities, and
will notify the Trustee of any default by the Company (or any other obligor upon
the Securities) in making any such payment. While any such default continues,
the Trustee may require a Paying Agent to pay all money held by it to the
Trustee and to account for any funds disbursed. The Company (or any other
obligor upon the Securities) at any time may require a Paying Agent to pay all
money held by it to the Trustee. Upon payment over to the Trustee, the Paying
Agent shall have no further liability for the money delivered to the Trustee.
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Section 2.6. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company (and/or any
other obligor upon the Securities) shall furnish to the Trustee at least seven
Business Days before each Interest Payment Date (and in all events at intervals
of not more than six months) and at such other times as the Trustee may request
in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Securityholders.
Section 2.7. Transfer and Exchange.
When Securities are presented to the Registrar or a co-registrar with a
request from the Holder of such Securities to register the transfer of or to
exchange them for an equal principal amount of Securities of other authorized
denominations, the Registrar shall register the transfer or make the exchange as
requested if its requirements for such transactions are met; provided, however,
that (a) any Security presented or surrendered for registration of transfer or
exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar and the Trustee duly executed by
the Holder thereof or his attorney duly authorized in writing and (b) Section
9.16, if applicable, has been complied with. To permit registrations of
transfers and exchanges, the Company shall issue and execute and the Trustee
shall authenticate new Securities evidencing such transfer or exchange at the
Registrar's request. Neither the Registrar nor any co-registrar shall be
required to exchange or register the transfer of any Security selected for
redemption, except the unredeemed portion of any Security being redeemed in
part. Neither the Company nor the Registrar or any co-registrar shall be
required to issue, exchange, or register the transfer of any Security during the
period commencing 15 days before the day of selection of Securities for
redemption and ending at the close of business on the day of selection.
No service charge shall be made to the Securityholder for any
registration of transfer or exchange (except as otherwise expressly permitted
herein), but the Company may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge that may be imposed in relation to a
transfer or exchange (other than such transfer tax or similar governmental
charge payable upon exchanges pursuant to Sections 2.11 or 7.4 hereof).
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Section 2.8. Replacement Securities.
If any mutilated Security is surrendered to the Registrar or the
Trustee, or the Company and the Trustee receive evidence to their satisfaction
of the destruction, loss or theft of any Security, the Company shall issue and
execute and the Trustee shall authenticate a replacement Security if the
Trustee's requirements are met. If the Trustee or the Company so requires, the
Holder must supply an indemnity bond that is sufficient in the reasonable
judgment of the Trustee and the Company to protect the Company, the Trustee, any
Agent or any authenticating agent from any loss which any of them may suffer if
a Security is replaced. Every replacement Security shall constitute an
additional Obligation of the Company. The Company and the Trustee may charge the
Holder for their actual out of pocket expenses in replacing a Security.
Section 2.9. Outstanding Securities.
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.8, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser in whose hands such security
is a legal, valid and binding Obligation of the Company.
If the principal amount of any Security is considered paid under
Section 4.1, it ceases to be outstanding and interest on it ceases to accrue.
A Security does not cease to be outstanding because the Company or an
Affiliate holds the Security.
Section 2.10. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any declaration of acceleration or notice of
default or direction, waiver or consent or any amendment, Securities owned by
the Company, any other obligor upon the Securities or an Affiliate shall be
disregarded as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent to any amendment, modification or other change to
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this Indenture, only Securities which the Trustee actually knows are so owned
shall be so disregarded.
Section 2.11. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities. Until
such exchange, temporary Securities shall be entitled to the same rights,
benefits and privileges as the definitive Securities.
Section 2.12. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Securities unless, by a written order, signed by two Officers, the
Company directs them to be returned to it. The Company may not reissue or
resell, or issue new Securities to replace, Securities that it has redeemed or
paid or that have been delivered to the Trustee for cancellation.
Section 2.13. Defaulted Interest.
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, any interest payable on the defaulted interest, to the Persons who are
Securityholders on a subsequent special record date, which date shall be at
least five Business Days prior to the payment date, in each case at the rate
provided therefor in the Securities and in Section 4.1 hereof. The Company
shall, with the consent of the Trustee, fix each such special record date and
payment date. At least 15 days before such special record date, the Company (or
the Trustee, in the name of and at the expense of the Company) shall mail to
each Securityholder a notice that states the special record date, the related
payment date and the amount of defaulted interest, and interest payable on such
defaulted interest to be paid.
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Section 2.14. Home Office Payment Agreements.
Notwithstanding any provisions of this Indenture or of the Securities
to the contrary, payments of interest on, premiums, if any, and all or any
portion of the principal of, any Security, other than the final payment of
principal on a Security, shall be made by the Paying Agent directly to any
Holder of principal amount of $1,000,000 or more of such Security (by federal
funds transfer) without surrender or presentation thereof to the Paying Agent if
such Holder (a) provides the Company and the Trustee with an undertaking that
such Holder (or the Person for whom such Holder is a nominee) will, before
selling, transferring or otherwise disposing of any such Security, make a
notation thereon, or submit the same to the Trustee for notation thereon, of the
date to which interest has been paid thereon and the amount of all redemptions
previously made thereon, or surrender the same to the Trustee in exchange for a
Security or Securities aggregating the same principal amount as the unredeemed
principal amount of the Securities surrendered and (b) provides the Trustee with
wire transfer or other payment instructions reasonably satisfactory to the
Trustee on or before the record date for such payment to be made to such Holder.
The Company will indemnify and hold the Trustee and the Paying Agent harmless
against any liability resulting from any act or omission to act on the part of
the Company or any such Holder in connection with any such agreement or which
the Paying Agent may incur as a result of making any payment in accordance with
any such agreement.
Section 2.15. Deposit of Moneys.
On each Interest Payment Date and the Maturity Date, the Company shall
have deposited with the Paying Agent in immediately available funds money
sufficient to make cash payments, if any, due on such Interest Payment Date or
the Maturity Date, as the case may be, in a timely manner which permits the
Trustee to remit payment to the Holders on such Interest Payment Date or the
Maturity Date, as the case may be.
Section 2.16. CUSIP Number and Private Placement Number.
The Company in issuing the Securities may use a "CUSIP" number, and if
so, such CUSIP number shall be included in notices of redemption or exchange as
a convenience to Holders; provided, however, that any such notice may state that
no representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the
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Securities, and that reliance may be placed only on the other identification
numbers printed on the Securities. The Company will promptly notify the Trustee
of any change in the CUSIP number. In addition, the Company shall, if
applicable, at the Company's expense, procure a "Private Placement" number for
the Securities issued pursuant to this Indenture.
ARTICLE 3
REDEMPTION
Section 3.1. Certain Notices to Trustee.
If the Company intends to redeem Securities pursuant to the provisions
of Section 3.7 hereof, it shall notify the Trustee in writing, at least 45 days
before a redemption date, of the redemption date, the principal amount of
Securities to be redeemed and the Redemption Price and shall furnish to the
Trustee an Officers' Certificate stating that such redemption will comply with
the conditions contained herein and in the Securities.
Section 3.2. Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed on a pro rata basis in multiples of
$1,000 among the outstanding Securities.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of Securities selected for
partial redemption, the principal amount to be redeemed. Securities and portions
of them selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Securities of a Holder are to be redeemed, the entire
outstanding amount of Securities held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Securities called for redemption also
apply to portions of Securities called for redemption.
Section 3.3. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date the
Company shall mail a notice of redemption by first class mail to each Holder
whose Securities are to be redeemed and the Trustee and the Paying Agent.
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The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the Redemption Price;
(3) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that, after
the redemption date, upon surrender of such Security, a new Security or
Securities in aggregate principal amount equal to the unredeemed
portion thereof will be issued without charge to the Securityholder;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price, except as provided
in Section 2.14 hereof;
(6) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue
on and after the redemption date;
(7) the paragraph of the Securities and the section of the
Indenture pursuant to which the Securities called for redemption are
being redeemed;
(8) if less than all of the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities estimated to
be outstanding after such partial redemption; and
(9) the CUSIP number or Private Placement number, if any,
pursuant to Section 2.16 hereof.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense; provided,
however, that the Company shall deliver to the Trustee, at least 15 days prior
to the date that notice must be given to the Securityholders, an Officers'
Certificate requesting that the Trustee give such notice and setting forth the
information to be stated in such notice as provided in the preceding paragraph.
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Section 3.4. Effect of Notice of Redemption.
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date at the Redemption Price.
Section 3.5. Deposit of Redemption Price.
At least one Business Day prior to the redemption date, the Company
shall deposit with the Trustee or with the Paying Agent in immediately available
funds money sufficient to pay the Redemption Price of all Securities or portions
thereof to be redeemed on that date. The Trustee or the Paying Agent shall
return to the Company any excess money not required for such redemption.
If the Company complies with the preceding paragraph, interest on the
Securities to be redeemed shall cease to accrue on the applicable redemption
date, whether or not such Securities are presented for payment. If any Security
called for redemption shall not be so paid upon surrender for redemption because
of the failure of the Company to comply with the preceding paragraph, interest
shall continue to accrue on the unpaid principal, from the redemption date until
such principal is paid, and on any interest not paid on such unpaid principal,
in each case at the Default Rate provided in the Securities and in Section 4.1
hereof.
Section 3.6. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the Holder at the expense of
the Company a new Security equal in principal amount to the unredeemed portion
of the Security surrendered.
Section 3.7. Optional Redemption.
(a) Subject to Section 4.12, and except as set forth in subsection (b)
of this Section 3.7, the Securities may not be redeemed in whole or in part
prior to January 1, 2000. On or after that date, the Company may redeem the
Securities in whole or in part at any time at the following Redemption Prices
(expressed in percentages of principal amount), plus accrued interest to the
redemption date:
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Period Redeemed Percentage
--------------- ----------
January 1, 2000 through December 31, 2000 106.375%
January 1, 2001 through December 31, 2001 104.250%
January 1, 2002 through December 31, 2002 102.125%
January 1, 2003 through the Maturity Date 100.000%
(b) Notwithstanding the provisions of subsection (a) of this Section
3.7, at any time prior to January 1, 2000, the Company may redeem in part and
from time to time with the net proceeds of one or more public equity offerings,
up to 35% of the original aggregate principal amount of the Securities at a
Redemption Price of 110% of the principal amount of the Securities to be
redeemed plus accrued interest to the redemption date.
(c) The Company or the Trustee shall, on or before the thirtieth day
prior to such optional redemption, select, in the manner provided in Section
3.2, the Securities to be so redeemed and cause notice of the redemption thereof
to be given in the name of and at the expense of the Company in the manner
provided in Section 3.3. Such notice having been duly given, the redemption of
such Securities shall be made upon the terms and in the manner stated in this
Article 3.
ARTICLE 4
COVENANTS
Section 4.1. Payment of Securities.
The Company shall pay the principal of, premium (if any), and interest
on the Securities on the dates and in the manner provided in the Securities and
this Indenture. Principal, premium (if any) and interest shall be considered
paid on the date due if the Paying Agent holds on such date money deposited by
the Company in immediately available funds designated for and sufficient to pay
all principal, premium (if any) and interest then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any
("Default Interest") at the rate equal to 14.75% per annum (the "Default Rate");
it shall pay Default Interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest (upon
the expiration of any applicable grace period) at the same rate to the extent
lawful.
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Section 4.2. Maintenance of Office or Agency.
The Company shall maintain in New York, New York an office or agency
(which may be an office of the Trustee, Registrar or co-registrar) where
Securities may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in New
York, New York for such purposes. The Company will give prompt written notice to
the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.4.
Section 4.3. Corporate Existence.
Subject to Section 4.20 hereof, the Company shall do or cause to be
done, at its own cost and expense, all things necessary to, and will cause each
of its Subsidiaries to, preserve and keep in full force and effect its
respective corporate, partnership or other existence in accordance with its
respective organizational documents and the rights (charter and statutory),
licenses and franchises of the Company and each of its Subsidiaries; provided,
however that, subject to the terms hereof, the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any Subsidiary, if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not adverse in any material
respect to the Holders.
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Section 4.4. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon its or its Subsidiaries' income,
profits or property and (b) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a Lien upon its or its Subsidiaries'
assets or property; provided, however, that the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate negotiations or proceedings and for which disputed
amounts adequate reserves (in the good faith judgment of the Board of Directors
of the Company) have been made.
Section 4.5. Maintenance of Properties; Insurance; Books and Records;
Compliance with Law.
(a) The Company shall and shall cause each of its Subsidiaries to, at
all times cause all properties used or useful in the conduct of its business to
be maintained and kept in good condition, repair and working order (reasonable
wear and tear excepted) and supplied with all necessary equipment, and shall
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereto.
(b) The Company and each of its Subsidiaries shall maintain insurance
with insurance companies or associations with a rating of "A-XIV" or better, as
established by Best's Rating Guide (or an equivalent rating with such other
publication of a similar nature as shall be in current use) in at least such
amounts and covering at least such risks as are usually and customarily insured
against in the same general area by companies engaged in the same or similar
business, and furnish to the Trustee and each Requesting Holder, upon written
request, full information as to the insurance carried.
(c) The Company shall and shall cause each of its Subsidiaries to keep
proper books of record and account, in which full and correct entries shall be
made of all financial transactions and the assets and business of the Company
and each Subsidiary of the Company, in accordance with GAAP consistently applied
to the Company and its Subsidiaries taken as a whole.
(d) The Company shall and shall cause each of its Subsidiaries to
comply with all statutes, laws, ordinances,
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or government rules and regulations to which it is subject, non-compliance with
which would materially adversely affect the business, prospects, earnings,
properties, assets or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole.
Section 4.6. Compliance Certificates.
(a) The Company shall deliver to the Trustee and each Requesting
Holder, within 45 days after the end of each of the respective first three
quarters of each Fiscal Year, and within 90 days after the end of each Fiscal
Year, Officers' Certificates of the Company stating (i) that a review of the
activities of the Company during the preceding fiscal quarter or Fiscal Year, as
the case may be, has been made under the supervision of the signing Officers
with a view to determining whether the Company has kept, observed, performed and
fulfilled its obligations under this Indenture, (ii) that, to the best knowledge
of such Officers, the Company has kept, observed, performed and fulfilled each
and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions hereof
(or, if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which such Officers have knowledge, their
status and what action the Company is taking or proposes to take with respect
thereto) and (iii) that to the best of such Officers' knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of, premium, if any, or interest, if any, on the Securities are
prohibited (or, if such event has occurred, describing the event and what action
the Company is taking or proposes to take with respect thereto).
(b) So long as (and to the extent) not contrary to the then current
recommendations of the American Institute of Certified Public Accountants, the
annual financial statements delivered pursuant to Section 4.7 hereof shall be
accompanied by a written statement of the Company's Independent public
accountants, which shall be a nationally recognized firm, that in making the
examination necessary for certification of such annual financial statements
nothing has come to their attention that would lead them to believe that the
Company has violated any provisions of this Indenture or, if any such violation
has occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
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(c) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee and any Requesting Holder, forthwith upon
any Officer becoming aware of any Default or Event of Default an Officers'
Certificate specifying such Default or Event of Default and what action the
Company is taking or proposes to take with respect thereto.
Section 4.7. Reports.
(a) In accordance with the provisions of TIA ss. 314(a), at any time
that the Company has a class of securities registered under the Exchange Act or
is otherwise required to file reports with the SEC pursuant to Section 15(d) of
the Exchange Act, the Company shall file with the Trustee, each Institutional
Holder and any Requesting Holder, within 15 days after it files them with the
SEC, copies of the annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing as the SEC may by
rules and regulations prescribe) which the Company is required to file with the
SEC pursuant to Section 13 or 15(d) of the Exchange Act. The Company also shall
comply with the other provisions of TIA ss. 314(a). In addition, the Company
shall cause its annual report to stockholders and any quarterly or other
financial reports generally furnished by it to stockholders to be filed with the
Trustee and mailed, no later than the date such materials are mailed or made
available to the Company's stockholders, to the Holders at their addresses as
set forth in the register of the Securities maintained by the Registrar.
(b) At any time that the Company does not have a class of securities
registered under the Exchange Act or is not required to file reports with the
SEC pursuant to Section 15(d) of the Exchange Act, the Company shall furnish to
the Trustee and shall mail (or cause to be mailed by the Trustee at the
Company's expense) to each Institutional Holder and each of the Requesting
Holders at their addresses as set forth in the register of the Securities within
60 days after the close of each quarter of the Company's Fiscal Year and within
90 days after the close of each Fiscal Year consolidated balance sheets of the
Company as of the end of each such quarter or Fiscal Year, as the case may be,
consolidated statements of income, cash flow and changes in net worth of the
Company for such quarter and for the period commencing at the end of the
Company's previous Fiscal Year and ending with the end of such quarter or Fiscal
Year, as the case may be, all such financial statements setting forth in
comparative form the corresponding figures for the corresponding period of the
preceding Fiscal Year, all in reasonable detail and
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duly certified (subject to year-end adjustments) by an Officer of the Company as
having been prepared in accordance with GAAP consistently applied, and, in the
case of annual consolidated financial statements, certified by Independent
public accountants of recognized standing and accompanied by such certifying
public accountants' management letter and a "Management's Discussion and
Analysis of the Results of Operations and Financial Condition of the Company and
its Subsidiaries" for the periods presented, which discussion and analysis shall
be prepared by the management of the Company in a manner responsive to the
requirements of Item 303 (or any successor item or section) of Regulation S-K
under the Exchange Act. All financial statements will be prepared in accordance
with GAAP consistently applied, except for changes with which the Company's
Independent public accountants concur and except that quarterly statements may
be subject to year-end adjustments and may be prepared in accordance with Rule
10-01 of Regulation S-X under the Exchange Act.
(c) Promptly upon its receipt thereof, the Company shall furnish to the
Trustee and shall mail (or cause to be mailed by the Trustee at the Company's
expense) to each of the Holders at their addresses as set forth in the register
of the Securities copies of all financial reports (including, without
limitation, management letters), if any, submitted to the Company or any of its
Subsidiaries by its auditors, in connection with each annual, interim or special
audit of their respective books by such auditors.
(d) The Company shall provide, at the request of any Institutional
Holder, such financial and other information as any such Holder or any potential
transferee that is not a Competitor and is a "qualified institutional buyer" (as
defined in Rule 144A promulgated under the Securities Act) may reasonably
determine is required to permit compliance with the requirements of Rule 144A in
connection with the resale by a Holder of any Securities, except at such times
as the Company is a reporting company under Section 13 or 15(d) of the Exchange
Act or has complied with the requirements for the exemption from registration
under the Exchange Act set forth in Rule 12g3-2(b) under such Act.
(e) The Company shall provide, with reasonable promptness, such other
data and information as any Institutional Holder may reasonably request.
The Trustee and each Securityholder is hereby authorized to deliver a copy of
any financial statement or any other information relating to the business,
operations or financial condition of the Company or any of its Subsidiaries
which may be
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furnished to it hereunder or otherwise, to any regulatory body or agency,
including without limitation, the National Association of Insurance
Commissioners, having jurisdiction over the Trustee or such Securityholder or to
any Person which shall, or shall have any right or obligation to, succeed to all
or any part of the interest of such Securityholder in the Securities and this
Indenture.
Section 4.8. Limitation on Additional Indebtedness.
Neither the Company nor any of its Subsidiaries shall contract, create,
incur, assume, guaranty, suffer to exist nor otherwise become liable with
respect to (collectively, "incur") any Indebtedness except for the following
(each of which shall be given independent effect):
(1) Indebtedness incurred pursuant to this Indenture and the
Securities;
(2) Indebtedness under the Working Capital Facility in an
aggregate principal amount not to exceed $100,000,000;
(3) Indebtedness of the Company and any of its Subsidiaries
outstanding on the Effective Date;
(4) Indebtedness to refinance its Indebtedness (or
Indebtedness of a Subsidiary, in the case of the Company), provided
that any such Indebtedness shall not (i) have a final maturity or
mandatory redemption payments prior to the earlier of the final
maturity of the Indebtedness being so refinanced and the Maturity Date,
or (ii) have a principal amount in excess of the principal amount and
accrued interest of the Indebtedness being so refinanced (unless such
Indebtedness is issued at a discount in which case the issuance price
of such discount Indebtedness shall not exceed the principal amount of
the Indebtedness being so refinanced (it being understood that, with
respect to any Indebtedness issued at a discount in compliance with
this covenant, the accrual of amortization of the original issue
discount on such Indebtedness after the date of issuance thereof shall
not be deemed to be incurrence of additional Indebtedness for the
purpose of this covenant)) plus all fees and expenses related to the
negotiation, consummation or execution of such Indebtedness; and
(5) additional Indebtedness of the Company (but not any
Subsidiary) having no scheduled payments of
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principal due prior to the Maturity Date, so long as, after
giving effect to the incurrence of such Indebtedness and the
application of the net proceeds thereof as if such
Indebtedness was incurred and the proceeds thereof so applied
at the beginning of the relevant period, the Fixed Charge
Coverage Ratio for the most recent four quarter period in
respect of which financial statements are available is not
less than 1.75 to 1.
Section 4.9. Limitation on Investments.
Neither the Company nor any of its Subsidiaries shall make any
acquisitions of, investments in, or loans, advances or extensions of credit to
any Person, except Permitted Investments.
Section 4.10. Limitation on Liens.
Neither the Company nor any of its Subsidiaries shall incur any Lien in
respect of any property now owned or hereafter acquired by it, except for the
following:
(1) Liens for taxes or assessments or other governmental
charges or levies not yet due or payable to the extent that non-payment
thereof is permitted by Section 4.4 hereof;
(2) Liens created by or resulting from any litigation or legal
proceeding which is currently being contested in good faith by
appropriate proceedings; and Liens in favor of the Trustee to the
extent permitted by Sections 5.9 and 6.5 hereof;
(3) Liens on property of the Company or any of its
Subsidiaries in existence on the Effective Date;
(4) intercompany Liens;
(5) the extension, renewal or replacement of any Lien
permitted by the foregoing paragraph (3) in respect of the same
property subject thereto or the extension, renewal or replacement
(without increase of principal amount of the Indebtedness secured or
extension to any other property);
(6) (i) any Lien on property or in rights relating thereto
created in connection with the provision of all or a part of the
purchase price or
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cost of construction of such property created contemporaneously with,
or within 120 days after, such acquisition or the completion of such
construction, or (ii) any Lien on property (or in rights relating
thereto) existing at the time of acquisition thereof, whether or not
the Indebtedness secured thereby is assumed by the Company or such
Subsidiary; or (iii) any Lien existing on the property of a corporation
(or in rights relating thereto) at the time such corporation is merged
into or consolidated with the Company or a Subsidiary or at the time of
a sale, lease or other disposition of the properties of a corporation
or firm as an entirety or substantially as an entirety to the Company
or a Subsidiary, in the case of (ii) and (iii) as long as not incurred
in contemplation of such transaction; provided, however, that (i)
aggregate amount of Indebtedness secured by all such Liens shall not,
at the date of incurrence of such Lien and after giving effect thereto,
exceed (together with all other outstanding Indebtedness of the Company
and its Subsidiaries) the amount permitted under Section 4.8(5) hereof
and (ii) all of such Liens shall secure Indebtedness that does not
exceed 100% of the Fair Market Value of the related property;
(7) Liens on property of the Company relating to Indebtedness
incurred in respect of the Working Capital Facility to the extent
permitted by Section 4.8(2) hereof, provided, however, that the
aggregate amount of the Indebtedness secured by such Liens shall not
exceed $100,000,000;
(8) Liens incurred for pledges and deposits in connection with
workers' compensation, unemployment insurance and other social security
benefits, or securing the performance bids, tenders, leases, contracts
(other than for the repayment of borrowed money), statutory
obligations, progress payments, surety, appeal and performance bonds
and other obligations of like nature, in each case incurred in the
ordinary course of business;
(9) Liens imposed by law, such as landlords', mechanics',
carriers', warehousemen's, materialmen's and vendors' Liens, in each
case incurred in good faith in the ordinary course of business;
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(10) Zoning restrictions, easements, rights of way, licenses,
covenants, reservations, restrictions on the use of Real Property or
minor irregularities of title incident thereto which do not in the
aggregate materially detract from the value of the property or assets
of the Company or any of its Subsidiaries, as the case may be, or
materially impair the use of such property in the operation of the
Company's or any of its Subsidiaries' business; and
(11) Liens on property of the Company or any of its
Subsidiaries subject to, and securing only, Capital Lease Obligations
to the extent such Capital Lease Obligations are permitted by Section
4.8(5); provided, however, that such Liens only serve to secure the
payment of Indebtedness arising under such Capital Lease Obligations
and the Lien encumbering the asset giving rise to the Capitalized Lease
Obligation does not encumber any other asset of the Company.
Section 4.11. Limitation on Restricted Payments.
(a) The Company shall not, and will not permit any of its Subsidiaries
to, directly or indirectly, make any Restricted Payment unless at the time of
such Restricted Payment:
(i) the amount of such Restricted Payment, when added to the
aggregate amount of all Restricted Payments made since the Effective
Date does not exceed the sum of: (1) $5,000,000, plus (2) 50% of the
Company's Consolidated Net Income accrued during each fiscal quarter
since the Effective Date (or, if such Consolidated Net Income is a
deficit, minus 100 percent of such deficit), plus (3) the proceeds
derived by the Company from the sale (through an Equity Offering or
otherwise) of Capital Stock of the Company since the Effective Date;
(ii) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto, as if such Restricted
Payment had been made at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to Section 4.8(5) hereof; and
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(iii) no Default or Event of Default shall have occurred and
be continuing or would occur as a consequence thereof.
(b) Notwithstanding the foregoing provisions of subsection (a), the
provisions of this Section 4.11 shall not prohibit the retirement of any shares
of the Company's Capital Stock in exchange for other shares of the Company's
Capital Stock.
Section 4.12. Change of Control.
(a) Following the occurrence of any Change of Control, the Company
shall so notify the Trustee in writing and shall offer to purchase (a "Change of
Control Offer") from all Holders, and shall purchase from all Holders accepting
such Change of Control Offer on the date fixed for the closing of such Change of
Control Offer (the "Change of Control Payment Date"), all outstanding Securities
tendered in response to such Change of Control Offer at an offer price (the
"Change of Control Price") in cash equal to 101 percent of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the Change
of Control Payment Date in accordance with the procedures set forth in this
Section 4.12.
(b) Within 30 days after the date of any Change of Control, the Company
(with notice to the Trustee) or the Trustee at the Company's request (and at the
expense of the Company), shall mail or cause to be mailed to all Holders on the
date of the Change of Control, at their last registered address, a notice of the
occurrence of such Change of Control and of the Holders' rights arising as a
result thereof. The Change of Control Offer shall remain open from the time of
mailing for at least 20 Business Days. The notice, which shall govern the terms
of the Change of Control Offer, shall include such disclosures as are required
by law and shall state:
(1) that the Change of Control Offer is being made pursuant to
this Section 4.12;
(2) that the Holder has the right to require the Company to
repurchase such Holder's Securities at the Change of Control Price;
(3) that any Security not tendered shall continue to accrue
interest in accordance with the terms thereof;
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(4) that any Security accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest on the Change of Control
Payment Date;
(5) the Change of Control Payment Date which shall be no
earlier than 45 days nor later than 60 days from the date such notice is mailed;
(6) that Holders electing to have Securities purchased
pursuant to a Change of Control Offer will be required to surrender the
Securities to the Company or the Paying Agent at the address specified in the
notice prior to 5:00 p.m., New York City time, on the Change of Control Payment
Date and must complete any form letter of transmittal proposed by the Company
and acceptable to the Trustee and Paying Agent;
(7) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than 5:00 p.m., New York City time, on
the Business Day that is two Business Days immediately preceding the Change of
Control Payment Date, a tested telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of Securities the Holder
delivered for purchase, the Security certificate number (if any) and a statement
that such Holder is withdrawing its election to have such Securities purchased;
(8) that Holders which elect to have their Securities
purchased only in part will be issued new Securities equal in principal amount
to the unpurchased portion of the Securities surrendered;
(9) information concerning the business of the Company which
the Company in good faith believes will enable such Holders to make an informed
decision (which at a minimum will include (A) information comparable to that
contained in the reports required pursuant to Section 4.7 hereof, (B) a
description of material developments in the Company's business subsequent to the
date of the latest of such reports, and (C) if material, appropriate pro forma
financial information); and
(10) the instructions that Holders must follow in order to
tender their Securities.
(c) The Company shall not, and shall not permit any Subsidiary to,
create or permit to exist or become effective any restriction that would
materially impair the ability of the Company to make a Change of Control Offer
or, if such
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Change of Control Offer is made, to pay for Securities tendered for purchase.
(d) On or before the Change of Control Payment Date in connection with
which the Change of Control Offer is being made, the Company shall (i) accept
for payment Securities or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money sufficient, in
immediately available funds, to pay the Purchase Price of all Securities or
portions thereof so tendered and accepted and (iii) deliver to the Paying Agent
the Securities so accepted together with an Officers' Certificate setting forth
the Securities or portions thereof tendered to the Company or the Paying Agent
and accepted for payment by the Company. The Paying Agent shall promptly mail,
deliver or transfer by federal funds to Holders of Securities so accepted
payment in an amount equal to the Change of Control Price of the Securities
purchased from each such Holder, and the Trustee shall promptly authenticate and
mail or deliver to such Holder a new Security equal in principal amount to any
unpurchased portion of the Security surrendered. The Company will publicly
announce the results of the Change of Control Offer on the first Business Day
following the Change of Control Payment Date.
The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to the
Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Section 4.12 the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 4.12 by virtue
hereof.
Section 4.13. Limitations on Transactions with Affiliates.
Neither the Company nor any of its Subsidiaries shall make any loan,
advance, guaranty or capital contribution to, or for the benefit of, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
for the benefit of, or purchase or lease any property or assets from, or enter
into or amend any contract, agreement or understanding with, or for the benefit
of, an Affiliate (each an "Affiliate Transaction") unless such Affiliate
Transactions are (i) entered into in good faith and on terms that are no less
favorable to the Company or the relevant Subsidiary than those that could have
been obtained in a comparable
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transaction by the Company or such Subsidiary on an arm's length basis from an
unrelated Person, and (ii) evidenced by an agreement approved by the Board of
Directors.
Section 4.14. Compliance with ERISA.
The Company shall not terminate, or permit or suffer any of its ERISA
Affiliates to terminate (other than a standard termination, as defined in
Section 4041(b) of ERISA, of a Single Employer Plan), any Plans maintained by
any of the Company or any of its Subsidiaries or any of their ERISA Affiliates
so as to incur any liability to the PBGC; completely or partially withdraw, or
permit or suffer any of their ERISA Affiliates to withdraw completely or
partially, from any Multiemployer Plan so as to incur any liability to such plan
on account of such withdrawal; permit or suffer to exist any Prohibited
Transaction involving any such Plans or any trust created thereunder which would
subject any of the Company or any of its Subsidiaries or any of their ERISA
Affiliates to a tax or penalty on Prohibited Transactions imposed under Internal
Revenue Code Section 4975 or under ERISA; fail to pay, or permit or suffer any
of their ERISA Affiliates to fail to pay, to any such Plan any contribution
which they or their ERISA Affiliates are obligated to pay under the terms of
such Plan; permit any Accumulated Funding Deficiency, whether or not waived, to
occur with respect to any Plan; or permit or suffer to exist any occurrence of a
Reportable Event, or any other event or condition, which presents a material
risk of termination by the PBGC of any such Plan. The Company shall deliver to
the Trustee and any Requesting Holder, promptly after (i) the occurrence
thereof, notice that an ERISA Termination Event or a Prohibited Transaction with
respect to any Plan has occurred, which such notice shall specify the nature
thereof and the Company's proposed response thereto, and (ii) actual knowledge
thereof, copies of any notice of the PBGC's intention to terminate or to have a
trustee appointed to administer any Plan.
Section 4.15. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock or any other
interest or participation in, or measured by, its profits, owned by the Company
or any Subsidiary of the Company, or pay any Indebtedness owed to, the Company
or
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a Subsidiary, (b) make loans or advances to the Company or any Subsidiary or (c)
transfer any of its properties or assets to the Company, except for such
encumbrances or restrictions existing under or by reason of (i) applicable law,
(ii) this Indenture, (iii) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of the Company or any
Subsidiary, (iv) any instrument governing Indebtedness of a Person acquired by
the Company or any Subsidiary at the time of such acquisition, which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person, so
acquired, (v) Indebtedness existing on the date hereof or (vi) any guaranty of
any of the foregoing.
Section 4.16. Conflicting Agreements.
The Company shall not, and shall not permit any of its Subsidiaries to,
enter into any agreement or instrument that by its terms expressly prohibits the
Company from optionally redeeming or otherwise making any payments on or in
respect of the Securities in accordance with the terms thereof and of this
Indenture, as in effect from time to time.
Section 4.17. Liquidation.
The Board of Directors or the stockholders of the Company may not adopt
a plan of liquidation which provides for, contemplates or the effectuation of
which is preceded by (a) the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Subsidiaries otherwise
than substantially as an entirety and (b) the distribution of all or
substantially all of the proceeds of such sale, lease, conveyance or other
disposition and of the remaining assets of the Company to the holders of Capital
Stock of the Company, unless the Company, prior to making any liquidating
distribution pursuant to such plan, makes provision for the satisfaction of the
Company's Obligations hereunder and under the Securities as to the payment of
principal, premium, if any, interest and all other amounts required hereunder.
The Company shall be deemed to make provision for such payments only if the
Company delivers in trust to the Trustee or Paying Agent money or U.S.
Government Obligations maturing as to principal and interest in such amounts and
at such times as are sufficient without consideration of any reinvestment of
such interest to pay, when due, the principal of, premium, if any, and interest
on the Securities and also delivers to the Trustee an Opinion of Counsel or a
ruling received from the Internal Revenue Service to the
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effect that Holders of the Securities will not recognize income, gain or loss
for Federal income tax purposes as a result of such action and will be subject
to Federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such action has not been taken, provided,
however, that the Company shall not make any liquidating distribution until the
Trustee shall have received an Officers' Certificate and an Opinion of Counsel
as to the Company's compliance with the provisions of this Section 4.17 and that
no Default or Event of Default then exists or would occur as a result of any
such liquidating distribution.
Section 4.18. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture or the Securities; and the Company (to the
extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law has been enacted.
Section 4.19. Fiscal Year.
Neither the Company nor any of its Subsidiaries shall change their
respective Fiscal Years until all Obligations under the Securities and the
Indenture have been repaid in full and discharged.
Section 4.20. Limitations on Consolidations and Mergers.
Neither the Company nor any of its Subsidiaries shall consolidate or
merge with, or into, any Person unless (i) the surviving Person expressly
assumes all the obligations of the Company under the Securities and this
Indenture pursuant to a Supplemental Indenture in a form reasonably satisfactory
to the Trustee; (ii) immediately after such consolidation or merger no Default
or Event of Default exists; (iii) the surviving Person shall be organized and
doing business under the laws of the United States of America or any state
thereof and (iv) at the time of such consolidation or merger and after giving
pro forma effect thereto, as if such
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consolidation or merger had occurred at the beginning of the applicable
four-quarter period, the Company would have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to Section 4.8(5) hereof; provided,
however, that any Subsidiary may be merged or consolidated with, or into, the
Company (provided that the Company shall be the surviving corporation) or with
any one or more other Subsidiaries.
Section 4.21. Limitations on Sale of Assets.
Other than in the ordinary course of business, the Company shall not,
and shall not permit any of its Subsidiaries to, make any Asset Sale unless (i)
the Book Value of the asset or assets to be sold in such Asset Sale, when
combined with the aggregate Book Value of the assets sold in all other Asset
Sales made (a) during the same Fiscal Year as the proposed Asset Sale, does not
exceed 10% of the Consolidated Total Assets of the Company as of the date of
such proposed Asset Sale, and (b) since the Effective Date, on a cumulative
basis, does not exceed 25% of the Consolidated Total Assets of the Company as of
the date of such proposed Asset Sale; and (ii) the asset or assets to be sold in
such Asset Sale when combined with the assets sold in all other Asset Sales made
(a) during the same Fiscal Year as the proposed Asset Sale, do not contribute in
excess of 10% of the Company's Consolidated Cash Flow; and (b) since the
Effective Date, on a cumulative basis, do not contribute in excess of 25% of the
Company's Consolidated Cash Flow, provided, however, that (i) any wholly-owned
Subsidiary may make an Asset Sale to the Company or any other wholly-owned
Subsidiary; and (ii) that the Company may make an Asset Sale in excess of the
limitations set forth above if the Net Cash Proceeds of such Asset Sale are used
to purchase other property of a similar nature and of at least equivalent Book
Value within nine months of such Asset Sale.
Section 4.22. Change in Business.
The Company shall not materially change or alter, or permit or suffer
any of its Subsidiaries to materially change or alter, the nature of its
businesses as conducted or as proposed to be conducted as of the Effective Date.
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ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.1. Events of Default.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of the premium, if
any, or interest on any Security or any other amount required to be
paid hereunder (other than principal) when the same becomes due and
payable and the Default continues for a period of five Business Days;
(2) the Company defaults in the payment of the principal of
any Security when the same becomes due and payable at maturity, upon
any redemption or otherwise;
(3) the Company fails to comply with Sections 4.20 and 4.21
hereof;
(4) the Company fails to observe or perform any covenant,
condition or agreement on the part of the Company to be observed or
performed pursuant to Sections 4.8 through 4.13, inclusive, and the
Default continues for the period and after the notice specified below;
(5) the Company fails to comply with any of its other
covenants or perform any other material obligations in the Securities
or this Indenture and the Default continues for the period and after
the notice specified below;
(6) any representation or warranty made in this Indenture or
in any certificate furnished in connection therewith is proven to be
false or incorrect in any material respect as of the date made;
(7) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness of the Company or any of its
Subsidiaries, whether such Indebtedness now exists or shall be created
hereafter, (a) if such default constitutes a nonpayment of principal,
interest or penalty on such Indebtedness (after the expiration of any
applicable grace period (a "Payment Default")) and (b) if the principal
amount of such Indebtedness, together with the principal amount of any
other Indebtedness of the Company with regard to which there then
exists a Payment Default, exceeds $500,000;
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(8) a final judgment or final judgments for the payment of
money are entered by a court or courts of competent jurisdiction
against the Company or any of its Subsidiaries and such judgment or
judgments remain undischarged for a period (during which execution
shall not be effectively stayed) of 90 days, provided that the
aggregate of all such judgments exceeds $500,000 (net of insurance
proceeds);
(9) any holder of a Lien shall lawfully take possession of all
or substantially all of the properties, assets or revenues of the
Company for a period of at least 30 days;
(10) the Company or any of its Significant Subsidiaries
pursuant to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief
against it in an involuntary case,
(c) consents to the appointment of a Custodian of it
or for all or substantially all of its property, or
(d) makes a general assignment for the benefit of its
creditors;
(11) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(a) is for relief against the Company or any
Significant Subsidiary in an involuntary case,
(b) appoints a Custodian of the Company or any
Significant Subsidiary or for all or substantially all of the
property of the Company or any Significant Subsidiary, or
(c) orders the liquidation of the Company or any
Significant Subsidiary; or
(12) Pursuant to or within the meaning of any Bankruptcy Law,
an involuntary petition is filed against the Company or any Significant
Subsidiary seeking the commencement of a case, and such petition
remains undismissed for a period of 30 days.
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A Default under clause (4) or (5), respectively, is not an Event of
Default until the Trustee notifies the Company, or the Holders of at least 25%
in principal amount of the then outstanding Securities notify the Company and
the Trustee, of the Default and the Company does not cure the Default within (i)
in the event of a Default under clause (4) within 10 days after receipt of the
notice and (ii) in the event of a Default under clause (5) within 30 days after
receipt of the notice. The notice must specify the Default, demand that it be
remedied and state that the notice is a "Notice of Default."
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Securities pursuant to
Section 3.7 hereof, an equivalent premium shall also become and be immediately
due and payable to the extent permitted by law upon the acceleration of the
Securities.
Section 5.2. Acceleration.
If an Event of Default (other than an Event of Default specified in
clauses (10) through (12), inclusive, of Section 5.1 hereof) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least 25%
in principal amount of the then outstanding Securities by notice to the Company
and the Trustee, may, and the Trustee upon the request of the Holders of at
least 25% in principal amount of the then outstanding Securities shall, declare
the unpaid principal of and premium, if any, and any accrued interest on all the
Securities to be due and payable. Upon such declaration the principal, interest
and premium, if any, shall be due and payable immediately without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived.
If an Event of Default specified in clause (10), (11) or (12) of Section 5.1
hereof occurs, such principal, premium, if any, and interest shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder. The Holders of a majority in principal
amount of the then outstanding Securities by written notice to the Trustee may
rescind an acceleration and its consequences if the rescission would not
conflict with any order, judgment or decree and if all existing Events of
Default (except nonpayment of principal, premium, if any, or interest that has
become due solely because of the acceleration) have been cured or waived. No
such rescission
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shall affect any subsequent default or impair any right consequent thereto.
Section 5.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal or interest or premium,
if any, on the Securities or to enforce the performance of any provision of the
Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All remedies are cumulative to the extent
permitted by law.
Section 5.4. Waiver of Past Defaults.
Subject to Sections 5.7 and 7.2, the Holders of at least a majority in
principal amount of the then outstanding Securities by notice to the Trustee may
waive an existing Default or Event of Default and its consequences except a
Default specified in Section 5.1(1) or (2) or in respect of any provision hereof
which cannot be modified or amended without the consent of the Holder so
affected pursuant to Section 7.2. Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured for every purpose of this Indenture; but no such waiver shall extend
to any subsequent or other Default or impair any right consequent thereon.
Section 5.5. Control by Majority.
The Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it; provided, however, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture, that the Trustee determines
may be unduly prejudicial to the rights of other Securityholders, or that may
involve the Trustee in personal liability unless the Trustee has indemnification
satisfactory to it in its sole discretion against any loss or expense caused by
its following such direction; and provided, further, that the Trustee may take
any
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other action deemed proper by the Trustee that is not inconsistent with such
direction.
Section 5.6. Limitation on Suits.
Except as provided in Section 5.7, a Securityholder may pursue a remedy
with respect to this Indenture or the Securities only if:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in principal amount of the
then outstanding Securities make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 15
days after receipt of the request and the offer of indemnity; and
(5) during such 15-day period the Holders of a majority in
principal amount of the then outstanding Securities do not give the
Trustee a direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of another
Securityholder or to obtain a preference or priority over another
Securityholder.
Section 5.7. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal, premium, if any, and
interest on the Security, on or after the respective due dates expressed in the
Security, or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
the Holder.
Section 5.8. Collection Suit by Trustee.
If an Event of Default specified in Section 5.1(1) or (2) occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal, premium, if any, and accrued interest remaining unpaid on the
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Securities, together with interest overdue on principal, premium, if any, and,
to the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at 14.75% per annum as set forth in
Section 4.1 and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
Section 5.9. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relative to the Company and
any of its Subsidiaries, its creditors or its property and shall be entitled and
empowered to collect, receive and distribute any money or other property payable
or deliverable on any such claims and any custodian in any such judicial
proceeding is hereby authorized by each Securityholder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Securityholders, to pay to the Trustee any amount
due to it for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, and any other amounts due the Trustee
under Section 6.5 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 6.5 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties which the
Holders of the Securities may be entitled to receive in such proceeding whether
in liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Securityholder in any such proceeding.
Section 5.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
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First: to the Trustee for amounts due under Section 6.5;
Second: to Securityholders for amounts outstanding in respect of the
Securities for principal, premium, if any, and accrued interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Securities for principal, premium, if any, and accrued interest,
respectively;
Third: to Securityholders for all other amounts outstanding in respect
of the Securities; and
Fourth: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders.
Section 5.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 5.7, or a suit by Holders of more than 25% in principal
amount of the then outstanding Securities.
ARTICLE 6
TRUSTEE
Section 6.1. Duties of Trustee.
(1) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(2) Except during the continuance of an Event of Default:
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(a) The Trustee need perform only those duties that are
specifically required to be performed in this Indenture and no others,
and no implied covenants or obligations shall be read into this
Indenture against the Trustee.
(b) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(3) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(a) This paragraph does not limit the effect of paragraph (2)
of this Section.
(b) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(c) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.5.
(4) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(1), (2) and (3) of this Section.
(5) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee may refuse to perform
any duty or exercise any right or power unless it receives indemnity
satisfactory to it against any loss, liability or expense.
(6) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
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Section 6.2. Rights of Trustee.
(1) The Trustee may rely on and shall be protected in acting or
refraining from acting upon any document believed by it to be genuine and to
have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(2) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(3) The Trustee may act through agents in the performance of its duties
hereunder and shall not be responsible for the misconduct or negligence of any
agent appointed with due care.
(4) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture.
(5) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
Section 6.3. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities or any money paid to the Company or upon
the Company's direction under any provision hereof, it shall not be responsible
for the use or application of any money received by any Paying Agent other than
the Trustee and it shall not be responsible for any statement or recital herein
or any statement in the Securities other than its certificate of authentication.
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Section 6.4. Notice of Defaults.
If a Default occurs and is continuing, the Trustee shall promptly mail
to Securityholders, at the expense of the Company, a notice of the Default
promptly after the Trustee has knowledge thereof.
Section 6.5. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time, and the Trustee
shall be entitled to, reasonable compensation for its acceptance of this
Indenture and services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Company
shall reimburse the Trustee upon request for all reasonable disbursements,
advances and expenses incurred by it or made on behalf of it. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee, and each predecessor Trustee,
and hold it harmless against any loss, liability or expense incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture or the trusts hereunder, including the costs and
expenses of defending itself against or investigating any claim of liability,
except as set forth in the next paragraph. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity, but failure to so notify
shall not affect the Trustee's right to indemnity hereunder. The Company shall
defend the claim and the Trustee shall cooperate in the defense. If there arises
a conflict of interest, the Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel. The Company need not
pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal,
premium, if any, and interest on particular Securities. Such Lien shall survive
the satisfaction and discharge of this Indenture.
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When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(10), (11) or (12) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 6.6. Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company and the Trustee assumes no responsibility for the correctness of the
same. The Trustee makes no representation as to the validity or sufficiency of
this Indenture or of the Securities. The Trustee shall not be accountable for
the use or application by the Company of any of the Securities or of the
proceeds thereof.
Section 6.7. Trustee and Agents May Hold Securities; Collections, etc.
The Trustee or any agent of the Company or the Trustee, in its
individual or any other capacity, may become the owner or pledgee of Securities
with the same rights it would have if it were not the Trustee or such agent and,
subject to the provisions of this Indenture, if operative, may otherwise deal
with the Company and receive, collect, hold and retain collections from the
Company with the same rights it would have if it were not the Trustee or such
agent.
Section 6.8. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign and be discharged from the trust hereby created
by so notifying the Company. The Holders of a majority in principal amount of
the then outstanding Securities may remove the Trustee by so notifying the
Trustee and the Company in writing. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 6.10;
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(2) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee
or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company and any other obligor upon the
Securities shall promptly appoint a successor Trustee.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee after written request by any Securityholder who has been
a Securityholder for at least six months fails to comply with Section 6.10, such
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the Lien
provided for in Section 6.5. Notwithstanding replacement of the Trustee pursuant
to this Section 6.8, the Company's obligations under Section 6.5 hereof shall
continue for the benefit of the retiring Trustee.
Section 6.9. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to another corporation, the
successor corporation without any further act shall be the successor Trustee;
provided, however, such successor Trustee must satisfy the requirements of
Section 6.10.
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Section 6.10. Eligibility.
There shall at all times be a Trustee (or successor Trustee) hereunder
which shall be a corporation organized and doing business under the laws of the
United States of America or of any state thereof authorized under such laws to
exercise corporate trust powers, shall be subject to supervision or examination
by Federal or state authority and shall have a combined capital and surplus of
at least $100,000,000 as set forth in its most recent published annual report of
condition.
Section 6.11. Appointment of Co-Trustee.
If the Trustee deems it necessary or desirable in connection with its
interest in the Collateral and the enforcement of the Security Documents, the
Trustee may appoint a Co-Trustee with such powers of the Trustee as may be
designated by the Trustee at the time of such appointment.
Section 6.12. Reports by Trustee to Holders.
(a) Within 60 days after each May 15, beginning with the May 15
following the date of this Indenture, the Trustee shall mail to the Holders, in
the manner and to the extent required by TIA ss. 313(c), a brief report dated as
of such reporting date that complies with TIA ss. 313(a). The Trustee shall also
comply with TIA ss. 313(b). The Trustee shall also transmit by mail all reports
as required by TIA ss. 313(c).
(b) Commencing at the time this Indenture is qualified under the TIA, a
copy of each report at the time of its mailing to Holders shall be filed with
the SEC and each stock exchange on which the Securities are listed. The Company
shall promptly notify the Trustee when the Securities are listed on any stock
exchange.
Section 6.13. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
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Section 6.14. Communication by Holders with Other Holders.
Holders may communicate pursuant to TIA ss. 312(b) with other Holders
with respect to their rights under this Indenture or the Securities. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA ss. 312(c). Any notice or communication given to a Holder shall be mailed to
the Holder at the Holder's address as it appears on the registration books of
the Registrar and shall be sufficiently given if so mailed within the time
prescribed. Failure to mail a notice or communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. If a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not received by the addressee.
ARTICLE 7
AMENDMENTS
Section 7.1. Without Consent of Holders.
The Company and the Trustee may amend this Indenture or the Securities
without the consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with any requirements of the SEC in connection
with the qualification of this Indenture under the TIA as then in
effect;
(3) to evidence and provide for the acceptance of appointment
hereunder by a separate or successor Trustee with respect to the
Securities and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee,
pursuant to the requirements of Section 6.11;
(4) to provide for uncertificated Securities in addition to
certificated Securities; or
(5) to make any change that does not adversely affect the
legal rights of any Securityholder hereunder.
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Upon the request of the Company, accompanied by a Board Resolution
authorizing the execution of any such Supplemental Indenture, and upon receipt
by the Trustee of the documents described in Section 7.5 hereof, the Trustee
shall join with the Company in the execution of any Supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations which may be therein contained, but the
Trustee shall not be obligated to enter into such Supplemental Indenture which
affects its own rights, duties or immunities under this Indenture or otherwise.
Section 7.2. With Consent of Holders.
Subject to the provisions of Section 5.7 and this Section 7.2, the
Company and the Trustee may amend or supplement this Indenture or the Securities
with the written consent of the Holders of at least a majority in principal
amount of the then outstanding Securities. Subject to Section 5.7 and the
provisions of this Section 7.2, the Holders of a majority in principal amount of
the Securities then outstanding may, or the Trustee with the written consent of
the Holders of at least a majority in principal amount of the then outstanding
Securities may, waive compliance in a particular instance by the Company with
any provision of this Indenture or the Securities, except those provisions
affecting the Trustee's own rights, duties and immunities, unless the Trustee
expressly consents, in its sole discretion, in writing.
Notwithstanding the first paragraph of this Section 7.2, without the
consent of each Securityholder affected, an amendment or waiver under this
Section may not:
(1) reduce the rate of or change the time of or payment of
interest, including default interest, on any Security;
(2) reduce the principal of or redemption premium applicable
to, or change the fixed maturity of any Security or alter the
redemption provisions with respect thereto;
(3) make any Security payable in money other than that stated
in the Security;
(4) make any change in Section 4.12, 5.2, 5.4, 5.5, 5.6, 5.7
or 7.2 hereof; or
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(5) waive a Default in the payment of principal of, premium,
if any, or interest on, or redemption payment with respect to, any
Security.
Upon the request of the Company, accompanied by a Board Resolution
authorizing the execution of any such Supplemental Indenture, and upon the
filing with the Trustee of evidence of the consent of the Securityholders as
aforesaid, and upon receipt by the Trustee of the documents described in Section
7.5 hereof, the Trustee shall join with the Company in the execution of such
Supplemental Indenture unless such Supplemental Indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such Supplemental Indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of each Security affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such Supplemental
Indenture. If requested by any Holder the Trustee will mail a copy of any
Supplemental Indenture to such Holder.
Section 7.3. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Security is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is not
made on any Security. However, any such Holder or subsequent Holder may revoke
the consent as to his Security or portion of a Security if the Trustee receives
written notice of revocation before the date the amendment, supplement or waiver
becomes effective. If an amendment or waiver becomes effective, it thereafter
binds every Securityholder in accordance with its terms.
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Section 7.4. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee shall (in accordance with the specific direction of the Company)
request the Holder of the Security to deliver it to the Trustee. The Trustee
shall (in accordance with the specific direction of the Company) place an
appropriate notation on the Security about the changed terms and return it to
the Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Security shall issue and the Trustee shall
authenticate a new Security that reflects the changed terms. Failure to make the
appropriate notation or issue a new Security shall not affect the validity and
effect of such amendment, supplement or waiver.
Section 7.5. Trustee to Sign Amendments, etc.
The Trustee shall sign any amendment, waiver or Supplemental Indenture
authorized pursuant to this Article 7 if the amendment does not adversely affect
the rights, duties, liabilities or immunities of the Trustee. If it does the
Trustee may, but need not, sign it. In signing or refusing to sign such
amendment, waiver or Supplemental Indenture, the Trustee shall be entitled to
receive and, subject to Section 7.1, shall be fully protected in relying upon,
an Officers' Certificate and an Opinion of Counsel as conclusive evidence that
such amendment, waiver or Supplemental Indenture is authorized or permitted by
this Indenture, that it is not inconsistent herewith, and that it will be valid
and binding upon the Company in accordance with its terms. The Company may not
sign an amendment, waiver or Supplemental Indenture until the Board Of Directors
approves it.
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.1. Termination of Company's Obligations.
(a) This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 6.5 and the Company's, the Trustee's and the
Paying Agent's obligations under Section 8.3 hereof shall survive) when all
outstanding Securities theretofore authenticated and issued have been delivered
(other than destroyed, lost or stolen Securities that have been replaced or
paid) to the Trustee for cancellation and the Company has paid all sums payable
hereunder.
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(b) In addition, the Company may terminate its obligations under the
Securities and this Indenture if:
(i) the Company has irrevocably deposited in trust for the
benefit of the Holders with the Trustee or (at the option of the
Trustee) with a trustee reasonably satisfactory to the Trustee and the
Company, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee at any time prior to the stated
maturity of the Securities or the date of redemption of all of the
Outstanding Securities, money or U.S. Government Obligations maturing
as to principal and interest in such amounts and at such times as are
sufficient (in the reasonable opinion of a nationally recognized firm
of independent accountants expressed in a written certificate thereof
delivered to the Trustee, without consideration of the reinvestment of
such interest) to pay principal of and interest on the Outstanding
Securities (other than Securities replaced pursuant to Section 2.8) to
maturity or redemption, as the case may be, and to pay all other sums
payable by it hereunder; provided, however, that (i) the trustee of the
irrevocable trust shall have been irrevocably instructed to pay such
money or the proceeds of such U.S. Government Obligations to the
Trustee and (ii) the Trustee shall have been irrevocably instructed to
apply such money or the proceeds of such U.S. Government Obligations to
the payment of said principal and interest with respect to the
Securities;
(ii) the Company delivers to the Trustee an Officers'
Certificate stating that all conditions precedent provided for herein
relating to the satisfaction and discharge of this Indenture have been
complied with, and an Opinion of Counsel to the same effect;
(iii) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit or as a result thereof;
(iv) the Company shall have delivered to the Trustee (A)
either (1) a ruling directed to the Trustee received from the Internal
Revenue Service to the effect that the Holders of the Securities will
not recognize income, gain or loss for federal income tax purposes as a
result of the Company's exercise of its option under this clause (b)
and will be subject to federal income tax on the same amount and in the
same manner and at the same time as would have been the case if such
option had not been exercised or (2) an Opinion of Counsel to the same
effect as the ruling described in clause (1), accompanied
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by a ruling to that effect published by the Internal Revenue Service,
and (B) an Opinion of Counsel to the effect that (1) after the passage
of 90 days following the deposit, the trust funds will not be subject
to the preference provisions of Section 547 of Title 11 of the United
States Code (except that no opinion need be given with respect to the
application of subsection (b)(4)(b) thereof), or (2) (x) the Trustee
will hold, for the benefit of the Holders of Securities, a valid and
perfected security interest in such trust funds, and (y) the Holders of
Securities will be entitled to receive adequate protection of their
interests in such trust funds if such trust funds are used; and
(v) the exercise by the Company of its option under this
clause (b) shall not cause the Trustee to have a conflicting interest
as defined in Section 6.10 or for purposes of the TIA with respect to
any securities of the Company.
(c) Notwithstanding the foregoing paragraph (b), prior to the end of
the 90-day period following the deposit referred to above, none of the Company's
obligations under this Indenture shall be discharged and, subsequent to the end
of such 90-day period the Company's respective obligations under Sections 2.2,
2.4, 2.5, 2.8, 2.11, 4.1, 4.2, 4.12, 4.18, 6.5, 6.8, 8.3 and 8.4 shall survive
until the Securities are no longer outstanding. Thereafter, only the Company's
and the Trustee's obligations in Sections 6.5, 8.3 and 8.4 shall survive.
(d) After such irrevocable deposit made pursuant to Section 8.1(b) and
satisfaction of the other conditions set forth herein, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified above.
(e) In order to have money available on a payment date to pay principal
of or interest on the Securities, the U.S. Government Obligations shall be
payable as to principal or interest at least one Business Day before such
payment date in such amounts as will provide the necessary money.
Section 8.2. Application of Trust Money.
The Trustee or a trustee satisfactory to the Trustee and the Company
shall hold in trust money or U.S. Government Obligations deposited with it
pursuant to Section 8.1(b) hereof. It shall apply the deposited money and the
money from U.S.
-61-
<PAGE>
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities.
Section 8.3. Repayment to the Company.
(a) The Trustee and the Paying Agent shall promptly pay to the Company
upon written request any excess money or securities held by them at any time
after the termination of the Company's obligations in accordance with Section
8.1.
(b) The Trustee and the Paying Agent shall pay to the Company, upon
written request, any money held by them for the payment of principal or interest
that remains unclaimed for two years and six months after the date upon which
such payment shall have become due; provided, however, that the Company shall
have caused notice of such payment to be mailed to each Holder entitled thereto
not less than 30 days prior to such repayment. After payment to the Company, the
Holders entitled to the money must look to the Company for payment as general
creditors unless an applicable abandoned property law designates another person,
and all liability of the Trustee and such Paying Agent with respect to such
money shall cease.
Section 8.4. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 8.2 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.1(b)
until such time as the Trustee or Paying Agent is permitted to apply all such
money or U.S. Government Obligations in accordance with Section 8.2; provided,
however, that if the Company has made any payment of interest on or principal of
any Securities because of the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Securities to receive
such payment from the money or U.S. Government Obligations held by the Trustee
or Paying Agent.
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<PAGE>
ARTICLE 9
MISCELLANEOUS
Section 9.1. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any
provision of the TIA or another provision which is required or deemed to be
included in this Indenture by any of the provisions of the TIA, the provision of
the TIA shall control.
Section 9.2. Notices.
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person or mailed by first-class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the other's address:
If to the Company:
Sassco Fashions, Ltd.
.....................
.....................
.....................
.....................
Attention: President
Telecopier No.: (...) ...-....
If to the Trustee:
.....................
.....................
.....................
.....................
Re: Sassco
The Company or the Trustee, by notice to the other, may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to
Securityholders) shall be deemed to have been duly given: at the time delivered
by hand, if personally delivered; five Business Days after being deposited in
the mail, postage prepaid, if mailed; when answered back, if telexed; when
receipt acknowledged, if telecopied; and the next Business Day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next day
delivery.
-63-
<PAGE>
Any notice or communication to a Securityholder shall be mailed by
first-class mail certified or registered, return receipt requested, to his
address shown on the register kept by the Registrar or telecopied to his number,
if any, shown on the register kept by the Registrar for that purpose. Failure to
mail a notice or communication to a Securityholder or any defect in it shall not
affect its sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Securityholders, it
shall mail a copy to the Trustee and each Agent at the same time.
Section 9.3. Table of Contents, Headings, etc.
The Table of Contents and Headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
or provisions hereof.
Section 9.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate (which shall include the statements set forth in Section
9.6) stating that, in the opinion of the signers, all conditions precedent and
covenants, if any, provided for in this Indenture relating to the proposed
action have been complied with.
Section 9.5. Statements Required in Certificate.
Each certificate with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
-64-
<PAGE>
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to entitle him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been complied with.
Section 9.6. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 9.7. Legal Holidays.
If a payment date is a Legal Holiday, payment may be made on the next
succeeding day that is not a Legal Holiday, and interest shall accrue for the
intervening period.
Section 9.8. No Recourse Against Others.
A director, officer, employee or stockholder of the Company, as such,
shall not have any liability for any Obligations of the Company under the
Securities or this Indenture or for any claim based on, in respect of or by
reason of such Obligations or their creation. Each Securityholder by accepting a
Security waives and releases all such liability.
Section 9.9. Governing Law; Submission to Jurisdiction.
(1) The laws of the State of New York shall govern and be used to
construe this Indenture and the Securities.
(2) The Company hereby expressly and irrevocably agrees and consents
that any suit, action or proceeding arising out of or relating to this
Indenture, the Securities and the transactions contemplated herein may be
instituted by the Trustee or any Holder in any State or Federal court sitting in
the County of New York, State of New York, United States of America and, by the
execution and delivery of this Indenture, the Securities, the Company expressly
waives any objection that it may have now or hereafter to the laying of the
-65-
<PAGE>
venue or to the jurisdiction of any such suit, action or proceeding, and
irrevocably submits generally and unconditionally to the jurisdiction of any
such court in any such suit, action or proceeding.
(3) The Company agrees that service of process may be made on the
Company by personal service of a copy of the summons and complaint or other
legal process in any such suit, action or proceeding, or by registered or
certified mail (postage prepaid) to the address of the Company specified in or
pursuant to Section 9.3, or by any other method of service provided for under
the applicable laws in effect in the State of New York.
(4) Nothing contained in subsection (2) or (3) hereof shall preclude
the Trustee or any Holder from bringing any suit, action or proceeding arising
out of or relating to this Indenture, the Securities or the transactions
contemplated herein in the courts of any place where the Company or any of the
Company's property or assets may be found or located or any other place where
jurisdiction may otherwise be obtained.
Section 9.10. No Adverse Integration of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 9.11. Successors.
All agreements of the Trustee in this Indenture shall bind its
successor. All rights of the Securityholders granted hereunder shall inure to
the benefit of their successors.
Section 9.12. Severability.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 9.13. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of
-66-
<PAGE>
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
Section 9.14. Accounting Terms.
All accounting terms not specifically defined herein shall be construed
in accordance with GAAP, consistently applied. Where any accounting
determination or calculation is required to be made under this Agreement, such
determination or calculation (unless otherwise provided) will be made in
accordance with GAAP, consistently applied, except that if because of a change
in GAAP, the Company would have to alter a previously utilized accounting method
or policy in order to remain in compliance with GAAP, such determination or
calculation will continue to be made in accordance with the Company's previous
accounting methods or policy. Unless otherwise specified herein, all financial
statements required to be delivered hereunder shall be prepared and all
financial records shall be maintained in accordance with GAAP.
-67-
<PAGE>
Section 9.15. Transfers of Securities.
Until such time as one or more Securities shall be registered pursuant
to a registration statement filed under the Securities Act and said Securities
shall be transferred pursuant to the terms of an effective registration
statement, the Securities to the extent not so registered shall bear a legend to
that effect, and transfer of such legended Securities shall be subject to the
Company and the Trustee receiving a representation from the prospective
purchaser, reasonably satisfactory in form and substance to the Company and to
the Trustee, that such prospective purchaser is acquiring the Securities for its
own account and not with a view to, or for resale in connection with, the
distribution or other disposition thereof or with any present intention of
distributing or reselling such Securities.
SASSCO FASHIONS, LTD.
By:____________________________
Title:
[_____________________________],
as Trustee
By:____________________________
Title:
-68-
<PAGE>
EXHIBIT A
(Face of Securities)
SASSCO FASHIONS, LTD.
12.75% Senior Notes, Due 2004
SASSCO FASHIONS, LTD., a corporation organized and existing
under the laws of the State of Delaware, promises to pay to ___________
or registered assigns the principal sum of __________ Dollars on
March 31, 2004 as set forth herein.
Interest Payment Dates: September 30, 1997 and each March 31 and
September 30 thereafter.
Record Dates: September 1, 1997, and each September 1 and March 1
thereafter.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
SASSCO FASHIONS, LTD.
By:____________________________
Title:
Attest:
[SEAL]
By:____________________________
Title:
<PAGE>
Dated:
Certificate of Authentication:
This is one of the Securities
referred to in the within-
mentioned Indenture.
_____________________________
as Trustee
By:__________________________
Authorized Officer
<PAGE>
(Back of Securities)
SASSCO FASHIONS, LTD
12.75% Senior Notes, Due 2004
1. Interest. Sassco Fashions, Ltd., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Security
from the date of issuance (the "Issue Date") until maturity at the interest rate
of 12.75% per annum, payable as set forth in paragraph 2.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law, as defined in the Indenture) on overdue
principal at the rate equal to 14.75% per annum; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest (without regard to any applicable grace period)
at the same rate to the extent lawful. Interest shall be computed on the basis
of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company shall pay interest (i) in arrears on
September 30, 1997 to the holders of record of this Security ("Holders") at the
close of business on September 1, 1997, and (ii) semiannually in arrears on each
March 31 and September 30, to the Holders at the close of business on the March
1 and September 1 next preceding the interest payment date, commencing March 31,
1998. Interest shall initially accrue from the date of issuance of this
Security, and the first interest payment date will be September 30, 1997. The
Company shall pay interest on the Securities (except defaulted interest) to the
Persons who are registered Holders of Securities at the close of business on the
record date for the next interest payment date even though Securities are
canceled after the record date and on or before the interest payment date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. The Company shall pay principal, premium and interest in money of the
United States of America that at the time of payment is legal tender for payment
of public and private debts. The Company may, however, pay principal and, except
as set forth below, interest by check payable in such money.
3. Paying Agent and Registrar. ____________________ __________________,
as Trustee (the "Trustee"), shall act as Paying Agent and Registrar. The Company
may change any Paying Agent, Co-Paying Agent, Registrar or Co-Registrar
<PAGE>
without prior notice. The Company or any of its subsidiaries may act in any such
capacity.
4. Indenture. The Company issued the Securities under an Indenture
dated as of February , 1997 (the "Indenture") among the Company and the Trustee.
The terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture. The Securities
are subject to, and qualified by, all such terms, certain of which are
summarized herein, and Holders are referred to the Indenture and such Act for a
statement of such terms. The Securities are general obligations of the Company
limited to $110,000,000 in original aggregate principal amount.
5. Optional Redemption. Commencing on January 1, 2000, the Company may
redeem all or any portion of the Securities, at the redemption prices set forth
in the Indenture, together with accrued interest to the date of such redemption
on the principal amount of Securities redeemed.
6. Repurchase Upon Change of Control. If at any time a Change of
Control occurs, the Company shall be required to offer to repurchase all
outstanding Securities at a price equal to 101% of the outstanding principal
amount thereof plus accrued interest thereon to the date of repurchase of such
Securities. Holders of Securities which are the subject of such an offer to
repurchase shall receive an offer to repurchase from the Company prior to any
related repurchase date, and may elect to have such Securities repurchased by
complying with the instructions issued by the Company in respect of such
repurchase pursuant to Section 4.12 of the Indenture.
7. Notice of Redemption. Notice of redemption pursuant to paragraph 5
of this Security shall be mailed at least 30 days but no more than 60 days
before the redemption date to each Holder to be redeemed at his registered
address. Securities in denominations larger than $1,000 may be redeemed in part
but only in whole multiples of $1,000. In the event of a redemption of less than
all of the Securities, the Securities shall be chosen for redemption by the
Trustee, generally pro rata, by lot or other method authorized in the Indenture.
On and after the redemption date interest ceases to accrue on Securities or
portions of them called for redemption.
If this Security is redeemed subsequent to a record date with respect
to any interest payment date specified
<PAGE>
above and on or prior to such interest payment date, then any accrued interest
shall be paid to the person in whose name this Security is registered at the
close of business on such record date.
8. Denominations, Transfer, Exchange. Subject to certain exceptions set
forth in the Indenture, the Securities are in registered form without coupons in
denominations of $100 and integral multiples thereof. The transfer of Securities
may be registered and Securities may be exchanged as provided in the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Security or portion of a Security selected for redemption.
Also, it need not exchange or register the transfer of any Securities for a
period of 15 days before a selection of Securities to be redeemed.
9. Persons Deemed Owners. The registered Holder of a Security shall be
treated as its owner for all purposes.
10. Amendments and Waivers. Subject to certain exceptions, the
Indenture or the Securities may be amended with the consent of the Holders of at
least a majority in principal amount of the then outstanding Securities, and any
existing Default may be waived with the consent of the Holders of at least a
majority in principal amount of the then outstanding Securities. Without the
consent of any Holder, the Indenture or the Securities may be amended to cure
any ambiguity, defect or inconsistency or to make any change that does not
adversely affect the rights of any Holder.
11. Defaults and Remedies. An Event of Default is: default for Five
Business Days in payment of interest on the Securities; default in payment of
principal on the Securities; failure by the Company to comply with certain of
its agreements in the Indenture or the Securities; failure by the Company for a
specified number of days after notice to it to comply with any of its other
agreements in the Indenture or the Securities; certain defaults under, and the
acceleration prior to the maturity of, other indebtedness of the Company and
certain of its Subsidiaries; certain final judgments which remain undischarged;
certain events of bankruptcy or insolvency. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Securities may declare the principal amount of the
Securities to be due and payable immediately. In the case of an Event of Default
arising from
<PAGE>
certain events of bankruptcy or insolvency, all outstanding Securities become
due and payable immediately without further action or notice. Holders may not
enforce the Indenture or the Securities except as provided in the Indenture. The
Trustee may require indemnity satisfactory to it before it enforces the
Indenture or Securities. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Securities may direct the Trustee in
its exercise of any trust or power.
12. Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for two years and six months, the Trustee and the Paying Agent
will pay the money back to the Company at its request. After that, Security
holders entitled to the money must look to the Company for payment unless an
abandoned property law designates another person and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
13. Discharge Prior to Redemption or Maturity. If the Company deposits
with the Trustee money or U.S. Government Obligations sufficient to pay
principal of, premium, if any, and accrued interest on the Notes to redemption
or maturity, the Company will be discharged from the Indenture and the
Securities, except for certain sections thereof.
14. Trustee Dealings with Company. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for any obligor on the Securities or its Affiliates, and may otherwise
deal with each such obligor or its Affiliates, as if it were not Trustee.
15. No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason of such obligations. Each Holder by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
16. Authentication. This Security shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
17. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivor-ship
<PAGE>
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act.) Terms defined in the Indenture and not otherwise defined in this
Security have the meanings set forth in the Indenture.
18. Indenture. Each Holder, by accepting a Security, agrees to be bound
by all of the terms and provisions of the Indenture, as the same may be amended
from time to time.
19. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Securities and has directed the Trustee to
use CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Securities or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed hereon.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Request may be made to: [INSERT ADDRESS OF
COMPANY].
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to
________________________________________________________________________________
(insert assignee's social security or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code) and irrevocably
appoint agent to transfer this Security on the books of the Company. The agent
may substitute another to act for him.
Date: __________________ Your signature:_______________________________________
________________________________________________________________________________
(Sign exactly as your name appears on the other side
of this Security)
Signature Guaranty:___________________________________
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- --------------------------------X
In re :
Chapter 11 Case No.
THE LESLIE FAY COMPANIES, : 93 B 41724 et seq. (TLB)
INC., et al., Jointly Administered
:
Debtors.
:
- --------------------------------X
DISCLOSURE STATEMENT FOR AMENDED JOINT PLAN OF
REORGANIZATION FOR DEBTORS PURSUANT TO CHAPTER 11
OF THE UNITED STATES BANKRUPTCY CODE PROPOSED
BY DEBTORS AND CREDITORS' COMMITTEE
-------------------------------------------------
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors and Attorneys for the Official
Debtors in Possession Committee of Unsecured Creditors
767 Fifth Avenue of The Leslie Fay Companies, Inc.
New York, New York 10153 51 West 52nd Street
(212) 310-8000 New York, New York 10019
(212) 403-1000
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
TABLE OF CONTENTS
Page
I. INTRODUCTION........................................ 1
A. General........................................ 1
II. OVERVIEW OF PLAN.................................... 3
A. Summary of Classification and Treatment of
Claims and Equity Interests Under the Plan... 5
III. GENERAL INFORMATION................................. 10
A. Description of the Businesses.................. 10
B. Description of Businesses...................... 12
1. The Debtors' Businesses................... 12
2. Principal Non-Debtor Subsidiaries of
The Leslie Fay Companies, Inc........... 13
3. Other Affiliates of The Leslie Fay
Companies, Inc.......................... 13
C. Historical Background.......................... 14
IV. DEBTORS' CHAPTER 11 CASES........................... 14
A. Events Leading to the Filing of the
Chapter 11 Cases............................. 14
1. Working Capital Financing and
Trade Support........................... 14
2. The Accounting Irregularities and
Commencement of the Audit Committee
Investigation........................... 15
3. The Liquidity Problem..................... 15
4. The Interim Credit Facility and
Liquidity Crisis........................ 16
B. Events During the Chapter 11 Cases............. 17
1. Appointment of Unsecured Creditors'
Committee and Equity Committee.......... 17
2. Stabilization of Businesses............... 18
3. International Ladies' Garment Workers
Union and Union of Needletrades,
Industrial and Textile Employees
Matters................................. 22
4. Exclusivity Extensions.................... 24
5. Conduct and Completion of Audit
Committee Investigation and Issuance
of Financial Statements................. 24
6. Appointment of Independent Examiner....... 25
7. Bar Dates and Summary of Claims........... 26
8. Settlement of Claims with Internal
Revenue Service and United States
Customs Service......................... 27
9. The Leslie Fay Companies, Inc. Retire-
ment Plan............................... 28
10. The Development and Implementation
of Business Plans and Consolidation
of Operations........................... 28
11. Development of Outline of Proposed
Reorganization Plan..................... 32
12. Efforts to Market and Sell the Core
Businesses and Development of
Modified Business Plan.................. 32
C. Pending Litigation and Other Legal
Proceedings.................................. 33
1. Class Action.............................. 33
2. Derivative Action......................... 33
3. Governmental Investigations............... 33
4. Leslie Fay v. BDO Seidman & Co............ 34
5. Leslie Fay v. Corporate Property
Associates 3............................ 34
6. Civil Rights Actions and Administra-
tive Proceedings........................ 35
7. Preference Actions........................ 35
8. Other Significant Litigation.............. 35
V. THE JOINT PLAN OF REORGANIZATION.................... 36
A. Introduction................................... 36
B. Analysis of Claims Against the Debtors......... 36
C. Transactions Among Intercompany Affiliates..... 39
D. Classification and Treatment of Claims
and Equity Interests Under the Plan.......... 40
i
<PAGE>
Page
1. Classification............................ 40
2. Administrative Expense Claims............. 41
3. Priority Tax Claims....................... 41
4. Priority Non-Tax Claims (Class 1)
-- Unimpaired........................... 42
5. Secured Claims (Class 2) --
Unimpaired.............................. 42
6. Bank Claims (Class 3) -- Impaired......... 42
7. Senior Note Claims (Class 4) --
Impaired................................ 43
8. Senior Subordinated Note Claims
(Class 5) -- Impaired................... 43
9. General Unsecured Claims (Class 6)
-- Impaired............................. 43
10. Convenience Claims (Class 7) --
Unimpaired.............................. 44
11. Statutorily Subordinated Claims
(Class 8) -- Impaired................... 44
12. Leslie Fay Equity Interests
(Class 9) -- Impaired................... 44
13. Hue Equity Interests (Class 10)
-- Impaired............................. 44
14. Spitalnick Equity Interests
(Class 11) -- Impaired.................. 45
15. Licensing Equity Interests
(Class 12) -- Impaired.................. 45
16. Retail Outlets Equity Interests
(Class 13) -- Impaired.................. 45
17. Retail (Alabama) Equity Interests
(Class 14) -- Impaired.................. 45
18. Retail (California) Equity Interests
(Class 15) -- Impaired.................. 45
19. Retail (Iowa) Equity Interests
(Class 16) -- Impaired.................. 45
20. Retail (Tennessee) Equity Interests
(Class 17) -- Impaired.................. 45
E. Substantive Consolidation and Merger
of Corporate Entities........................ 46
F. Disbursing Agent............................... 47
G. Restructuring Transactions --
Separation of Sassco and Leslie Fay.......... 48
1. Formation of New Sassco and Transfer
of Leslie Fay Assets.................... 48
2. New Sassco Matters........................ 49
3. Reorganized Leslie Fay Matters............ 50
4. Appointment of Plan Administrator......... 51
H. Securities to Be Issued Pursuant to Plan....... 52
1. Reorganized Leslie Fay Common Stock....... 52
2. New Sassco Common Stock................... 52
3. Other Securities.......................... 52
4. Securities Law Matters.................... 53
5. Hart-Scott-Rodino Act Filing
Requirements............................ 55
I. Summary of Other Provisions of the Plan........ 56
1. Conditions Precedent to the Confir-
mation of Plan and Effective Date....... 56
2. Executory Contracts and Unexpired
Leases.................................. 57
3. Provisions Governing Distributions........ 58
4. Treatment of Disputed Claims.............. 60
5. Prosecution of Claims Held by
the Debtors............................. 61
6. Powers and Rights of Disbursing Agent..... 61
7. Powers and Rights of Plan Administrator... 62
8. Dissolution of the Creditors' Committee... 62
9. Discharge of the Debtors; Injunction...... 62
10. Vesting and Liens......................... 63
11. Post-Effective Date Fees and Expenses
of Professional Persons................. 63
12. Retention of Jurisdiction................. 63
13. Modification/Revocation of Plan........... 63
14. Management of Reorganized Leslie Fay
and New Sassco.......................... 64
15. Limited Release of Directors, Officers
and Employees by Debtors................ 64
16. Exculpation/Limitation of Liability in
Connection with the Plan, Disclosure
Statement and Related Documents......... 64
17. Preservation of Causes of Action.......... 65
18. Supplemental Documents.................... 65
ii
<PAGE>
Page
VI. CERTAIN FACTORS TO BE CONSIDERED.................... 65
A. Variances from Projections..................... 66
B. Lack of Trading Market......................... 66
C. High Leverage.................................. 66
D. Ability to Service Debt........................ 66
E. Competitive Conditions......................... 67
F. Dividend Policies.............................. 67
G. Certain Tax Matters............................ 67
VII. VOTING PROCEDURES AND REQUIREMENTS.................. 67
A. Holders of Claims.............................. 67
B. Parties in Interest Entitled to Vote........... 68
C. Classes Impaired and Entitled to Vote
Under the Plan............................... 68
D. Vote Required for Acceptance by Class
of Claims.................................... 68
VIII. CONFIRMATION OF THE PLAN............................ 68
A. Confirmation Hearing........................... 68
B. Requirements for Confirmation of the Plan...... 69
1. Acceptance................................ 69
2. Fair and Equitable Test................... 69
3. Feasibility............................... 70
4. "Best Interests" Test..................... 70
IX. PROJECTIONS......................................... 71
A. Introduction................................... 71
1. Responsibility for and Purpose
of the Projections...................... 71
2. Summary of Significant Assumptions........ 73
B. Significant Balance Sheet Adjustments.......... 76
C. Long-term Debt................................. 76
X. FINANCIAL INFORMATION............................... 86
A. General........................................ 86
B. Selected Financial Data........................ 86
C. Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................ 86
XI. VALUATION........................................... 86
A. Estimated Liquidation Value of Assets.......... 86
B. Reorganization Value........................... 88
1. Reorganized Leslie Fay.................... 88
2. New Sassco................................ 88
3. Reorganized Leslie Fay.................... 90
XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION
OF THE PLAN....................................... 90
A. Liquidation Under Chapter 7.................... 90
B. Alternative Plan of Reorganization............. 90
XIII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE PLAN....................................... 91
A. Transaction Steps.............................. 91
B. Consequences to the Debtors.................... 92
1. Transfers of Sassco Assets................ 92
2. Reorganized Leslie Fay Tax Attributes..... 93
3. Alternative Minimum Tax................... 94
4. Treatment of New Sassco Notes............. 94
iii
<PAGE>
Page
C. Consequences to Holders of Certain
Allowed Unsecured Claims..................... 94
1. Gain or Loss.............................. 95
2. Treatment of Accrued Interest............. 96
3. Original Issue Discount on
New Sassco Notes........................ 96
4. Future Stock Gains........................ 96
5. Withholding and Reporting Requirements.... 97
XIV. CONCLUSION.......................................... 98
EXHIBIT A Plan of Reorganization
EXHIBIT B Form of Disclosure Order
EXHIBIT C The Leslie Fay Companies, Inc. Annual Report on Form
10-K for the Fiscal Year Ended December 30, 1995
EXHIBIT D The Leslie Fay Companies, Inc. Quarterly Report on
Form 10-Q for the Fiscal Quarter Ended September 28,
1996
EXHIBIT E Officers and Directors of Debtors as of November 15,
1996
iv
<PAGE>
I.
INTRODUCTION
A. GENERAL
The Leslie Fay Companies, Inc., Hue, Inc., Spitalnick Corp.,
Leslie Fay Licensing Corp., Leslie Fay Retail Outlets, Inc., Leslie Fay
Factory Outlet (Alabama), Inc., Leslie Fay Factory Outlet (California),
Inc., Leslie Fay Factory Outlet (Iowa), Inc. and Leslie Fay Factory
Outlet (Tennessee), Inc.(1) submit this Disclosure Statement, dated
December 5, 1996, in connection with the solicitation of acceptances
and rejections with respect to the Amended Joint Plan of Reorganization
for Debtors Pursuant to Chapter 11 of the United States Bankruptcy
Code, dated December 5, 1996 (the "Plan"), a copy of which is annexed
hereto as Exhibit "A". Unless otherwise defined herein, capitalized
terms used herein shall have the same meanings ascribed to them in the
Plan.
The purpose of this Disclosure Statement is to set forth
information (1) regarding the history of the Debtors, their businesses
and the Chapter 11 Cases, (2) concerning the Plan and alternatives to
the Plan, (3) advising Creditors and Equity Interest holders of their
rights under the Plan, (4) assisting Creditors in making an informed
judgment regarding whether they should vote to accept or reject the
Plan, and (5) assisting the Bankruptcy Court in determining whether the
Plan complies with the provisions of chapter 11 of the Bankruptcy Code
and should be confirmed.
By order, dated December 9, 1996 (the "Disclosure Order"), a
copy of which is annexed hereto as Exhibit "B", the Bankruptcy Court
approved this Disclosure Statement as containing "adequate information"
in accordance with section 1125 of the Bankruptcy Code, to enable a
hypothetical, reasonable investor typical of holders of Claims against
the Debtors to make an informed judgment as to whether to accept or
reject the Plan, and authorized its use in connection with the
solicitation of votes accepting the Plan. APPROVAL OF THIS DISCLOSURE
STATEMENT DOES NOT, HOWEVER, CONSTITUTE A DETERMINATION BY THE
BANKRUPTCY COURT AS TO THE FAIRNESS OR MERITS OF THE PLAN. No
solicitation of votes may be made except pursuant to this Disclosure
Statement and section 1125 of the Bankruptcy Code. In voting on the
Plan, Creditors should not rely on any information relating to the
Debtors and their businesses, other than that contained in this
Disclosure Statement, the Plan and all exhibits thereto.
THIS DISCLOSURE STATEMENT IS NOT INTENDED TO REPLACE CAREFUL
AND DETAILED REVIEW AND ANALYSIS OF THE PLAN BY EACH HOLDER OF A CLAIM
OR EQUITY INTEREST. IT IS INTENDED TO AID AND SUPPLEMENT THAT REVIEW.
THE DESCRIPTION OF THE PLAN IS A SUMMARY ONLY. CREDITORS, EQUITY
INTEREST HOLDERS AND OTHER PARTIES IN INTEREST ARE CAUTIONED TO REVIEW
THE PLAN AND ANY RELATED ATTACHMENTS FOR A FULL UNDERSTANDING OF THE
PLAN'S PROVISIONS. THIS DISCLOSURE STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE PLAN.
Pursuant to the provisions of the Bankruptcy Code,
only classes of claims or equity interests which are (i)
"impaired" by a plan of reorganization and (ii) entitled to
receive a distribution under such a plan are entitled to vote
on the plan. Only Class 3 (Bank Claims), Class 4 (Senior Note
Claims), Class 5 (Senior Subordinated Note Claims) and Class 6
(General Unsecured Claims) are impaired by and entitled to
receive a distribution under the Plan, and the holders of
Claims in those Classes are the only Entities entitled to vote
to accept or reject the Plan. Class 1 (Priority Non-Tax
Claims), Class 2 (Secured Claims) and Class 7 (Convenience
Claims) are unimpaired by the Plan and the holders thereof are
conclusively presumed to have accepted the Plan. Class 8
(Statutorily Subordinated Claims), Class 9 (Leslie Fay Equity
Interests), Class 10 (Hue Equity Interests), Class 11
(Spitalnick Equity Interests), Class 12 (Licensing Equity
Interests), Class 13 (Retail Outlets Equity Interests), Class
14 (Retail (Alabama) Equity Interests), Class 15 (Retail
(California) Equity Interests), Class 16 (Retail (Iowa) Equity
Interests) and Class 17 (Retail (Tennessee) Equity Interests)
are impaired by the Plan, and the holders thereof will not
receive any distribution on account of their interests under
the Plan and are conclusively presumed to have rejected the
Plan.
--------------------
(1) Retail Outlets, Retail (Alabama), Retail (California),
Retail (Iowa) and Retail (Tennessee) are sometimes hereinafter
collectively referred to as the "Retail Debtors".
1
<PAGE>
THE RECORD DATE FOR DETERMINING THE HOLDERS OF CLAIMS THAT
MAY VOTE ON THE PLAN IS DECEMBER 5, 1996.
In certain instances, accompanying this Disclosure Statement
are a ballot for casting your vote(s) on the Plan and making elections
of alternative distributions and a pre-addressed envelope for the
return of the ballot. AS NOTED ABOVE, BALLOTS FOR ACCEPTANCE OR
REJECTION OF THE PLAN ARE BEING PROVIDED ONLY TO HOLDERS OF CLAIMS IN
CLASS 3 (BANK CLAIMS), CLASS 4 (SENIOR NOTE CLAIMS), CLASS 5 (SENIOR
SUBORDINATED NOTE CLAIMS) and CLASS 6 (GENERAL UNSECURED CLAIMS),
BECAUSE THEY ARE THE ONLY HOLDERS OF CLAIMS THAT MAY VOTE TO ACCEPT OR
REJECT THE PLAN. If you are the holder of a Claim in Class 3 (Bank
Claims), Class 4 (Senior Note Claims), Class 5 (Senior Subordinated
Note Claims) or Class 6 (General Unsecured Claims) and did not receive
a Ballot, received a damaged or illegible Ballot, or lost your Ballot,
or if you are a party in interest and have any questions concerning the
Disclosure Statement, any of the Exhibits hereto, the Plan or the
voting procedures in respect thereof, please call Mr. John J. Caliolo,
c/o The Leslie Fay Companies, Inc., at (212) 221- 4276.
THE CREDITORS' COMMITTEE IS A CO-PROPONENT OF THE
PLAN WITH THE DEBTORS AND RECOMMENDS THAT YOU VOTE TO ACCEPT
THE PLAN.
After carefully reviewing this Disclosure Statement and the
exhibits attached hereto, please indicate your vote with respect to the
Plan and, where relevant, your election of distribution, on the
enclosed Ballot and return it in the envelope provided. Voting
procedures and requirements are explained in greater detail elsewhere
in this Disclosure Statement. PLEASE VOTE AND RETURN YOUR BALLOT TO:
BY MAIL: LESLIE FAY PLAN BALLOTS
POST OFFICE BOX 1436
NEW YORK, NEW YORK 10018-1436
ATTN: JOHN J. CALIOLO
BY HAND DELIVERY: LESLIE FAY PLAN BALLOTS
1412 BROADWAY, 2ND FLOOR
NEW YORK, NEW YORK 10018-5281
IN ORDER TO BE COUNTED, BALLOTS MUST BE RECEIVED BY 5:00 P.M. (EASTERN
STANDARD TIME) ON JANUARY 8, 1997. ANY EXECUTED BALLOTS WHICH ARE
TIMELY RECEIVED BUT WHICH DO NOT INDICATE EITHER AN ACCEPTANCE OR
REJECTION OF THE PLAN SHALL BE DEEMED TO CONSTITUTE AN ACCEPTANCE OF
THE PLAN.
The Proponents believe that prompt confirmation and
implementation of the Plan is in the best interests of the Debtors, all
Creditors and Equity Interest holders and the Debtors' chapter 11
estates. Moreover, the Proponents believe that, upon consummation of
the Plan, Reorganized Leslie Fay and New Sassco, taken together, will
be able to provide a substantial long-term return on Creditors' Claims.
In accordance with the Disclosure Order and section 1128 of
the Bankruptcy Code, the Bankruptcy Court fixed January 14, 1997, at
2:00 p.m., in the United States Bankruptcy Court, Alexander Hamilton
Customs House, Room 723, One Bowling Green, New York, New York 10004,
as the date, time and place of a hearing to consider confirmation of
the Plan and January 8, 1997, as the last date for filing objections to
confirmation of the Plan and voting to accept or reject the Plan,
respectively. The hearing on confirmation of the Plan may be adjourned
from time to time without further notice except for the announcement of
adjourned dates and times at the hearing on confirmation or any
adjournment thereof.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE
MADE AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED HEREIN, AND THE
DELIVERY OF THIS DISCLOSURE STATEMENT DOES NOT IMPLY THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN SINCE SUCH DATE.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED BY THE DEBTORS IN
CONSULTATION WITH THE CREDITORS' COMMITTEE. HOLDERS OF CLAIMS ENTITLED
TO VOTE SHOULD READ IT CAREFULLY AND IN ITS ENTIRETY, AND WHERE
POSSIBLE, CONSULT WITH COUNSEL, PRIOR TO VOTING ON THE PLAN.
2
<PAGE>
THIS DISCLOSURE STATEMENT SUMMARIZES THE TERMS OF THE PLAN,
WHICH SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE PLAN, AND IF ANY INCONSISTENCY EXISTS BETWEEN THE TERMS AND
PROVISIONS OF THE PLAN AND THIS DISCLOSURE STATEMENT, THE TERMS AND
PROVISIONS OF THE PLAN ARE CONTROLLING. CERTAIN OF THE STATEMENTS
CONTAINED IN THIS DISCLOSURE STATEMENT ARE FORWARD LOOKING PROJECTIONS
AND FORECASTS, BASED UPON CERTAIN ESTIMATES AND ASSUMPTIONS. THERE CAN
BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE REFLECTIVE OF ACTUAL
OUTCOMES.(2) ALL HOLDERS OF CLAIMS ENTITLED TO VOTE SHOULD READ
CAREFULLY AND CONSIDER FULLY SECTION VI BELOW, ENTITLED "CERTAIN
FACTORS TO BE CONSIDERED," BEFORE VOTING TO ACCEPT OR REJECT THE PLAN.
II.
OVERVIEW OF PLAN
The following is a brief overview of the material provisions
of the Plan and is qualified in its entirety by reference to the full
text of the Plan. For a more detailed description of the terms and
provisions of the Plan, see Section V below, The Joint Plan of
Reorganization. The Plan is a joint plan of reorganization and provides
for the substantive consolidation of the Debtors' chapter 11 estates
for the purposes of, among other things, voting and distribution
purposes under the Plan. As a result, the Plan is a single plan of
reorganization for all Debtors, and may not be confirmed for any Debtor
without being confirmed for all Debtors, unless consented to by the
Debtors and authorized by the Bankruptcy Court.
The Plan will resolve approximately $327 million of Unsecured
Claims and all Secured Claims against the Debtors. In addition, all
prepetition equity interests in the Debtors will be cancelled. The Plan
provides for alternative treatment of certain Classes of Unsecured
Claims depending upon the satisfaction of certain conditions precedent
and the distribution of New Securities having a reorganization value(3)
of approximately Two Hundred Sixty Million ($260,000,000) and a de
minimis amount of Cash.
The Plan is based on two primary components -- the
restructuring of Leslie Fay's core businesses and the transfer of its
Sassco division to Leslie Fay's creditors. Under the first component of
the Plan, Leslie Fay is to be reorganized as "Reorganized Leslie Fay"
on a streamlined basis around its Dress Division and Sportswear
Division line of products (traditionally, Leslie Fay's core
businesses), and the Debtors' interests in various trademarks, with
creditors to receive Reorganized Leslie Fay Common Stock. Under the
second component of the Plan, Sassco, a leading producer of women's
suits, will be transferred to creditors as a new entity -- "New Sassco"
-- with creditors to receive New Sassco Common Stock and New Sassco
Notes. In both companies, management will have options to purchase
common stock at certain negotiated prices.
Under the Plan, on the Effective Date, Reorganized Leslie Fay
will sell certain specified assets to New Sassco (the "Special Sassco
Assets") for Eight Million Dollars ($8,000,000), plus an additional sum
of Cash currently estimated to be approximately Twenty-Two Million
Dollars ($22,000,000), which includes Cash necessary to consummate the
Plan, including payments to holders of Allowed Priority Claims, Allowed
Administrative Claims and other costs and expenses arising from the
implementation of the Plan. In addition, Reorganized Leslie Fay will
sell and transfer to the Creditor Representative, on behalf
---------------------
(2) This Disclosure Statement may not be relied upon by any persons for
any purpose other than by holders of Claims entitled to vote for the
purpose of determining whether to vote to accept or reject the Plan,
and nothing contained herein shall constitute an admission of any fact
or liability by any party, or be admissible in any proceeding involving
the Debtors or any other party, or be deemed conclusive evidence of the
tax or other legal effects of the reorganization on the Debtors or on
holders of Claims or Equity Interests.
(3) "Reorganization value" is a term of art imputing a value to the
reorganized entity that may be achieved over time after the impact of
the chapter 11 cases on the businesses and results of operations have
been overcome, the businesses have been stabilized and have
demonstrated their ability to produce results consistent with
projections. "Reorganization value" is not intended to mean trading
value. There can be no assurances that New Sassco or Reorganized Leslie
Fay will achieve their respective "reorganization values." See Section
IX below, Valuation.
3
<PAGE>
of the Creditors holding Claims in Class 3 (Bank Claims), Class 4
(Senior Note Claims), Class 5 (Senior Subordinated Note Claims) and
Class 6 (General Unsecured Claims), an undivided eighty percent (80%)
interest in the Sassco Assets, other than the Special Sassco Assets,
(subject to 80% of the outstanding Sassco Liabilities), in exchange for
the cancellation of Claims in such Classes in an amount equal to the
fair market value of the Sassco Assets. In turn, the Creditor
Representative, on behalf of the Creditors holding Claims in Class 3
(Bank Claims), Class 4 (Senior Note Claims), Class 5 (Senior
Subordinated Note Claims) and Class 6 (General Unsecured Claims), will
contribute to New Sassco such interest in the Sassco Assets, other than
the Special Sassco Assets, received by the Creditor Representative
(subject to eighty percent (80%) of the outstanding Sassco
Liabilities). Reorganized Leslie Fay will sell and transfer to New
Sassco, an undivided twenty percent (20%) interest in the Sassco Assets
(subject to twenty percent (20%) of the outstanding Sassco
Liabilities). New Sassco will assume all of the Sassco Liabilities and
issue to the Creditor Representative, on behalf of the Creditors
holding Claims in Classes 3, 4, 5 and 6, (i) Five Million Four Hundred
Forty Thousand (5,440,000) shares of New Sassco Common Stock and (ii)
Eighty-Eight Million Dollars ($88,000,000) in aggregate principal
amount of New Sassco Notes. In addition, New Sassco will transfer to
the Creditor Representative on behalf of the creditors holding claims
in Classes 3, 4, 5 and 6 and at the direction of Reorganized Leslie Fay
(i) One Million Three Hundred Sixty Thousand (1,360,000) shares of New
Sassco Common Stock and (ii) Twenty-Two Million Dollars ($22,000,000)
in aggregate principal amount of New Sassco Notes. The Creditor
Representative will remit to the Disbursing Agent for distribution to
the Creditors holding Claims in Classes 3, 4, 5 and 6 all of the New
Sassco Notes and shares of the New Sassco Common Stock received under
the Plan.
Further, Reorganized Leslie Fay will (a) distribute Three
Million Four Hundred Thousand (3,400,000) shares of Reorganized Leslie
Fay Common Stock to Creditors holding Claims in Classes 3, 4, 5 and 6
and (b) transfer (i) Eight Million Dollars ($8,000,000) in Cash and all
of the Dress and Sportswear Assets to Reorganized Leslie Fay Operating
Company, (ii) all of the Leslie Fay Intellectual Property to
Reorganized Leslie Fay Licensing Company, and (iii) all of the
Castleberry Assets to New Castleberry (subject to the Castleberry
Liabilities).
For a discussion of the projected financial statements of New
Sassco and Reorganized Leslie Fay, see Section IX below, Projections.
The Plan provides for the classification and treatment of
Claims against and Equity Interests in the Debtors by substantively
consolidating each into a single legal entity. See Section V.E. below,
The Joint Plan of Reorganization -- Substantive Consolidation and
Merger of Corporate Entities. The Plan designates eight (8) Classes of
Claims and nine (9) Classes of Equity Interests which classify all
Claims against and Equity Interests in the Debtors. These classes take
into account the differing nature and priority under the Bankruptcy
Code of the various Claims and Equity Interests. The Plan's
classification and treatment of Claims is the same for Claims against
all of the Debtors.
The Plan provides generally for payment in full, in Cash, of
all Allowed Administrative Expense Claims, Allowed Priority Tax Claims,
Allowed Priority Non-Tax Claims and Allowed Convenience Claims.
Additionally, any holder of an Allowed Unsecured Claim in an amount
greater than Two Hundred Fifty Dollars ($250.00) that elects to reduce
the amount of such Claim to Two Hundred Fifty Dollars ($250.00) will
receive payment in full, in Cash, of such reduced Claim. The Plan
further provides for the payment in full, in Cash, of all Allowed
Secured Claims, or alternative treatment of such Claims as unimpaired
under the Plan.
Under the Plan, all holders of Allowed Bank Claims and
Allowed Senior Note Claims will receive New Sassco Notes, New Sassco
Common Stock, Reorganized Leslie Fay Common Stock, and Cash ratably and
concurrently. Additionally, all holders of Allowed General Unsecured
Claims which do not elect to reduce their claims in the manner
discussed above will receive New Sassco Notes, New Sassco Common Stock,
Reorganized Leslie Fay Common Stock, and Cash ratably and concurrently
so that all such Claim holders will receive the same percentage
distribution with respect to their Allowed Claims. Furthermore, all
holders of Allowed Senior Subordinated Note Claims will receive New
Sassco Common Stock and Reorganized Leslie Fay Common Stock, ratably
and concurrently so that all such Claim holders will receive the same
percentage distribution with respect to their Allowed Claims.
4
<PAGE>
A. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND
EQUITY INTERESTS UNDER THE PLAN
The following chart(4) summarizes distributions to holders of
Allowed Claims and Allowed Equity Interests under the Plan. The
recoveries set forth below are projected recoveries based upon
assumptions described in Section IX below, Projections. Values for
recoveries under the Plan assume that the Reorganized Leslie Fay Common
Stock that would be issued and outstanding after giving effect to all
distributions under the Plan, but prior to the exercise of management
stock options discussed below, see Section V.G.3. below, The Joint Plan
of Reorganization -- Restructuring Transactions -- Separation of Sassco
and Leslie Fay -- Reorganized Leslie Fay Matters, will have an
aggregate reorganization value ranging from $20 million to $30 million.
For purposes of illustrating the estimated percentage recovery for each
Class in the chart below, the value of the Reorganized Leslie Fay
Common Stock to be issued and outstanding after giving effect to all
distributions under the Plan was assumed to be $25 million, the
approximate midpoint of the range specified above. It is anticipated
that approximately three million four hundred thousand (3,400,000)
shares of Reorganized Leslie Fay Common Stock will be issued and
outstanding as of the Effective Date after giving effect to all
distributions under the Plan. One hundred percent (100%) of these
shares will be issued to Creditors, subject to dilution upon the
exercise of options granted to management.
Reorganization values for recoveries under the Plan assume
that the New Sassco Common Stock that would be issued and outstanding
after giving effect to all distributions under the Plan, but prior to
the exercise of management stock options discussed below, see Section
V.G.2. below, The Joint Plan of Reorganization -- Restructuring
Transactions -- Separation of Sassco and Leslie Fay -- New Sassco
Matters, will have an aggregate reorganization value ranging from $220
million to $260 million prior to deducting the $110 million in original
principal amount of New Sassco Notes and $5 million of new debt to be
issued by New Sassco in connection with the acquisition by New Sassco
of a trademark. For purposes of illustrating the estimated percentage
recovery for each Class in the chart below, the reorganization value of
the New Sassco Common Stock to be issued and outstanding after giving
effect to all distributions under the Plan was assumed to be $240
million, the approximate midpoint of the range specified above, less a
total of $115 million in new debt to be issued by New Sassco.
Accordingly, the reorganization value of the New Sassco Common Stock is
$125 million. It is anticipated that approximately six million eight
hundred thousand (6,800,000) shares of New Sassco Common Stock will be
issued and outstanding as of the Effective Date after giving effect to
all distributions under the Plan. One hundred percent (100%) of these
shares will be issued to Creditors, subject to dilution upon the
exercise of options granted to management.
THERE CAN BE NO ASSURANCE THAT THE REORGANIZED LESLIE FAY
COMMON STOCK OR NEW SASSCO COMMON STOCK TO BE ISSUED IN ACCORDANCE WITH
THE PLAN WOULD ACTUALLY TRADE AT A PRICE PER SHARE WITHIN THESE IMPUTED
ESTIMATED RANGES OF REORGANIZATION VALUES OR THAT ANY TRADING MARKET
FOR THE REORGANIZED LESLIE FAY COMMON STOCK OR NEW SASSCO COMMON STOCK
WILL DEVELOP OR, IF DEVELOPED, THAT IT WOULD BE SUSTAINED. SEE SECTION
VI.B., CERTAIN FACTORS TO BE CONSIDERED -- LACK OF TRADING MARKET.
SIMILARLY, THERE CAN BE NO ASSURANCE THAT THE NEW SASSCO NOTES WOULD
ACTUALLY TRADE AT PAR, THAT ANY MARKET THEREFOR WILL DEVELOP OR, IF
DEVELOPED, THAT IT WILL BE SUSTAINED.
THE ASSUMED RANGE OF THE REORGANIZATION VALUES AS OF
NOVEMBER 15, 1996, REFLECTS WORK PERFORMED BY THE BLACKSTONE
GROUP L.P. ("BLACKSTONE") ON THE BASIS OF INFORMATION IN
RESPECT OF THE BUSINESSES AND ASSETS OF THE DEBTORS AVAILABLE
TO BLACKSTONE AS OF NOVEMBER 15, 1996. NEITHER BLACKSTONE NOR
THE PROPONENTS HAVE UPDATED THE ESTIMATED RANGE OF THE
REORGANIZATION ENTERPRISE VALUES TO REFLECT INFORMATION
AVAILABLE TO THE PROPONENTS OR BLACKSTONE SUBSEQUENT TO
NOVEMBER 15, 1996.
--------------------
(4) This chart is only a summary of the classification and treatment of
Claims and Equity Interests under the Plan. Reference should be made to
the entire Disclosure Statement and the Plan for a complete description
of the classification and treatment of Claims and Equity Interests.
5
<PAGE>
<TABLE>
<CAPTION>
Estimated Aggregate Estimated
Claim/ Treatment of Amount of Percentage Recovery
Class Interest Claim/Interest Allowed Claims of Allowed Claims
----- -------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
-- Administrative Payment (a) in full, in Cash, $2,873,892(5) 100%
Expense Claim on the later of the Effective
Date and the date such Claim becomes
an Allowed Claim, or (b) on such
other terms to which the parties agree;
provided, however, that Administrative
Expense Claims incurred in the ordinary
course of business will be paid as such
Claims become due and payable in the
ordinary course of business.
-- Priority At the Debtors' option, payment (a) in $1,474,129 100%
Tax Claims full, in Cash, on the later of the
Effective Date and the date such Claim is
Allowed, (b) in up to twenty-four (24) equal
quarterly Cash installments commencing on the
first (1st) Business Day following the date of
assessment of such Allowed Priority Tax Claim,
together with interest thereon at an annual rate
to be established by the Bankruptcy Court at the
Confirmation Hearing, or (c) upon such other
terms to which the parties agree.
1 Priority Non- Unimpaired. Payment (a) in full, in Cash, $6,513,200 100%
Tax Claims upon the later of the Effective Date and
the date on which such Claim becomes an Allowed
Claim, or (b) upon such other terms to which the
parties agree.
2 Secured Claims Unimpaired. On the later of the Effective -0- 100%
Date and the date on which such Claim
becomes an Allowed Claim, at Debtors'
option, an Allowed Claim will be (a) paid in
full, in Cash, (b) paid the sale or disposition
proceeds of the property securing the Allowed
Claim to the extent of the value of the
claimant's interest in such property, (c)
satisfied by delivery or retention of the
property securing such Claim, or (d) paid in such
other manner as necessary to satisfy the
requirements of chapter 11 of the Bankruptcy
Code.
</TABLE>
----------------------
(5) Such amount does not include (i) professional fees and expenses which
will be paid from and after the date hereof pursuant to further order(s) of
the Bankruptcy Court or (ii) holdbacks previously imposed with respect to
such professional fees. Such holdbacks are estimated to be approximately
$4.8 million.
6
<PAGE>
<TABLE>
<CAPTION>
Estimated Aggregate Estimated
Claim/ Treatment of Amount of Percentage Recovery
Class Interest Claim/Interest Allowed Claims of Allowed Claims
----- -------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
3 Bank Claims Impaired. Initial distributions on or as $178,003,850 84.3%
soon as reasonably practicable after the later of
the Effective Date and the date on which such
Claim becomes an Allowed Claim of (a) the
aggregate principal amount of New Sassco Notes
equal to such holder's Pro Rata Share of the Bank
Sassco Note Amount; (b) the aggregate number of
shares of New Sassco Common Stock equal to such
holder's Pro Rata Share of the Bank Sassco Stock
Amount; (c) the aggregate number of shares of
Reorganized Leslie Fay Common Stock equal to such
holder's Pro Rata Share of the Bank Leslie Fay
Stock Amount; and (d) such holder's Pro Rata
Share of the Bank Cash Amount, if any.
Thereafter, quarterly distributions, commencing
on the first (1st) Business Day after the close
of the first (1st) full calendar quarter
following the date of the initial distributions,
of Pro Rata Shares of Cash Available for
Distribution, if any, and New Securities
Available for Distribution until all Plan Assets
have been distributed.
4 Senior Note Claims Impaired. Initial distributions on or $50,052,943 84.3%
as soon as reasonably practicable
after the later of the Effective Date and the
date on which such Claim becomes an Allowed Claim
of (a) the aggregate principal amount of New
Sassco Notes equal to such holder's Pro Rata
Share of the Senior Note Sassco Note Amount; (b)
the aggregate number of shares of New Sassco
Common Stock equal to such holder's Pro Rata
Share of the Senior Note Sassco Common Stock
Amount; (c) the aggregate number of shares of
Reorganized Leslie Fay Common Stock equal to such
holder's Pro Rata Share of the Senior Note Leslie
Fay Stock Amount; and (d) such holder's Pro Rata
Share of the Senior Note Cash Amount, if any.
Thereafter, quarterly distributions commencing on
the first (1st) Business Day after the close of
the first (1st) full calendar quarter following
the date of the initial distributions of Pro Rata
Shares of Cash Available for Distribution and New
Securities Available for Distribution until all
Plan Assets have been distributed.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Estimated Aggregate Estimated
Claim/ Treatment of Amount of Percentage Recovery
Class Interest Claim/Interest Allowed Claims of Allowed Claims
----- -------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
5 Senior Impaired. Commencing on the Effective Date, $25,029,278 36.0%
Subordinated such holder's Pro Rata Share of (a) Four
Note Hundred Eight Thousand (408,000) shares of New
Sassco Common Stock and (b) Two Hundred Four
Thousand (204,000) shares of Reorganized Leslie
Fay Common Stock.
6 General Unsecured Impaired. Initial distribution on, or as $73,983,266(6) 79.5%
Claims soon as reasonably practicable after, the
later of the Effective Date and the date on which
such Claim becomes an Allowed Claim of (a) the
aggregate principal amount of New Sassco Notes
equal to such holder's Pro Rata Share of the
General Unsecured Sassco Note Amount; (b) the
aggregate number of shares of New Sassco Common
Stock equal to such holder's Pro Rata Share of
the General Unsecured Sassco Stock Amount; (c)
the aggregate number of shares of Reorganized
Leslie Fay Common Stock equal to such holder's
Pro Rata Share of the General Unsecured Leslie
Fay Stock Amount; and (d) such holder's Pro Rata
Share of the General Unsecured Cash Amount, if
any. Thereafter, quarterly distributions,
commencing on the first (1st) Business Day after
the close of the first (1st) full calendar
quarter following the date of the initial
distribution, of Pro Rata Shares of Cash
Available for Distribution, if any, and New
Securities Available for Distribution until all
Plan Assets have been distributed.
Alternative Treatment for Claims in Excess of
$250.00. Any holder of an Allowed Unsecured Claim
who elects to reduce the amount of such Allowed
Claim to Two Hundred Fifty Dollars ($250.00)
shall, at such holder's option, be entitled to
receive, based on such Allowed Claim as so
reduced, distributions in Cash, in full
settlement, satisfaction, release and discharge
of such Allowed Claim.
</TABLE>
-----------------------
(6) The estimated aggregate amount of Allowed Class 6 (General Unsecured
Claims) and estimated percentage recovery assumes holders of $234,750 of
Allowed General Unsecured Claims will elect the alternative treatment for
"Allowed Claims of Two Hundred Fifty Dollars or More" under Section 14 of
the Plan and the estimated figures exclude such assumed amounts. For a full
explanation of such alternative treatment, see Section V.D.10. below.
Although there can be no assurance that the actual aggregate amount of
Allowed General Unsecured Claims will equal such estimated aggregate amount,
there is a condition precedent to consummation of the Plan that the Allowed
Claims in Class 6, together with the Allowed Claims in Classes 3, 4, 5 and
7, will not exceed Three Hundred Forty Million Dollars ($340,000,000) in
aggregate amount.
8
<PAGE>
<TABLE>
<CAPTION>
Estimated Aggregate Estimated
Claim/ Treatment of Amount of Percentage Recovery
Class Interest Claim/Interest Allowed Claims of Allowed Claims
----- -------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
7 Convenience Claim Unimpaired. Any holder of an Allowed $302,596 100%
Convenience Claim shall be entitled to
receive Cash equal to the amount of such
Allowed Convenience Claim.
8 Statutorily Impaired. No distributions. Unliquidated 0%
Subordinated Statutorily Subordinated Claims will be
Claims expunged and extinguished as of the
Effective Date.
9 Leslie Fay Impaired. No distributions. N/A 0%
Equity Interests Equity Interests are deemed to be
cancelled and extinguished as of
the Effective Date.
10 Hue Equity Impaired. No distributions. N/A 0%
Interests Equity Interests are deemed to be
cancelled and extinguished as of
the Effective Date.
11 Spitalnick Equity Impaired. No distributions. N/A 0%
Interests Equity Interests are deemed to be
cancelled and extinguished as of
the Effective Date.
12 Licensing Equity Impaired. No distributions. N/A 0%
Interests Equity Interests are deemed to be
cancelled and extinguished as of
the Effective Date.
13 Retail Outlets Impaired. No distributions. N/A 0%
Equity Interests Equity Interests are deemed to be
cancelled and extinguished as of
the Effective Date.
14 Retail (Alabama) Impaired. No distributions. N/A 0%
Equity Interests Equity Interests are deemed to be
cancelled and extinguished as of
the Effective Date.
15 Retail (Cali- Impaired. No distributions. N/A 0%
fornia) Equity Equity Interests are deemed to be
Interests cancelled and extinguished as of
the Effective Date.
16 Retail (Iowa) Impaired. No distributions. N/A 0%
Equity Interests Equity Interests are deemed to be
cancelled and extinguished as of
the Effective Date.
17 Retail (Tennessee) Impaired. No distributions. N/A 0%
Equity Interests Equity Interests are deemed to be
cancelled and extinguished as of
the Effective Date.
</TABLE>
9
<PAGE>
ESTIMATED CASH AND SECURITY
DISTRIBUTIONS UNDER THE PLAN PER $10,000 CLAIM
<TABLE>
<CAPTION>
Claim of Estimated
$10,000 Valuation
--------- ----------
<S> <C> <C> <C>
Bank Claims
Sassco Notes $3732 Face Amount $3732
Sassco Stock 213 Shares 3915
Leslie Fay Stock 106 Shares 779
Cash 0 0
-----
$8426
Senior Note Claims
Sassco Notes $3732 Face Amount $3732
Sassco Stock 213 Shares 3915
Leslie Fay Stock 107 Shares 786
Cash 0 0
------
$8433
Senior Subordinated Note Claims
Sassco Notes $0 $ 0
Sassco Stock 163 Shares 2996
Leslie Fay Stock 82 Shares 603
Cash 0 0
-----
$3599
General Unsecured Claims
Sassco Notes $3363 Face Amount $3363
Sassco Stock 208 Shares 3824
Leslie Fay Stock 104 Shares 765
Cash 0 0
-----
$7952
</TABLE>
THE TREATMENT AND DISTRIBUTIONS PROVIDED TO HOLDERS OF
ALLOWED CLAIMS AND ALLOWED EQUITY INTERESTS PURSUANT TO THE PLAN ARE IN
FULL AND COMPLETE SATISFACTION OF THE ALLOWED CLAIMS AND ALLOWED EQUITY
INTERESTS, AS THE CASE MAY BE, ON ACCOUNT OF WHICH SUCH TREATMENT IS
GIVEN AND DISTRIBUTIONS ARE MADE.
III.
GENERAL INFORMATION
A. DESCRIPTION OF THE BUSINESSES
The following chart illustrates the corporate structure of
the Debtors and their non-debtor affiliates (denoted by *), and
identifies the inactive entities (denoted by #) as of the date of this
Disclosure Statement:
10
<PAGE>
[Chart Ommitted: The following information was set up as a
Corporate Organizational Chart listing the subsidiaries of The
Leslie Fay Companies, Inc. and the subsidiaries of the
subsidiaries:]
THE LESLIE FAY COMPANIES, INC.
The following are subsidiaries of The Leslie Fay Companies, Inc.:
Asia Expert Limited*, Leslie Fay Factory Outlet (Maine), Inc.* #,
Leslie Fay Britain, Inc.* #, Julie Fashions, Inc. Limited * #, Leslie
Fay Factory Outlet (New Hampshire), Inc.* #, Hue, Inc.#, Leslie Fay
Factory Outlet (Tennessee), Inc.#, Leslie Fay Factory Outlet (Alabama),
Inc.#, Leslie Fay Holdings, Inc.*, Leslie Fay North America, Inc.* #,
Leslie Fay Hong Kong Limited* #, Leslie Fay Licensing Corp., Leslie Fay
International (S.E.A.) Limited* #, Leslie Fay Factory Outlet
(California), Inc.#, Leslie Fay (S) Pte Ltd.* #, Leslie Fay (U.K.)
Limited* #, Sassco Europe Ltd*, Leslie Fay Factory Outlet (Iowa),
Inc.#, Leslie Fay Systems Corp.*, Spitalnick Corp.#, Tomwell Limited*,
A.S.L. Retail Outlets, Inc.*, Leslie Fay Retail Outlets, Inc.#.
The following are subsidiaries of subsidiaries of The Leslie Fay
Companies, Inc.: Viewmon Limited* (subsidiary of Asia Expert Limited*),
Leslie Fay Canada, Inc.* #(subsidiary of Leslie Fay North America,
Inc.), Hue International, Inc.* # (subsidiary of Leslie Fay North
America, Inc.), Leslie Fay Ireland Ltd.* # (subsidiary of Leslie Fay
(U.K.) Limited) and Leslie Fay Denmark APS* # (subsidiary of Leslie Fay
(U.K.)
Limited).
11
<PAGE>
B. DESCRIPTION OF BUSINESSES
1. The Debtors' Businesses
The Leslie Fay Companies, Inc. Leslie Fay, a publicly held
Delaware corporation, designs, manufactures and distributes the
company's apparel products, directs the activities of its direct and
indirect domestic and foreign subsidiaries and divisions (collectively,
the "Company"), and oversees the collective operations of the Company.
Specifically, Leslie Fay and its subsidiaries and divisions, including
its Sassco division, as well as its subsidiaries and divisions that are
not debtors in the Chapter 11 Cases, operate to design, manufacture,
market and sell diversified lines of moderate and better-priced women's
dresses, suits and sportswear under well-known brand names such as
"Leslie Fay", "Kasper for A.S.L.", "Castleberry", "Outlander" and
"Albert Nipon", and under private labels for leading retailers. Leslie
Fay is a leading producer of moderate and better-priced women's dresses
and suits in the United States and among the major producers of
moderate and better-priced women's sportswear, and is considered one of
the major resources to retailers of such products. One hundred percent
(100%) of the Company's products are manufactured by independent
contractors according to the Company's designs, specifications and
production schedules, the majority of which are produced and imported
into the United States, principally from Hong Kong, Taiwan, China,
South Korea, Malaysia, the Philippines, Guatemala and Caribbean basin
countries. The Company's products are sold throughout the United
States, principally to department and specialty stores, including
retailers such as Dillard's Department Stores, J.C. Penney, May Co. and
Federated Department Stores, Inc. In addition, the Company's products
have been sold through retail outlet stores operated by Leslie Fay and
its domestic direct subsidiaries located throughout the United States
and by electronic retailing. The Company, through Licensing, also
licenses selected brand names to producers of other fine- quality
merchandise, such as leather goods, footwear, handbags, women's
outerwear, men's apparel and other complementary accessories.
As of November 8, 1996, the Company employed approximately
1,199 persons, of which approximately 335 were production and shipping
employees. Approximately thirty-six percent (36%) of Leslie Fay's
employees are members of unions, primarily the Union of Needletrades,
Industrial and Textile Employees ("UNITE"), successor to the
International Ladies' Garment Workers' Union (the "ILGWU").
For the fiscal year ended December 30, 1995, the Company had
consolidated net sales of $445,204,000, a loss from operations before
income taxes and reorganization costs of $2,027,000 and a net loss of
$17,841,000. For the nine months ended September 28, 1996, the Company
had consolidated net sales of $339,050,000, income from operations
before income taxes and reorganization costs of $17,266,000 and net
income of $14,069,000 (unaudited). The total stockholders' deficit of
the Company, on a consolidated basis, was $155,908,000 at December 30,
1995, and $142,057,000 at September 28, 1996 (unaudited).
Starting in 1986, Leslie Fay's common stock had been listed
for trading on the New York Stock Exchange, Inc. (the "NYSE") under the
trading symbol "LES." However, on June 23, 1995, the NYSE suspended
trading in the stock and has stated that it expects to file an
application with the Securities and Exchange Commission ("SEC") to
delist the stock. As of April 5, 1993, the date on which the first four
(4) Chapter 11 Cases were commenced (the "Petition Date"),
approximately 18,775,836 shares of Leslie Fay's common stock were
issued and outstanding and held by approximately 450 stockholders of
record.
Leslie Fay Licensing Corp. Licensing is a Delaware
corporation and wholly owned subsidiary of Leslie Fay. Licensing's
principal assets are intellectual property rights in respect of certain
of Leslie Fay's trademarks. Licensing licenses certain of the Company's
trademarks to manufacturers of specialized products. Licensing has no
employees.
Hue, Inc. Hue, a New York corporation and a wholly owned
subsidiary of Leslie Fay, was a manufacturer of women's socks and
hosiery under the "Hue" brand name and employed approximately forty
persons as of April 5, 1993. Effective March 3, 1994, Hue and Hue
International, Ltd., a non-debtor affiliate, sold substantially all of
their physical assets to Kayser-Roth Corporation. Hue retained its
trademark for the "Hue" name and, in connection with the sale of its
physical assets, Leslie Fay and Hue entered into two license agreements
with Kayser-Roth Corporation for the use of the "Hue" name in
connection with certain women's legwear products. Additionally, Hue has
licensed the "Hue" name to Cricket Hosiery, Inc. in connection with the
manufacture of children's legwear. For a discussion of these
transactions, see Section IV.B.10. below, Debtors' Chapter 11 Cases --
Events During the Chapter 11 Cases -- The Development and
Implementation of Business Plans and Consolidation of Operations.
12
<PAGE>
Spitalnick Corp. Spitalnick, a New York corporation and a
wholly owned subsidiary of Leslie Fay, was a manufacturer of women's
sportswear and employed approximately sixty-three (63) persons as of
its Petition Date. In November of 1993, Spitalnick ceased operations
and has not had any assets since such time.
Leslie Fay Retail Outlets - Leslie Fay Retail Outlets, Inc.,
a Delaware corporation and a direct subsidiary of Leslie Fay, and four
(4) additional domestic direct subsidiaries of Leslie Fay are wholly
owned subsidiaries of Leslie Fay which were engaged in the operation of
retail apparel outlet stores and are organized as part of Leslie Fay's
Retail Outlet Division (the "Retail Division").(7) In combination, as
of November 15, 1995, the Retail Division operated thirty-four retail
apparel outlet stores in twenty-three states around the country,
located primarily in major outlet centers. Each of the retail outlet
stores primarily marketed products manufactured or licensed by Leslie
Fay, including regular, in-season goods, close-outs, seconds and
irregulars. As of the date hereof, all of the Retail Debtors' outlet
stores have been closed.
2. Principal Non-Debtor Subsidiaries of The Leslie Fay
Companies, Inc.
Asia Expert Limited - a Hong Kong company principally engaged
in the business of buying raw materials and finished goods on behalf of
Sassco.
Leslie Fay Hong Kong Limited - a Hong Kong company formerly
principally engaged in the business of buying raw materials and
finished goods on behalf of Leslie Fay. Daily operations have been
terminated and transferred to an independent third party.
Leslie Fay Systems Corp. - a Delaware corporation
principally engaged in the business of providing payroll and
other administrative services on behalf of Leslie Fay's
employees.
Tomwell Limited - a Hong Kong company principally engaged in
the business of buying raw materials and finished goods on behalf of
Sassco.
Viewmon Limited - a Hong Kong company which is a direct
subsidiary of Asia Expert Limited and principally engaged in the
business of buying raw materials and finished goods on behalf of
Sassco.
A.S.L. Retail Outlets, Inc. - a Delaware corporation
principally engaged in retail operations on behalf of Sassco.
Since 1995, Sassco has opened thirty-four stores under the
"Kasper for A.S.L." name.
Sassco Europe Ltd. - a Delaware corporation
principally engaged in the distribution of Sassco's finished
goods throughout Europe.
3. Other Affiliates of The Leslie Fay Companies, Inc.
Other affiliates of Leslie Fay which are not currently actively
engaged in business include non-Debtors Leslie Fay North
America, Inc., Julie Fashions, Inc., Leslie Fay Holdings, Inc.,
Leslie Fay International (S.E.A.) Limited, Leslie Fay(s) PTE.
Ltd. (and its direct subsidiaries, Hue International, Inc., and
Leslie Fay Canada, Inc.), and Leslie Fay (U.K.) Limited (and
its direct subsidiaries Leslie Fay Ireland Ltd. and Leslie Fay
Denmark APS).
Additional information concerning the Debtors and their
affiliates, and their respective businesses, financial condition and
results of operations, is set forth in The Leslie Fay Companies, Inc.
Annual Report on Form 10-K for the fiscal year ended December 30, 1995
(the "10-K"), a copy of which is annexed hereto as Exhibit "C", and in
The Leslie Fay Companies, Inc. Quarterly Report on Form 10-Q for the
fiscal quarter ended September 28, 1996 (the "10-Q"), a copy of which
is annexed hereto as Exhibit "D".
--------------------
(7) In addition, Leslie Fay operated certain retail outlet stores which
are included in the Retail Division.
13
<PAGE>
C. HISTORICAL BACKGROUND
The predecessor to Leslie Fay was founded in 1947 by Fred P.
Pomerantz, the father of Leslie Fay's current Chairman and Chief
Executive Officer, John J. Pomerantz, as part of Valley Fashions, Inc.
In 1959, it was organized under the laws of the State of New York as
Leslie Fay, Inc. The primary business of the company was the
manufacture and sale of women's fashion clothing. To fund its growth
and expansion, the company went to the public markets in 1962 with its
first common stock offering. The company had approximately $12 million
of net sales at that time. By 1980, the company's net sales had grown
to $195.6 million.
In 1982, the company was taken private in a management-led
leveraged buyout that valued the company at $54.5 million. Following
the buyout, the company was renamed The Leslie Fay Companies.
During 1984, a second leveraged buyout was consummated. The
1984 buyout valued the company at $178.4 million. Following the buyout,
the company was reconstituted as a joint venture partnership.
In August of 1986, the joint venture partnership was
reorganized as The Leslie Fay Companies, Inc. At that time, the Company
consummated an initial public offering and sold 5,000,000 shares at $18
per share with a market value of $270 million. John Pomerantz became
Chairman of Leslie Fay at that time.
IV.
DEBTORS' CHAPTER 11 CASES
A. EVENTS LEADING TO THE FILING OF THE CHAPTER 11 CASES
Prior to the commencement of Leslie Fay's Chapter 11 Case,
Leslie Fay was a party to a financing agreement (which included
revolving credit and letter of credit facilities under which an
aggregate of $350 million was available for cash borrowings and letters
of credit financings), had incurred substantial long-term unsecured
debt obligations, and relied on considerable trade credit support. As
outlined below, a combination of events which occurred over
approximately a two-month span prior to the commencement of Leslie
Fay's Chapter 11 Case (a) resulted in the interruption and contraction
of Leslie Fay's working capital and letter of credit facilities, (b)
precipitated the loss of critical trade credit support, and (c)
curtailed Leslie Fay's ability to meet its current and future debt
obligations. These factors led to the Debtors' filing for relief under
chapter 11 of the Bankruptcy Code.
1. Working Capital Financing and Trade Support
Pursuant to a Financing Agreement, dated January 15, 1992, as
amended (the "Financing Agreement"), among Leslie Fay, Chemical Bank
N.A. ("Chemical Bank"), Manufacturers Hanover Trust Company, Marine
Midland Bank, National Westminster Bank USA, The Bank of New York
(collectively, the "Bank Group") and Chemical Bank as agent, the Bank
Group provided Leslie Fay with two separate, but related, unsecured
subfacilities: (a) a $150,000,000 revolving credit facility for working
capital and general corporate purposes, and (b) a $100,000,000
revolving credit facility for trade letters of credit. The credit
facility was due to expire on December 31, 1994, with an option of
Leslie Fay to extend the termination date to December 31, 1995. The
Financing Agreement also provided separate lines of credit with the
individual members of the Bank Group in the aggregate amount of
$100,000,000 (collectively, the total $350 million of Bank Group credit
facilities are hereinafter referred to as the "Bank Lines"), and were
also due to expire on December 31, 1994. Payment of amounts borrowed
under the Financing Agreement was guaranteed in full by Spitalnick and
Licensing.
Pursuant to Senior Note Documents entered into on January 4,
1990, between Leslie Fay and The Prudential Insurance Company of
America ("Prudential") and between Leslie Fay and Northwestern Mutual
Life Insurance Company ("Northwestern," and together with Prudential,
the "Lenders"), Leslie Fay issued $50,000,000 of principal amount of
its 9.53% unsecured senior notes due 2000 (the "Senior Notes") and
$25,000,000 of principal amount of its 10.54% unsecured senior
subordinated notes due 2002 (the "Senior Subordinated Notes"), to the
Lenders. The approximate aggregate amount of principal and interest
outstanding under the Senior Notes and the Senior Subordinated Notes as
of April 5, 1993 was $50 million and $25 million, respectively.
14
<PAGE>
In addition to the working capital financing referred to
above, the Debtors obtained financial support from suppliers and other
trade vendors. For fiscal year 1992, products representing
approximately sixty-five percent (65%) of the Company's consolidated
sales were manufactured overseas by independent contractors for which
Leslie Fay was usually required to provide a letter of credit payable
to the overseas contractor when the finished goods were delivered for
shipping to the United States. The remainder of the Company's
consolidated sales represented goods manufactured in the United States,
primarily by independent contractors who maintained open lines of trade
credit in respect of orders placed by Leslie Fay.
2. The Accounting Irregularities and Commencement of the
Audit Committee Investigation
On February 1, 1993, Leslie Fay publicly announced that it
had discovered certain accounting irregularities arising from false
entries that had been made in the Company's bookkeeping system. As a
result of these false entries, Leslie Fay's reported financial
statements were misstated. These irregularities had come to light
during the process of the Company's annual audit by the independent
accounting firm of BDO Seidman & Co. ("BDO Seidman"). At the time of
Leslie Fay's discovery of the accounting irregularities, the magnitude
of the false entries and the period affected were not known. The audit
committee of Leslie Fay's Board of Directors (the "Audit Committee"),
composed entirely of four outside directors, immediately commenced an
investigation into the facts and circumstances surrounding these
occurrences (the "Audit Committee Investigation"), and retained the law
firm of Weil, Gotshal & Manges ("Weil Gotshal")(8) to assist it for
these purposes. Weil Gotshal, in turn, retained the accounting firm of
Arthur Andersen & Co. ("Arthur Andersen") to assist it in its
representation of the Audit Committee.
As a result of the announcement of the accounting
irregularities, investigations of Leslie Fay and other persons were
commenced by the SEC and the United States Department of Justice.
Subsequent to these developments, Leslie Fay and its directors were
named as defendants in numerous shareholder and other lawsuits. See
Section IV.C. below, Debtors' Chapter 11 Cases -- Pending Litigation
and Other Legal Proceedings. Additionally, the Company was in breach of
certain provisions of the Financing Agreement.
3. The Liquidity Problem
Following the disclosure of the accounting irregularities,
during the period from February 1, 1993 to February 25, 1993, Leslie
Fay engaged in negotiations with the Bank Group to restructure the
terms and conditions of the Bank Lines. During this time, the Bank
Group continued to make credit available to Leslie Fay under the Bank
Lines pending the results of the Audit Committee Investigation, as an
additional $18 million was drawn under the Bank Lines for the Company's
working capital needs, and up to $1.5 million in additional letters of
credit were issued.
On February 25, 1993, BDO Seidman withdrew its opinion on
Leslie Fay's consolidated financial statements for fiscal year 1991.
The following day, Leslie Fay announced the preliminary financial
results of the Audit Committee Investigation, which showed that Leslie
Fay had lost $13.7 million on a consolidated basis for 1992
(unaudited), before taking into account restructuring costs, and that
1991's previously announced net income of $29 million had been revised
downward to $17 million (unaudited).(9) On February 26, 1993, the Bank
Group informed Leslie Fay that no additional revolving borrowings could
be made and that no new letters of credit would be issued under the
Bank Lines until the negotiations for a revised credit facility were
completed. The uncertainty surrounding Leslie Fay's financing quickly
spread to trade creditors, most of whom refused to extend further
credit to the Debtors. Due to the continued economic distress affecting
the retail apparel industry at that time and a resulting diminution in
Leslie Fay's liquidity, net sales and income, Leslie Fay was not
generating sufficient cash from operations with which to meet its
projected working capital needs. Similarly, Leslie Fay's subsidiaries'
stand-alone credit was insufficient to enable them, without Leslie
Fay's support, to meet such needs.
---------------------
(8) Weil Gotshal subsequently became a limited liability partnership
and changed its name to Weil, Gotshal & Manges LLP.
(9) These preliminary results were subsequently revised following the
completion of the Audit Committee Investigation. For a discussion of
the Audit Committee Investigation and the results thereof, see Section
IV.B.5. below, Debtors' Chapter 11 Cases -- Events During the Chapter
11 Cases -- Conduct and Completion of Audit Committee Investigation and
Issuance of Financial Statements.
15
<PAGE>
4. The Interim Credit Facility and Liquidity Crisis
During the ensuing week, Leslie Fay's management continued
its negotiations with the Bank Group in an effort to obtain a revised
credit facility. The parties ultimately reached an agreement to satisfy
Leslie Fay's short-term financing needs (the "Interim Agreement"),
which amended the Financing Agreement and, pursuant to which the Bank
Group agreed to extend additional financing and issue letters of credit
up to an aggregate principal amount of $35 million for one hundred
twenty (120) days. In consideration therefor, and in order to secure
any borrowings or commitments in excess of the outstanding obligations
under the Financing Agreement at January 31, 1993 -- approximately
$232,000,000 (the "Core Obligations") -- Leslie Fay, Hue, Spitalnick
and Licensing granted liens to the Bank Group on their foreign
inventory and the proceeds therefrom generated from sales occurring
from and after March 1, 1993 and to the Bank Group and the Lenders
(collectively, the "Institutional Lenders"), on their trademarks,
tradenames and trademark licenses. The Interim Agreement also provided
that, under certain circumstances and to the extent that the Bank
Group's exposure on account of new loans and commitments did not exceed
the Core Obligations, the liens granted thereunder would be
released.(10)
On or about March 25, 1993, an anonymous letter concerning
the scope of the accounting irregularities and accusing Leslie Fay's
senior management of actively participating in the preparation of such
false entries was delivered to certain members of the media, a
securities firm which followed Leslie Fay's common stock, and others.
The details of the letter were subsequently reproduced in published
news articles, increasing the already heightened concerns of Leslie
Fay's domestic goods suppliers and the factoring community which
reacted by eliminating or reducing critical trade credit for domestic
goods production. The unsubstantiated allegations also disturbed the
already fragile relationships between Leslie Fay and the Institutional
Lenders.
Thereafter, Leslie Fay met with factors and its suppliers in
an effort to ease their concerns and prevail upon them to reopen credit
lines closed as a consequence of the news articles. Certain of such
factors and suppliers informed Leslie Fay that they would be unwilling
to reopen credit lines or ship goods until (a) Leslie Fay's certified
financial statements were issued, (b) the Interim Agreement was
extended until year-end 1993 or (c) satisfactory credit support in the
form of standby letters of credit or cash deposits was made available.
At that time, Leslie Fay determined that approximately $30
million of credit support had to be obtained to replace the support
withdrawn by the factoring community and Leslie Fay's piece-good
suppliers. Because such need was not anticipated when the Interim
Agreement was negotiated, it was not included in the projections
presented to the Institutional Lenders in connection with the Interim
Agreement. Leslie Fay sought to obtain such additional credit from the
Institutional Lenders. However, its request was declined. Furthermore,
the Lenders advised Leslie Fay that their consent to Leslie Fay's
obtaining such additional credit support and any security granted in
connection therewith would be conditioned upon, among other things,
Leslie Fay providing additional collateralization of the Institutional
Lenders' indebtedness, and a deep subordination of any rights granted
any alternative lender in the Institutional Lenders' collateral. Leslie
Fay pursued alternative lending sources but was unable to obtain the
necessary credit on a sufficiently expedited basis or on terms to which
the Institutional Lenders were willing to agree.
As a result of the cessation of trade credit support, the
Company was placed in an extremely vulnerable and precarious position.
In the absence of immediate action on the part of Leslie Fay, the
Company would have been unable to obtain piece goods for the production
of its Fall lines -- the Company's most profitable season. That
scenario would have placed the Company's entire operation and ability
to continue to conduct business in extreme jeopardy. Accordingly, the
management and Board of Directors of Leslie Fay determined that a
chapter 11 filing by it, Hue, Spitalnick and Licensing was necessary to
protect the value of such Debtors' assets and to ensure that they would
have sufficient financial resources to continue the timely flow of
merchandise to their customers. Consequently, on April 5, 1993, those
entities filed voluntary petitions for relief under chapter 11 of the
Bankruptcy Code with the Bankruptcy Court.(11) The Debtors continue to
operate their businesses and manage their properties as debtors in
possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.
---------------------
(10) As of the initial Petition Date, there were no borrowings in
excess of the Core Obligations. Thus, all debt outstanding under the
Financing Agreement and the Interim Agreement is unsecured.
(11) As discussed below, on November 15, 1995, each of the Retail
Debtors filed a voluntary petition for relief under chapter 11 of the
Bankruptcy Code with the Bankruptcy Court.
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B. EVENTS DURING THE CHAPTER 11 CASES
The Chapter 11 Cases have enabled the Debtors to continue
conducting their businesses under the protection of the Bankruptcy
Court and ultimately to formulate, negotiate and propose the Plan. The
following are certain of the significant events that have occurred
during the Chapter 11 Cases.
1. Appointment of Unsecured Creditors' Committee and
Equity Committee
On April 15, 1993 and February 8, 1994, respectively, the
United States Trustee for the Southern District of New York (the
"United States Trustee") appointed an Official Committee of Unsecured
Creditors (the "Creditors' Committee") and an Official Committee of
Equity Interest Holders (the "Equity Committee")(12) to represent
unsecured creditors of the Debtors and Equity Interest holders of
Leslie Fay, respectively. During the Chapter 11 Cases, the initial
members of the Creditors' Committee (with the exception of UNITE,
formerly the ILGWU) transferred beneficial ownership of their Claims to
other entities and resigned from the Creditors' Committee. As a result,
the United States Trustee has reconstituted the Creditors' Committee
from time to time during the Chapter 11 Cases. Following formation of
the Committees, the Debtors consulted with the Committees concerning,
among other things, the administration of the Chapter 11 Cases, the
conduct and prosecution of significant litigation, and strategies for
the Debtors' reorganization. In particular, the Debtors have worked
closely with the Creditors' Committee towards the development and
completion of the Plan. Additionally, throughout the pendency of the
Chapter 11 Cases, the Debtors kept the Committees informed concerning
their operations and consulted with and sought the concurrence of the
Committees for substantially all significant actions and transactions
undertaken by the Debtors.
Set forth below are the members of, and the attorneys and
advisors retained by, the Creditors' Committee as of September 16,
1996:
UNSECURED CREDITORS' COMMITTEE
BALFOUR INVESTMENTS INC. VEGA PARTNERS, II, L.P.
45 Rockefeller Plaza c/o Whippoorwill Associates, Inc.
Suite 2170 11 Martine Avenue
New York, New York 10111 White Plains, New York 10606
ING CAPITAL UNITE
135 East 57th Street 1710 Broadway
New York, New York 10022 New York, New York 10019
Attorneys
WACHTELL, LIPTON, ROSEN & KATZ
51 West 52nd Street
New York, New York 10019
(212) 403-1000
---------------------
(12) By motion, dated June 24, 1993, American National Bank and Trust
Co. of Chicago ("ANB"), requested the Bankruptcy Court to direct the
United States Trustee to appoint an official committee of equity
security holders for Leslie Fay. The Debtors, the Creditors' Committee,
the United States Trustee, and the Debtors' post-petition date lenders
opposed the motion. After conducting an evidentiary hearing on July 27,
1993, the Bankruptcy Court entered an order, dated August 23, 1993,
denying the motion without prejudice to the ability of ANB to renew its
request for the formation of an official committee of equity security
holders following the occurrence of certain conditions. After these
conditions were satisfied, ANB renewed its request. The United States
Trustee complied with the request and appointed the Equity Committee.
17
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FINANCIAL ADVISOR
THE ARGOSY GROUP L.P.
1325 Avenue of the Americas
New York, New York 10019
(516) 664-1400
By Notice of Disbandment filed by the United States Trustee
on June 12, 1996, the Equity Committee was dissolved. By order, dated
July 9, 1996, Lord, Bissell & Brook and Latham & Watkins were granted
leave to withdraw as counsel to the Equity Committee. Set forth below
are the former members of, and the former attorneys and advisors
retained by, the Equity Committee, immediately prior to the dissolution
of such committee:
EQUITY COMMITTEE
AMERICAN NATIONAL BANK DIMENSIONAL FUND ADVISORS
AND TRUST COMPANY OF CHICAGO 1800 Sherman Avenue
33 North LaSalle Street Evanston, Illinois 60621
Chicago, Illinois 60602
ATTORNEYS
LORD, BISSELL & BROOK
115 South LaSalle Street
Chicago, Illinois 60603
(312) 443-0700
-and-
LATHAM & WATKINS
885 Third Avenue
New York, New York 10022-4802
(212) 906-1200
FINANCIAL ADVISOR
ROTHSCHILD, INC.
1251 Avenue of the Americas
New York, New York 10020
(212) 403-3500
2. Stabilization of Businesses
(a) Debtor in Possession Financings and Prepetition
Lenders Stipulation
On April 5, 1993, Leslie Fay, and the other initial Debtors,
Hue, Spitalnick and Licensing, as guarantors (collectively, the
"Guarantors"), entered into a Post-Petition Credit Agreement (the
"Citibank Credit Facility") with the initial lenders named therein (the
"Initial Lenders") and Citibank, N.A., as agent (the "Agent"), pursuant
to which the Initial Lenders agreed to make post-petition loans to
Leslie Fay and issue letters of credit for the account of Leslie Fay.
Initially, the Debtors had negotiated the Citibank Credit Facility,
obtained interim approval of and requested final Bankruptcy Court
approval for a $100 million dollar facility. However, as set forth
below, the resolution of a dispute with the Bank Group with respect to
discrepant letters of credit issued prior to April 5, 1993 required the
Debtors to increase the Citibank Credit Facility to $150 million.
Upon the commencement of the Chapter 11 Cases, a dispute
arose between the Debtors and the Bank Group concerning the obligation
of the members of the Bank Group to honor approximately $57.7 million
in undrawn letters of credit
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issued prior to the Petition Date. The issuance of such letters of
credit under the Financing Agreement was the principal means by which
the Debtors financed the importation of merchandise manufactured
overseas by independent contractors (the "Overseas Contractors"). The
viability of Leslie Fay's business was, and remains, dependent upon the
availability of letters of credit and the corresponding ability to
import merchandise manufactured abroad. Consequently, any disruption of
such practices, including any interruption of normal operating
relationships with the Overseas Contractors, could have had severe
detrimental effects on Leslie Fay's operations.
Historically, the vast majority of draw requests by Overseas
Contractors were accompanied by documents which contained discrepancies
(i.e., the documentation presented did not comply with the documentary
requirements contained in the letter of credit or the letters of credit
were presented after expiry). Prior to the Petition Date, it was the
practice of the Bank Group, through their issuing banks, to honor such
discrepant draw requests upon consultation and with the Debtors'
consent. Subsequent to the Petition Date, however, Chemical Bank, as
Agent, adopted the position that draws on letters of credit containing
any discrepancies, however minute, would not be honored. This placed
the Debtors in an extremely precarious position as it threatened their
ability to timely obtain critical merchandise for the Fall and holiday
selling seasons while putting their relationships with their Overseas
Contractors at risk.
Contemporaneous with the adoption of the Bank Group's letter
of credit position, Chemical Bank provided notices to the Debtors'
freight forwarders pursuant to which it asserted ownership interest in
consigned goods in transit and directed such forwarders to act only
upon the direction of Chemical Bank, not the Debtors. By taking such
action, the Bank Group denied the Debtors access to manufactured goods,
thereby further delaying the delivery of such goods to the Debtors'
customers and jeopardizing the Debtors' relationships with customers.
Faced with the wholesale loss of suppliers and customers and
the resulting cessation of operations, the Debtors negotiated and
entered into a stipulated settlement (the "L/C Stipulation") with the
Bank Group, approved by the Bankruptcy Court on an interim and final
basis on April 14 and April 28, 1993, respectively. The L/C Stipulation
provided for (a) the reinstatement of prepetition practices regarding
the honoring of discrepant draw requests under outstanding letters of
credit and (b) the retraction of all notices delivered by Chemical Bank
to freight forwarders. In consideration therefor, the Debtors, among
other things, (a) agreed to a limitation on the Bank Group's unsecured
obligations for post- Petition Date draws under outstanding letters of
credit of approximately $18 million, (b) granted the Bank Group an
Administrative Expense Claim in the aggregate approximate amount of $29
million, subject to an upward adjustment in the approximate amount of
$10.6 million for post-Petition Date draws under outstanding letters of
credit, and (c) granted the Bank Group a junior lien on the Debtors'
assets to secure the payment thereof.
In order to fund their obligations under the L/C Stipulation,
the Debtors needed to increase the available credit under the Citibank
Credit Facility. Accordingly, the Debtors negotiated a $50 million
increase in the facility, and as set forth above, obtained Bankruptcy
Court approval of the increased facility, which became effective April
28, 1993. After the presentment or expiration of all outstanding
letters of credit covered by the L/C Stipulation, in accordance with
the L/C Stipulation, the Bank Group's aggregate Administrative Expense
Claim amounted to approximately $30 million. This claim and all
interest thereon was paid in full by the Debtors by September 1993.
Under the L/C Stipulation, the Bank Group's aggregate unsecured claims
on account of unreimbursed letter of credit obligations are
approximately $18 million.(13)
<PAGE>
In connection with the Citibank Credit Agreement, and as a
condition precedent to the loans to be made thereunder, Leslie Fay and
the Guarantors entered into a security agreement, dated April 28, 1993,
with Citibank, N.A., as collateral agent (the "Collateral Agent"), for
the Initial Lenders, pursuant to which Leslie Fay and the Guarantors
each granted to Citibank, N.A., as Collateral Agent, for its benefit
and for the ratable benefit of the Initial Lenders, a first priority
security interest in all of their respective pre- petition and
post-petition property and the proceeds and products therefrom, subject
only to such valid and enforceable liens and security interests of
record existing immediately prior to the bankruptcy filing by the
Debtors and certain other permitted liens. In addition, Leslie Fay and
the Guarantors entered into a Trademark Security Agreement, dated April
28, 1993, with the Collateral Agent, pursuant to which the Debtors each
granted to the Collateral
---------------------
(13) As discussed below, the members of the Bank Group are named as
defendants in an action commenced by the Debtors in the Bankruptcy
Court by which the Debtors are seeking the recovery of certain
transfers made to the Bank Group on and prior to the Petition Date. For
a discussion of the pending action, see Section IV.C.7. below, Pending
Litigation and Other Legal Proceedings -- Preference Actions.
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<PAGE>
Agent, for its benefit and for the ratable benefit of the Initial
Lenders, a security interest in all of their respective trademarks and
trademark licenses and the proceeds and products therefrom, subject
only to such valid and enforceable liens and security interests of
record existing immediately prior to the bankruptcy filing by the
Debtors.
By its terms, the Citibank Credit Facility was to expire on
April 26, 1994. Prior thereto, the Debtors and the Agent negotiated and
obtained Bankruptcy Court approval of an amendment to the Citibank
Credit Facility and the security agreements, effective as of April 28,
1994, which extended the facility through the earlier of April 27, 1995
or July 31, 1995 (depending upon the Debtors' ability to obtain certain
financial benchmarks). The Citibank Credit Facility, as amended and
extended, provided for post-petition direct borrowings by the Debtors
and the issuance of letters of credit on the Debtors' behalf in the
reduced aggregate amount of $100,000,000, with a sublimit for direct
borrowings of $50,000,000 and a sublimit on the issuance of letters of
credit of $85,000,000. Subsequent to the amendment and extension of the
Citibank Credit Facility, the Debtors amended the facility on two
additional occasions to, among other things, modify certain of the
financial and reporting covenants imposed upon the Debtors under the
facility.
Due to the inability of the Debtors to meet certain financial
benchmarks, the Citibank Credit Facility, as amended, was to expire by
its terms on April 27, 1995. Prior to such date, the Debtors negotiated
and conditionally executed (subject to Bankruptcy Court approval) a
further extension and amendment of the facility with the Agent pursuant
to Amendment No. 7 to Post-Petition Credit Agreement ("Amendment No.
7"). Amendment No. 7 provided for, among other things, an aggregate
availability for direct borrowings and letters of credit of $80 million
and the extension of the maturity of the facility to December 15, 1995.
Prior to the negotiation and conditional execution of
Amendment No. 7, the Debtors had explored the possibility of obtaining
replacement financing from other institutional lenders, but were unable
to obtain any commitments for such financing on terms equivalent to or
more favorable than, those of Amendment No. 7. Consequently, on March
31, 1995, the Debtors filed a motion with the Bankruptcy Court seeking
approval of Amendment No. 7. However, as Amendment No. 7 required the
payment of substantial fees as a condition to effectiveness, the
Debtors, at the urging and with the support of the Creditors'
Committee, renewed their efforts to secure a more favorable credit
facility prior to obtaining Bankruptcy Court approval of Amendment No.
7. The Debtors succeeded in obtaining a commitment for a replacement
$80 million credit facility (the "FNBB Credit Facility") with The First
National Bank of Boston ("FNBB") and BankAmerica Business Credit, Inc.
("BABC"), as Facility Agents (the "Facility Agents"), and FNBB, as
Administrative Agent and Collateral Agent (the "Administrative Agent"
and collectively, with the Facility Agents, the "Agents"), on terms and
conditions which are either identical to or more favorable than
Amendment No. 7 and which required the payment of aggregate fees
substantially less than those required by Amendment No. 7.
Unfortunately, because the Debtors were unable to obtain a written
commitment for the replacement facility prior to the then-pending April
27, 1995 expiration of the Citibank Credit Facility, the Debtors were
required to proceed and obtained Bankruptcy Court approval of Amendment
No. 7 on April 27, 1995. No fees were paid to the Agent or lenders
under the Citibank Credit Facility at that time. On that same day, the
Debtors secured a written commitment for the FNBB Credit Facility, and
informed the Bankruptcy Court of the change of events. As a result, all
parties agreed to a limited extension of the Citibank Credit Facility
to accommodate the closing of the FNBB Credit Facility in the immediate
future. In that regard, on May 1, 1995, the Debtors obtained Bankruptcy
Court approval of the FNBB Credit Facility and a short-term extension
of Amendment No. 7, in return for the Debtors' agreement to pay
Citibank, as Agent, a nominal per diem fee, to afford the Debtors an
opportunity to refinance the Citibank Credit Facility and implement the
FNBB Credit Facility.
<PAGE>
The FNBB Credit Facility went into effect on May 2, 1995, and
on such date the Debtors satisfied in full their obligations under the
Citibank Credit Facility. The FNBB Credit Facility provides for
post-petition direct borrowings and letters of credit in the aggregate
amount of $80 million, subject to certain reductions for the sale of
assets. By its terms, the FNBB Credit Facility was to expire on
December 31, 1995, unless sooner terminated in accordance with its
terms. Prior thereto, the Debtors and the Agents negotiated and
obtained Bankruptcy Court approval of an amendment to the FNBB Credit
Facility, which extended the facility through June 30, 1996.
Thereafter, the Debtors and the Agents negotiated and obtained
Bankruptcy Court approval for two subsequent amendments to the FNBB
Credit Facility, which further extended the facility through September
30, 1996 and December 31, 1996, respectively. As security for
borrowings under the FNBB Credit Facility, Leslie Fay and the other
initial Debtors, as guarantors, granted FNBB in its capacity as
Administrative Agent, and for the ratable benefit of the lenders under
the FNBB Credit Facility, security interests in substantially all of
their assets and the proceeds therefrom and in substantially all of
their trademarks and trademark licenses and the proceeds and products
therefrom.
20
<PAGE>
The availability of adequate financing under the Citibank
Credit Facility and the FNBB Credit Facility has enabled the Debtors to
purchase and pay for inventory, pay wages of employees and trade
creditors on an ongoing basis, provide letters of credit to foreign
suppliers for piece goods and finished merchandise and generally
enabled the Debtors to maintain the support of their customers,
suppliers, vendors, employees and the factoring community during the
pendency of the Chapter 11 Cases. As of November 12, 1996, there were
outstanding cash borrowings of $4,334,000 under the FNBB Credit
Facility, although letters of credit in the approximate amount of
$31,354,000 were outstanding. Upon the substantial consummation of a
plan of reorganization, the Debtors are obligated to satisfy in full
all outstanding cash borrowings under the FNBB Credit Facility and
deposit into an account maintained by FNBB in its capacity as
Administrative Agent under the FNBB Credit Facility, Cash sufficient to
cover the outstanding letters of credit.
(b) Factoring Agreement with Heller Financial, Inc.
In an effort to bifurcate the administrative functions of
Sassco from the remainder of the Debtors' operations in anticipation of
the transfer of Sassco to creditors and Sassco management, many of
Sassco's operating functions that were previously performed by Leslie
Fay were transferred to Sassco, including accounting and payroll
services. As part of this effort, Sassco embarked upon implementing a
fully integrated apparel operating system and, as discussed below, an
independent facility for factoring accounts receivable. Specifically,
Sassco adopted the "Paragon" operating system designed for apparel
companies to track all aspects of their businesses, including accounts
payable and inventory management. As a necessary complement to the
Paragon system, Leslie Fay determined that Sassco would factor its
receivables in order to avoid the costs associated with developing a
credit approval, accounts receivable and collection department.
Accordingly, Leslie Fay commenced negotiations with Heller Financial,
Inc. ("Heller"), a nationally recognized factor which has developed an
operating system which is fully compatible with the Paragon system.
After completion of the negotiations, Leslie Fay agreed to enter into
certain Factoring Agreement, dated as of January 28, 1996, between
Leslie Fay and Heller (the "Factoring Agreement").
The Factoring Agreement impacted, in certain respects, the
Debtors' rights and obligations under their Post- Petition Credit
Agreement. Specifically, the Factoring Agreement implicated the
security interests granted to the Agents in Leslie Fay's accounts. As a
result, the Debtors negotiated an agreement with their postpetition
lenders which provided for, among other things, the assignment to the
lenders of Leslie Fay's rights, title and interest in its right to
receive payments under the Factoring Agreement, and an amendment to the
Post-Petition Credit Agreement which provided for, among other things,
the implementation of the Factoring Agreement and the release of the
security interest in Leslie Fay's purchased postpetition receivables.
By order, dated June 17, 1996, Leslie Fay was authorized to enter into
the Factoring Agreement and the amendment to the FNBB Credit Facility.
(c) Employee and Contractor Related Matters
Upon commencement of the Chapter 11 Cases, it was essential
to both the efficient operation of the Debtors' businesses and the
reorganization effort that the Debtors maintain the support,
cooperation and morale of their employees. In furtherance thereof, on
the Petition Date, the Debtors obtained authority to pay certain
prepetition employee obligations in the nature of wages, salaries and
other compensation and to continue to honor and pay all employee
benefit plans and policies. Likewise, in order to maintain a stable and
motivated sales force, by order, dated June 3, 1993, the Debtors
obtained authority to satisfy the prepetition sales commissions due
their independent sales representatives and employee commission
salespersons.
<PAGE>
To ensure the Debtors' continued retention of several key
employees at the executive levels and provide meaningful incentives for
these persons to work towards the Debtors' financial recovery and
rehabilitation, the Debtors' management and Board of Directors also
developed a comprehensive and integrated program to retain executives
at various levels throughout the organization. Following the
development of the program, on June 30, 1994, the Debtors obtained
Bankruptcy Court authority to implement all aspects of the program.
Specifically, the Debtors were authorized to (a) adopt a key employee
severance and retention program (the "Key Employee Retention Plan"),
(b) assume modified employment agreements and enter into new employment
agreements with four senior officers, and (c) settle excess incentive
compensation claims against certain employees. The Key Employee
Retention Plan provides for payments to numerous mid-level and
additional executives, equal to either six months (in the case of
mid-level executives) or three months (in the case of the additional
executives), of their current base salary upon the occurrence of
certain events. With respect to executives covered by the Key Employee
Retention Plan, (a) those executives receiving payments equal to six
months' salary shall receive one-half of such payments on the effective
date of a plan of reorganization and the balance ninety (90) days
thereafter and (b) those executives receiving payments equal to three
months' salary shall receive such payments on the effective date of a
plan of
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<PAGE>
reorganization. Alternatively, in the event the executive is terminated
prior to the effective date of a plan of reorganization for any reason
other than "misconduct" (as such term is defined in the Key Employee
Retention Program), such payment is to be made in full upon
termination. As of November 12, 1996, the Debtors had made aggregate
payments of $1,676,934 under the Key Employee Retention Plan on account
of involuntarily terminated executives.
(d) Customer and Supplier Matters
In recognizing that the support of the Debtors' vendors,
contractors, suppliers and customers was essential to ongoing business
operations and the Debtors' reorganization effort, the Debtors
implemented several formal initiatives to maintain such support. During
the Chapter 11 Cases, the Debtors obtained the authority of the
Bankruptcy Court to, among other things, (a) satisfy priority,
pre-petition customs duties imposed on imported goods, (b) make certain
payments to foreign contractors and suppliers on account of raw
material and finished goods furnished to the Debtors prior to the
Petition Date which were not covered by letters of credit or for which
the underlying letters of credit had expired, and (c) honor customer
credits in the ordinary course of business, which accrued as of the
Petition Date on account of merchandise returns, discounts, promotional
allowances, duplicate payments, advance payments, overpayments and cash
deposits. Authority was also obtained to satisfy unpaid wages, accrued
as of the Petition Date, due the ILGWU-member employees of Leslie Fay's
independent contractors on account of work performed on behalf of the
Debtors.
3. International Ladies' Garment Workers Union and Union
of Needletrades, Industrial and Textile Employees
Matters
(a) Litigation Between the ILGWU and Leslie Fay
Prior to the Petition Date, Leslie Fay and the ILGWU, now
known as UNITE, had maintained a collective bargaining relationship for
over thirty years. As of the Petition Date, Leslie Fay and the ILGWU
were parties to a master collective bargaining agreement, dated June 1,
1991 (the "Master Agreement"), incorporating certain plant supplemental
agreements, which governed the terms and conditions of employment of
Leslie Fay's ILGWU-member employees. The Master Agreement expired on
May 31, 1994. Subsequent to the initial Petition Date, under the Master
Agreement, the ILGWU filed several complaints in arbitration (the
"Arbitration Claims") in which it alleged that Leslie Fay had violated
the Master Agreement in several substantive respects and pursuant to
which the ILGWU alleged damages of millions of dollars.
Following the commencement of the Chapter 11 Cases, Leslie
Fay and the ILGWU executed a Memorandum of Agreement, dated as of July
15, 1993 (the "Memorandum of Agreement"), which purported to modify the
Master Agreement in several material respects and compromise and settle
the Arbitration Claims. By its terms, certain of the provisions of the
Memorandum of Agreement required ratification by the ILGWU membership.
Shortly after the ILGWU's presentation of the Memorandum of Agreement
to its membership for ratification, a dispute arose between Leslie Fay
and the ILGWU as to the effectiveness and validity of that agreement.
The ILGWU asserted that the Memorandum of Agreement had been duly
ratified by the union membership, was in full force and effect and
binding against Leslie Fay. Leslie Fay contended that its ILGWU-member
employees had failed to properly ratify the Memorandum of Agreement,
and therefore, the ratification dependent provisions of such agreement
were not in effect. Further, Leslie Fay asserted that, notwithstanding
the validity or invalidity of the ratification process, under the
Bankruptcy Code and Bankruptcy Rules, the Memorandum of Agreement
required the approval of the Bankruptcy Court as a condition to
effectiveness, which approval had not been obtained.
After the ILGWU commenced an arbitration proceeding under the
Master Agreement concerning the validity of the Memorandum of Agreement
-- in which Leslie Fay was contractually bound to participate -- and
the conduct of arbitration proceedings before John E. Sands, an
arbitrator designated under the Master Agreement, by a final award,
dated January 10, 1994, the arbitrator determined the Memorandum of
Agreement was in full force and effect and directed the parties to
comply with its terms. By a motion, dated February 2, 1994, filed with
the Bankruptcy Court, the ILGWU sought an order of the Bankruptcy Court
(a) confirming the arbitrator's final award and (b) directing Leslie
Fay to comply with all of the terms of the Memorandum of Agreement (the
"ILGWU Motion"). Based on its contentions that (a) the Memorandum of
Agreement was not in effect because it required the prior approval of
the Bankruptcy Court and (b) the contract arbitrator had exceeded his
authority in rendering his decision, by a response and cross-motion,
dated April 4, 1994 (the "Response and Cross- Motion"), Leslie Fay
requested that the Bankruptcy Court deny the ILGWU Motion in its
entirety, declare the Memorandum of Agreement invalid and of no force
and effect, and set aside the arbitrator's final award. After a hearing
before the Bankruptcy Court on May 26, 1994, the Bankruptcy Court
denied the ILGWU Motion in an opinion, dated June 20, 1994.
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<PAGE>
(b) ILGWU Strike and New Collective Bargaining
Agreement
Prior to the expiration of the Master Agreement, and
commencing in March of 1994, Leslie Fay and the ILGWU engaged in
negotiations in an effort to reach agreement on terms for a successor
collective bargaining agreement. Such negotiations continued, without
success, through May 31, 1994, the date on which the Master Agreement
expired. On June 1, 1994, the ILGWU called a general strike against all
of Leslie Fay's domestic production and distribution facilities.
Subsequent to the initiation of the strike, both Leslie Fay and the
ILGWU filed unfair labor practice complaints against each other with
the National Labor Relations Board (the "NLRB Actions"). As discussed
below, the strike lasted approximately forty-four (44) days.
Following the commencement of the strike, negotiations
between Leslie Fay and the ILGWU were recommenced under the auspices of
a mediator appointed by the Federal Mediation and Conciliation Service
and later under the auspices of a special mediator agreed to by the
parties. After several rounds of further negotiations between officials
of Leslie Fay and the ILGWU, the principal terms for the settlement of
the strike and a new collective bargaining agreement were agreed upon
by Leslie Fay and the ILGWU and memorialized in that certain Memorandum
of Understanding, dated July 8, 1994 (the "Memorandum").
The Bankruptcy Court approved the Memorandum by order, dated
July 14, 1994. Thereafter, Leslie Fay and the ILGWU documented a
successor collective bargaining agreement (the "New Collective
Bargaining Agreement") for the period June 1, 1994 through May 31,
1997, which agreement embodies the terms of the Memorandum. Among other
things, the Memorandum contemplated the reduction in force to
approximately six hundred (600) of Leslie Fay's ILGWU employees.
Additionally, under the Memorandum, the ILGWU consented to Leslie Fay's
closure of its (a) Throop Fashion dress production facility located in
Throop, Pennsylvania, (b) Morrow, Georgia distribution center, (c)
Julie II Sportswear facility located in Minersville, Pennsylvania, and
(d) Miami, Florida cutting room facility (collectively, the "Closed
Facilities"). The Memorandum imposed obligations on Leslie Fay. In
particular, Leslie Fay guaranteed production jobs for six hundred (600)
ILGWU-member employees in its Pennsylvania dress production facilities
for the period August 1, 1994 through July 31, 1995, while the
profitability of the domestic manufacturing facilities were examined by
an independent third-party, and agreed to make enhanced severance
payments aggregating approximately $2.7 million in connection with the
termination of personnel from the Closed Facilities and with respect to
the contemplated reduction in force.
Pursuant to the Memorandum, the Arbitration Claims, the NLRB
Actions and claims relating to the payment of liquidated damages were
withdrawn with prejudice. In addition, with limited and identified
exceptions, all other pending arbitration claims and NLRB actions
between the parties were withdrawn with prejudice. The Memorandum
further provided for the withdrawal of the ILGWU's liquidated damage
claim of approximately $7.9 million filed in Leslie Fay's Chapter 11
Case.
Additionally, in furtherance of the parties' commitment to
develop the means, if possible, by which Leslie Fay could continue to
employ substantial numbers of ILGWU members in its manufacturing plant
located in Luzerne County, Pennsylvania (the "Route 315 Facility")
during the second and third years of the New Collective Bargaining
Agreement, Leslie Fay and the ILGWU established a joint
labor-management committee (the "Joint Committee") comprised of two
representatives appointed by Leslie Fay and two representatives
appointed by the ILGWU. The Joint Committee was chaired by an outside
facilitator, Bill Usery Associates, Inc. (the "Facilitator"). Under the
provisions of the Memorandum, the Facilitator was authorized to retain
a consulting firm to conduct an independent study (the "Independent
Study") to determine the conditions under which Leslie Fay could
produce dresses domestically and compete successfully in the moderate
dress market place, thereby enabling Leslie Fay to continue to employ
ILGWU members on a profitable basis. The Memorandum further provided
that, upon completion of the Independent Study, the consultant was to
submit a report of its findings, together with the comments of the
Joint Committee, to the Facilitator. If the Joint Committee's
recommendations with respect to the Independent Study were unanimous,
the Independent Study would be binding upon Leslie Fay and the ILGWU.
If, however, the Joint Committee failed to reach a unanimous agreement
as to how Leslie Fay could achieve the stated goals, the parties agreed
that the Facilitator's recommendations in this regard would be binding
upon both parties.
The Facilitator selected the consulting firm of Deloitte &
Touche to conduct the Independent Study, which was completed on or
about April 7, 1995. The Independent Study concluded that it was not
possible for Leslie Fay to profitably produce moderate-priced dresses
at the Route 315 Facility. The Joint Committee failed to present a
unanimous recommendation to the Facilitator as to the results of the
Independent Study. On May 5, 1995, the Facilitator issued his binding
recommendation
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<PAGE>
by which the Facilitator concurred with the findings of the Independent
Study and relieved Leslie Fay of its obligation to maintain employment
at the Route 315 Facility after July 31, 1995. Following the issuance
of the Facilitator's ruling, Leslie Fay announced its intention to
close the Route 315 Facility as of August 1, 1995. The Route 315
Facility was closed on or about August 4, 1995.
In anticipation of the closing of the Route 315 Facility,
Leslie Fay and UNITE, as successor to the ILGWU, commenced negotiations
to resolve issues arising from the closing of the Route 315 Facility,
including the payment of severance claims and liquidated damages, and
any unresolved claims arising in connection with the Closed Facilities.
As a result of these negotiations, the parties successfully reached a
compromise and settlement memorialized in that certain Settlement
Agreement, dated August 31, 1995, between Leslie Fay and UNITE. The
Settlement Agreement resolved all severance claims that might be
asserted against Leslie Fay as a consequence of the closing of the
Route 315 Facility and the Closed Facilities, as well as any issues and
claims that might arise concerning alleged violations of Leslie Fay's
obligations to fully supply the Route 315 Facility employees with work
as provided for in the Collective Bargaining Agreement. Pursuant to the
Settlement Agreement, Leslie Fay agreed to distribute approximately
$4,698,600 to former employees, including the balance of the severance
payment fund established in connection with the termination of
personnel from the Closed Facilities.
(c) ILGWU National Retirement Fund Claim
Pursuant to the Master Agreement and the New Collective
Bargaining Agreement, Leslie Fay is obligated to contribute to the
ILGWU National Retirement Fund (the "Fund"), a multi-employer pension
fund. The Fund has filed a proof of contingent claim with the
Bankruptcy Court for Leslie Fay's estimated withdrawal liability
representing its allocable share of unfunded vested benefits under the
Multi-employer Pension Plan Amendments Act ("MPPA") of the Employee
Retirement Income Security Act of 1974, as amended (29 U.S.C. Sections
1301 et seq.) ("ERISA"). The Fund's most recent estimate of the
Company's withdrawal liability through plan year 1995 is approximately
$14,875,721. In filing such claim, the Fund has attempted to preserve
its rights, has not claimed that a withdrawal has occurred and is not
asserting that Leslie Fay has any current liability to the Fund.
4. Exclusivity Extensions
During the pendency of the Chapter 11 Cases, the Debtors
filed periodic motions with the Bankruptcy Court for extensions of the
initial periods under the Bankruptcy Code pursuant to which the Debtors
possess the exclusive right to file a plan or plans of reorganization
and gain acceptances to such plan[s] (the "Exclusive Periods").
Pursuant to orders of the Bankruptcy Court, the Debtors maintained this
exclusive right throughout these cases, subject to the concurrent right
of the Creditors' Committee to file a plan of reorganization. By order,
dated May 29, 1996, the Court extended the Exclusive Periods through
September 30, 1996. The Debtors did not seek an extension of the
Exclusive Periods. Accordingly, such periods terminated on September
30, 1996.
5. Conduct and Completion of Audit Committee
Investigation and Issuance of Financial Statements
As set forth above, immediately following the discovery of
the accounting irregularities, the Audit Committee commenced an
investigation to (a) identify the extent of the irregularities, (b)
quantify the impact of the irregularities upon the Debtors' operations
and historical financial results and (c) identify the means by which
these unsupported entries in the Debtors' general ledger had been
accomplished. The Audit Committee Investigation was conducted over a
period of approximately eight months. Assisted by its professionals,
the Audit Committee conducted extensive interviews of numerous
employees and undertook detailed examinations of the Debtors' books and
records. In addition, where feasible, the Audit Committee took steps to
verify independently the accuracy or credibility of the information
that was provided in the interviews and documents.
On September 29, 1993, Leslie Fay announced that the Audit
Committee had completed the Audit Committee Investigation and presented
its findings in a confidential report to the Board of Directors of
Leslie Fay. It was the conclusion of the Audit Committee that there was
no evidence that then-current members of the senior management of
Leslie Fay or the Board of Directors of Leslie Fay knew of, or
participated in, the perpetration of the accounting irregularities.
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Leslie Fay had received unqualified opinions from its former
independent auditors, BDO Seidman, that the financial statements for
1990 and 1991 were fairly presented in conformity with GAAP.(14) In
September 1993, Leslie Fay announced the revised and restated results
which reflected the reversal of the accounting irregularities uncovered
by the Audit Committee Investigation for 1990, 1991 and 1992, as well
as other adjustments for 1990 through the third quarter of 1992. In
all, the Audit Committee Investigation led to the reversal of numerous
unsupported accounting entries which aggregated a reduction in pretax
income of approximately $81 million for fiscal years 1990, 1991 and
1992. In addition, pretax accounting adjustments aggregating $50
million, but unrelated to the irregularities, were recorded. Leslie
Fay's consolidated balance sheet as of January 2, 1993 was audited and
reported on by Arthur Andersen. Leslie Fay's fiscal 1992 consolidated
income statement and consolidated restated financial statements for
1990 and 1991 were unaudited.(15)
6. Appointment of Independent Examiner
Following the completion of the Audit Committee's report and
the announcement of the results thereof, the Creditors' Committee,
whose counsel and members had been furnished with the report under a
Bankruptcy Court-approved confidentiality agreement, raised questions
as to the scope, quality and depth of the investigation. At the same
time, the Creditors' Committee questioned whether the Debtors' counsel,
Weil Gotshal, was "disinterested" as required under section 327 of the
Bankruptcy Code and, accordingly, whether Weil Gotshal was eligible to
represent the Debtors in the Chapter 11 Cases generally and with
respect to the Audit Committee Investigation. In order to refocus the
parties' attention on the Chapter 11 Cases and address any doubts
concerning the scope and thoroughness of the Audit Committee
Investigation, Leslie Fay requested that the Bankruptcy Court direct
the appointment of an examiner under section 1104(b) of the Bankruptcy
Code, which request was supported by the Creditors' Committee.
On December 16, 1993, the Court entered an order directing
the United States Trustee to appoint an examiner to (a) review and
evaluate the Audit Committee Investigation and recommend to the
Bankruptcy Court whether the examiner should conduct a further
investigation of the accounting irregularities and adjustments to the
Debtors' financial statements, (b) evaluate and recommend to the
Bankruptcy Court whether any viable claims on behalf of the Debtors'
estates arising out of or related to the accounting irregularities
existed and the feasibility of prosecuting any such claim or claims,
and (c) conduct an investigation and recommend to the Bankruptcy Court
whether Weil Gotshal satisfied the disinterestedness and disclosure
imposed by the Bankruptcy Code for retained professionals. On January
18, 1994, Charles A. Stillman was appointed as examiner (the
"Examiner"). Thereafter, the Examiner retained his own law firm,
Friedman, Stillman & Shaw, P.C., and the accounting firm of KPMG Peat
Marwick to assist the Examiner in his investigations.
On May 27, 1994, the Examiner submitted his findings and
recommendations to the Bankruptcy Court in two reports filed with the
Bankruptcy Court under seal. The Examiner concluded that the
investigative procedures undertaken by the Audit Committee appeared to
be thorough and comprehensive and that further substantial
investigation into the facts and circumstances surrounding the
accounting irregularities was not required. Further, the Examiner
concluded that there was no evidence that the outside directors of
Leslie Fay who served on Leslie Fay's Audit Committee during the period
of the accounting irregularities or the senior management of Leslie Fay
(other than its former Chief Financial Officer, Paul Polishan)
---------------------
(14) As of the initial Petition Date, BDO Seidman had not yet completed
its annual audit of the Debtors' 1992 consolidated financial
statements. Further, as a result of the discovery of the accounting
irregularities, BDO was also in the process of reviewing its prior
audit of the Debtors' 1991 consolidated financial statements. On or
about April 13, 1993, the SEC determined that BDO was no longer
considered to be "independent" as that term is used under SEC rules,
for purposes of performing the 1992 audit in light of the pending
stockholder suits and the pending investigation by the SEC with respect
to the accounting irregularities. Consequently, Leslie Fay and BDO
Seidman terminated their relationship. Following a search conducted by
Leslie Fay's Board of Directors, the Debtors, with the approval of the
Bankruptcy Court, retained the accounting firm of Arthur Andersen & Co.
as their new independent public accountants effective as of May 6,
1993.
(15) On September 28, 1993, BDO Seidman withdrew its opinion on Leslie
Fay's consolidated financial statements for 1990. It is Leslie Fay's
understanding that the audit opinion was withdrawn in view of the
restatement of the consolidated financial statements for 1990. As
stated above, BDO Seidman had previously withdrawn its opinion on
Leslie Fay's consolidated financial statements for 1991.
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had knowledge of or participated in the accounting irregularities.(16)
The Examiner did conclude that, in connection with the accounting
irregularities, viable claims likely existed against BDO Seidman and
that further investigation as to the economic feasibility of pursuing
those claims was warranted.(17)
The Examiner's report concerning Weil Gotshal concluded that
Weil Gotshal had a potential conflict of interest and, therefore, was
not disinterested. In light of his findings that Weil Gotshal acted in
the best interests of and performed valuable services for the Debtors'
estates, the Examiner concluded that disqualification of the firm was
not warranted and recommended a limited sanction in the form of a
disallowance of future fees based on a portion of the cost of the
Examiner's investigations.(18)
On October 19, 1994, the United States Trustee filed a motion
with the Bankruptcy Court seeking the disqualification of Weil Gotshal
as counsel to the Debtors and the imposition of economic sanctions
against the firm. The United States Trustee based the motion on the
findings of the Examiner. Contrary to the Examiner's report, the United
States Trustee alleged that the lack of disinterestedness on the part
of Weil Gotshal caused actual harm to the Debtors' estates. On behalf
of itself and the Debtors, Weil Gotshal opposed the motion, asserting
that it had satisfied both the disinterestedness and disclosure
requirements of the Bankruptcy Code and that the disqualification of
Weil Gotshal at a point in time approximately twenty months after the
Petition Date would result in irreparable harm to the Debtors' estates
and the reorganization effort. The Creditors' Committee and Equity
Committee agreed with the Debtors and opposed the disqualification of
Weil Gotshal asserting that disqualification would impose an unfair
burden and expense on the chapter 11 estates. In an opinion, dated
December 15, 1994, the Bankruptcy Court concluded that Weil Gotshal was
not disinterested under the Bankruptcy Code and that it had failed to
make proper disclosure of certain of its preexisting client
relationships as mandated by the Bankruptcy Code. The Bankruptcy Court
precluded Weil Gotshal from representing the Debtors in new matters
with respect to which Weil Gotshal had not previously furnished
services on behalf of the Debtors and imposed an economic sanction
against the firm. Following this decision, the Debtors' retained the
law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as special
counsel to render legal services in connection with the prosecution and
defense of certain litigation, contested matters and claims resolution
issues.
7. Bar Dates and Summary of Claims
On September 30, 1993, the Bankruptcy Court entered an order
establishing 5:00 p.m., Eastern Standard Time, on December 10, 1993
(the "Bar Date"), as the time and date by which proofs of claim against
the initial Debtors and their estates must be filed. On October 7, 1993
and October 21, 1993, notice of the Bar Date, a proof of claim form and
instructions for its completion were served on all known creditors and
parties which had conducted business with the Debtors during the
one-year period prior to the Petition Date. In addition, the initial
Debtors published notice of the Bar Date in accordance with the order
establishing the Bar Date. By virtue of the foregoing, all parties
listed as a creditor or holder of an interest in the initial Debtors'
schedules of liabilities received at least 45 days' notice by
first-class mail of the Bar Date. All other persons claiming to be
creditors of the initial Debtors' chapter 11 estates were given
approximately forty-five (45) days' constructive notice through
publication.
On November 15, 1995, the Bankruptcy Court entered an order
establishing 5:00 p.m., Eastern Standard Time, on December 12, 1995
(the "Retail Bar Date"), as the time and date by which proofs of claim
against the Retail Debtors and their estates must be filed. On November
21, 1995, notice of the Retail Bar Date, a proof of claim form and
instructions for completion were served on all known creditors and
parties which had conducted business with the Retail Debtors during the
---------------------
(16) On or about October 29, 1996, Polishan was indicted by a federal
grand jury in the Middle District of Pennsylvania in connection with
the accounting irregularities.
(17) On April 4, 1995, the Equity Committee, on behalf of the Debtors'
estates, commenced an adversary proceeding against BDO Seidman. The
action is discussed at Section IV.C.4. below, The Debtors' Chapter 11
Cases -- Pending Litigation and Other Legal Proceedings -- Leslie Fay
v. BDO Seidman & Co.
(18) Subsequent to the appointment of the Examiner, with the
exception of the ILGWU, the entire membership of the Creditors'
Committee changed. The newly constituted Creditor's Committee
adopted no position with respect to the Examiner's
investigation or reports.
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six-month period prior to November 15, 1995. In addition, the Retail
Debtors published notice of the Retail Bar Date in the locales where
the Retail Debtors do business.
On April 8, 1996, the Debtors filed amended schedules of
liabilities. On April 12, 1996, the Bankruptcy Court entered an order
establishing May 8, 1996, 5:00 p.m., Eastern Daylight Savings Time, as
the supplemental bar date (the "Supplemental Bar Date") and established
procedures for filing proofs of claims against the Retail Debtors and
initial Debtors, where applicable.
A discussion of the claims filed against the Debtors' estates
and scheduled by the Debtors, and the Debtors' efforts to reconcile and
resolve these claims is set forth below at Section V.B., The Joint Plan
of Reorganization -- Analysis of
Claims Against the Debtors.
8. Settlement of Claims with Internal Revenue Service
and United States Customs Service
During the Chapter 11 Cases, the Debtors consensually
resolved substantial claims among the Debtors, the Internal Revenue
Service (the "IRS") and the United States Customs Service ("Customs"),
including, without limitation, claims relating to tax refunds, amended
tax returns, contingent and unliquidated customs entries, employment
taxes and FICA and FUTA liabilities. The compromise and settlement of
such claims and the audit process related thereto took approximately
two years to accomplish.
On or about September 24, 1993, Leslie Fay filed an
application with the IRS seeking a tentative refund of federal income
taxes of $13,715,955 for the carryback of 1992 losses to prior years
(the "1992 Tentative Refund"). On or about December 6, 1993, Leslie Fay
filed amended tax returns with the IRS for fiscal years 1989, 1990 and
1991, which reflected the impact of the various adjustments to the
Company's financial statements on federal taxable income and related
federal income taxes for these years, by which it sought an aggregate
refund in the amount of $8,235,447. Additionally, in March of 1994, the
Company filed an application with the IRS seeking a tentative refund of
federal taxes of $19,312,382, for the carryback of 1993 net operating
losses to prior years (the "1993 Tentative Refund").
In light of the request for the 1992 Tentative Refund and the
filing of the amended tax returns, the IRS informed Leslie Fay that an
audit of the Company's tax returns for 1989, 1990, 1991 and 1992 would
be necessary and that, as a consequence, it would require an extension
of the Bar Date. Pursuant to several stipulations between the Debtors
and the IRS, approved by the Bankruptcy Court (the "Prior
Stipulations"), the deadline by which the IRS was required to file
proofs of claim against the Debtors' estates was extended to March 31,
1995.
In August of 1993, Customs filed a proof of claim in the
approximate amount of $102,347,000 in connection with the importation
of merchandise between July 1984 and December 31, 1987. On or about
November 19, 1993, Customs filed an amended and superseding proof of
claim in the aggregate amount of $3,964,262.96. Following a review and
discussions with Leslie Fay during which Leslie Fay assisted Customs in
reconciling its claim, Customs ultimately filed a third amended and
superseding claim against the Debtors' estates in the amount of
$410,737.88, plus unliquidated and contingent liabilities (the "Customs
Claim"). In accordance with the Prior Stipulations, and based upon the
reduction of the Customs Claim, with the exception of approximately
$410,000 withheld as alleged security for the payment of the Customs
Claim, the IRS paid to Leslie Fay the 1992 Tentative Refund and the
1993 Tentative Refund.
In March 1995, the IRS completed its field examination of the
Company's consolidated tax returns for 1989, 1990, 1991 and 1992. The
revenue agent's report prepared by the IRS in connection with the
completion of the audit illustrated Leslie Fay's entitlement to a net
refund of $7,970,073 (the "IRS Refund"). The IRS also examined excise
and payroll tax returns and employee benefit plans for the foregoing
years. The excise tax returns and employee benefit plan reports were
accepted by the IRS as filed. The IRS proposed certain adjustments to
payroll tax returns for taxable years 1990, 1991 and 1992 (the
"Pre-1993 Employment Taxes"). As discussed below, the Debtors accepted
the results of the audit. However, in order to preserve its rights
pending approval of the Revenue Agent Report by the Joint Committee, on
March 31, 1995, the IRS filed several proofs of claim against the
Debtors' chapter 11 estates.
Following the completion of the IRS audit, the Debtors, the
IRS and Customs entered into a stipulation, dated August 9, 1995 (the
"IRS Stipulation"), approved by the Bankruptcy Court on August 15,
1995, pursuant to which (a) the Customs Claim was allowed in the amount
of $401,869.14, satisfied and discharged by Leslie Fay in its entirety,
(b) the Debtors
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agreed to and satisfied the Pre-1993 Employment Taxes in the amount of
$89,173.33 in full satisfaction of those taxes and agreed to pay
$331,888.92 to the IRS, upon the Effective Date of a plan of
reorganization, less any applicable credits for the Debtors' payments
into the unemployment funds of various states in settlement of sums
related to employment tax obligations which the Debtors were precluded
from paying as a consequence of the Chapter 11 Cases, (c) the balance
of the 1992 Tentative Refund and 1993 Tentative Refund were paid to the
Debtors, and (d) the Debtors agreed to accept the results of the IRS
audit. Additionally, in accordance with the IRS Stipulation, following
Leslie Fay's execution of IRS form 870 indicating its acceptance of the
adjustments proposed by the IRS, the IRS submitted the Agent Report and
the case to the Chairman of the Joint Committee on Taxation (the "Joint
Committee") in Washington, D.C. for review and approval. The Joint
Committee was asked to approve the IRS Refund, the 1992 Tentative
Refund and the 1993 Tentative Refund. The IRS Stipulation further
provided for the payment of the IRS Refund shortly after Joint
Committee approval was obtained or for the payment of such other amount
as may be approved by the Joint Committee. Thereafter, the Joint
Committee approved and adopted the Revenue Agent Report, and therefore
the IRS Refund, with no exceptions. The IRS subsequently paid the
Refund. Accordingly, as a procedural formality, Leslie Fay intends to
file an objection to expunge the IRS Claims in their entirety.
9. The Leslie Fay Companies, Inc. Retirement Plan
The Debtors sponsor and maintain a pension plan for certain
of their employees known as the Leslie Fay Companies, Inc. Retirement
Plan ("Retirement Plan"). The Retirement Plan is covered by Title IV
("ERISA"). The Debtors intend to terminate the Retirement Plan on or
before December 31, 1996. As of the date hereof, the Debtors estimate
that the Retirement Plan is underfunded by approximately $900,000. Such
underfunding shall be paid from Consummation Cash pursuant to the Plan.
The Pension Benefit Guaranty Corporation ("PBGC") is a wholly
owned United States Government corporation created under Title IV of
ERISA which guarantees the payment of certain pension benefits upon
termination of a pension plan. The PBGC has advised the Debtors that,
upon termination of the Retirement Plan, the Debtors and all members of
their controlled group would be jointly and severally liable for any
unfunded benefit liabilities of the Retirement Plan, to the extent
allowed under 29 U.S.C. Section 1362(a) and that any future liability
that should arise under 29 U.S.C. Section 1362 shall not be affected in
any way by the Chapter 11 Cases, including discharge. Thus, neither the
Retirement Plan nor the PBGC shall be precluded by confirmation of the
Plan from commencing any action, or from taking any other action, to
collect, enforce, or recover from the reorganized Debtors, their
successors, or their assets or properties, any rights or claims under
ERISA or otherwise. However, as noted above, the Debtors intend to
fully fund the Retirement Plan from Consummation Cash and believe that
no future liability will arise.
10. The Development and Implementation of Business Plans
and Consolidation of Operations
(a) Three and Five Year Business Plans
On February 28, 1994, the initial Debtors, with the
assistance of their financial advisors, and managerial and operational
consultants, completed a comprehensive three-year business plan for
fiscal years 1994 through 1996 (the "Business Plan"), which plan was in
part based on a one-year operating plan previously developed and
implemented by the initial Debtors. The Business Plan encompassed an
integrated strategy designed to return the initial Debtors' businesses
to financial stability and long-term profitability. The Business Plan
addressed all aspects of the Company's operations, and included
detailed operating plans and strategies to be implemented by the
initial Debtors and their non-debtor affiliates at both the corporate
and divisional levels through which to achieve these goals. The
Business Plan also included comprehensive financial projections for
both the consolidated operations of the Company and for each of its
operating divisions. The initial Debtors anticipated that the Business
Plan would provide the foundation for any plan of reorganization
ultimately proposed by the initial Debtors.
In September 1994, and after analyzing their performance
under the Business Plan for the first six months of 1994, the initial
Debtors updated and modified the Business Plan to take into account the
initial Debtors' actual performance for the first half of 1994 and the
actual and projected impacts of the ILGWU strike and the New Collective
Bargaining Agreement. The initial Debtors made similar adjustments to
the Business Plan's financial projections for fiscal years 1995 and
1996, and extended the Business Plan and financial projections
contained therein through fiscal year 1999 so that it was a five-year
plan.
Despite (a) management's continued implementation of the
Business Plan during fiscal year 1994, (b) a subsequent revision of the
financial projections set forth in the plan to account for the Debtors'
poorer than expected
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performance and (c) the discontinuance of Leslie Fay's THEOmiles
division in October of 1994, Leslie Fay's consolidated results of
operations for fiscal year 1994 fell short of the revised Business
Plan's projections due primarily to unanticipated impacts of the ILGWU
strike on operations and sales. Specifically, the ILGWU's activities
affected Leslie Fay's ability to manufacture, receive and distribute
merchandise during the strike causing late deliveries of its Fall dress
and sportswear merchandise. This, in turn, resulted in cancelled
orders, increased markdowns and customer allowances, all of which
eroded net sales and margins. The delays in shipments of Fall product
in the third quarter of 1994 impacted directly on the fourth quarter's
results as customers demanded large markdowns and allowances for
Holiday shipments in the fourth quarter due to the inability of Leslie
Fay to provide its customers with product for the full selling seasons,
thus further eroding net sales and margins. The continued impact of a
weak economy and lackluster consumer demand at the retail level in all
women's apparel categories also played a major role in the decline in
net sales. As a consequence, for fiscal year 1994, the initial Debtors
on a consolidated basis incurred an operating loss of approximately
$27.2 million.
Actual operating results for fiscal year 1994 compelled the
initial Debtors, their advisors and the Committees to consider
alternative strategies for the initial Debtors' reorganization. These
efforts led to the development of an outline for a proposed plan of
reorganization which is discussed below.
(b) Consolidation of Operations and Asset
Dispositions
Prior to the completion of the Business Plan and in
connection with implementation of the Business Plan, during the
pendency of the Chapter 11 Cases, the initial Debtors closed and
consolidated certain of their divisions and operations which had
experienced excessive losses and which were noncompetitive. As a
consequence of this consolidation, where feasible, the Debtors have
sold certain assets and their interests in certain businesses and have
licensed certain of their trademarks.
Closure of Spitalnick. In November 1993, Leslie Fay closed
and liquidated its Spitalnick division, a wholly owned subsidiary of
Leslie Fay and Debtor, which formally designed and sold private label
sportswear. As of October 15, 1993, Spitalnick consisted of
approximately thirty (30) employees, a showroom/ production facility
and a distribution facility.
Licensing of Hue Trademark and Sale of Assets. In June, 1992,
Leslie Fay acquired all of the issued and outstanding stock and assets,
including tradenames and trademarks of Hue and Hue International, Inc.
Although Hue generated sales in 1993, net of discounts, markdowns,
allowances and returns, in the approximate amount of $22,000,000, due
to a multitude of factors, it produced a negative cash flow. In
connection with Leslie Fay's strategic restructuring, and in light of
the historical and projected weak financial performance of Hue, Leslie
Fay and Hue decided to discontinue Hue's manufacturing operations,
commence licensing the "HUE" tradename and trademark for women's
legwear and sell Hue's physical assets. Since 1992, Hue has licensed
the "Hue" trademark for children's socks and legwear to Cricket
Hosiery, Inc. under an agreement with an expiration of December 31,
1997. The royalty income from this agreement was $105,100 for 1994,
$123,750 for 1995, and is expected to be $60,000 for 1996.
By order, dated March 3, 1994, the Bankruptcy Court
authorized Leslie Fay and Hue to enter into two license agreements of
the "HUE" tradename and trademark with Kayser- Roth Corporation
("Kayser-Roth") covering both domestic and certain international areas,
with respect to the manufacturing and sale of casual legwear and sheer
hosiery, and to sell Hue's physical assets to Kayser-Roth, free and
clear of liens, claims and encumbrances. The license agreements with
Kayser-Roth expire on December 31, 1997, unless otherwise renewed
pursuant to the terms of the agreements. The guaranteed minimum
royalties under the license agreements is approximately $1,200,000 per
year. In addition, as part of the overall transaction, Kayser-Roth
agreed to purchase the physical assets of Hue and International and
ultimately paid approximately $3,000,000 for these assets.
Discontinuance of THEOmiles Division. In October 1994, Leslie
Fay discontinued its THEOmiles division which it had launched in the
Fall of 1993. The division offered a classic line of sportswear and
dresses for the better-priced market. The commencement of the Chapter
11 Cases in combination with the publicity surrounding the accounting
irregularities and the Audit Committee Investigation and the
uncertainty created by these events had a significant negative impact
on the performance of THEOmiles, in its infancy at such time.
Consequently, Leslie Fay determined that, given the limits of its
financial and human resources, those resources should be focused on its
businesses with more promising near-term profit potential.
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Sale of Interest in Next Day Apparel, Inc. In September of
1995, Leslie Fay received authorization from the Bankruptcy Court to
sell its fifty-one percent (51%) interest in Next Day Apparel, Inc.
("Next Day") and its interest in certain trademarks to West Union
Apparel, Ltd. ("West Union"), Next Day's minority shareholder. In
connection with the transaction, Leslie Fay agreed to contribute to the
capital of Next Day, $2.2 million of the principal amount of a $5
million subordinated loan previously made by Leslie Fay to Next Day,
evidenced by a subordinated note, dated December 21, 1993 (the "Next
Day Note"). In connection with the sale of Leslie Fay's interest in
Next Day, West Union agreed to purchase the Next Day Note for $2.8
million. The sale of Next Day was consummated in September of 1995,
with Leslie Fay realizing approximately $3,486,000.
Consolidation of Other Operations/Closure of Outlets. In
December 1994, in conjunction with its continuing efforts to eliminate
unprofitable business and further streamline operations, Leslie Fay
determined to (a) close its two (2) foreign sales subsidiaries, Leslie
Fay Canada, Inc. and Leslie Fay U.K. Limited, and (b) close twelve (12)
of its retail outlets. In the Second Quarter of 1995, Leslie Fay
determined to close four (4) additional retail outlet stores, certain
of its sportswear labels and excess office and showroom locations.
Leslie Fay has proceeded with the orderly liquidation of these
businesses.
During the Chapter 11 Cases, with the approval of the
Bankruptcy Court, the initial Debtors liquidated other assets and their
interests in a certain affiliate. Pursuant to an order, dated July 20,
1993, the Bankruptcy Court approved the sale of substantially all of
the assets of Leslie Fay's Lowell Division to ABF Manufacturing Corp in
consideration for the sum of approximately $409,000.
On or about February 22, 1994, Leslie Fay obtained authority
from the Bankruptcy Court to sell its Sabreliner 80SC Aircraft and
certain related equipment to NSH Aviation Corp. for approximately
$950,000. Additionally, pursuant to an order, dated August 17, 1995,
Leslie Fay was authorized to sell certain machinery and equipment which
it formerly utilized in its dress and sportswear manufacturing
facilities for the sum of approximately $520,000.
In March of 1994, Leslie Fay was authorized to sell its fifty
percent (50%) interest in Torren Fashion, Inc. ("Torren") to
Interamericana Products S.A. ("Interamericana"), the other fifty
percent (50%) shareholder, for approximately $350,000. Torren primarily
engages in the production and finishing of Leslie Fay's products as
well as that of other apparel manufacturers. The purchase price was
paid through the issuance of a promissory note which was due and
payable in May of 1996. Leslie Fay agreed to allow Torren to produce
garments for Leslie Fay to reduce the balance of the promissory note.
Through 1995, Torren reduced the note to $15,000. Thereafter, Leslie
Fay determined to cease purchasing garments from Torren and wrote off
the balance of the note as uncollectible. Since Leslie Fay acquired its
interest in Torren in 1989, the company had continually operated at a
deficit, and in accordance with a shareholders' agreement, Leslie Fay
was obligated to fund Torren's working capital needs. Accordingly,
Leslie Fay determined to liquidate its interest in Torren. In
connection with the transaction, Leslie Fay released its intercompany
receivable against Torren in the amount of $810,651.
Consolidation and Sale of Real Property Interests. As of the
Petition Date, the Debtors were parties to more than sixty-six (66)
unexpired leases and subleases of nonresidential real property and
owned approximately four (4) parcels of real property. Leslie Fay's
rights in one of these facilities, the Route 315 Facility, was the
subject of substantial litigation both prior to, and following the
Petition Date. See Section IV.C. below, Debtors' Chapter 11 Cases --
Pending Litigation and Other Legal Proceedings. Additionally, during
the pendency of its efforts to expand retail outlet operations under
the Business Plan, Leslie Fay entered into, or guaranteed,
approximately forty-three (43) leases of retail outlet space.
<PAGE>
As a result of the discontinuance of certain divisions,
manufacturing operations and retail outlet operations during the
Chapter 11 Cases, and in conjunction with the Debtors' overall business
strategy to substantially streamline operations, the Debtors' office,
showroom and related business space needs, as well as their warehouse
and distribution requirements, were significantly reduced. Accordingly,
the Debtors have either eliminated or consolidated their
administrative, production, warehouse and distribution facilities. In
particular, pursuant to Bankruptcy Court orders, the Debtors have
rejected substantially all leases of premises at which the Debtors are
no longer engaged in business and entered into lease termination
agreements with respect to substantially all of their retail outlet
locations.
Prior to determining which leases to reject, the Debtors
explored numerous potential scenarios for the reorganization of their
businesses and the mechanisms by which such alternatives could be
effected. In connection therewith, the Debtors analyzed the feasibility
of reorganizing the Retail Division along with Leslie Fay's traditional
core businesses, as well as a sale of the Retail Division as a going
concern. In furtherance of the Debtors' reorganization proposals,
Leslie Fay renewed
30
<PAGE>
its effort to market the Retail Division as a going concern in order to
realize maximum value therefrom. Although certain parties expressed an
interest in purchasing the assets of the Retail Division, Leslie Fay
did not receive any suitable proposals. Accordingly, the Debtors
determined to pursue an orderly liquidation of the assets of the Retail
Division on either a going concern or partial basis.
In conjunction with Keen Realty Consultants, Inc. ("Keen
Realty"), real estate specialists retained to assist Leslie Fay and the
Retail Debtors (the "Outlet Debtors") in marketing and selling their
leases, Outlet Debtors evaluated several avenues through which the
liquidation value of the Retail Division's assets could be maximized.
The Debtors eventually determined that maximum value would be obtained
by conducting an auction of the retail outlet store leases and the
assets maintained at the retail outlets. After extensive consultation
with Keen Realty, the Outlet Debtors determined that certain of the
Outlet Debtors' leasehold interests were not marketable and of no value
to the Outlet Debtors' estates and creditors. Thereafter, Leslie Fay
and the Retail Debtors filed a motion, dated December 18, 1995, seeking
approval of the rejection of fourteen unexpired leases of
nonresidential real property and related subordination agreements. By
order, dated January 10, 1996, the Bankruptcy Court approved the
rejection of the fourteen leases.
At an auction held on January 10, 1996, the Outlet Debtors
(a) agreed to sell, and the Bankruptcy Court authorized the sale of two
leasehold interests, (b) announced the withdrawal from the auction of
leasehold interests for three outlet stores, (c) announced the
prospective rejection of three leasehold interests and (d) rejected,
with Bankruptcy Court approval, the remaining leasehold interests not
previously rejected by the Outlet Debtors. In that regard, the Outlet
Debtors stated that three of the retail outlet stores were being
utilized for the wind down sale of inventory until February 2, 1996.
Additionally, the Outlet Debtors advised the Bankruptcy Court that the
leases for two of the retail outlet stores most likely would be assumed
and assigned as part of the spinoff of Sassco. With respect to one of
the leases for an outlet store located in Woodbury Common Factory
Outlets, Woodbury, New York, Leslie Fay and Sassco determined that
Sassco could operate more efficiently in a smaller space than the one
withdrawn from the auction. Based upon such determination, Leslie Fay
and Sassco commenced negotiations with the landlord for Woodbury Common
Factory Outlets for the purpose of executing a new lease for smaller
premises and lower rental obligations. As a result, Leslie Fay sought
and, by order, dated January 18, 1996, obtained Bankruptcy Court
approval to reject the lease withdrawn from the auction and to enter
into a new lease for the smaller premises and, upon consummation of the
Plan, to assign such lease to Sassco.
In addition, pursuant to orders of the Bankruptcy Court,
Leslie Fay sold certain real property located in (a) Cincinnati, Ohio
in which it formerly operated a distribution center for $2,025,000, and
(b) Throop, Plymouth and Pittston, Pennsylvania where it formerly
operated dress manufacturing plants for $135,000, $20,000 and $55,000,
respectively. The Debtors' foregoing efforts to eliminate and
consolidate real property interests during the Chapter 11 Cases has
resulted in substantial savings to their estates.
As part of Leslie Fay's downsizing, Leslie Fay determined
that it no longer required the amount of space it leased in Hanover,
Pennsylvania, where its headquarters historically had been located. By
order, dated June 24, 1996, the Bankruptcy Court approved Leslie Fay's
rejection of the Hanover Lease and authorized Leslie Fay's entry into a
termination agreement with respect thereto. Leslie Fay subsequently
relocated its headquarters to its warehouse facilities located in
Laflin, Pennsylvania.
The Debtors currently are parties to several leases of
nonresidential real property of office, warehouse and other facilities,
including leased premises in Secaucus, New Jersey which Leslie Fay
entered into in July 1995 and September 1996, respectively, which will
be the headquarters and warehouse facilities of New Sassco. Under the
Plan, these leases either will be expressly assumed by the Debtors and
assigned to Reorganized Leslie Fay or New Sassco, as the case may be,
or rejected in accordance with section 365 of the Bankruptcy Code and
Section 34.1 of the Plan.
<PAGE>
As part of Leslie Fay's continuing efforts to downsize its
operations, in August 1995, Leslie Fay commenced negotiations with 1412
Broadway Associates ("Broadway Associates"), the landlord of the
premises in which Leslie Fay conducts its New York City operations, to
reduce the number of floors Leslie Fay leases and its aggregate rental
payments to reflect Leslie Fay's reduced use of space and the current
market rents. In February 1996, after negotiations with Broadway
Associates collapsed and after evaluating the real estate market within
the garment center, Leslie Fay commenced negotiations with 1400
Broadway Associates to lease premises on the sixteenth floor of 1400
Broadway. Sassco currently conducts its New York City operations from
the fifteenth floor of 1400 Broadway. On April 22, 1996, after Broadway
Associates commenced its own chapter 11 case, Leslie Fay filed a motion
for relief from the automatic stay in Broadway Associates' chapter 11
case for
31
<PAGE>
permission to file a motion to reject the lease between Leslie Fay and
Broadway Associates (the "1412 Lease") in Leslie Fay's chapter 11 case.
The Court deferred ruling on Leslie Fay's motion and ordered both
parties to mediate a resolution. Thereafter, negotiations were held
between Leslie Fay, the landlord for 1412 Broadway, as well as the
landlord for 1400 Broadway. During the negotiations, Broadway
Associates filed a motion seeking, inter alia, to compel Leslie Fay to
assume or reject the 1412 Lease. As a result of the negotiations,
Reorganized Leslie Fay and New Sassco have agreed to conduct their
respective New York City operations from 1412 Broadway and are in the
process of negotiating acceptable lease terms. However, as of the date
hereof, Leslie Fay has been informed that the landlord for 1400
Broadway will seek to reverse such decision by providing more favorable
terms for both New Sassco and Reorganized Leslie Fay at 1400 Broadway.
11. Development of Outline of Proposed Reorganization
Plan
In light of the Debtors' actual and projected operating
results for fiscal year 1994, in December of 1994, the Debtors and
their professionals engaged in discussions with the Creditors'
Committee and the Equity Committee and their respective professionals
regarding potential reorganization alternatives for the Debtors'
businesses. These discussions led to the development of a proposed
outline for a plan of reorganization (the "Outline") which was
delivered to the Committees in mid-January of 1995. Following its
review of the Outline, the Creditors' Committee indicated its support
for the reorganization proposals set forth therein.
The reorganization plan contemplated by the Outline
envisioned a smaller, streamlined reorganized Leslie Fay, focusing on
Leslie Fay's traditional core businesses, together with its Nipon,
Outlander and Castleberry product lines and the Retail Outlets, with
Sassco being sold or separated from the rest of Leslie Fay. The Outline
proposed a distribution under a plan of reorganization to creditors of
(a) new equity in Leslie Fay and (b) either the proceeds from the sale
of Sassco or equity and debt instruments to be issued by Sassco as a
stand-alone entity. At the time the Outline was announced, it was
contemplated that Leslie Fay's current stockholders might receive stock
and/or warrants in the reorganized entity and warrants to purchase the
equity of Sassco in the event it emerged from chapter 11 as a
stand-alone entity.
Following the announcement of the Outline, discussions and
negotiations regarding alternative scenarios for the divestiture of
Sassco ensued.
12. Efforts to Market and Sell the Core Businesses and
Development of Modified Business Plan
As an alternative to the transactions proposed in the
Outline, in March of 1995, the Board of Directors of Leslie Fay
determined to investigate whether returns to creditors could be
maximized through the sale of Leslie Fay's Dress, Sportswear and Retail
Division (collectively, the "Core Businesses") as going concerns. The
Board of Directors requested the Debtors' financial advisor,
Blackstone, to assist the Debtors in this effort. Over the course of
the following months, Blackstone identified potential purchasers,
compiled pertinent data regarding the Debtors' businesses which was
furnished to interested parties and solicited potential bids from
parties in interest.
After evaluating the potential for sale developed through
Blackstone's efforts, the Board of Directors of Leslie Fay, in
consultation with the Creditors' Committee, determined that the
reorganization of Leslie Fay on a scaled down basis, combined with the
sale of certain non-core assets, would provide the best value to
creditors as opposed to a sale of the businesses. In June of 1995, the
Board of Directors announced that it elected to pursue (a) the
reorganization of Leslie Fay around the Dress and Sportswear Divisions,
together with Leslie Fay's Outlander label and (b) the potential sale
of the remaining businesses, including Leslie Fay's Castleberry Knits
Division, provided an acceptable offer for that division was received,
and if not, Castleberry would be retained.
The Board of Directors also announced that a tentative
agreement had been reached for the sale or spinoff of Sassco under a
plan of reorganization to a group led by Arthur Levine and other
members of Sassco's senior management.
After conducting further analysis, the Debtors and Creditors'
Committee determined that the most efficient mechanism through which to
restructure the Core Businesses was through the reorganization of these
businesses by Reorganized Leslie Fay under a plan of reorganization.
The Debtors and the Creditors' Committee believe that the separation of
Sassco and Leslie Fay and the related transfer of assets will maximize
returns to Creditors from these assets.
32
<PAGE>
Accordingly, Leslie Fay has taken significant steps in
anticipation of the separation of Sassco and Leslie Fay. Specifically,
in an effort to bifurcate the administrative functions of Sassco from
the remainder of the Debtors' operations, many of Sassco's operating
functions that were previously performed by Leslie Fay have been
transferred to Sassco, including accounting, payroll and factory
services.
In addition, on the Effective Date of the Plan, New Sassco
intends to acquire either Forecast Designs, Inc., a company owned by
Herbert Kasper ("Kasper") or all of Kasper's trademark rights for a $5
million note, maturing in ten (10) years, bearing an interest rate of
eight percent (8%) per annum, secured by a letter of credit.
C. PENDING LITIGATION AND OTHER LEGAL PROCEEDINGS
1. Class Action. In November 1992, a class action, currently
captioned In re: The Leslie Fay Companies, Inc. Securities Litigation,
Civil Action No. 92-CIV-8036 (WCC), was instituted in the United States
District Court for the Southern District of New York. In January and
February 1993, the class action plaintiffs served amended complaints
and, thereafter, twelve other similar actions were served against
Leslie Fay, certain of its employees and directors and its then
auditors, BDO Seidman. These complaints purport to be on behalf of all
persons who purchased or acquired stock of Leslie Fay during the period
from February 4, 1992 to February 3, 1993, and allege that the
defendants knew or should have known material facts relating to sales
and earnings that they failed to disclose and that, if these facts had
been disclosed, they would have affected the price at which Leslie
Fay's common stock was traded. A pre-trial order has been entered
consolidating all of these actions, and, in accordance therewith, the
plaintiffs served the defendants with a consolidated class action
complaint which does not name Leslie Fay as a defendant.
In late March of 1994, the class action plaintiffs filed a
consolidated and amended class action complaint which adds certain
additional parties as defendants and expands the purported class period
from March 28, 1991 to and including April 5, 1993. In March of 1995,
BDO Seidman filed an answer to the complaint, cross-claims against
certain of the officers and directors of Leslie Fay previously named in
this action and third-party complaints against Odyssey Partners, L.P.,
certain current and former division heads of Leslie Fay and certain
current and former directors of Leslie Fay. Such cross-claims and
third-party complaints allege that Leslie Fay's senior management and
certain of its directors engaged in fraudulent conduct and negligent
misrepresentation. BDO Seidman seeks contribution from certain of the
defendants and each of the third-party defendants if it is found liable
in the class action, as well as damages. Defendants have answered and
discovery is ongoing.
Certain of the defendants and third-party defendants have
asserted contingent claims against the Debtors for indemnification in
the event they are found liable and ordered to pay damages to the
plaintiffs and/or BDO Seidman. The Debtors believe that a significant
portion of the claims asserted for indemnification would be covered by
insurance. The Debtors dispute their liability to certain of the
defendants and will seek to have those claims disallowed and expunged
pursuant to section 502(e)(1)(B) of the Bankruptcy Code on the basis
that they are contingent claims for reimbursement or contribution.
There can be no assurance that the Debtors will be successful in
seeking to expunge such claims.
<PAGE>
2. Derivative Action. In March 1993, a stockholder derivative
action captioned Isidore Langer, derivatively on behalf of The Leslie
Fay Companies, Inc. v. John J. Pomerantz, et al., Case No. 104544193,
was instituted in the Supreme Court of the State of New York, County of
New York, against certain officers and directors of Leslie Fay and its
then auditors, BDO Seidman. The complaint alleges that the defendants
knew or should have known material facts relating to the sales and
earnings of Leslie Fay which they failed to disclose. The plaintiff
seeks an unspecified amount of monetary damages, together with interest
thereon, and costs and expenses incurred in the action, including
reasonable attorneys' and experts' fees. Certain of the defendants have
asserted contingent claims against the Debtors for indemnification in
the event they are found liable and ordered to pay damages to the
plaintiffs. These derivative claims constitute property of the estate
under the Bankruptcy Code and, if they were viable claims they would be
an asset of the estate. However, based upon the Audit Committee
Investigation and the Examiner's Investigation, the Debtors do not
believe these claims have any value to the estate, other than possibly
those claims against Donald Kenia, Leslie Fay's former controller, and
Polishan. Any such derivative claims that might be asserted by the
Debtors against present and former directors, officers and employees
are not waived or released under Section 37.6 of the Plan.
3. Governmental Investigations. In February 1993, the SEC
obtained an order directing a private investigation of Leslie Fay in
connection with, among other things, the filing by Leslie Fay of annual
and other reports that may have contained misstatements, and the
purported failure of Leslie Fay to maintain books and records that
accurately reflected its
33
<PAGE>
financial condition and operating results. Similarly, the United States
Attorney for the Middle District of Pennsylvania issued a Grand Jury
Subpoena seeking the production of documents as a result of Leslie
Fay's announcement of the accounting irregularities. Both of these
investigations are ongoing and Leslie Fay is continuing to cooperate
with these authorities.
4. Leslie Fay v. BDO Seidman & Co. In April 1995, an action
was commenced in the Bankruptcy Court by the Equity Committee in the
name and on behalf of the Debtors against BDO Seidman and certain of
its partners, captioned Leslie Fay v. BDO Seidman et al., Adv. No.
95-8940A. The action alleged that BDO Seidman and such partners
recklessly and negligently breached their duties to the Debtors in
connection with establishing internal controls, auditing their
financial statements and providing unqualified certifications of the
financial statements. The damages sought are unspecified. On June 2,
1995, jurisdiction of the action was transferred to the United States
District Court for the Southern District of New York under Civil Action
Number 95 Civ. 3340 (the "District Court"). On March 29, 1995, BDO
Seidman filed an answer to the complaint, counterclaims against Leslie
Fay and third-party complaints against current and former members of
Leslie Fay's management and Board of Directors. The counterclaims and
third-party complaints alleged that certain current and former members
of Leslie Fay's senior management and certain of its current and former
directors engaged in fraudulent conduct and negligent
misrepresentation. The counterclaims sought certain damages against
Leslie Fay and the third-party claims sought contribution and
indemnification in the event BDO Seidman were found liable to Leslie
Fay. Following the dissolution of the Equity Committee (see Section
IV.B.1. above, Debtors' Chapter 11 Cases -- Events During the Chapter
11 Cases -- Appointment of Unsecured Creditors' Committee and Equity
Committee), BDO Seidman filed a motion to dismiss the complaints for
want of prosecution under Rule 41(b) of the Federal Rules of Civil
Procedure. On or about September 24, 1996, the District Court entered
an order granting this motion.
5. Leslie Fay v. Corporate Property Associates 3. During the
Chapter 11 Cases, Leslie Fay was involved in substantial litigation
concerning a lease agreement with Corporate Property Associates 3 ("CPA
3"), the landlord of Leslie Fay's Route 315 Facility (the "315 Lease
Agreement"), which agreement provided Leslie Fay with an option to
purchase the premises. Specifically, following the commencement of the
Chapter 11 Cases, CPA 3 filed a motion in the Bankruptcy Court seeking
relief from the automatic stay imposed by section 362 of the Bankruptcy
Code to, among other things, proceed with certain arbitrations
concerning a purchase option granted to and purportedly exercised by
Leslie Fay prior to the commencement of the Chapter 11 Cases. After
considering the motion and Leslie Fay's response in opposition, the
Bankruptcy Court entered an order which, among other things, (a) stayed
certain proceedings involving Leslie Fay and CPA 3, including the
arbitration proceeding to determine the fair market value of the leased
premises, and (b) required Leslie Fay to continue to pay for the use of
the leased premises, in an amount equal to the rent reserved under the
315 Lease Agreement, until further order of the Court, with Leslie Fay
and CPA 3 reserving all rights as to their respective legal
positions.(19)
On June 11, 1993, Leslie Fay commenced an adversary
proceeding in the Bankruptcy Court by the filing of a complaint (the
"Complaint") against CPA 3, (a) seeking a turnover of funds that Leslie
Fay paid to CPA 3 under the order entered by the Court of Common Pleas,
Luzerne County, Pennsylvania in excess of the amount allowed pursuant
to section 502(b)(6) of the Bankruptcy Code (the "First Claim for
Relief") or, in the alternative, (b) seeking (i) a determination that
the 315 Lease Agreement was not a true lease, but was, in fact, a
component of a secured financing transaction, (ii) a determination of
the amount of the unpaid balance of such secured loan, (iii) an order
directing that title to the leased premises be reconveyed to Leslie Fay
subject to a lien to secure payment of the unpaid balance, if any, of
CPA 3's secured loan, and (iv) an order directing a turnover of funds,
if any, paid by Leslie Fay to CPA 3 in excess of the allowed interest
and principal amounts due under such secured loan (the "Second Claim
for Relief").
<PAGE>
CPA 3 filed a motion to (a) dismiss the Complaint in its
entirety and (b) vacate the automatic stay pursuant to section 362(d)
of the Bankruptcy Code. The Bankruptcy Court denied CPA 3's motion to
dismiss the Second Claim for Relief and CPA 3's motion to vacate the
automatic stay. On April 21, 1994, the Bankruptcy Court denied CPA 3's
motion to dismiss the First Claim for Relief.
On December 23, 1994, the Bankruptcy Court entered an order
directing the parties to engage in formal mediation of the issues
raised in the Complaint. Thereafter, the parties engaged in mediation
and conducted additional
---------------------
(19) On December 10, 1993, CPA 3 filed a proof of claim against Leslie
Fay in the approximate amount of $26,000,000. Additionally, on that
date, National Union also filed in Leslie Fay's Chapter 11 Case, a
claim for indemnification under the surety bond.
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<PAGE>
settlement negotiations. Pursuant to a Compromise and Settlement
Agreement, dated as of May 1, 1995, the parties resolved all of the
issues. The settlement was approved by the Bankruptcy Court on August
7, 1995.
The settlement provided for (a) Leslie Fay's release of its
interest in the Route 315 Facility, (b) the allowance of CPA 3's claim
in the reduced amount of $2,650,000, (c) a cash payment to CPA 3 from
National Union Fire Insurance Co ("National Union") which had issued a
surety bond for Leslie Fay's benefit in the amount of $5,250,000, (d)
the withdrawal of National Union's claim against Leslie Fay related to
the surety bond in its entirety, (e) a cash payment of $250,000 from
CPA 3 to Leslie Fay upon CPA 3's receipt of payment from National
Union, and (f) a short extension of the 315 Lease Agreement through
September 30, 1995, at a substantially reduced monthly rent, to permit
Leslie Fay to wind down its operations at the facility and sell its
equipment located thereon.
6. Civil Rights Actions and Administrative Proceedings. The
Debtors have civil rights actions pending against them and certain of
their officers and directors before certain courts and agencies in
various parts of the United States, including the Equal Employment
Opportunity Commission and various state and city human rights
commissions. The Debtors believe the vast majority of these actions are
without merit.
Included among the aforementioned proceedings are two
actions pending before the United States District Court for the
Southern District of New York entitled Jacob v. Falbaum, et al.
v. John J. Pomerantz, et al., Case No. 94 Civ. 5503 (MGC), and
Lee L. Kishbaugh v. John J. Pomerantz, et al., Case No. 94 Civ.
7921 (MGC), and the related claims objection litigation pending
before the Bankruptcy Court. The Debtors believe that such
claims, asserted in the aggregate amount in excess of $69
million, will be reduced significantly or expunged in their
entirety based upon, among other reasons, the execution of
releases by four of the five asserted creditors.
7. Preference Actions. Pursuant to applicable provisions of
the Bankruptcy Code, the Debtors have commenced thirty adversary
proceedings in the Bankruptcy Court seeking the avoidance and recovery
of preferential transfers and/or payments (collectively, the
"Preference Actions"), aggregating approximately $65 million, from the
Debtors' prepetition factors, vendors, the Lenders and the individual
members of the Bank Group. Among these is an action commenced against
Chemical Bank, National Westminster Bank, USA, The Bank of New York,
Marine Midland Bank, N.A., Prudential and Northwestern to recover
transfers to them in excess of $56 million. In the event the Debtors
were to prevail on a significant portion of these claims, substantial
funds would be recovered by the Debtors' estates giving rise to
unsecured claims for substantially all amounts so recovered. However,
the Debtors cannot predict the outcome of these proceedings, nor the
amounts that may be realized therefrom either from recoveries on
judgments or settlements. See Section V.I.5. and 17., respectively
below, The Joint Plan of Reorganization -- Summary of Other Provisions
of the Plan -- Prosecution of Claims Held by the Debtors; Preservation
of Causes of Action.
8. Other Significant Litigation.
Nipon Adversary Proceeding. During 1988, Leslie Fay purchased
substantially all of the assets of Albert Nipon, Inc., including,
without limitation, the "Nipon" trademarks and tradenames. As part of
such transaction, Albert Nipon and Pearl Nipon (collectively, the
"Nipons"), each entered into employment contracts with Leslie Fay (the
"Employment Contracts"), which contracts were rejected by Leslie Fay
during the course of the Chapter 11 Cases. All of the foregoing
agreements contain non-competition covenants.
On January 4, 1995, the Nipons commenced an adversary
proceeding against Leslie Fay in the Bankruptcy Court (the "Nipon
Complaint"), pursuant to which the Nipons sought a declaratory judgment
that they are not bound or restricted by the non-competition covenants
set forth in the Employment Contracts. By motion, dated April 3, 1995,
Leslie Fay sought to dismiss the Nipon Complaint pursuant to Rule 7012
of the Federal Rules of Bankruptcy Procedure and Rule 12(b)(1) of the
Federal Rules of Civil Procedure for lack of subject matter
jurisdiction because insufficient facts were presented to establish a
justiciable controversy, and directed the parties to engage in
mediation of the issues raised in the Nipon Complaint. After oral
argument, the Bankruptcy Court deferred ruling on Leslie Fay's motion
and appointed a mediator to attempt to reconcile the parties'
differences. The mediation concluded in an impasse and, thereafter, by
opinion, dated September 21, 1995, the Bankruptcy Court granted Leslie
Fay's motion to dismiss the adversary proceeding pending the Nipons'
filing of an amended complaint within thirty (30) days. Because the
Nipons failed to file an amended complaint setting forth a justiciable
case or controversy, the Nipon Complaint was dismissed on or about
October 30, 1995.
35
<PAGE>
However, on February 27, 1996, Albert Nipon, together with
American Pop Marketing Group, Inc., filed a second complaint against
Leslie Fay and The Leslie Fay Licensing Corporation (the "Second
Complaint") alleging breach of contract and requesting, inter alia, a
declaration that Nipon may use his name in a manner outlined in the
Complaint and as contained in Opinion Letters of his special
trademark/tradename counsel. The Debtors served an answer to the
complaint and simultaneously filed a counterclaim against the Nipon
parties for, inter alia, trademark infringement of Leslie Fay's
federally registered "NIPON" trademarks. Discovery is ongoing.
V.
THE JOINT PLAN OF REORGANIZATION
A. INTRODUCTION
The Debtors believe that (a) through the Plan, holders of
Allowed Unsecured Claims will obtain (i) a substantially greater
recovery from the Debtors' chapter 11 estates than the recovery which
otherwise would be obtained if the assets of the Debtors were
liquidated under chapter 7 of the Bankruptcy Code and (b) the Plan will
give Reorganized Leslie Fay and New Sassco the opportunity and ability
to continue the Debtors' primary businesses as viable ongoing
enterprises.
Only Allowed Claims, that is Claims which are not (a)
contingent, (b) unliquidated in amount or (c) subject to objection or
estimation, are entitled to receive distributions under the Plan. The
consideration for all other Claims will be reserved and set aside
pending settlement of disputes or allowances by the Bankruptcy Court.
B. ANALYSIS OF CLAIMS AGAINST THE DEBTORS
As noted above, the Bankruptcy Court established December 10,
1993, December 12, 1995 and May 8, 1996 as the last dates to file
proofs of claim in the Chapter 11 Cases. Unless otherwise ordered by
the Bankruptcy Court, Claims arising from the rejection of executory
contracts and unexpired leases pursuant to the Plan must be filed no
later than thirty (30) days after the later to occur of (a) an order
authorizing rejection and (b) the Confirmation Date.
Subsequent to each Bar Date, the Retail Bar Date and the
Supplemental Bar Date, the Debtors (a) proceeded to analyze each filed
Claim as against the Schedules and their books and records in order to
determine the validity of each such Claim, (b) categorized the Claims
and (c) estimated the allowed amount of all Claims for plan negotiation
purposes. In connection with the process of reconciling all Claims
filed against their estates, the Debtors have filed numerous specific
objections and five omnibus objections to Claims. Duplicate and amended
claims as well as claims filed after the bar dates are among those
which have been addressed in the various objections. The Debtors
continue to review the Claims filed and scheduled against their estates
and intend to file additional objections to existing Claims or Claims
that may be filed subsequently. While the total number of Claims
(including Claims listed in the Debtors' Schedules) is approximately
5,600, and asserted claims aggregating $1,546,000,000, the Debtors
estimate that, upon resolution of the Claims objection process, there
will be approximately 4,200 claimants whose Claims will aggregate
approximately $339,000,000 (including Administrative and Priority
Claims). The Debtors' objections will be resolved pursuant to the
procedures described below, see Section V.I.4. below, The Joint Plan of
Reorganization -- Summary of Other Provisions of the Plan -- Treatment
of Disputed Claims. Holders of Claims voting on the Plan may receive
claims objections prior to the deadline for receipt of Ballots on the
Plan by the Debtors.
Based upon the Debtors' review and reconciliation of the
Claims filed to date, and the Debtors' estimate of rejection damage
Claims, the Debtors estimate the Allowed Claims in the Chapter 11
Cases, will be as follows:
36
<PAGE>
<TABLE>
<CAPTION>
Administrative Priority Priority Secured Bank Senior
Debtor Claims Tax Non-Tax Claims Claims Note Claims
------------- ------ --- ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Leslie Fay $2,826,554 $1,417,938 $6,497,945 $-0- $178,003,850 $50,052,943
Licensing -0- 118 -0- -0- -0- -0-
Hue 38,280 26,799 -0- -0- -0- -0-
Spitalnick -0- 24,038 3,285 -0- -0- -0-
Retail -0- 242 11,970 -0- -0- -0-
Outlets
Retail -0- 3,165 -0- -0- -0- -0-
(Alabama)
Retail -0- -0- -0- -0- -0- -0-
(California)
Retail -0- -0- -0- -0- -0- -0-
(Iowa)
Retail 9,058 1,829 -0- -0- -0- -0-
(Tennessee)
TOTAL: $2,873,892(22) $1,474,129 $6,513,200 $-0- $178,003,850 $50,052,943
<CAPTION>
Senior General Intercompany
Subordinated Unsecured Convenience Affiliate
Debtor Note Claims Claims Claims(20) Claims(21)
------------- ----------- ------ ------ ------
<S> <C> <C> <C> <C>
Leslie Fay $25,029,2788 $70,230,430 $275,446 $32,010,404
Licensing -0- 1,016 -0- -0-
Hue -0- 1,301,277 12,894 1,846,111
Spitalnick -0- 1,877,637 7,429 6,868,588
Retail -0- 490,337 5,979 11,445,245
Outlets
Retail -0- 832 453 240,319
(Alabama)
Retail -0- 977 242 2,379,127
(California)
Retail -0- -0- 58 482,124
(Iowa)
Retail -0- 80,760 95 926,078
(Tennessee)
TOTAL: $25,029,278 $73,983,266 $302,596 $56,197,996
---------------------
(20) Convenience Claims includes approximately $234,750 of General
Unsecured Claims which, upon election, shall be allowed in the approximate
aggregate amount of $156,500.
(21) The Intercompany Affiliate Claims will be eliminated through the
substantive consolidation of the Debtors' estates.
(22) Such amount does not include (i) professional fees and expenses which
will be paid from and after the date hereof pursuant to further order(s) of
the Bankruptcy Court or (ii) holdbacks imposed with respect to such
professional fees.
</TABLE>
37
<PAGE>
The holders of Bank Claims and/or their assignees have
asserted Claims against Leslie Fay in the amount of $178,003,850. In
addition, the holders of Bank Claims have asserted Claims arising from
the guarantees issued by Licensing and Spitalnick. Although the full
amount of the Bank Claims has been asserted against Licensing and
Spitalnick by virtue of the guarantees of payment of Leslie Fay's
indebtedness executed by those Debtors, the Claims arising from the
guarantees are not reflected in the chart above and are estimated at $0
for purposes of voting on and receiving distributions under the Plan
because the Plan provides for substantive consolidation of the Debtors'
estates.
Many of the scheduled Claims are duplicative of the Claims
that have been filed. Any scheduled Claim as to which a proof of claim
has been filed is superseded by such proof of claim.
The Debtors' objections to the claims of two creditors merit
special attention. First, on or about December 8, 1993, Odyssey
International Inc., Odyssey Worldwide Holdings, B.V. and Odyssey OHSI,
Inc. (collectively, the "Odyssey Group") filed proofs of claim in the
Debtors' chapter 11 proceedings (collectively, the "Odyssey Proofs of
Claim") alleging that (a) Leslie Fay made material misrepresentations
regarding the valuation of inventory in an agreement, dated August 15,
1991, between the Odyssey Group and Leslie Fay (the "Agreement"),
concerning the sale of Leslie Fay's Head Sportswear business and (b)
such misrepresentations constituted a breach of warranty under the
Agreement. The Odyssey Proofs of Claim asserted damages in the amount
of $9,334,333 and were subsequently assigned to Chemical Bank, as agent
for itself, the FNBB(23) and the Hong Kong and Shanghai Banking
Corporation Limited (collectively, the "Chemical Bank Group").
The Debtors prepared and filed objections to the Odyssey
Proofs of Claim seeking to expunge such claims in their entirety (the
"Odyssey Objection"). In addition, the Debtors received and analyzed
the Chemical Bank Group's response to the Odyssey Objection.
Thereafter, the Debtors filed a reply thereto and participated in a
pre-trial conference with the Court during which the parties addressed
discovery issues and timetables for discovery and trial.
During the period while the parties prepared for discovery
and trial, Leslie Fay and the Creditors' Committee also negotiated a
proposed settlement with counsel to the Chemical Bank Group. An
agreement was reached providing for, among other things, the Chemical
Bank Group Claim -- originally filed for $9,334,333 -- would be allowed
as three unsecured claims in the aggregate amount of $1,900,000 against
Leslie Fay's chapter 11 estate. Leslie Fay then sought an order,
pursuant to section 105(a) of the Bankruptcy Code and Bankruptcy Rule
9019(a), (a) approving the compromise and settlement of the litigation
brought by the Chemical Bank Group and (b) allowing the claims of the
Bank Group in connection therewith, which was granted.
The second claim objection worthy of special mention is the
objection to the claims of the Nipons arising out of the agreement
pursuant to which Leslie Fay purchased substantially all of the assets
of Albert Nipon, Inc., including, without limitation, the "Nipon"
trademarks and tradenames. As part of that transaction, the Nipons
entered into employment contracts with Leslie Fay (the "Employment
Contracts"), which contracts were rejected by Leslie Fay early in the
Chapter 11 Cases. Each of these agreements contained non-competition
covenants.
On December 7, 1993, the Nipons filed proofs of claim against
Leslie Fay's chapter 11 estate. Subsequent thereto, the Nipons
"amended" or "supplemented" such claims to assert damages based upon
the Debtors' rejection of the Employment Agreements. Pursuant to such
claims, Albert Nipon and Pearl Nipon sought damages in excess of $10.8
million and $12.4 million, respectively, and further sums in an
unliquidated amount (collectively, the "Nipon Claims").
The Debtors filed objections to the Nipon Claims that sought
to reduce the Nipon Claims to the aggregate amount of $68,251.27 and
expunge the balance of the claims. Thereafter, the Debtors actively
prosecuted the objection to the Nipon Claims and engaged in extensive
discovery with the Nipons. After the Court ruled that Leslie Fay could
depose Albert Nipon as to his competitive activities from and after
April 5, 1993, a key component of Leslie Fay's objection to the Nipon
Claims, Leslie Fay and the Nipons were able to reach a tentative
settlement of the Nipon Claims.
----------------------
(23) As noted in retention affidavits filed in these cases, The First
National Bank of Boston is one of the agents in the Debtors' debtor in
possession credit facility.
38
<PAGE>
The Debtors negotiated the settlement of the Nipon Claims
allowing those of Albert Nipon, Pearl Nipon and Laurence Nipon(24) in
the amounts of $100,000, $100,000 and $25,000, respectively. The
balance of the proofs of claim were disallowed in their entirety and
the Court approved the settlement.
Additional Claims may be filed against the Debtors by parties
to executory contracts and unexpired leases that are rejected in
connection with the Plan and by parties affected by amendments to the
Debtors' Schedules. Such parties will be afforded a limited additional
period of time to file proofs of claim.
The Debtors have used the foregoing estimates of the
approximate amount of Allowed Claims to compute anticipated allocations
and recovery percentages under the Plan. The actual amount of Allowed
Claims in any Class may differ, perhaps materially, from the estimates
used by the Debtors to calculate these anticipated distributions and
recovery percentages. See Section V.B. above, The Joint Plan of
Reorganization -- Analysis of Claims Against the Debtors.
C. TRANSACTIONS AMONG INTERCOMPANY AFFILIATES
The transactions between and among the Intercompany
Affiliates have given rise to the Intercompany Affiliate Claims
described below.
As of the Petition Date, according to the books and records
of the Debtors, the payment of the prepetition liabilities and the
prepetition transfer of funds between and among the Intercompany
Affiliates created payables to and receivables from the Intercompany
Affiliates in the following amounts:
<TABLE>
<CAPTION>
Debtor Creditor Type of Claim Amount
------ -------- ------------- ------
<S> <C> <C> <C>
Leslie Fay Licensing Unsecured $ 28,004,511
Leslie Fay Unsecured $ 3,657,805
Hong Kong, Ltd.
Leslie Fay Unsecured $ 348,088
International
(S.E.A.) Ltd
Hue Leslie Fay Unsecured $ 1,846,111
Spitalnick Leslie Fay Unsecured $ 6,868,588
Retail Outlets Leslie Fay Unsecured $ 11,445,245
Retail (Alabama) Leslie Fay Unsecured $ 240,319
Retail (California) Leslie Fay Unsecured $ 2,379,127
Retail (Iowa) Leslie Fay Unsecured $ 482,124
Retail (Tennessee) Leslie Fay Unsecured $ 926,078
</TABLE>
---------------------
(24) Laurence Nipon, son of Albert and Pearl Nipon, had filed a
separate claim against Leslie Fay's chapter 11 estate in the amount of
$40,347.00 for amounts allegedly due and owing for profit sharing
pursuant to his Employment Agreement with Leslie Fay. Although Leslie
Fay had not previously objected to Laurence Nipon's claim, it chose to
settle his claim in the same settlement agreement as the other Nipon
Claims to save time and further expense to the estate.
39
<PAGE>
Under the Plan, upon the Effective Date, the
Intercompany Affiliate Claims will be eliminated through the
substantive consolidation of the Debtors' estates. See Section
V.E. below, The Joint Plan of Reorganization -- Substantive
Consolidation and Merger of Corporate Entities.
THE PLAN IS ANNEXED HERETO AS EXHIBIT "A" AND IS AN INTEGRAL
PART OF THIS DISCLOSURE STATEMENT. THE SUMMARY OF THE PLAN SET FORTH
BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
PLAN. IN THE EVENT OF ANY INCONSISTENCY BETWEEN THE PROVISIONS OF THE
PLAN AND THE SUMMARY CONTAINED HEREIN, THE TERMS OF THE PLAN SHALL
GOVERN.
D. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY
INTERESTS UNDER THE PLAN
1. Classification
The Plan divides the Claims against, and Equity Interests in,
the Debtors into the following classes:
Unclassified - Administrative Expense Claims
Unclassified - Priority Tax Claims
Class 1 - Priority Non-Tax Claims
Class 2 - Secured Claims
Class 3 - Bank Claims
Class 4 - Senior Note Claims
Class 5 - Senior Subordinated Note Claims
Class 6 - General Unsecured Claims
Class 7 - Convenience Claims
Class 8 - Statutorily Subordinated Claims
Class 9 - Leslie Fay Equity Interests
Class 10 - Hue Equity Interests
Class 11 - Spitalnick Equity Interests
Class 12 - Licensing Equity Interests
Class 13 - Retail Outlets Equity Interests
Class 14 - Retail (Alabama) Equity Interest
Class 15 - Retail (California) Equity Interests
Class 16 - Retail (Iowa) Equity Interests
Class 17 - Retail (Tennessee) Equity Interests
40
<PAGE>
2. Administrative Expense Claims
Administrative Expense Claims are costs or expenses of
administration of the Debtors' Chapter 11 Cases incurred prior to the
Effective Date and Allowed under sections 503(b) and 507(a)(1) of the
Bankruptcy Code, including any actual and necessary costs and expenses
of preserving the Debtors' estates or operating the Debtors'
businesses, indebtedness or obligations incurred or assumed by the
Debtors during the Chapter 11 Cases in connection with the conduct of
their businesses, Retiree Administrative Claims, allowances of
compensation and reimbursement of expenses to the extent Allowed by
Final Orders under section 330 or 503(b) of the Bankruptcy Code, and
fees or charges assessed against the Debtors' estates under section
1930, chapter 123, title 28, United States Code.
The Debtors estimate that the Allowed amount of
Administrative Expense Claims as of the Effective Date will aggregate
approximately $2,873,892. Generally, the Plan provides that Allowed
Administrative Expense Claims will be paid in full, in Cash, on the
later of the Effective Date or the date on which each such
Administrative Expense Claim is Allowed. Allowed Administrative Expense
Claims representing liabilities incurred in the ordinary course of
business by the Debtors since the Petition Date will be paid in full,
in Cash, as they become due and payable or performed by New Sassco,
Reorganized Leslie Fay, Reorganized Leslie Fay Operating Company or New
Castleberry, as applicable, in the ordinary course of business in
accordance with the terms and conditions of the particular transaction
and any agreements relating thereto, unless otherwise agreed to by both
parties to each such transaction.
All interim and final payments to professionals for
compensation and reimbursement of expenses and all payments to
reimburse expenses of members of the Creditors' Committee and the
Equity Committee will be made in accordance with the procedures
established by the Bankruptcy Code, the Bankruptcy Rules and any order
of the Bankruptcy Court. The Bankruptcy Court will review and determine
all requests for compensation and reimbursement of expenses.
Section 503(b) of the Bankruptcy Code also provides for
payment of compensation to creditors and certain other persons and
entities who have made a "substantial contribution" to a reorganization
case, and to attorneys and accountants for such persons and entities.
Requests for compensation, including requests under section 503(b),
must be approved by the Bankruptcy Court after a hearing on notice at
which the Debtors and other parties in interest may participate and, if
appropriate, object. As of the date of this Disclosure Statement, the
Debtors have not been apprised of any party's intention to make a
request under section 503(b) of the Bankruptcy Code.
As of the date of this Disclosure Statement, the Bankruptcy
Court has allowed (subject to final allowance), interim professional
compensation and reimbursement of expenses in the aggregate approximate
amount of $30.7 million, subject to a holdback of $4.8 million. The
Debtors estimate that the aggregate amount of compensation and
reimbursement of expenses of professionals that ultimately will be
allowed by the Bankruptcy Court in the Chapter 11 Cases (other than any
compensation for substantial contribution pursuant to section 503(b) of
the Bankruptcy Code) will approximate $33.8 million (inclusive of the
foregoing interim allowances).
Retiree Administrative Claims are entitled to priority as
Administrative Expense Claims pursuant to section 507(a)(1) of the
Bankruptcy Code. These Claims include any Claim of a retiree under any
Retiree Benefit Plan of the Debtors in effect as of the Petition Date
which provides retiree benefits consisting of payments or
reimbursements for retired employees and their spouses and dependents,
for medical, surgical or hospital care benefits, or benefits in the
event of sickness, accident, disability or death, subject to
modifications, if any, by the Bankruptcy Court pursuant to section 1114
of the Bankruptcy Code. Any Allowed Retiree Benefit Claim, to the
extent not previously paid, will be paid in the ordinary course of
business as it becomes due and payable. Participants under each Retiree
Benefit Plan, subject to modification in accordance with applicable
provisions of the Bankruptcy Code, will continue to receive all
benefits provided under each such plan.
The Debtors estimate that there are no Allowed
Retiree Administrative Claims.
3. Priority Tax Claims
Priority Tax Claims are Allowed Claims of a governmental unit
against a Debtor that are entitled to a certain priority in payment
pursuant to section 507(a)(7) of the Bankruptcy Code. The Plan provides
that each Allowed Priority Tax Claim, at the option and discretion of
Reorganized Leslie Fay, will be paid (a) in full, in Cash, on or as
soon as reasonably practicable after the later of the Effective Date
and the date such Claim becomes Allowed; (b) on such terms as the
Debtors and
41
<PAGE>
the holder of such Allowed Claim may agree; or (c) in up to twenty-four
(24) equal quarterly installments commencing on the first (1st)
Business Day following the date of assessment of such Allowed Priority
Tax Claim, together with interest on the unpaid balance of such Allowed
Priority Tax Claim at a rate to be fixed or approved by the Bankruptcy
Court at the Confirmation Hearing.
The Debtors estimate that Allowed Priority Tax Claims will
aggregate approximately $1,474,129.
4. Priority Non-Tax Claims (Class 1) -- Unimpaired
Priority Non-Tax Claims are Unsecured Claims, other than
Administrative Expense Claims and Priority Tax Claims, entitled to a
priority in payment pursuant to section 507 of the Bankruptcy Code.
Each Allowed Priority Non-Tax Claim will be paid either (a) in full, in
Cash, on the later of the Effective Date and the date such Claim
becomes Allowed, or (b) on such other terms as to which the Debtors and
the holder of such Allowed Priority Non-Tax Claim may agree. Class 1 is
unimpaired under the Plan, and pursuant to section 1126(f) of the
Bankruptcy Code, each holder of an Allowed Priority Non-Tax Claim is
conclusively presumed to have accepted the Plan and may not vote with
respect thereto.
The Debtors estimate that Allowed Priority Non-Tax Claims
will aggregate approximately $6,513,200.
5. Secured Claims (Class 2) -- Unimpaired
Secured Claims include Claims by Persons or Entities secured
by the value of such Persons' or Entities' interest in property of the
Debtors' estates or that are subject to setoff under section 553 of the
Bankruptcy Code, to the extent of the value of the property or the
amount subject to setoff, as determined in accordance with section
506(a) of the Bankruptcy Code. On the later of the Effective Date and
the date such Claim is Allowed, at the Debtors' option, each holder of
an Allowed Secured Claim will (a) be paid in full, in Cash; (b) be paid
the sale or disposition proceeds of the property securing any Allowed
Secured Claim to the extent of the value of such holder's interest in
such property; (c) receive the surrender of the property securing such
Claim, in which event the value of such holder's interest in that
property shall be determined by agreement of the parties or, if they do
not agree, by the Bankruptcy Court; (d) receive such other treatment so
as to render such Allowed Secured Claim unimpaired pursuant to section
1124(1) of the Bankruptcy Code, and the Plan will leave unaltered the
legal, equitable and contractual rights to which such holder is
entitled by virtue of its Allowed Secured Claim; or (e) have its
Allowed Secured Claim reinstated and rendered unimpaired in accordance
with section 1124(2) of the Bankruptcy Code, in which event the Debtors
will cure any defaults, reinstate the maturity of such Allowed Secured
Claim, and compensate the holder of such an Allowed Secured Claim for
damages, if any, incurred as a result of reasonable reliance by such
holder on its right to accelerate the maturity and payment of any
indebtedness under any agreement or applicable law. Class 2 is
unimpaired under the Plan, and pursuant to section 1126(f) of the
Bankruptcy Code, each holder of an Allowed Secured Claim is
conclusively presumed to have accepted the Plan and may not vote with
respect thereto.
The Debtors estimate that there are no Allowed Secured Claims.
6. Bank Claims (Class 3) -- Impaired
The Bank Claims arise under the Revolving Credit Notes and
other documents or interests issued in connection with the Financing
Agreement. The Revolving Credit Notes and all guarantees executed by
the Debtors in connection therewith will be cancelled and all
obligations of the Debtors thereunder will be deemed satisfied in full
on the Effective Date. Each holder of an Allowed Bank Claim will
receive (a) the aggregate principal amount of New Sassco Notes equal to
such holder's Pro Rata Share of the Bank Sassco Note Amount; (b) the
aggregate number of shares of New Sassco Common Stock equal to such
holder's Pro Rata Share of the Bank Sassco Stock Amount; (c) the
aggregate number of shares of Reorganized Leslie Fay Common Stock equal
to such holder's Pro Rata Share of the Bank Leslie Fay Stock Amount;
and (d) such holder's Pro Rata Share of the Bank Cash Amount.
Initial distributions to holders of Allowed Bank Claims of
Pro Rata Shares of Cash Available for Distribution and New Securities
Available for Distribution will be made as soon as practicable after
the later of the Effective Date and the date on which such Claim
becomes an Allowed Claim. To the extent and provided the Disbursing
Agent holds sufficient levels of Cash Available For Distribution and
New Securities Available For Distribution, subsequent Pro Rata
distributions of Cash Available for Distribution and New Securities
Available for Distribution shall be made quarterly commencing on the
first (1st)
42
<PAGE>
Business Day after the close of the first (1st) full calendar quarter
following the date on which the initial distributions are made, and to
the extent available, will continue until such time as there are no
longer Plan Assets available for distributions. Class 3 is impaired
under the Plan and each holder of an Allowed Bank Claim may vote to
accept or reject the Plan.
The Debtors estimate that Allowed Bank Claims will be in the
approximate aggregate amount of $178,003,850.
7. Senior Note Claims (Class 4) -- Impaired
The Senior Note Documents and Senior Notes executed in
connection therewith will be cancelled on the Effective Date and all
obligations of the Debtors thereunder will be deemed satisfied in full.
Each holder of an Allowed Senior Note Claim will receive (a) the
aggregate principal amount of New Sassco Notes equal to such holder's
Pro Rata Share of the Senior Note Sassco Note Amount; (b) the aggregate
number of shares of New Sassco Common Stock equal to such holder's Pro
Rata Share of the Senior Note Sassco Common Stock Amount; (c) the
aggregate number of shares of Reorganized Leslie Fay Common Stock equal
to such holder's Pro Rata Share of the Senior Note Leslie Fay Stock
Amount; and (d) such holder's Pro Rata Share of the Senior Note Cash
Amount.
Initial distributions to holders of Allowed Senior Note
Claims of Pro Rata shares of Cash Available for Distributions and New
Securities Available for Distribution will be made as soon as
practicable after the later of the Effective Date and the date on which
such Claim becomes an Allowed Claim. To the extent and provided the
Disbursing Agent holds sufficient levels of Cash Available for
Distribution and New Securities Available for Distribution, subsequent
Pro Rata distributions of Cash Available for Distribution and New
Securities Available for Distribution shall be made quarterly
commencing on the first (1st) Business Day after the close of the first
(1st) full calendar quarter following the date on which the initial
distributions are made and, to the extent available, will continue
until such time as there are no longer Plan Assets available for
distributions. Class 4 is impaired under the Plan, and each holder of
an Allowed Senior Note Claim may vote to accept or reject the Plan.
The Debtors estimate that Allowed Senior Note Claims will be
in the approximate aggregate amount of $50,052,943.
8. Senior Subordinated Note Claims (Class 5) -- Impaired
On the Effective Date, the Senior Note Documents and Senior
Subordinated Notes executed in connection therewith will be cancelled
and all obligations of the Debtors thereunder will be deemed satisfied
in full. Each holder of an Allowed Senior Subordinated Note Claim will
receive its Pro Rata Share of (a) Four Hundred Eight Thousand (408,000)
shares of New Sassco Common Stock and (b) Two Hundred Four Thousand
(204,000) shares of Reorganized Leslie Fay Common Stock.
The Debtors estimate that Allowed Senior Subordinated Note
Claims will be in the approximate aggregate amount of $25,029,278.
9. General Unsecured Claims (Class 6) -- Impaired
General Unsecured Claims consist of all Unsecured Claims
against the Debtors except for Bank Claims, Senior Note Claims, Senior
Subordinated Note Claims, Intercompany Affiliate Claims, Statutory
Subordinated Claims and Convenience Claims. Unless the holder thereto
is eligible to, and elects the alternative treatment outlined below,
each holder of an Allowed General Unsecured Claim will be entitled to
receive (a) the aggregate principal amount of New Sassco Notes equal to
such holder's Pro Rata Share of the General Unsecured Sassco Note
Amount; (b) the aggregate number of shares of New Sassco Common Stock
equal to such holder's Pro Rata Share of the General Unsecured Sassco
Stock Amount; (c) the aggregate number of shares of Reorganized Leslie
Fay Common Stock equal to such holder's Pro Rata Share of the General
Unsecured Leslie Fay Stock Amount; and (d) such holder's Pro Rata Share
of the General Unsecured Cash Amount.
Initial distributions to holders of Allowed General Unsecured
Claims of Pro Rata Shares of Cash Available for Distribution and New
Securities Available for Distribution will be made as soon as
practicable after the later of the Effective Date and the date on which
such Claim becomes an Allowed Claim. To the extent and provided the
Disbursing Agent holds
43
<PAGE>
sufficient levels of Cash Available for Distribution and New Securities
Available for Distribution, subsequent Pro Rata distributions of Cash
Available for Distribution and New Securities Available for
Distribution shall be made quarterly commencing on the first (1st)
Business Day after the close of the first (1st) full calendar quarter
following the date on which the initial distributions are made, and, to
the extent available, will continue until such time as each holder of
an Allowed General Unsecured Claim shall have received distributions
equal to one hundred percent (100%) of such Creditor's Allowed Claim or
there are no longer Plan Assets available for distributions. Class 7 is
impaired under the Plan, and each holder of an Allowed General
Unsecured Claim may vote to accept or reject the Plan.
The Debtors estimate that Allowed General Unsecured Claims
will approximate $73,983,266.
Alternative Treatment for Allowed General Unsecured Claim in
Excess of $250.00
Any holder of an Allowed Unsecured Claim may elect on the
Ballot to reduce the amount of such Allowed Claim to Two Hundred Fifty
Dollars ($250.00) and receive, based on such Allowed Claim as so
reduced, distributions in Cash in full settlement, satisfaction,
release and discharge of such Allowed Claim. Such election must be made
on the Ballot and be received by the Debtors on or prior to the Ballot
Date. Any election made after the Ballot Date shall not be binding upon
the Debtors unless the Ballot Date is expressly waived, in writing, by
the Debtors.
10. Convenience Claims (Class 7) -- Unimpaired
A Convenience Class Claim is any General Unsecured Claim
against any Debtor in an amount of Two Hundred Fifty Dollars ($250.00)
or less; provided, however, that, if the holder of a General Unsecured
Claim shall make an election to reduce such Claim to Two Hundred Fifty
Dollars ($250.00), such Claim shall be treated as a Convenience Claim
for all purposes. On the Effective Date, each holder of an Allowed
Convenience Claim shall be entitled to receive Cash equal to the amount
of such Allowed Convenience Claim. Class 7 is unimpaired under the Plan
and pursuant to section 1126(f) of the Bankruptcy Code, each holder of
an Allowed Convenience Claim is conclusively presumed to have accepted
the Plan on account of such Allowed Convenience Class Claim and may not
vote with respect thereto.
The Debtors estimate that Allowed Convenience Claims,
including, without limitation, Allowed General Unsecured Claims
electing to be treated as Allowed Convenience Claims will approximate
$349,402.
11. Statutorily Subordinated Claims (Class 8) -- Impaired
On the Effective Date, all Statutorily Subordinated Claims
will be deemed expunged and extinguished. Holders of Statutorily
Subordinated Claims shall receive no distributions under the Plan, are
impaired by the Plan and, pursuant to section 1126(g) of the Bankruptcy
Code, each holder of a Statutorily Subordinated Claim is conclusively
presumed to have rejected the Plan.
12. Leslie Fay Equity Interests (Class 9) -- Impaired
On the Effective Date, all Allowed Leslie Fay Equity
Interests will be deemed extinguished and the certificates representing
such Equity Interests, including Stock Options and Rights, shall be of
no force and effect. Holders of Leslie Fay Equity Interests shall
receive no distributions under the Plan, are impaired by the Plan and,
pursuant to section 1126(g) of the Bankruptcy Code, each holder of a
Leslie Fay Equity Interest is conclusively presumed to have rejected
the Plan.
13. Hue Equity Interests (Class 10) -- Impaired
Hue Equity Interests are Equity Interests in Hue held solely
by Leslie Fay. Under the Plan, the substantive consolidation of the
Debtors and/or the merger or dissolution of Leslie Fay's Affiliates as
provided for under the Plan, such legal and equitable interests shall
be deemed extinguished and of no force or effect. As such, Class 10 is
unimpaired under the Plan and, pursuant to the section 1126(g) of the
Bankruptcy Code, the holder thereof is conclusively presumed to have
rejected the Plan.
44
<PAGE>
14. Spitalnick Equity Interests (Class 11) -- Impaired
Spitalnick Equity Interests are Equity Interests in
Spitalnick held solely by Leslie Fay. Under the Plan, the substantive
consolidation of the Debtors and/or the merger or dissolution of Leslie
Fay's Affiliates as provided for under the Plan, such legal and
equitable interests shall be deemed extinguished and of no force or
effect. As such, Class 11 is impaired under the Plan and, pursuant to
section 1126(g) of the Bankruptcy Code, the holder thereof is presumed
to have rejected the Plan.
15. Licensing Equity Interests (Class 12) -- Impaired
Licensing Equity Interests are Equity Interests in Licensing
held solely by Leslie Fay. Under the Plan, due to the substantive
consolidation of the Debtors and/or the merger or dissolution of Leslie
Fay's Affiliates as provided for under the Plan, such legal and
equitable interests shall be deemed extinguished and of no force and
effect. As such, Class 12 is impaired under the Plan and, pursuant to
section 1126(g) of the Bankruptcy Code, the holder thereof is presumed
to have rejected the Plan.
16. Retail Outlets Equity Interests (Class 13) --
Impaired
Retail Outlets Equity Interests are Equity Interests in
Retail Outlets held solely by Leslie Fay. Under the Plan, due to the
substantive consolidation of the Debtors and/or the merger or
dissolution of Leslie Fay's Affiliates as provided for under the Plan,
such legal and equitable interests shall be deemed extinguished and of
no force and effect. As such, Class 13 is impaired under the Plan and,
pursuant to section 1126(g) of the Bankruptcy Code, the holder thereof
is presumed to have rejected the Plan.
17. Retail (Alabama) Equity Interests (Class 14) --
Impaired
Retail (Alabama) Equity Interests are Equity Interests in
Retail (Alabama) held solely by Leslie Fay. Under the Plan, due to the
substantive consolidation of the Debtors and/or the merger or
dissolution of Leslie Fay's Affiliates as provided for under the Plan,
such legal and equitable interests shall be deemed extinguished and of
no force and effect. As such, Class 14 is impaired under the Plan and,
pursuant to section 1126(g) of the Bankruptcy Code, the holder thereof
is presumed to have rejected the Plan.
18. Retail (California) Equity Interests (Class 15) --
Impaired
Retail (California) Equity Interests are Equity Interests in
Retail (California) held solely by Leslie Fay. Under the Plan, due to
the substantive consolidation of the Debtors and/or the merger or
dissolution of Leslie Fay's Affiliates as provided for under the Plan,
such legal and equitable interests shall be deemed extinguished and of
no force and effect. As such, Class 15 is impaired under the Plan and,
pursuant to section 1126(g) of the Bankruptcy Code, the holder thereof
is presumed to have rejected the Plan.
19. Retail (Iowa) Equity Interests (Class 16) -- Impaired
Retail (Iowa) Equity Interests are Equity Interests in Retail
(Iowa) held solely by Leslie Fay. Under the Plan, due to the
substantive consolidation of the Debtors and/or the merger or
dissolution of Leslie Fay's Affiliates as provided for under the Plan,
such legal and equitable interests shall be deemed extinguished and of
no force and effect. As such, Class 16 is impaired under the Plan and,
pursuant to section 1126(g) of the Bankruptcy Code, the holder thereof
is presumed to have rejected the Plan.
20. Retail (Tennessee) Equity Interests (Class 17) --
Impaired
Retail (Tennessee) Equity Interests are Equity Interests in
Retail (Tennessee) held solely by Leslie Fay. Under the Plan, due to
the substantive consolidation of the Debtors and/or the merger or
dissolution of Leslie Fay's Affiliates as provided for under the Plan,
such legal and equitable interests shall be deemed extinguished and of
no force and effect. As such, Class 17 is impaired under the Plan and,
pursuant to section 1126(g) of the Bankruptcy Code, the holder thereof
is presumed to have rejected the Plan.
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E. SUBSTANTIVE CONSOLIDATION AND MERGER OF CORPORATE ENTITIES
The Plan provides for the substantive consolidation of the
Debtors' estates. The Plan contemplates that Leslie Fay will retain its
separate corporate existence on and after the Effective Date and that
Hue, Spitalnick, Licensing, Retail Outlets, Retail (Alabama), Retail
(California), Retail (Iowa) and Retail (Tennessee) will be merged with
and into Leslie Fay.
The treatment of Claims proposed by the Debtors involves the
pooling of the Debtors' assets and liabilities and distributions to
Creditors based upon all pooled assets and liabilities, as if the
Debtors were a single legal or other economic entity. The result of
this procedure is to treat all Claims of equal priority in payment
against all Debtors in the same manner, to eliminate cross-corporate
guarantees by one Debtor of the liabilities of other Debtors, to
eliminate duplicate Claims against more than one Debtor and
Intercompany Affiliate Claims among the Debtors, all of which otherwise
would be dilutive of the amounts ultimately payable to holders of
Allowed Claims against the Debtors due to a multiplicity of claims
based upon the same transaction or obligation or based upon
intercompany indebtedness.
The Debtors and the Creditors' Committee believe the Debtors
are entitled to substantively consolidate their estates in light of the
criteria established by the courts in ruling on the propriety of
substantive consolidation in other cases. The factors considered in
assessing a debtor's entitlement to substantive consolidation are
described below.
The degree to which the Debtors depend upon the integration
of their collective assets and operations is a significant factor
warranting substantive consolidation. For example, officers and
directors of Leslie Fay simultaneously have been officers and/or
directors of each of the Subsidiaries and vice versa. Thus, the Debtors
have operated under unified management, direction and control.
Corporate policy for all of the Debtors has been established
and implemented by Leslie Fay's Officers and Board of Directors. The
Boards of Directors of the Subsidiaries have not held regular meetings
and their operations were and are regularly discussed at meetings of
Leslie Fay's Board of Directors. Significantly, the Board of Directors
of Leslie Fay and its officers determined to discontinue the operations
of Spitalnick and Hue and license the Hue trademarks. Similarly, prior
to the discontinuance of the operations of Spitalnick and Hue, among
the significant management decisions historically made by Leslie Fay in
relation to the Subsidiaries were: (i) approval of operating budgets
and capital expenditures; (ii) approval of terms of leases, employment
agreements and other significant contracts; (iii) opening of bank
accounts; (iv) decisions to open, expand or close offices, distribution
and production facilities; (v) decisions regarding the development,
promotion and placement of Product lines; and (vi) selection and fixing
compensation of senior and middle management personnel. Furthermore,
profitability of each business within the Leslie Fay family
historically has been analyzed and planned on a "line of business" or
"divisional" basis rather than a "legal entity" basis without regard to
the profitability of the latter.
Since the Subsidiaries were organized as part of the Leslie
Fay enterprise, Leslie Fay and the Subsidiaries have filed only
consolidated federal tax returns, disseminated only consolidated
financial information to the Debtors' Creditors and other interested
parties and submitted only consolidated financial information to the
SEC as part of filings made on a regular basis pursuant to applicable
laws and regulations.
The Debtors operate under a consolidated cash management
system pursuant to which the Debtors' funds are collected and
transferred on a daily basis to a main concentration account in Leslie
Fay's name and, prior to the discontinuance of Spitalnick's and Hue's
operations, funds required by the Subsidiaries to cover disbursements
and other operating expenses were transferred on a daily basis from the
main concentration account to disbursement accounts without regard as
to the entity responsible for the generation of such funds, the ability
of the user entity to repay such funds, or formal documentation of
those transactions by promissory notes.
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The relationship among the Debtors and their dependency upon
the operations and assets of each other is further demonstrated by the
business of Licensing and the Company's retail outlet business. For
example, certain of the Debtors' trademark and tradenames under which
Leslie Fay manufactures and distributes products are owned by Licensing
to which no royalties are paid. At the same time, Licensing
traditionally has produced revenues from the licensing of the Debtors'
intellectual property rights to third parties. However, Licensing has
no employees or separate administrative structure and relies
exclusively on Leslie Fay for all administrative and managerial
functions. Likewise, Licensing has virtually no liabilities other than
the guarantees of Leslie Fay's obligations under the Financing
Agreement and the FNBB Credit Facility.
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Leslie Fay has been and is responsible for the performance of
numerous business, professional and financial services and functions
for each of the Subsidiaries. Prior to the cessation of Spitalnick and
Hue's operations, it maintained pension and employee benefit plans and
programs on behalf of employees of all of the Debtors and maintained
all insurance coverage for the benefit of each of the Subsidiaries.
Additionally, through Leslie Fay's legal department, outside counsel
and independent certified public accountants, Leslie Fay performed and
provided legal, accounting and other professional services on behalf of
the Subsidiaries.
An additional factor in support of the substantive
consolidation of the Debtors' estates is the analysis of Intercompany
Affiliate Claims among the Debtors. Such Claims, described in Section
V.C. above, The Joint Plan of Reorganization -- Transactions Among
Intercompany Affiliates, arose in the ordinary course of business and
were based upon Licensing's and Spitalnick's guarantee of the
obligations of Leslie Fay under the Financing Agreement, as well as the
transfer of moneys, inventory, services and other items among Leslie
Fay and the Subsidiaries as, when and where such funds, inventory and
services were needed, generally without regard for the legal entity's
ability to repay same. Additionally, Leslie Fay has guaranteed certain
obligations of the Subsidiaries.
As a result of the Debtors' integrated and interdependent
current and former operations, intercompany claims and intercorporate
guarantees, common officers and directors, common control and
decision-making, reliance on a consolidated cash management system, and
dissemination of only consolidated financial information to the general
public, the Debtors believe that they have operated as and consider
themselves to be, a single integrated economic unit and that creditors,
for the most part, have dealt with the Debtors on this basis. Further
illustrative of Creditors' reliance upon the consolidated credit and
creditworthiness of the Debtors as a single economic unit is the fact
that the members of the Bank Group (which Entities or their successors,
hold the majority of unsecured debt in the Chapter 11 Cases) required
the Subsidiaries to execute guarantees of Leslie Fay's obligations
under the Financing Agreement and the amendments thereto.
In view of the foregoing, the Debtors believe that Creditors
would not be prejudiced to any significant degree by the Debtors'
substantive consolidation which is consistent with Creditors' having
dealt with the Debtors as a single economic entity, and further believe
that substantive consolidation will best utilize the Debtors' assets
and potential of all of the Debtors to pay to the creditors of each
entity the distributions provided under the Plan.
MERGER OF CORPORATE ENTITIES. Consistent with the substantive
consolidation treatment provided by the Plan and the Debtors'
operations as a single economic unit, the Debtors intend to simplify
their existing corporate structure to eliminate subsidiaries no longer
necessary to Reorganized Leslie Fay's operations. Accordingly, the Plan
provides that, on the Effective Date, Hue, Spitalnick, Licensing,
Retail Outlets, Retail (Alabama), Retail (California), Retail (Iowa)
and Retail (Tennessee) and all other non-Debtor affiliates of the
Debtors will be merged with and into Reorganized Leslie Fay or
dissolved.
Except as otherwise provided by the Plan, upon the occurrence
of any such merger, all assets of the merged entities will be
transferred to and become the assets of Reorganized Leslie Fay, and all
liabilities of the merged entities, except to the extent discharged,
released, extinguished or as otherwise provided by the Plan and the
Confirmation Order, will be assumed by and will become the liabilities
of the surviving corporation. In accordance with the Plan, following
the disposition of all assets and completion of final distributions
under the Plan, Reorganized Leslie Fay will be dissolved under
applicable state law.
F. DISBURSING AGENT
Under the Plan, Reorganized Leslie Fay, the Plan
Administrator or such other Entity as may be designated by the Debtors
and the Creditors' Committee, shall serve as Disbursing Agent. All
distributions under the Plan shall be made by such designated Entity in
its capacity as Disbursing Agent. The Disbursing Agent shall be bonded
pursuant to arrangements with a bonding company in the form and
substance reasonably satisfactory to the Debtors and the Creditors'
Committee. The rights, powers and duties of the Disbursing Agent are
discussed at Section V.I.6., The Joint Plan of Reorganization --
Summary of Other Provisions of the Plan -- Powers and Rights of
Disbursing Agent.
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G. RESTRUCTURING TRANSACTIONS -- SEPARATION OF SASSCO AND
LESLIE FAY
1. Formation of New Sassco and Transfer of Leslie Fay
Assets
On or prior to the Effective Date, New Sassco, a new
corporation, will be organized in a jurisdiction within the United
States mutually acceptable to the Creditors' Committee and Levine (or,
if the same is acceptable to the Creditors' Committee, in a
jurisdiction outside the United States). In connection with the
formation of New Sassco, the following transactions will be consummated
on or prior to the Effective Date:
(a) Reorganized Leslie Fay will sell the Special Sassco
Assets (identified by the Debtors and the Creditors' Committee on or
prior to the Effective Date) to New Sassco for Eight Million Dollars
($8,000,000), plus an additional sum of Cash currently estimated at
approximately Twenty-Two Million Dollars ($22,000,000), which includes
Cash necessary to consummate the Plan, including payments to holders of
Allowed Priority Claims, Allowed Administrative Claims and other costs
and expenses arising from the implementation of the Plan.
(b) Reorganized Leslie Fay will sell and transfer to the
Creditor Representative on behalf of the Creditors holding Claims in
Classes 3, 4, 5 and 6, an undivided eighty percent (80%) interest in
the Sassco Assets, other than the Special Sassco Assets, (subject to
eighty percent (80%) of the outstanding Sassco Liabilities), in
exchange for the cancellation of Claims in such Classes in an amount
equal to the fair market value of such Sassco Assets (subject to such
Sassco Liabilities). Sassco Liabilities consist of the current
obligations and liabilities of the Debtors incurred after the Petition
Date in connection with the Sassco business and the Nipon Trademarks,
all as identified in the Schedule of Sassco Assets and Liabilities,
including, without limitation, the following: (i) "accounts payable",
"accrued expenses" and "other liabilities" as reflected on Sassco's
divisional balance sheet as of the Effective Date and (ii) outstanding
pro-rated liabilities attributable to Sassco as of the Effective Date,
including without limitation payroll, health insurance payments,
workers' compensation payments, 401(k) contributions, audit fees,
vacation pay and certain state taxes.
(c) Reorganized Leslie Fay will sell and transfer to New
Sassco an undivided twenty percent (20%) interest in the Sassco Assets,
other than the Special Sassco Assets (subject to twenty percent (20%)
of the outstanding Sassco Liabilities);
(d) the Creditor Representative, on behalf of the Creditors
holding Claims in Classes 3, 4, 5 and 6, will contribute to New Sassco
the undivided eighty percent (80%) interest in the Sassco Assets
received by the Creditor Representative (subject to eighty percent
(80%) of the outstanding Sassco Liabilities);
(e) New Sassco will (i) assume all of the Sassco Liabilities
and (ii) issue to the Creditor Representative (x) on behalf of the
Creditors holding Claims in Classes 3, 4, 5 and 6, (aa) Five Million
Four Hundred Forty Thousand (5,440,000) shares of New Sassco Common
Stock and (bb) Eighty- Eight Million Dollars ($88,000,000) in aggregate
principal amount of New Sassco Notes and (y) on behalf of the Creditors
holding Claims in Classes 3, 4, 5 and 6 and at the direction of
Reorganized Leslie Fay (aa) One Million Three Hundred Sixty Thousand
(1,360,000) shares of New Sassco Common Stock and (bb) Twenty-Two
Million Dollars ($22,000,000) in aggregate principal amount of New
Sassco Notes;
(f) the Creditor Representative will remit, without recourse,
all of the New Sassco Notes and shares of the New Sassco Common Stock
received under the Plan for distribution to the Creditors holding
Claims in Classes 3, 4, 5 and 6 to the Disbursing Agent;
(g) Reorganized Leslie Fay shall (i) issue to the Disbursing
Agent Three Million Four Hundred Thousand (3,400,000) shares of
Reorganized Leslie Fay Common Stock for distribution to Creditors
holding Claims in Classes 3, 4, 5 and 6, (ii) execute and deliver the
Reorganized Leslie Fay Licensing Agreement and (iii) transfer to (x)
Reorganized Leslie Fay Operating Company Eight Million Dollars
($8,000,000) in Cash and all of the Dress and Sportswear Assets, (y)
Reorganized Leslie Fay Licensing Company all of the Leslie Fay
Intellectual Property (subject to the rights of Reorganized Leslie Fay
Operating Company pursuant to the Reorganized Leslie Fay Licensing
Agreement) and (z) New Castleberry all of the Castleberry Assets
(subject to the Castleberry Liabilities);
(h) New Castleberry shall (i) issue to Reorganized Leslie Fay
all of the New Castleberry Common Stock and (ii) assume all of the
Castleberry Liabilities;
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(i) Reorganized Leslie Fay Operating Company shall (i) assume
all of the Reorganized Leslie Fay Operating Company Liabilities, (ii)
issue to Reorganized Leslie Fay all of the issued and outstanding
shares or Reorganized Leslie Fay Operating Company Common Stock and
(iii) execute and deliver the Reorganized Leslie Fay Licensing
Agreement; and
(j) Reorganized Leslie Fay Licensing Company shall
issue to Reorganized Leslie Fay all of the issued and
outstanding shares of Reorganized Leslie Fay Licensing Company
Common Stock.
2. New Sassco Matters
(a) New Sassco Notes
Under the Plan, on the Effective Date, New Sassco will issue
the New Sassco Notes in the principal amount of One Hundred Ten Million
Dollars ($110,000,000) in form and substance satisfactory to the
Creditors' Committee and Levine and included in the Plan Supplement.
The New Sassco Notes will be due on the seventh (7th) anniversary of
the Effective Date, bearing an interest rate of twelve and
three-quarters percent (12 3/4%) per annum, payable semi-annually in
arrears. The New Sassco Notes will be senior unsecured obligations of
New Sassco and will rank pari passu with New Sassco's other permitted
unsecured indebtedness. The New Sassco Notes may be redeemed after four
(4) years at New Sassco's option, in whole or in part, at a prepayment
premium.
(b) New Sassco Credit Agreement
On the Effective Date, New Sassco will execute and deliver
the New Sassco Credit Agreement. The Credit Agreement will be between
New Sassco and FNBB and/or such other financial institution(s) as may
be reasonably acceptable to Levine and the Creditors' Committee and
will (i) be in substantially the form included in the Plan Supplement
and (ii) contain a three year working capital facility in the amount of
One Hundred Million Dollars ($100,000,000) (or such higher amount as
may be agreed by Levine and the Creditors' Committee). The New Sassco
Credit Agreement will bear initially an interest rate at FNBB's
Alternate Rate in effect from time to time plus seventy-five hundredths
percent (0.75%) per annum or, at New Sassco's option, as long as no
default or event of default has occurred, at the fully reserve adjusted
Eurodollar rate plus two and seventy-five hundredths percent (2.75%).
The definitive documentation for the New Sassco Credit Agreement is
substantially in the form to be included in the Plan Supplement.
(c) New Sassco Registration Rights Agreement
On the Effective Date, New Sassco will execute and deliver
the New Sassco Registration Rights Agreement which will govern the
resale of New Sassco Common Stock by Creditors who may be "affiliates"
of New Sassco, which registration rights agreement is substantially in
the form to be included in the Plan Supplement.
(d) Sassco Management Matters
(i) Levine and Affiliates
On or prior to the Effective Date, Levine will enter into a
five-year employment agreement with New Sassco having the principal
terms set forth in Exhibit "B" to the Plan, and otherwise being in form
and substance reasonably satisfactory to Levine and the Creditors'
Committee. On the Effective Date, (i) Levine's Affiliate's Claim will
be allowed by an order of the Bankruptcy Court (which may be the
Confirmation Order) in full in the aggregate amount of One Million Four
Hundred Fifty Thousand Dollars ($1,450,000) as a General Unsecured
Claim, (ii) the Debtors' claims against Levine arising prior to the
Effective Date will be released in full, and (iii) Levine and his
Affiliates will be reimbursed in the aggregate amount of Two Hundred
Thousand Dollars ($200,000) for their out-of-pocket expenses in
connection with the transactions contemplated herein and their prior
efforts to purchase Sassco. The Plan further provides that New Sassco
will enter into customary employment contracts with other key New
Sassco managers at compensation levels commensurate with the
compensation presently paid to such personnel, and with such other
provisions satisfactory to Levine and the Creditors' Committee. In
addition, all claims against Leonard Feinberg relating to his prior
employment with the Debtors will be released.
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(ii) New Sassco Management Options
On or after the Effective Date, New Sassco will issue to
Levine and other members of Sassco's senior management (the "New Sassco
Management Recipients") the New Sassco Management Options to purchase
up to twenty-two and one-half percent (22.5%) of the New Sassco Common
Stock on a fully diluted basis. The New Sassco Management Options will
have certain restrictions set forth on Exhibit "A" to the Plan, and
such other restrictions as may be mutually satisfactory to the
Creditors' Committee (or, after the Effective Date, the New Sassco
Board of Directors) and Levine. The definitive documentation for the
New Sassco Management Options will be substantially in the form to be
set forth in the Plan Supplement, with such modifications, if any, as
to which the Creditors' Committee (or, after the Effective Date, the
New Sassco Board of Directors) and Levine may agree.
The New Sassco Management Recipients will receive New Sassco
Management Options to purchase New Sassco Stock on a fully diluted
basis, as follows: On the Effective Date, New Sassco Management Options
will be granted for ten percent (10%) of the New Sassco Stock. If New
Sassco achieves an EBITDA of at least Twenty-Nine Million Dollars
($29,000,000) in the 1997 fiscal year, New Sassco Management Options
(the "1997 Options") will be granted for an additional five percent
(5%) of the New Sassco Stock. If New Sassco achieves EBITDA of
Thirty-Three Million Dollars ($33,000,000) for the 1998 fiscal year,
New Sassco Management Options (the "1998 Options") will be granted for
an additional five percent (5%) of the New Sassco Stock. If New Sassco
achieves an EBITDA of Forty-Four Million Dollars ($44,000,000) in or
before the 2001 fiscal year, New Sassco Management Options will be
granted for an additional two and one-half percent (2.5%) of the New
Sassco Stock. If the 1997 Options and/or 1998 Options are not granted
in the manner discussed above, New Sassco Management Options will be
granted in equivalent amounts if, in the 1999 fiscal year, New Sassco
achieves an EBITDA equal to the lesser of (x) Thirty-Seven Million Five
Hundred Thousand Dollars ($37,500,000) and (y) the EBITDA target
contained in the operating budget for such fiscal year 1999 established
by the New Sassco Board of Directors in good faith for New Sassco as a
whole.
(iii) New Sassco Management Registration Rights
Agreement
New Sassco will enter into a customary registration rights
agreement with Levine and other members of Sassco's management in form
and substance satisfactory to the Creditors' Committee, pursuant to
which the New Sassco Management Recipients will be granted "piggyback"
registration rights with respect to New Sassco Common Stock issuable
upon exercise of New Sassco Management Options. Such registration
rights agreement will contain customary language to the effect that, if
the managing underwriter in an offering initiated by New Sassco or a
Person holding "demand" registration rights, and with respect to which
Levine exercises such "piggyback" rights, believes that the amount of
securities to be included in the offering exceeds the amount which can
be sold within an acceptable price range, then the offering will
include that amount of securities which may be sold within such range,
in the following priority: first, all securities proposed to be sold by
New Sassco for its own account, or by the Person exercising "demand"
rights; and second, securities covered by Levine's "piggyback" rights
(pro rata with securities to be sold by other holders, if any, of
"piggyback" rights.)
(iv) Certain Transactions
The New Sassco Certificate of Incorporation, New Sassco
Bylaws and/or Levine Employment Agreement will specify extraordinary
transactions as to which (unless otherwise agreed by New Sassco and
Levine) Levine's approval will be required, so long as he is employed
by New Sassco including, without limitation, a sale or merger of New
Sassco, or a material amendment to the New Sassco Certificate of
Incorporation or the New Sassco Bylaws.
3. Reorganized Leslie Fay Matters
(a) Employment Contracts
On or before the Effective Date, Reorganized Leslie Fay will
enter into one-year employment contracts with the Reorganized Leslie
Fay Senior Managers having the principal terms set forth in Exhibit "C"
to the Plan.
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(b) Management Stock Options
The Plan provides that, on the Effective Date, Reorganized
Leslie Fay Senior Managers will receive options to purchase Reorganized
Leslie Fay Common Stock ("Reorganized Leslie Fay Stock Options") having
the principal terms set forth in Exhibit "D" to the Plan, and such
other terms as to which the Debtors and the Creditors' Committee (or,
after the Effective Date, the Reorganized Leslie Fay Board of
Directors) may agree, such Reorganized Leslie Fay Stock Options to be
shared among the Reorganized Leslie Fay Senior Managers as they may
agree. The definitive documentation for the Reorganized Leslie Fay
Stock Options will be set forth in the Plan Supplement, with such
modifications, if any, as to which the Creditors' Committee (or, after
the Effective Date, the Reorganized Leslie Fay Board of Directors) and
Reorganized Leslie Fay Senior Managers may agree.
The Plan further provides Reorganized Leslie Fay Senior
Managers will receive nontransferable Reorganized Leslie Fay Stock
Options, as follows (to be shared among members of senior management as
they may agree):
(i) On the Effective Date, Senior Managers will receive
options for five percent (5%) of Reorganized Leslie Fay Common Stock.
One-third of such options will vest on each of the first three
anniversaries of the Effective Date; provided, however, that all
options will vest immediately upon a change in control. The strike
price for the options will equal a Twenty-One Million Dollar
($21,000,000) Reorganized Leslie Fay valuation (or $6.18 per share
based upon 3,400,000 shares); (ii) Senior Managers will receive options
for another five percent (5%) of Reorganized Leslie Fay Common Stock
(at the same strike price) if Reorganized Leslie Fay's 1996 Target
EBITDA is achieved, with one-third of such options vesting on each of
first three anniversaries of the grant; (iii) Senior Managers will
receive options for between two and one-half percent (2 1/2%) another
seven and one-half percent (7.5%) of Reorganized Leslie Fay Common
Stock (at the same strike price) if a "Home Run" is achieved. "Home
Run" is defined as a business combination, underwritten equity offering
or other similar corporate transaction pursuant to which the enterprise
value imputed to Reorganized Leslie Fay ranges from $37.5 million to in
excess of $100 million.
(c) Reorganized Leslie Fay Credit Agreement
On the Effective Date, Reorganized Leslie Fay Operating
Company will execute and deliver the Reorganized Leslie Fay Credit
Agreement. The Credit Agreement between Reorganized Leslie Fay
Operating Company and one or more financial institutions acceptable to
the Debtors and the Creditors' Committee will be substantially in the
form included in the Plan Supplement, pursuant to which such lender
shall have agreed to provide working capital financing to Reorganized
Leslie Fay Operating Company on terms and conditions satisfactory to
the Debtors and the Creditors' Committee. Reorganized Leslie Fay
anticipates entering into a financing arrangement with The CIT Group
consisting of a revolving credit facility, including a facility for
letters of credit, in the amount of $30 million and a factoring
facility. The credit facility will bear an interest rate of one percent
(1%) above the prime rate of Chase Manhattan Bank with a maturity of
two years.
(d) Reorganized Leslie Fay Registration Rights
Agreement
On the Effective Date, Reorganized Leslie Fay Operating
Company will execute and deliver the Reorganized Leslie Fay
Registration Rights Agreement which governs the resale of Reorganized
Leslie Fay Common Stock by Creditors who may be "affiliates" of
Reorganized Leslie Fay, in substantially the form to be included in the
Plan Supplement.
4. Appointment of Plan Administrator
The Plan provides that, following the Effective Date,
compliance with the provisions of the Plan will become the general
responsibility of the Plan Administrator (subject to the supervision of
the Board of Directors of Reorganized Leslie Fay). The Plan
Administrator is to be designated by the Debtors and the Creditors'
Committee and retained, as of the Effective Date, by Reorganized Leslie
Fay, with the approval of the Bankruptcy Court, as the employee or
fiduciary responsible for, among other things, implementing the
provisions of the Plan. Prior to the Effective Date, the Debtors, the
Creditors' Committee and the Plan Administrator will enter into the
Plan Administration Agreement, substantially in the form to be included
in the Plan Supplement, which will prescribe the powers and duties of
the Plan Administrator in administering the Plan. The appointment of
the Plan Administrator will terminate on the date set forth in the Plan
Administration Agreement. See Section V.I.7. below, The Joint Plan of
Reorganization -- Summary of Other Provisions of the Plan -- Powers and
Rights of Plan Administrator.
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H. SECURITIES TO BE ISSUED PURSUANT TO PLAN
1. Reorganized Leslie Fay Common Stock
The Reorganized Leslie Fay Certificate of Incorporation will
authorize the issuance of Three Million Four Hundred Thousand
(3,400,000) shares of Reorganized Leslie Fay Common Stock, having a par
value of $.01 per share. On the Effective Date, Reorganized Leslie Fay
will issue and deliver shares of Reorganized Leslie Fay Common Stock to
the Disbursing Agent for distribution in accordance with the provisions
of the Plan.
In addition, Reorganized Leslie Fay will adopt the
Reorganized Leslie Fay Stock Options. See Section V.G.3.
below, The Joint Plan of Reorganization -- Restructuring
Transactions -- Separation of Sassco and Leslie Fay --
Reorganized Leslie Fay Matters.
All holders of Reorganized Leslie Fay Common Stock will be
entitled to receive dividends, if, when and as declared by the Board of
Directors of Reorganized Leslie Fay, provided that Reorganized Leslie
Fay has funds legally available therefor and is not otherwise
contractually restricted from the declaration and payment thereof. It
is unlikely that dividends will be declared on the Reorganized Leslie
Fay Common Stock in the foreseeable future. See Section VI.F. below,
Certain Factors To Be Considered -- Dividend Policies. In the event of
dissolution, liquidation, or winding up of Reorganized Leslie Fay, the
holders of Reorganized Leslie Fay Common Stock will be entitled to
receive all assets of Reorganized Leslie Fay available under law for
distribution to common stockholders. With respect to voting rights,
each share of Reorganized Leslie Fay Common Stock will entitle the
holder thereof to one vote, to be cast in person or by proxy, for each
share of stock owned. The holders of the Reorganized Leslie Fay Common
Stock will have the right to elect the Board of Directors of
Reorganized Leslie Fay. The Reorganized Leslie Fay Common Stock will
not carry with it any preemptive or preferential rights to purchase or
subscribe for any additional shares of capital stock issued in the
future by Reorganized Leslie Fay, whether of a presently existing class
or series of stock or one that may later be authorized by Reorganized
Leslie Fay.
2. New Sassco Common Stock
The New Sassco Certificate of Incorporation will authorize
the issuance of Six Million Eight Hundred Thousand (6,800,000) shares
of New Sassco Common Stock, having a par value of $.01 per share. On
the Effective Date, New Sassco will issue Six Million Eight Hundred
Eighty Thousand (6,800,000) shares of New Sassco Common Stock, which
will constitute all issued and outstanding of such shares on the
Effective Date. The Disbursing Agent shall distribute such shares of
New Sassco Common Stock in accordance with the provisions of the Plan.
All holders of New Sassco Common Stock will be entitled to
receive dividends, if, when and as declared by the Board of Directors
of New Sassco provided that New Sassco has funds legally available
therefor and is not otherwise contractually restricted from the payment
of dividends. There can be no assurance that dividends will be declared
on the New Sassco Common Stock in the foreseeable future. See Section
VI.F. below, Certain Factors To Be Considered -- Dividend Policies. In
the event of dissolution, liquidation, or winding up of New Sassco, the
holders of New Sassco Common Stock will be entitled to receive all
assets of New Sassco available under law for distribution to common
stockholders. With respect to voting rights, each share of New Sassco
Common Stock will entitle the holder thereof to one vote, to be cast in
person or by proxy, for each share of stock owned. The holders of the
New Sassco Common Stock will have the right to elect the board of
directors of New Sassco. The New Sassco Common Stock will not carry
with it any preemptive or preferential rights to purchase or subscribe
for any additional shares of capital stock issued in the future by New
Sassco whether of a presently existing class or series of stock or one
that may later be authorized by New Sassco.
3. Other Securities
Under the Plan, all of the shares of common stock of
Reorganized Leslie Fay Operating Company, Reorganized Leslie Fay
Licensing Company and New Castleberry will be issued to
Reorganized Leslie Fay.
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4. Securities Law Matters
In reliance upon an exemption from the registration
requirements of the Securities Act of 1933, as amended, and equivalent
state securities laws afforded by section 1145 of the Bankruptcy Code,
the Reorganized Leslie Fay Common Stock and New Sassco Common Stock to
be issued on the Effective Date as provided in the Plan will be exempt
from the registration requirements of the Securities Act and equivalent
state securities laws. Section 1145 of the Bankruptcy Code generally
exempts from such registration the offer or sale of a debtor's
securities or an affiliate of, or a successor to, the debtor under a
chapter 11 plan if such securities are offered or sold in exchange for
a claim against, or interest in, or an administrative expense claim
against, such debtor.
Leslie Fay believes that the exchange of Reorganized Leslie
Fay Common Stock and New Sassco Common Stock for Claims against the
Debtors under the circumstances provided in the Plan would satisfy the
requirements of section 1145(a). Thus, the shares of Reorganized Leslie
Fay Common Stock and New Sassco Common Stock issued pursuant to the
Plan on the Effective Date would be deemed to have been issued in a
registered public offering under the Securities Act and, therefore,
could be resold by any holder thereof without registration under the
Securities Act pursuant to the exemption provided by Section 4(1)
thereof, unless the holder is an "underwriter" with respect to such
securities, as that term is defined in section 1145(b)(1) of the
Bankruptcy Code (a "statutory underwriter"). In addition, such
securities generally could be resold by the recipients thereof without
registration under state securities or "blue sky" laws pursuant to
various exemptions provided by the respective laws of the several
states. However, recipients of securities issued under the Plan are
advised to consult with their own counsel as to the availability of any
such exemption from registration under state securities laws in any
given instance and as to any applicable requirements or conditions to
the availability thereof.
Section 1145(b) of the Bankruptcy Code defines "underwriter"
for purposes of the Securities Act as one who (a) purchases a claim
with a view to distribution of any security to be received in exchange
for the claim, or (b) offers to sell securities issued under a plan for
the holders of such securities, or (c) offers to buy securities issued
under a plan from persons receiving such securities, if the offer to
buy is made with a view to distribution of such securities, or (d) is
an issuer (in this case, Reorganized Leslie Fay and New Sassco) of the
securities within the meaning of Section 2(11) of the Securities Act.
The term "issuer" is defined in Section 2(4) of the
Securities Act; however, the reference (contained in section
1145(b)(1)(D) of the Bankruptcy Code) to Section 2(11) of the
Securities Act purports to include as statutory underwriters all
persons who, directly or indirectly, through one or more
intermediaries, control, are controlled by, or are under common control
with, an issuer of securities. "Control" (as defined in Rule 405 under
the Securities Act) means the possession, direct or indirect, of the
power to direct or cause the direction of the policies of a person,
whether through the ownership of voting securities, by contract, or
otherwise. Accordingly, an officer or director of a reorganized debtor
or its successor, under a plan of reorganization (i.e., Reorganized
Leslie Fay and New Sassco) may be deemed to be a "control person" of
such debtor or successor, particularly if the management position or
directorship is coupled with ownership of a significant percentage of
the reorganized debtor's or its successor's voting securities.
Moreover, the legislative history of section 1145 of the Bankruptcy
Code suggests that a creditor who owns at least ten percent (10%) of
the securities of a reorganized debtor is a presumptive "control
person" of the debtor.
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To the extent that persons deemed to be "underwriters"
receive Reorganized Leslie Fay Common Stock or New Sassco Common Stock
pursuant to the Plan, resales by such persons would not be exempted by
section 1145 of the Bankruptcy Code from registration under the
Securities Act or other applicable law. Entities deemed to be statutory
underwriters for purposes of section 1145 of the Bankruptcy Code may,
however, be able to sell securities without registration pursuant to
the resale provisions of Rule 144A and the resale limitations of Rule
144 under the Securities Act. Each of these provisions as hereafter
described permit the resale of securities received pursuant to the Plan
by statutory underwriters subject to applicable holding period
requirements, volume limitations, notice and manner of sale
requirements and certain other conditions.
Rule 144A provides a non-exclusive safe harbor exemption from
the registration requirements of the Securities Act for resales to
certain "qualified institutional buyers" of securities which are
"restricted securities" within the meaning of the Securities Act,
irrespective of whether the seller of such securities purchased its
securities with a view towards reselling such securities. Under Rule
144A, a "qualified institutional buyer" is defined to include, among
other persons (e.g., "dealers" registered as such pursuant to Section
15 of the 1934 Act), an entity which purchases securities for its own
account or for the account of another qualified institutional buyer and
which (in the aggregate) owns and invests on a discretionary basis at
least
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$100 million in the securities of unaffiliated issuers. Subject to
certain qualifications, Rule 144A does not exempt the offer or sale of
securities which, at the time of their issuance, were securities of the
same class of securities then listed on a national securities exchange
(registered as such pursuant to Section 6 of the Exchange Act) or
quoted in a U.S. automated inter-dealer quotation system. Because the
Reorganized Leslie Fay Common Stock and New Sassco Common Stock will
not, at the time of issuance under the Plan, be securities then so
listed or quoted, holders of such securities who are deemed to be
statutory underwriters under the Bankruptcy Code or who otherwise may
be deemed to be "affiliates" or "control persons" of Reorganized Leslie
Fay or New Sassco within the meaning of Rule 405 under the Securities
Act should, assuming that all other conditions of Rule 144A are met, be
entitled to avail themselves of the safe harbor resale provisions
thereof.
If Rule 144A is unavailable, such holders may, under certain
circumstances, be entitled to resell their securities pursuant to the
more limited safe harbor resale provisions of Rule 144 under the
Securities Act. Generally, Rule 144 provides that if certain conditions
are met (e.g., volume limitations, manner of sale, availability of
current information about the issuer, etc.), specified persons who
resell "restricted securities" or who resell securities which are not
restricted but who are "affiliates" of the issuer of the securities
sought to be resold, will not be deemed to be "underwriters" as defined
in Section 2(11) of the Securities Act. Under Rule 144, the
aforementioned conditions to resale will no longer apply to restricted
securities sold for the account of a holder who is not an affiliate of
the company at the time of such resale, so long as a period of at least
three years have elapsed since the later of (i) the Effective Date and
(ii) the date on which such holder acquired his or its securities from
an affiliate of the company.
Because Reorganized Leslie Fay and New Sassco will not, on
the Effective Date, be subject to the periodic reporting and
informational requirements of Sections 13 and 15(d) of the Exchange
Act, each of them will undertake in connection with any proposed resale
by a holder of Reorganized Leslie Fay Common Stock and New Sassco
Common Stock under Rule 144A, to provide such holder and any
prospective purchaser (or his or its authorized representative) with
current business and financial information prescribed by paragraph
(d)(4) of Rule 144A. Similarly, Reorganized Leslie Fay and New Sassco
will undertake in connection with any proposed resale under Rule 144
(other than pursuant to paragraph (k) of Rule 144) to make available
the current information required by paragraph (c)(2) of Rule 144.
Whether or not any particular person would be deemed to be an
"underwriter" of the Reorganized Leslie Fay Common Stock or New Sassco
Common Stock to be issued pursuant to the Plan, or an "affiliate" of
Reorganized Leslie Fay or New Sassco, would depend upon various facts
and circumstances applicable to that person. Accordingly, the Debtors
express no view as to whether any person would be such an "underwriter"
or an "affiliate".
IN VIEW OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF
WHETHER A PARTICULAR PERSON MAY BE AN UNDERWRITER OR AN AFFILIATE OF
REORGANIZED LESLIE FAY OR NEW SASSCO, THE PROPONENTS MAKE NO
REPRESENTATIONS OR AGREEMENTS CONCERNING THE RIGHT OF ANY PERSON TO
TRADE IN THE REORGANIZED LESLIE FAY COMMON STOCK OR NEW SASSCO COMMON
STOCK TO BE DISTRIBUTED PURSUANT TO THE PLAN. ACCORDINGLY, THE
PROPONENTS RECOMMEND THAT POTENTIAL RECIPIENTS OF SECURITIES CONSULT
THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH
SECURITIES.
Pursuant to the Plan, certificates evidencing shares of
Reorganized Leslie Fay Common Stock or New Sassco Common Stock received
by holders of five percent (5%) or more of the outstanding Reorganized
Leslie Fay Common Stock or New Sassco Common Stock or by holders who
request legended certificates and who certify that they may be deemed
to be underwriters within the meaning of section 1145 of the Bankruptcy
Code, will bear a legend substantially in the form below:
THE [SHARES OF COMMON STOCK] EVIDENCED BY THIS CERTIFICATE
[HAVE] [HAS] NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE
OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE
OR OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS THE
COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT THAT SUCH REGISTRATION OR QUALIFICATION IS
NOT REQUIRED.
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Any Entity that would receive legended securities as provided
above may instead receive certificates evidencing Reorganized Leslie
Fay Common Stock or New Sassco Common Stock without such legend if,
prior to the Effective Date, such Entity delivers to Reorganized Leslie
Fay or New Sassco (i) an opinion of counsel reasonably satisfactory to
Reorganized Leslie Fay or New Sassco, as the case may be, to the effect
that the shares of Reorganized Leslie Fay Common Stock or New Sassco
Common Stock to be received by such Entity are not subject to the
restrictions applicable to "underwriters" under section 1145 of the
Bankruptcy Code and may be sold without registration under the
Securities Act, (ii) a certification that it is not an "underwriter"
within the meaning of section 1145 of the Bankruptcy Code and (iii) a
waiver of the registration rights contained in the Registration Rights
Agreement.
Any holder of a certificate evidencing shares of Reorganized
Leslie Fay Common Stock or New Sassco Common Stock bearing such legend
may present such certificate to the transfer agent for the shares of
Reorganized Leslie Fay Common Stock or New Sassco Common Stock for
exchange for one or more new certificates or notes not bearing such
legend or for transfer to a new holder without such legend at such time
as (a) such shares are sold pursuant to an effective registration
statement under the Securities Act or (b) such holder delivers to
Reorganized Leslie Fay or New Sassco an opinion of counsel reasonably
satisfactory to Reorganized Leslie Fay or New Sassco to the effect that
such shares are no longer subject to the restrictions applicable to
"underwriters" under section 1145 of the Bankruptcy Code and may be
sold without registration under the Securities Act or to the effect
that such transfer is exempt from registration under the Securities
Act, in which event the certificate issued to the transferee shall not
bear such legend, unless otherwise specified in such opinion.
5. Hart-Scott-Rodino Act Filing Requirements
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), requires the parties to certain business
combination, acquisition and/or change-in- control related transactions
to provide the United States Federal Trade Commission and Antitrust
Division of the Department of Justice with certain information about
the business of the parties involved and the proposed transaction. Any
Entity which will receive a distribution of Reorganized Leslie Fay
Common Stock or New Sassco Common Stock under the Plan that satisfies
the tests outlined below may, prior to the receipt of such shares, be
required to file a Premerger Notification and Report pursuant to the
HSR Act. In general, in the absence of an available exemption, if (i)
an entity entitled to a distribution of Reorganized Leslie Fay Common
Stock or New Sassco Common Stock under the Plan would own, at the
Effective Date, Reorganized Leslie Fay Common Stock or New Sassco
Common Stock that exceeds $15 million in value (i.e., the statutory
size of transaction threshold) and (ii) certain jurisdictional tests
are satisfied relating to the amount of sales or assets of (i.e., the
size of) the acquiring person, the HSR Act would require that such
entity file a Premerger Notification and Report Form and delay
completion of the acquisition of Reorganized Leslie Fay Common Stock or
New Sassco Common Stock pursuant to the Plan until the expiration of
the applicable waiting periods under the HSR Act. Based on the
projected value of the Reorganized Leslie Fay Common Stock and New
Sassco Common Stock anticipated to be issued, the Debtors do not
believe that the HSR Act would be applicable to the distribution of
Reorganized Leslie Fay Common Stock and New Sassco Common Stock. The
staff of the Premerger Notification Office of the Federal Trade
Commission has taken the position that the "debt workout" exemption to
the HSR Act, codified at 16 C.F.R. Section 802.63(a), is not available
to entities who desire to exchange debt claims for voting securities of
an issuer if such entities acquired the debt claims after the issuer
has filed for bankruptcy or after it otherwise becomes virtually
certain that the debt of the issuer would be converted into voting
securities. Accordingly, such exemption would not apply to such
entities and such entities may be required to observe the notification
and waiting period requirements of the HSR Act. If such waiting periods
have not expired or been terminated as of the Effective Date with
respect to such entities, Reorganized Leslie Fay may retain or be
required to deliver such entities' shares of Reorganized Leslie Fay
Common Stock or New Sassco Common Stock into an escrow account, pending
the expiration or termination of such waiting period. Holders of Bank
Claims, Senior Note Claims, Senior Subordinated Note Claims and other
creditors that satisfy the test outlined above are urged to consult
with their legal counsel to determine whether the requirements of the
HSR Act will apply to the distribution to such entities of shares of
Reorganized Leslie Fay Common Stock or New Sassco Stock under the Plan.
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I. SUMMARY OF OTHER PROVISIONS OF THE PLAN
1. Conditions Precedent to the Confirmation of Plan and
Effective Date
(a) Conditions Precedent to Confirmation
Confirmation of the Plan will not occur unless the
Confirmation Order approves in all respects all of the provisions,
terms and conditions of the Plan and shall be in form and substance
satisfactory to the Debtors and the Creditors' Committee, unless such
conditions are waived by the Debtors and the Creditors' Committee.
(b) Conditions Precedent to Effective Date
The Plan will be substantially consummated on the Effective
Date. The Effective Date will occur on the first (1st) Business Day
after each of the following conditions have been satisfied, unless such
conditions are waived by the Debtors and Creditors' Committee in the
manner set forth below:
(i) Entry of the Confirmation Order: The Clerk of the
Bankruptcy Court shall have entered the Confirmation Order, in
form and substance satisfactory to the Debtors and the Creditors'
Committee, and the Confirmation Order shall have become a Final
Order or such Order shall not have been stayed, enjoined or
restrained.
(ii) Post-Consummation New Sassco Financing: The closing under
the New Sassco Credit Agreement and the New Sassco Indenture will
have occurred or will be ready to occur subject only to the
occurrence of the Effective Date.
(iii) Post-Confirmation Reorganized Leslie Fay Financing: The
closing under the Reorganized Leslie Fay Credit Agreement will
have occurred or will be ready to occur subject only to the
occurrence of the Effective Date.
(iv) Execution of Documents: All other actions and documents
necessary to implement the Plan, including, without limitation,
the Sassco Agreement, shall have been effected or executed.
(v) Appointment of Plan Administrator: The Plan Administrator
will have been appointed in accordance with Section 32.1 of the
Plan and the Plan Administrator will have executed the Plan
Administration Agreement evidencing the Plan Administrator's
agreement to serve in that capacity.
(vi) Amendment to Reorganized Leslie Fay Certificate of
Incorporation; Incorporation of Reorganized Leslie Fay Operating
Company, Reorganized Leslie Fay Licensing Company and New
Castleberry: The Amended Certificate of Incorporation of
Reorganized Leslie Fay will have become effective, and Reorganized
Leslie Fay Operating Company, Reorganized Leslie Fay Licensing
Company and New Castleberry will have been incorporated pursuant
to the Reorganized Leslie Fay Operating Company Certificate of
Incorporation, the Reorganized Leslie Fay Licensing Company
Certificate of Incorporation and the New Castleberry Certificate
of Incorporation, respectively, and shall be authorized to conduct
business.
(vii) Incorporation of New Sassco: New Sassco shall
have been incorporated pursuant to the New Sassco
Certificate of Incorporation and shall be authorized to
conduct business.
(viii) Allowed Amount of Claims: The Debtors will have filed
with the Bankruptcy Court a statement that the Debtors believe,
after conducting an analysis of the Claims in Class 6, that the
Allowed Claims in such Class, together with the Allowed Claims in
Classes 3, 4, 5 and 7, will not exceed Three Hundred Forty Million
Dollars ($340,000,000) in aggregate amount.
(ix) Satisfaction of Debtor in Possession Financing: All
financing provided to the Debtors pursuant to section 364 of the
Bankruptcy Code shall have been repaid or replaced or other
arrangements satisfactory to the lenders providing such financing,
the Debtors and the Creditors' Committee, regarding the payment or
refinancing of such financing shall have been made.
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Each of the foregoing conditions, other than those concerning
the entry of the Confirmation Order may be waived, in whole or in part,
by the Debtors and the Creditors' Committee in their exclusive and
joint discretion. Any such waiver of a condition precedent may be
effected at any time, without notice or leave or order of the
Bankruptcy Court and without any formal action other than a writing.
2. Executory Contracts and Unexpired Leases
(a) Assumed if not Rejected
The Bankruptcy Code authorizes the Debtors, subject to the
approval of the Bankruptcy Court, to assume, assign or reject executory
contracts and unexpired leases. Such assumption, assignment or
rejection may be effected during the Chapter 11 Cases or pursuant to a
plan of reorganization. All executory contracts and unexpired leases,
other than those executory contracts and unexpired leases which (a)
have expired by their own terms on or prior to the Effective Date, (b)
have been assumed, assigned or rejected pursuant to prior orders of the
Bankruptcy Court, or (c) are the subject of a motion to assume, assign
or reject that is pending before the Bankruptcy Court on the Effective
Date, shall be deemed assumed by the Debtors on the Effective Date. No
later than ten (10) days prior to the Confirmation Hearing the Debtors
shall file with the Bankruptcy Court a list of executory contracts and
unexpired leases to be rejected by the Debtors as of the Effective
Date. The Confirmation Order will constitute an order of the Bankruptcy
Court approving all such assumptions, assignments or rejections as of
the Effective Date. Any monetary amounts owed on the executory
contracts and unexpired leases to be assumed under the Plan shall
constitute Administrative Expense Claims which shall be paid (a) in
full, in Cash, on the later of the Effective Date or the date on which
such Administrative Expense Claim is Allowed, or (b) as otherwise
agreed to by the parties. Any objection to such cure amounts or to such
assumption must be filed with the Bankruptcy Court no later than ten
(10) days after the Confirmation Date or such objection will be forever
barred from assertion. In the event of a timely objection to (a) the
amount of the cure payment, or (b) any other matter relating to the
assumption of an executory contract or unexpired Lease, the cure
payments required by section 365(b)(1) of the Bankruptcy Code shall be
made following the entry of a Final Order resolving such dispute.
The Debtors' collective bargaining agreement effective June
1, 1994 through May 31, 1997 with UNITE, the successor to the ILGWU, is
binding on its successors, including successors due to a plan of
reorganization. New Sassco and Reorganized Leslie Fay are bound by the
terms and conditions of the extant collective bargaining agreement
between the Debtors and UNITE.
(b) Deadline to File Rejection Damage Claims
If an executory contract or unexpired lease is rejected after
the Bar Date or the Retail Bar Date, as the case may be, the other
party to the agreement may file a Claim for damages incurred by reason
of the rejection. In the case of rejection of employment agreements and
leases of real property, damages are limited under the Bankruptcy Code.
The Plan requires that, unless otherwise ordered by the Bankruptcy
Court, any Claims for damages arising from the rejection of an
executory contract or unexpired lease pursuant to the Plan be evidenced
by a proof of claim that is filed with the Bankruptcy Court and served
upon counsel for the Debtors so as to be received no later than fifteen
(15) days after the later to occur of (i) the date of entry of an order
by the Bankruptcy Court authorizing the rejection of a particular
executory contract or unexpired lease and (ii) the Confirmation Date.
Any Claims not filed and served within such time will forever be barred
from assertion against the Debtors, their estates and their property.
Unless otherwise ordered by the Bankruptcy Court, all Allowed Claims
for damages arising from the rejection of executory contracts and
unexpired leases shall constitute Class 6 General Unsecured Claims or
Class 7 Convenience Claims, as the case may be.
(c) Compensation and Benefit Programs
All employment and severance practices and policies and all
compensation and benefit plans, policies and programs of the Debtors
applicable generally to their directors, officers or employees or
applicable to individual current or former directors, officers or
employees, including, without limitation, all savings plans, retirement
plans, health care plans, disability plans, severance benefit policies
and practices, incentive plans (as to entitlements earned
post-petition), and life, accidental death and dismemberment insurance
plans, will be deemed to be, and will be treated as though they are,
executory contracts that are assumed under the Plan, and the Debtors'
obligations under such plans, policies and programs will be assumed
pursuant to section 365 of the Bankruptcy Code, survive confirmation of
the Plan, and remain unaffected thereby and not be
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discharged in accordance with section 1141 of the Bankruptcy Code,
except as otherwise expressly rejected under the Plan or otherwise by
order of the Bankruptcy Court. The Plan provides that it should not be
construed to affect or limit the right of Reorganized Leslie Fay to
amend, modify or terminate, or create any obligation on the part of
Reorganized Leslie Fay to maintain, any such policy, plan or program,
subject to applicable provisions of the Bankruptcy Code or other
applicable law, if any. Assumption of any policy, plan or program under
the Plan will not affect or impair the right of any Debtor to object to
any Claim filed with the Bankruptcy Court under any such policy, plan
or program that arose or is alleged to have arisen prior to the
Petition Date.
3. Provisions Governing Distributions
(a) Requirement for Allowance of Claims
No payments or other distributions will be made on
account of any Claim that is not "Allowed."
"Allowed Claim" means a Claim, other than a Disputed Claim,
which is due and owing and proof of which was timely and properly
filed, or if no proof of claim was filed, which has been or hereafter
is listed by any of the Debtors on its respective Schedules as
liquidated in amount and not disputed or contingent, and in either
case, as to which no objection to the allowance thereof has been
interposed on or before the applicable period of limitation fixed by
the Bankruptcy Code, the Bankruptcy Rules, or the Bankruptcy Court, or
as to which any objection or request for estimation has been determined
by a Final Order to the extent such objection is determined in favor of
the respective holder. Unless otherwise specified in the Plan or by
order of the Bankruptcy Court, "Allowed Claim" shall not for purposes
of computation of distributions under the Plan, include interest on
such Claim from the Petition Date, except as provided in section 506(b)
of the Bankruptcy Code.
(b) Time and Method of Distribution
Payment of Cash and distributions of New Securities under the
Plan to holders of Claims in Class 3, (Allowed Bank Claims), Class 4
(Allowed Senior Note Claims), Class 5, (Allowed Senior Subordinated
Note Claims) and Class 6 (Allowed General Unsecured Claims) will be
made concurrently and ratably among all such holders then entitled to
receive payments and distributions under the Plan, so that all such
holders shall receive in value, the same percentage distribution with
respect to their Allowed Claims.
(c) Date and Delivery of Distribution
Distributions of Cash and New Securities to be issued under
and distributed pursuant to the Plan will be made by the Disbursing
Agent at the discretion of the Plan Administrator. Distributions to be
made on the Effective Date shall be deemed as having been made on the
Effective Date if such distributions are made on the later of the
Effective Date or the date such Claim is Allowed, or as soon thereafter
as is practicable.
The Disbursing Agent will make all distributions and
deliveries to holders of Allowed Claims at the addresses set forth on
the Debtors' Schedules filed with the Bankruptcy Court unless
superseded by the proofs of claim filed by such holders, at the last
known addresses of such holders if no proof of claim is filed, or at
the address identified by holders in writing by which the Debtors are
notified of a change of address.
If any holder's distribution is returned as undeliverable,
amounts in respect of any undeliverable distributions made through the
Disbursing Agent will be returned to the Disbursing Agent until such
distributions are claimed. No further distributions shall be made to
such holder unless and until the Disbursing Agent is notified in
writing of such holder's then-current address, at which time the
returned distribution plus any subsequent distributions held for and on
account of such holder will be made to such holder, without interest.
Neither Reorganized Leslie Fay nor the Disbursing Agent shall have any
obligation to attempt to determine the current address of any Claim
holder for whom a distribution is returned as undeliverable. Any holder
of an Allowed Claim that does not assert its rights pursuant to the
Plan within two (2) years from and after the Effective Date shall have
its Claim for such undeliverable distributions discharged and will be
forever barred from asserting any such Claim. On the Final Distribution
Date, any and all undeliverable distributions of Cash and New Sassco
Common Stock, shall be distributed to holders of Class 3, 4, 5 and 6
Claims that previously have received such distributions, in accordance
with the provisions of the Plan, with such holders to receive their
respective Pro Rata distributions, and all unclaimed Reorganized Leslie
Fay Common Stock will be cancelled.
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(d) Termination of Subordination Rights and Settlement of
Related Claims and Controversies. The classification and manner of
satisfying all Claims under the Plan take into consideration all
contractual, legal and equitable subordination rights, whether arising
under general principles of equitable subordination, section 510(c) of
the Bankruptcy Code or otherwise, that a holder of a Claim may have
against other Claim Holders with respect to any distribution made
pursuant to the Plan. On the Effective Date, all contractual, legal or
equitable subordination rights that a holder of a Claim may have with
respect to any distribution to be made pursuant to the Plan shall be
discharged and terminated, and all actions related to the enforcement
of such subordination rights shall be permanently enjoined.
Accordingly, distributions pursuant to the Plan to holders of Allowed
Claims shall not be subject to payment to a beneficiary of such
terminated subordination rights, or to levy, garnishment, attachment or
other legal process by any beneficiary of such terminated subordination
rights. Pursuant to Bankruptcy Rule 9019 and in consideration for the
distributions and other benefits provided under the Plan, the
provisions of the Plan shall constitute a good faith compromise and
settlement of all claims or controversies relating to the termination
of all contractual, legal and equitable subordination rights that a
holder of a Claim may have with respect to any Allowed Claim, or any
distribution to be made on account of an Allowed Claim. The entry of
the Confirmation Order shall constitute the Bankruptcy Court's approval
of the compromise or settlement of all such claims or controversies and
the Bankruptcy Court's finding that such compromise or settlement is in
the best interests of the Debtors, Reorganized Leslie Fay, New Sassco
and their respective property and Claim holder of Claims and is fair,
equitable and reasonable.
(e) Fractions
No fractional shares of Reorganized Leslie Fay Common Stock
or New Sassco Common Stock will be distributed under the Plan.
Fractional shares of Reorganized Leslie Fay Common Stock or New Sassco
Common Stock will be rounded to the next greater or next lower number
of shares, as follows: (a) fractions of one-half (1/2) or greater will
be rounded to the next higher whole number, and (b) fractions of less
than one-half (1/2) will be rounded to the next lower whole number or
to zero, as the case may be, without compensation for any such
fraction.
(f) Means of Cash Payment and Time Bar
Checks issued in respect of distributions under the Plan will
be null and void if not negotiated within ninety (90) days after the
date of issuance thereof. Any amounts paid to the Disbursing Agent in
respect of such a check will be returned promptly to Reorganized Leslie
Fay by the Disbursing Agent and such checks shall be voided. Requests
for reissuance of any check will be made directly to the Disbursing
Agent by the holder of the Allowed Claim with respect to which such
check originally was issued. Any claim in respect of such a voided
check must be made before the later of (a) the second anniversary of
the Effective Date or (b) ninety (90) days after the date of issuance
of such check, if such check represents a final distribution under the
Plan on account of such Claim. After such date, all claims in respect
of void checks and the underlying distributions will be discharged and
forever barred.
(g) Surrender and Cancellation of Instruments
The Plan provides that, on the Effective Date, the Revolving
Credit Notes, the Senior Notes and the Senior Subordinated Notes (and
all related loan and collateral security documents and guaranties) will
be cancelled. Except as the Debtors otherwise may agree, (a) each
holder of a note or other instrument evidencing a Claim must surrender
such note or instrument to the Disbursing Agent, and the Disbursing
Agent will then distribute or cause to be distributed to the holder
thereof the appropriate distribution under the Plan, (b) no
distribution under the Plan will be made to or on behalf of any holder
of such a Claim unless and until such note or instrument is received or
the unavailability of such note or instrument is reasonably established
to the satisfaction of the Disbursing Agent, and (c) in accordance with
section 1143 of the Bankruptcy Code, the Plan provides that any holder
of a Claim that fails to surrender such note or instrument or to
execute and deliver an affidavit of loss and/or indemnity reasonably
satisfactory to the Disbursing Agent, and in the event that the
Disbursing Agent requests, any such holder who fails to furnish a bond
in form and substance (including amount) reasonably satisfactory to the
Disbursing Agent within two (2) years from and after the Effective Date
will be deemed to have forfeited all rights, claims and interests and
will not participate in any distribution under the Plan.
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4. Treatment of Disputed Claims
"Disputed Claim" means a Claim against a Debtor, as the case
may be, to the extent the allowance of which is the subject of a timely
objection or request for estimation in accordance with the Plan, the
Bankruptcy Code, the Bankruptcy Rules or a Final Order, or is otherwise
disputed by a Debtor in accordance with applicable law, which
objection, request for estimation or dispute has not been withdrawn or
determined by a Final Order.
(a) Reserve for Disputed Claims
On and after the Effective Date, the Disbursing Agent shall
remit to the Plan Administrator, and the Plan Administrator shall
reserve and hold in trust for the benefit of each holder of a Disputed
Claim, Cash, Reorganized Leslie Fay Common Stock and New Sassco Common
Stock, in amounts equal to the Pro Rata distributions which would have
been made to the holder of such Disputed Claim on the date of the
initial distribution under the Plan and all quarterly distributions
thereafter, as if it were an Allowed Claim based upon the lesser of the
amount (a) of the Disputed Claim or (b) estimated by the Bankruptcy
Court pursuant to section 502 of the Bankruptcy Code for purposes of
allowance, which amount shall constitute and represent the maximum
amount in which such Claim may ultimately become an Allowed Claim. Any
Cash or New Securities reserved and held for the benefit of a holder of
a Disputed Claim shall be treated as a payment and reduction on account
of such Disputed Claim for purposes of computing (a) any additional
amounts to be paid in Cash or distributed in New Securities in the
event the Disputed Claim ultimately becomes an Allowed Claim or (b) any
interest payable in accordance with the Plan by the Debtors with
respect to such Disputed Claim at the time or times such Cash or
interests are reserved.
Such Cash reserved for the benefit of holders of Disputed
Claims shall be either (a) held by the Plan Administrator in trust for
the benefit of such holders in an interest-bearing account or (b)
invested in interest-bearing obligations issued by the United States
Government, an agency of the United States Government and guaranteed by
the United States Government, and having (in either case) a maturity of
not more than thirty (30) days, pending determination of their
entitlement thereto under the terms of the Plan. No payments or
distributions shall be made with respect to all or any portion of any
Disputed Claim pending the entire resolution thereof by Final Order.
At such time as a Disputed Claim becomes, in whole or in
part, an Allowed Claim, the Plan Administrator shall remit to the
Disbursing Agent for distribution to such holder of such Allowed Claim
the payments and distributions to which such holder is then entitled
under the Plan, together with any interest which has accrued on the
amount of Cash so reserved, but only to the extent that such interest
is attributable to the amount payable on account of the Allowed Claim.
Such payments shall be made as soon as practicable after the date that
the order or judgment of the Bankruptcy Court allowing such Claim
becomes a Final Order and no later than thirty (30) days after the date
such order or judgment becomes a Final Order. To the extent that a
Disputed Claim ultimately becomes an Allowed Claim in an amount less
than the Disputed Claim, the Plan Administrator shall remit to the
Disbursing Agent the balance of any Cash and New Securities previously
reserved for and on account of a Disputed Claim, for inclusion in Cash
Available for Distribution and New Securities Available for
Distribution, respectively.
(b) Resolution of Disputed Claims
The Plan provides that, unless otherwise ordered by the
Bankruptcy Court, objections to the allowance of any Claim shall be
filed with the Bankruptcy Court and served upon the holder of such
Claim on or before the Effective Date. All such Claims will be treated
as Disputed Claims under the Plan. Unless otherwise ordered by the
Bankruptcy Court, after the Confirmation Date, only Reorganized Leslie
Fay shall have the authority to file objections, settle, compromise,
withdraw or litigate to judgment objections to Claims. If and when a
Disputed Claim is finally resolved by allowance of the Claim in whole
or in part, the Disbursing Agent will make any distributions in respect
of such Allowed Claim in accordance with the Plan or as may be agreed
to by the parties and set forth in the order allowing such Claim.
The Debtors or Reorganized Leslie Fay may at any time request
that the Bankruptcy Court estimate any contingent or Disputed Claim
pursuant to section 502(c) of the Bankruptcy Code regardless of whether
the Debtors or Reorganized Leslie Fay previously have objected to such
Claim or whether the Bankruptcy Court has ruled on any such objection,
and the Bankruptcy Court will retain jurisdiction to estimate any Claim
at any time during litigation concerning any objection to any Claim,
including, without limitation, during the pendency of any appeal
relating to any such objection. In the event that the Bankruptcy Court
estimates any contingent or Disputed Claim, the amount so estimated
will constitute either the
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allowed amount of such Claim or a maximum limitation on such Claim, as
determined by the Bankruptcy Court. If the estimated amount constitutes
a maximum limitation on the amount of such Claim, the Debtors or
Reorganized Leslie Fay may pursue supplementary proceedings to object
to the allowance of such Claim.
From and after the Confirmation Date, Reorganized Leslie Fay
may settle or compromise any Disputed Claim without approval of the
Bankruptcy Court and all controversies pending before any court other
than the Bankruptcy Court shall constitute a class of controversies
under Rule 9019(b) of the Bankruptcy Rules and Reorganized Leslie Fay
is authorized to compromise or settle any controversies in such class,
without further approval by the Bankruptcy Court.
5. Prosecution of Claims Held by the Debtors
(a) Prosecution of Claims. From and after the Confirmation
Date, Reorganized Leslie Fay shall, as a representative of the Debtors'
estates, litigate avoidance or recovery actions under sections 544,
545, 547, 548, 549, 550, 551 and 553 of the Bankruptcy Code, and any
other causes of action that belong to the Debtors to a Final Order.
Reorganized Leslie Fay may compromise and settle such claims without
approval of the Bankruptcy Court (but with approval of, or within the
parameters established by, the Board of Directors of Reorganized Leslie
Fay). The net proceeds of any such litigation or settlement shall be
remitted to the Disbursing Agent for inclusion in Cash Available for
Distribution.
(b) Net Payments by Defendants. In the event that a defendant
in a litigation described above is required by a Final Order to make a
payment (a "Disgorgement Payment") to Reorganized Leslie Fay, and such
Disgorgement Payment (if so made) would give rise to a Claim, (a) such
defendant will be required to pay (a "Net Payment") in Cash (and will
have no Claim in respect thereof) only the excess, if any, of (i) the
amount of such Disgorgement Payment over (ii) the fair market value of
the distributions ("Initial Distributions") on such Claim pursuant to
the Plan that would have been received by such defendant if such
defendant had made such Disgorgement Payment (which fair market value
shall be determined as of the date of such Net Payment by agreement
between Reorganized Leslie Fay and such defendant, or by Final Order)
and (b) if any distributions ("Subsequent Distributions") are made
under the Plan after such defendant makes such Net Payment, such
defendant shall receive such defendant's Pro Rata Share of such
Subsequent Distributions (or, at Reorganized Leslie Fay's election, the
fair market value thereof determined as of the date of such Subsequent
Distributions by agreement between Reorganized Leslie Fay and such
defendant, or by Final Order), which Pro Rata Share shall be calculated
as if such defendant had made such Disgorgement Payment and received
Initial Distributions in respect thereof.
6. Powers and Rights of Disbursing Agent
(a) Powers and Responsibilities of Disbursing Agent.
Reorganized Leslie Fay shall serve as Disbursing Agent under the Plan
and in such capacity will be responsible for effecting distributions
under the Plan. Specifically, the Disbursing Agent shall be empowered
to (a) take all steps and execute all instruments and documents
necessary to effectuate the Plan, (b) make distributions contemplated
by the Plan, (c) comply with the Plan and the obligations thereunder,
(d) employ professionals to represent it with respect to its
responsibilities, and (e) exercise such other powers as may be vested
in the Disbursing Agent pursuant to order of the Bankruptcy Court,
pursuant to the Plan or as deemed by the Disbursing Agent to be
necessary and proper to implement the provisions of the Plan.
(b) Exculpation of Disbursing Agent. From and after the
Effective Date, the Disbursing Agent shall be exculpated by all Persons
and Entities including, without limitation, holders of Claims and
Equity Interests and other parties in interest, from any and all
claims, causes of action and other assertions of liability arising out
of the discharge of the powers and duties conferred upon such
Disbursing Agent by the Plan or any order of the Bankruptcy Court
entered pursuant to or in furtherance of the Plan, or applicable law,
except for actions or omissions to act arising out of the gross
negligence, willful misconduct or breach of fiduciary duty of such
Disbursing Agent. No holder of a Claim or an Equity Interest or other
party in interest shall have or pursue any claim or cause of action
against the Disbursing Agent for making payments in accordance with the
Plan or for implementing the provisions of the Plan.
(c) Compensation of Disbursing Agent. The amount of any fees
and expenses incurred by the Disbursing Agent from and after the
Effective Date (including taxes) and any compensation and expense
reimbursement claims including, without limitation, reasonable fees and
expenses of counsel, made by the Disbursing Agent, shall be paid in
Cash by Reorganized Leslie Fay.
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7. Powers and Rights of Plan Administrator
(a) Powers and Responsibilities of Plan Administrator.
Pursuant to the Plan, the Confirmation Order and the Plan
Administration Agreement, the Plan Administrator will be vested with
powers necessary or appropriate to enable it to carry out its
responsibilities in implementing the provisions of the Plan. Such
responsibilities will include (a) managing and liquidating Plan Assets,
(b) facilitating Reorganized Leslie Fay's prosecution or settlement of
objections to and estimations of Claims, (c) facilitating Reorganized
Leslie Fay's prosecution and/or settlement of claims and causes of
action, (d) calculating and assisting the Disbursing Agent in
implementing all distributions in accordance with the Plan, (e) filing
all required tax returns and paying taxes and all other obligations on
behalf of Reorganized Leslie Fay from funds held by Reorganized Leslie
Fay, (f) periodic reporting to the Bankruptcy Court of the status of
the Claims resolution process, distributions on Allowed Claims and
prosecution of causes of action, and (g) such other responsibilities as
may be vested in the Plan Administrator pursuant to the Plan, the Plan
Administrator Agreement or Bankruptcy Court order or as may be
necessary and proper to carry out the provisions of the Plan.
The powers of the Plan Administrator shall, without any
further Bankruptcy Court approval in each of the following cases,
include (a) the power to invest funds in, and withdraw, make
distributions and pay taxes and other obligations owed by Reorganized
Leslie Fay from funds held by the Plan Administrator and/or Reorganized
Leslie Fay in accordance with the Plan, (b) the power to engage
employees and professional persons to assist the Plan Administrator
with respect to its responsibilities, (c) the power to dispose of, and
deliver title to others of, Plan Assets on behalf of Reorganized Leslie
Fay, (d) the power to compromise and settle claims and causes of action
on behalf of or against Reorganized Leslie Fay, and (e) such other
powers as may be vested in or assumed by the Plan Administrator
pursuant to the Plan, the Plan Administration Agreement or as may be
necessary and proper to carry out the provisions of the Plan.
(b) Compensation of Plan Administrator. The Plan
Administrator shall receive compensation for services rendered and
reimbursement of actual out-of-pocket expenses incurred by the Plan
Administrator in connection therewith. The amount of compensation will
be determined by the Debtors or Reorganized Leslie Fay and the
Creditors' Committee, as reflected in the Plan Administration
Agreement. Any dispute with respect to such compensation shall be
resolved by agreement among the parties or, if the parties are unable
to agree, determined by the Bankruptcy Court.
8. Dissolution of the Creditors' Committee
On the Effective Date, the Creditors' Committee shall be
dissolved and the members thereof and the professionals retained by the
Creditors' Committee shall be released and discharged from their
respective fiduciary obligations.
9. Discharge of the Debtors; Injunction
The rights afforded in the Plan and the treatment of all
holders of Claims or Equity Interests in the Plan will be in exchange
for and in complete satisfaction, discharge and release of all Claims
or Equity Interests of any nature whatsoever, known or unknown,
including any interest accrued or expenses incurred thereon from and
after the Petition Date, against any of the Debtors or any of their
respective estates or properties or interests in property. Except as
otherwise provided in the Plan, on the Effective Date, all Claims
against and Equity Interests in the Debtors will be satisfied,
discharged and released in full in exchange for the consideration, if
any, provided for in the Plan. All persons and entities will be
precluded from asserting against any Debtor, their successors,
including Reorganized Leslie Fay, Reorganized Leslie Fay Operating
Company, Reorganized Leslie Fay Licensing Company, New Castleberry and
New Sassco or their respective assets or properties, any other Claims
based upon any act or omission, transaction or other activity of any
kind or nature that occurred prior to the Effective Date. The
Confirmation Order will be a judicial determination of discharge of all
liabilities of any and all Debtors.
Except as otherwise expressly provided in the Plan, the
Confirmation Order will provide, among other things, that all persons
and entities who have held, hold or may hold Claims against or Equity
Interests in any of the Debtors are permanently enjoined, on and after
the Effective Date, from (a) commencing or continuing in any manner any
action or other proceeding of any kind with respect to any such Claim
or Equity Interest against the Debtors, (b) the enforcement,
attachment, collection or recovery by any manner or means of any
judgment, award, decree or order against the Debtors, (c) creating,
perfecting or enforcing any encumbrance of any kind against the Debtors
or against the property or interests in property of the Debtors, with
respect to any such Claims or Equity Interests, and (d) asserting any
right of setoff, subrogation, or recoupment
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of any kind against any obligation due from the Debtors or against the
property or interests in property of the Debtors, with respect to any
such Claim. Upon confirmation of the Plan, its provisions will bind the
Debtors and all of their respective Creditors and Equity Interest
holders, whether or not they accept the Plan.
10. Vesting and Liens
On the Effective Date, Reorganized Leslie Fay will be
revested with the Debtors' assets except for those assets which will be
transferred or sold to New Sassco, Reorganized Leslie Fay Operating
Company, Reorganized Leslie Fay Licensing Company or New Castleberry as
expressly provided for in the Plan, subject only to outstanding liens
and security interests that are authorized under the Plan. On the
Effective Date, all liens against and security interests in any assets
and properties of the Debtors, except to the limited extent provided in
the Plan, will be extinguished.
11. Post-Effective Date Fees and Expenses of Professional
Persons
From and after the Effective Date, Reorganized Leslie Fay
shall, in the ordinary course of business and without the necessity for
any approval by the Bankruptcy Court, pay the reasonable fees and
expenses of the professional persons thereafter incurred by Reorganized
Leslie Fay or the Plan Administrator related to implementation and
consummation of the Plan.
12. Retention of Jurisdiction
On the Effective Date, each of the Debtors, its property and
its operations will be released from the custody, control and
jurisdiction of the Bankruptcy Court. Under the Plan, however, the
Bankruptcy Court will retain exclusive jurisdiction of all matters
arising out of, and related to, the Chapter 11 Cases and the Plan and
for, among other things, the following purposes: (a) to hear and
determine pending applications for the assumption or rejection of
executory contracts and unexpired leases (including those assumed or
rejected under the Plan) and the allowance of Claims resulting
therefrom; (b) to enter such orders as may be necessary or appropriate
to implement or consummate the provisions of the Plan and all
contracts, instruments, releases, indentures and other agreements or
documents created in connection with the Plan; (c) to determine any and
all adversary proceedings, applications and contested matters; (d) to
ensure that distributions to holders of Allowed Claims are accomplished
as provided in the Plan; (e) to hear and determine any timely
objections to any Claims filed, both before and after the Confirmation
Date, including any objections to the classification of any Claim, and
to allow or disallow any Disputed Claim, in whole or in part; (f) to
enter and implement such orders as may be appropriate in the event the
Confirmation Order is for any reason stayed, revoked, modified, or
vacated; (g) to issue such orders in aid of execution of the Plan, to
the extent authorized by section 1142 of the Bankruptcy Code; (h) to
consider any modifications of the Plan, to cure any defects or
omissions, or reconcile any inconsistency in the Plan or in any order
of the Bankruptcy Court, including, without limitation, the
Confirmation Order; (i) to hear and determine all applications for
awards of compensation for services rendered and reimbursement of
expenses incurred prior to the Effective Date; (j) to hear and
determine disputes arising in connection with the interpretation,
implementation, or enforcement of the Plan; (k) to issue injunctions,
enter and implement other orders or take such other actions as may be
necessary or appropriate to restrain interference by any entity with
consummation or enforcement of the Plan, except as otherwise provided
in the Plan; (l) to determine any other matters that may arise in
connection with or relate to the Plan, the Disclosure Statement, the
Confirmation Order or any other agreement or document created in
connection with the Plan or the Disclosure Statement; (m) to hear and
determine matters concerning state, local and federal taxes in
accordance with sections 346, 505 and 1146 of the Bankruptcy Code; (n)
to hear any other matter not inconsistent with the Bankruptcy Code; and
(o) to enter a final decree closing the Chapter 11 Cases.
13. Modification/Revocation of Plan
Modifications of the Plan may be proposed in writing by the
Proponents at any time before confirmation, provided that the Plan, as
modified, satisfies the requirements of sections 1122 and 1123 of the
Bankruptcy Code, and the Debtors have complied with section 1125 of the
Bankruptcy Code. The Plan may be modified at any time after
confirmation and before substantial consummation, as such term is used
in section 1127(b) of the Bankruptcy Code, provided that the Plan, as
modified, meets the requirements of sections 1122 and 1123 of the
Bankruptcy Code and the Bankruptcy Court, after notice and a hearing,
confirms the Plan as modified under section 1129 of the Bankruptcy Code
and the circumstances warrant such modifications. A holder of a Claim
that has accepted the Plan will be deemed to have accepted the Plan as
modified if the proposed modification does not materially and adversely
change the treatment of the Claim of such holder.
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The Proponents reserve the right to revoke and withdraw the
Plan as to any or all Debtors at any time prior to entry of the
Confirmation Order. If the Plan is so revoked or withdrawn as to any or
all Debtors, then the Plan will be deemed null and void as it relates
to each such Debtor.
14. Management of Reorganized Leslie Fay and New Sassco
(a) Board of Directors and Officers
Attached hereto as Exhibit "E" is a list of the current
directors and executive officers of the Debtors.
(i) Board of Directors and Management of Reorganized Leslie
Fay. From and after the Effective Date, Pomerantz will be the
Chairman and Chief Executive Officer of Reorganized Leslie Fay.
Reorganized Leslie Fay will continue Pomerantz's existing health
insurance coverage for life, so long as the annual cost thereof to
Reorganized Leslie Fay is less than or equal to $20,000. The
initial board of directors will have seven members, five of whom
will be designees of the Creditors' Committee and two of whom will
be Pomerantz and a designee of Pomerantz.
(ii) Boards of Directors and Management of New Sassco. The
board of directors of New Sassco will initially have seven
members, five of whom will be designees of the Creditors'
Committee (in the case of the initial members of the board of
directors) or holders of New Sassco Common Stock (in the case of
subsequent members) and two of whom, during Levine's term of
employment, will be Levine and a designee of Levine. Levine will
also have the right, during the term of his employment, to
designate at least one observer to the board of directors. If the
size of the board of directors is increased, during the term of
Levine's employment, Levine will be entitled to designate at least
twenty-eight percent (28%) of the members of the board of
directors.
(iii) Executive Compensation. For a description of the
compensation paid to, among others, the persons who were, at the
end of fiscal year 1995, the Chief Executive Officer and the other
four highest paid executive officers of Leslie Fay for services
rendered in all capacities to Leslie Fay and its subsidiaries, and
a description of the management stock and compensation plans in
effect with respect to such persons, reference is made to "Item
11". Executive Compensation" set forth on the Form 10-K annexed
hereto as Exhibit "C", and the full text of which is incorporated
herein by reference.
15. Limited Release of Directors, Officers and Employees
by Debtors
In accordance with Section 37.6 of the Plan, as of the
Effective Date, the Debtors shall be deemed to have waived and released
their present and former directors, officers and employees who were
directors, officers and employees, respectively, during the Chapter 11
Cases and on or before April 5, 1993, from any and all claims of the
Debtors, including, without limitation, claims which the Debtors or
Debtors in Possession otherwise have legal power to assert, compromise
or settle in connection with the Chapter 11 Cases, arising on or prior
to the Effective Date; provided, however, that such waiver and release
shall not operate as a waiver or release of any claim (a) in respect to
any loan, advance or similar payment by any Debtor to any such person,
(b) in respect of any contractual obligation owed by such person to any
Debtor, (c) relating to such person's fraud or gross negligence, or (d)
to the extent based upon or attributable to such person gaining in fact
a personal profit to which such person was not legally entitled,
including, without limitation, profits made from the purchase or sale
of equity securities of the Debtors which are recoverable by the
Debtors pursuant to Section 16(b) of the Securities Exchange Act, as
amended.
16. Exculpation/Limitation of Liability in Connection
with the Plan, Disclosure Statement and Related
Documents
None of the Debtors, Reorganized Leslie Fay, New Sassco, the
Plan Administrator, the Creditor Representative, and their respective
present and former directors, officers, employees, advisors and agents
(including, without limitation, attorneys, financial advisors,
accountants and other professionals) (acting in such capacity), and the
Creditors' Committee and the Equity Committee and their respective
present and former members, advisors and agents (including, without
limitation, attorneys, financial advisors, accountants and other
professionals) (acting in such capacity), shall have or incur any
liability to any Entity for any act taken or omitted to be taken in
connection with or related to the formulation, preparation,
dissemination, implementation, confirmation, consummation or
administration of the Plan, the Disclosure Statement or any contract,
instrument, release or other agreement or document created or entered
into in connection with the Plan, the property
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to be distributed under the Plan or any other act taken or omitted to
be taken in connection with the Plan; provided, however, that the
foregoing provisions shall have no effect on the liability of any
Entity that would otherwise result from any such act or omission to the
extent that such act or omission is determined by a Final Order to have
constituted gross negligence, willful misconduct or breach of fiduciary
duty.
17. Preservation of Causes of Action
Any and all rights and causes of action accruing to any of
the Debtors, including, but not limited to, the rights and causes of
action raised by the Debtors in the Preference Actions, shall remain
assets of Reorganized Leslie Fay.
Reorganized Leslie Fay intends to pursue those causes of
action which, in its business judgment, satisfy a cost-benefit analysis
taking into consideration: (a) the litigation costs that would be
incurred with a particular action, (b) the range of potential gross
recoveries for the Debtors' estates that the Debtors could expect to
recover, and the probabilities associated with such recoveries, (c) the
amount of any Claims against the estates that would result if the
Debtors succeeded in recovering property together with the nature and
value of the anticipated distribution in respect of such claims, and
(d) whether any expected net benefit to the estates would result in a
material improvement in the Debtors' financial position or increase in
the distribution of the estates' assets to other creditors. Except for
those causes of action raised by the Debtors in the Preference Actions
and those causes of action pending as of the date of the hearing on
this Disclosure Statement, the Debtors believe that there are no such
causes of action which would provide the potential for a material net
economic benefit to the estates so as to justify prosecution.
Reorganized Leslie Fay shall retain the sole and exclusive authority to
enforce any claims, rights and causes of action that the Debtors or
their chapter 11 estates may hold against any entity, including any
claims, rights or causes of action arising under sections 544, 547,
548, 549 and 550 of the Bankruptcy Code. Reorganized Leslie Fay may
pursue such retained claims, rights or causes of action, as
appropriate, in accordance with the best interests of Reorganized
Leslie Fay.
18. Supplemental Documents
Forms of the Amended Bylaws of Reorganized Leslie Fay,
Amended Certificate of Incorporation of Reorganized Leslie Fay,
Reorganized Leslie Fay Credit Agreement, Reorganized Leslie Fay
Operating Company Certificate of Incorporation, Reorganized Leslie Fay
Operating Company Bylaws, Reorganized Leslie Fay Licensing Company
Certificate of Incorporation, Reorganized Leslie Fay Licensing Company
Bylaws, New Castleberry Certificate of Incorporation, New Castleberry
Bylaws, New Sassco Certificate of Incorporation, New Sassco Bylaws, New
Sassco Credit Agreement, New Sassco Notes, New Sassco Indenture,
Schedule of Leslie Fay Assets and Liabilities, Schedule of Sassco
Assets and Liabilities, Plan Administration Agreement, Reorganized
Leslie Fay Licensing Agreement, New Sassco Registration Rights
Agreement, Reorganized Leslie Fay Registration Rights Agreement, the
Levine Registration Rights Agreement and the definitive documentation
for the New Sassco Management Options and Reorganized Leslie Fay
Management Options, all in form and substance satisfactory to the
Debtors and the Creditors' Committee will be contained in the Plan
Supplement and will be filed (in draft or final form) with the
Bankruptcy Court as early as practicable (but in no event later than
one (1) Business Day) prior to the Confirmation Hearing, or on such
other date as the Bankruptcy Court may establish. The Plan Supplement
may be inspected in the office of the Clerk of the Bankruptcy Court
during hours established therefor. In addition, holders of Claims and
Equity Interests may obtain a copy of the Plan Supplement from the
Debtors by contacting The Leslie Fay Companies, Inc., 1412 Broadway,
2nd Floor, New York, New York 10018, Attn: John J. Caliolo.
VI.
CERTAIN FACTORS TO BE CONSIDERED
IMPAIRED CREDITORS SHOULD READ AND CONSIDER CAREFULLY THE FACTORS SET
FORTH BELOW, AS WELL AS OTHER INFORMATION SET FORTH IN THIS DISCLOSURE
STATEMENT AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR
INCORPORATED BY REFERENCE HEREIN, PRIOR TO VOTING TO ACCEPT OR REJECT
THE PLAN.
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A. VARIANCES FROM PROJECTIONS
The fundamental premises of the Plan are the implementation
and realization of Reorganized Leslie Fay's proposed business plan and
the proposed business plan prepared and to be implemented by New
Sassco, as reflected in the Projections and the assumptions underlying
such Projections. The Projections reflect numerous assumptions
concerning the anticipated future performance of Reorganized Leslie Fay
and New Sassco and with respect to prevailing market and economic
conditions, which are beyond the control of Reorganized Leslie Fay and
New Sassco and which may not materialize. The Projections include,
among other items, assumptions concerning the general economy, the
ability to make necessary capital expenditures, the ability to
establish market strength, consumer purchasing trends and preferences,
and the ability to increase gross margin and control future operating
expenses (including labor costs, bad debts and other operating costs).
The Debtors believe that the assumptions underlying the Projections are
reasonable. However, unanticipated events and circumstances occurring
subsequent to the preparation of the Projections may affect the actual
financial results of Reorganized Leslie Fay and New Sassco. Therefore,
the actual results achieved throughout the periods covered by the
Projections necessarily will vary from the projected results, which
variations may be material and adverse.
B. LACK OF TRADING MARKET
Reorganized Leslie Fay and New Sassco will seek the listing
of the Reorganized Leslie Fay Common Stock and New Sassco Common Stock,
respectively. There can be no assurance, however, that either the
Reorganized Leslie Fay Common Stock or New Sassco Common Stock will be
so listed and, if so listed, that an active trading market for such
stock will develop, or, if developed, that it will continue. In
addition, there can be no assurance as to the degree of price
volatility in any market for the Reorganized Leslie Fay Common Stock or
New Sassco Common Stock that does develop. Accordingly, no assurance
can be given that a holder of Reorganized Leslie Fay Common Stock or
New Sassco Common Stock will be able to sell such securities in the
future or as to the price at which any such sale may occur. If such
markets were to exist, such securities could trade at prices higher or
lower than the value ascribed to such securities herein, depending upon
many factors, including prevailing interest rates, markets for similar
securities, general economic and industry conditions, and the
performance of, and investor expectations for, Reorganized Leslie Fay
or New Sassco.
In addition, holders of Reorganized Leslie Fay Common Stock
and New Sassco Common Stock who are deemed to be statutory underwriters
pursuant to section 1145(b) of the Bankruptcy Code or who otherwise are
deemed to be "affiliates" or "control persons" of Reorganized Leslie
Fay and New Sassco Common Stock within the meaning of the Securities
Act, will be unable to freely transfer or sell their securities after
the Effective Date, except pursuant to an available exemption from
registration under the Securities Act and under equivalent state
securities or "blue sky" laws.
C. HIGH LEVERAGE
New Sassco. Based on the Projections and subject to the
assumptions and limitations set forth therein, including consummation
of the transactions contemplated by the Plan in accordance with its
terms, as of the Effective Date, New Sassco will have projected (i)
total debt (including current portions) of approximately $147,250,000
and (ii) total shareholders' equity (as determined for financial
reporting purposes) of approximately $125 million. Accordingly, New
Sassco will be highly leveraged after the Effective Date. This leverage
may pose substantial risks to holders of New Sassco Common Stock and
could have material adverse effects on the marketability, price and
future value of such securities. Among other consequences, the high
degree of leverage of New Sassco may result in the impairment of New
Sassco's ability to obtain additional financing in the future, to make
acquisitions, and to take advantage of significant business
opportunities that may arise. In addition, this leverage will increase
the vulnerability of New Sassco to adverse general economic and
retailing industry conditions and to increased competitive pressures
(especially price pressure from competitors).
D. ABILITY TO SERVICE DEBT
Based on the projected financial information set forth in the
Projections, and subject to the assumptions and limitations set forth
therein, New Sassco would have a projected ratio of EBITDA to net cash
interest charges of 1.47:1 for the fiscal year ended January 3, 1998,
the first fiscal year-end following the Effective Date. There will be
no cash payments of principal in respect of the long-term indebtedness
of $110 million during the five-year period following the Effective
Date.
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The ability of New Sassco to meet its debt service
requirements will depend on its future performance, which is subject to
financial, economic, competitive and other factors, many of which are
beyond its control.
E. COMPETITIVE CONDITIONS
The apparel industry is highly competitive due to its fashion
and designer-orientation, its mix of large and small producers, the
flow of imported merchandise and the wide diversity of retailing
methods. Reorganized Leslie Fay and New Sassco will have many
competitors of all sizes located throughout the United States and
abroad, many of which have significantly greater financial resources
than are projected for Reorganized Leslie Fay and New Sassco and which
may have other competitive advantages over these entities. Reorganized
Leslie Fay and New Sassco will be subject to quality and price
competition with respect to all of their products which competitors
will pursue the same consumer with branded, non- branded, designer and
imported products.
F. DIVIDEND POLICIES
Reorganized Leslie Fay and New Sassco presently intend to
retain earnings for working capital and to fund their capital
expenditure requirements, if any, and, therefore, do not anticipate
paying any cash dividends on their common stock in the foreseeable
future. In addition, the covenants in certain debt instruments to which
Reorganized Leslie Fay and New Sassco will be parties will limit their
respective ability to pay cash dividends. Certain institutional
investors may invest only in dividend-paying or similar current income
producing equity securities or may operate under other regulatory or
contractual restrictions which may prohibit or limit their ability to
invest in Reorganized Leslie Fay Common Stock and/or New Sassco Common
Stock and, therefor, adversely impact the market and/or market price
for such stock.
G. CERTAIN TAX MATTERS
For a summary of certain federal income tax consequences of
the Plan to holders of Claims and to the Debtors, see Section XIII
below, Certain Federal Income Tax
Consequences of the Plan.
VII.
VOTING PROCEDURES AND REQUIREMENTS
A. HOLDERS OF CLAIMS
IT IS IMPORTANT THAT HOLDERS OF CLAIMS EXERCISE THEIR RIGHT
TO VOTE TO ACCEPT OR REJECT THE PLAN. All known holders of Claims
entitled to vote on the Plan have been sent a Ballot together with this
Disclosure Statement. Such holders should read the Ballot carefully and
follow the instructions contained therein. Please use only the Ballot
(or Ballots) that accompanies this Disclosure Statement.
FOR YOUR VOTE TO COUNT, YOUR BALLOT MUST BE ACTUALLY RECEIVED
BY LESLIE FAY PLAN BALLOTS, P.O. BOX 1436, NEW YORK, NEW YORK
10018-1436, ATTN: JOHN J. CALIOLO (BY MAIL) OR LESLIE FAY BALLOTS, 1412
BROADWAY, 2ND FLOOR, NEW YORK, NEW YORK 10018-5281, ATTN: JOHN J.
CALIOLO (BY HAND), NO LATER THAN 5:00 P.M., EASTERN STANDARD TIME, ON
JANUARY 8, 1997. IF YOU MUST RETURN YOUR BALLOT TO YOUR BANK OR BROKER,
OR THE AGENT OF EITHER, YOU MUST RETURN YOUR BALLOT TO THEM IN
SUFFICIENT TIME FOR THEM TO PROCESS IT AND RETURN IT TO LESLIE FAY PLAN
BALLOTS BY THE VOTING DEADLINE.
ANY BALLOT WHICH IS EXECUTED AND RETURNED BUT WHICH DOES NOT
INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN WILL BE DEEMED AN
ACCEPTANCE OF THE PLAN. IF YOU HAVE ANY QUESTIONS CONCERNING VOTING
PROCEDURES OR IF A BALLOT IS DAMAGED OR LOST, YOU MAY CONTACT JOHN J.
CALIOLO AT THE ADDRESS SPECIFIED ABOVE OR BY TELEPHONING: (212)
221-4276.
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Additional copies of this Disclosure Statement are available
upon written request to:
Mr. John J. Caliolo
The Leslie Fay Companies, Inc.
1412 Broadway, 2nd Floor
New York, New York 10018-5281
B. PARTIES IN INTEREST ENTITLED TO VOTE
Any holder of a Claim against the Debtors as of December 5,
1996 (the "Record Date"), which Claim has not been disallowed by order
of the Bankruptcy Court, and is not a Disputed Claim is entitled to
vote to accept or reject the Plan if (a) such Claim is impaired under
the Plan and is not of a class that is deemed to have accepted or
rejected the Plan pursuant to section 1126(f) and 1126(g) of the
Bankruptcy Code and (b) either (i) such holder's Claim has been
scheduled by the Debtors (and such Claim is not scheduled as disputed,
contingent or unliquidated) or (ii) such holder has filed a proof of
claim on or before the Bar Date of December 10, 1993, the Retail Bar
Date of December 12, 1995, or the Supplemental Bar Date of May 8, 1996.
UNLESS OTHERWISE PERMITTED IN THE PLAN, THE HOLDER OF ANY DISPUTED
CLAIM IS NOT ENTITLED TO VOTE WITH RESPECT TO SUCH CLAIM, UNLESS THE
BANKRUPTCY COURT, UPON APPLICATION BY SUCH HOLDER, TEMPORARILY ALLOWS
SUCH CLAIM FOR THE LIMITED PURPOSE OF VOTING TO ACCEPT OR REJECT THE
PLAN. Any such application must be heard and determined by the
Bankruptcy Court on or before ten (10) days prior to the Confirmation
Hearing. A vote may be disregarded if the Bankruptcy Court determines,
after notice and a hearing, that such vote was not solicited or
procured in good faith or in accordance with the provisions of the
Bankruptcy Code.
C. CLASSES IMPAIRED AND ENTITLED TO VOTE UNDER THE PLAN
Claims in Class 3 (Bank Claims), Class 4 (Senior Note
Claims), Class 5 (Senior Subordinated Note Claims) and Class 6 (General
Unsecured Claims) are impaired under the Plan and the holders of such
Claims are entitled to vote to accept or reject the Plan. Holders of
Claims and Equity Interests in Classes 8, 9, 10, 11, 12, 13, 14, 15, 16
and 17 are impaired and are deemed to have rejected the Plan under
section 1126 of the Bankruptcy Code.
D. VOTE REQUIRED FOR ACCEPTANCE BY CLASS OF CLAIMS
The Bankruptcy Code defines acceptance of a plan by a class
of claims as acceptance by holders of at least two-thirds in dollar
amount and more than one-half in number of the claims of that class
which actually cast ballots for acceptance or rejection of the plan.
Thus, acceptance by a class of Claims occurs only if at least
two-thirds in dollar amount and a majority in number of the holders of
Claims voting cast their Ballots in favor of acceptance. The Plan
provides that for purposes of calculating the number of Allowed Claims
held by holders of Allowed Claims that have voted to accept or reject
the Plan, all Allowed Claims held by an Entity or any affiliate (as
defined in the rules under the Securities Act) of any Entity that
acquired record ownership of such Allowed Claims after the Petition
Date will be aggregated and treated as one Allowed Claim. A vote may be
disregarded if the Bankruptcy Court determines, after notice and a
hearing, that such acceptance or rejection was not solicited or
procured in good faith or in accordance with the provisions of the
Bankruptcy Code.
VIII.
CONFIRMATION OF THE PLAN
Under the Bankruptcy Code, the following steps must be taken
to confirm the Plan.
A. CONFIRMATION HEARING
Section 1128(a) of the Bankruptcy Code requires the
Bankruptcy Court, after notice, to hold a hearing on confirmation of a
plan. By order of the Bankruptcy Court, the Confirmation Hearing has
been scheduled for January 14, 1997, at 2:00 p.m., Eastern Standard
Time, in Room 723 of the United States Bankruptcy Court, Alexander
Hamilton Custom House, One Bowling Green, New York, New York 10004. The
Confirmation Hearing may be adjourned from time to time by the
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Bankruptcy Court without further notice except for an announcement made
at the Confirmation Hearing or any adjournment thereof.
Section 1128(b) of the Bankruptcy Code provides that any
party in interest may object to confirmation of a plan. Any objection
to confirmation of the Plan must be in writing, conform to the Federal
Rules of Bankruptcy Procedure and the Local Rules of the Bankruptcy
Court, set forth the name of the objectant, the nature and amount of
Claims or Equity Interests held or asserted by the objectant against
each of the Debtors' estates or property, the basis for the objection
and the specific grounds therefor, and be filed with the Bankruptcy
Court, with two (2) copies delivered directly to chambers, together
with proof of service thereof, and served upon (i) Weil, Gotshal &
Manges LLP, Attorneys for the Debtors, 767 Fifth Avenue, New York, New
York 10153, Attention: Alan B. Miller, Esq.; (ii) Wachtell, Lipton,
Rosen & Katz, Attorneys for the Official Committee of Unsecured
Creditors, 51 West 52nd Street, New York, New York 10019, Attention:
Chaim J. Fortgang, Esq.; (iii) Bingham, Dana & Gould, Attorneys for the
Debtors' Post-Petition Date Lenders, 150 Federal Street, Boston,
Massachusetts 02110, Attention: Robert A.J. Barry, Jr., Esq.; and (iv)
The United States Trustee for the Southern District of New York, 80
Broad Street, New York, New York 10004, Attention: Diana Adams, Esq.,
so as to be received no later than 5:00 P.M., Eastern Standard Time, on
January 8, 1997.
Objections to confirmation of the Plan are governed by
Federal Rule of Bankruptcy Procedure 9014. UNLESS AN OBJECTION TO
CONFIRMATION IS TIMELY SERVED AND FILED, IT MAY NOT BE CONSIDERED BY
THE BANKRUPTCY COURT.
B. REQUIREMENTS FOR CONFIRMATION OF THE PLAN
At the Confirmation Hearing, the Bankruptcy Court will
confirm the Plan only if all of the requirements of section 1129 of the
Bankruptcy Code are met. Among the requirements for confirmation are
that the Plan (a) is accepted by all impaired Classes of Claims and
Equity Interests or, if rejected by an impaired Class, that the Plan
"does not discriminate unfairly" and is "fair and equitable" as to such
Class, and as to the impaired Classes of Claims and Equity Interests
that are deemed to reject the Plan, (b) is feasible and (c) is in the
"best interests" of holders of Claims and Equity Interests impaired
under the Plan.
1. Acceptance
Claims in Classes 3, 4, 5 and 6 are impaired under and
entitled to vote on the Plan and, therefore, must accept the Plan in
order for it to be confirmed without application of the "fair and
equitable test," described below, to such Classes. As stated above,
Classes 3, 4, 5 and 6 will have accepted the Plan, if the Plan is
accepted by at least two-thirds in dollar amount and a majority in
number of the Claims of each such Class of such creditors (other than
any such creditor designated under section 1126(e) of the Bankruptcy
Code) that have voted to accept or reject the Plan.
2. Fair and Equitable Test
The Debtors intend to seek confirmation of the Plan
notwithstanding the nonacceptance of the Plan by any impaired Class of
Claims entitled to vote on the Plan. To obtain such confirmation, it
must be demonstrated to the Bankruptcy Court that the Plan "does not
discriminate unfairly" and is "fair and equitable" with respect to such
dissenting impaired Class. A plan does not discriminate unfairly if the
legal rights of a dissenting class are treated in a manner consistent
with the treatment of other classes whose legal rights are
substantially similar to those of the dissenting class and if no class
receives more than it is entitled to for its claims or equity
interests.
The Bankruptcy Code establishes different "fair and
equitable" tests for unsecured claims and equity interests, as follows:
(a) Unsecured Claims. Either (i) each holder of an impaired
unsecured claim receives or retains under the plan property of a
value equal to the amount of its allowed claim or (ii) the holders
of claims and interests that are junior to the claims of the
dissenting class will not receive any property under the plan,
subject to the applicability of the "new value" exception.
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(b) Equity Interests. Either (i) each equity interest holder
will receive or retain under the plan property of a value equal to
the greater of (x) the fixed liquidation preference or redemption
price, if any, of such stock or (y) the value of the stock, or
(ii) the holders of interests that are junior to the stock will
not receive any property under the plan.
The Debtors believe that the Plan may be confirmed on a
nonconsensual basis if the holders of any impaired Class of Claims
votes to reject the Plan (provided at least one impaired Class of
Claims votes to accept the Plan). If appropriate, the Debtors will show
at the Confirmation Hearing that the Plan provides recoveries to the
holders of such Allowed Claims that satisfy the requirements of section
1129(b) of the Bankruptcy Code.
THE DEBTORS INTEND TO SEEK CONFIRMATION OF THE PLAN IF LESS THAN THE
REQUISITE MAJORITIES OF HOLDERS AND CLAIMS AND/OR EQUITY INTERESTS VOTE
TO ACCEPT THE PLAN.
3. Feasibility
The Bankruptcy Code requires that confirmation of a plan is
not likely to be followed by the liquidation or the need for further
financial reorganization of a debtor. For purposes of determining
whether the Plan meets this requirement, the Debtors have analyzed
their ability to meet their obligations under the Plan and have
prepared an analysis of the values of the projected assets of
Reorganized Leslie Fay. As a result of this analysis, the Debtors have
concluded that Reorganized Leslie Fay will have sufficient assets with
which to satisfy its obligations under the Plan.
Additionally, the Debtors have prepared projections for
Reorganized Leslie Fay and New Sassco (the "Projections"). The
Projections, and the significant assumptions on which they are based,
are included in Section IX below, Projections. Based upon such
Projections, the Debtors believe that the estimated ranges of the value
of Reorganized Leslie Fay and New Sassco Common Stock to be issued
under the Plan are reasonable.
The Projections include:
(1) Significant Assumptions;
(2) Condensed Balance Sheets and
Capitalization;
(3) Condensed Statements of Operations and Cash
Flows; and
(4) Projected Pro Forma Comparable Statements
of Operations.
The Projections are based on the assumption that the Plan
will be confirmed by the Bankruptcy Court and, for projection purposes,
that the Effective Date of the Plan will take place on or about
December 30, 1996.
4. "Best Interests" Test
With respect to each impaired Class of Claims and Equity
Interests, confirmation of the Plan requires that each such holder
either (a) accepts the Plan or (b) receives or retains under the Plan
property of a value, as of the Effective Date of the Plan, that is not
less than the value such holder would receive or retain if the Debtors
were liquidated under chapter 7 of the Bankruptcy Code.
This analysis requires the Bankruptcy Court to determine what
the holders of Allowed Claims and Allowed Equity Interests in each
impaired class would receive from the liquidation of the Debtors'
assets and properties in the context of a chapter 7 liquidation case.
The cash amount which would be available for the satisfaction of
Unsecured Claims and Equity Interests of the Debtors would consist of
the proceeds resulting from the disposition of the unencumbered assets
of the Debtors, augmented by the unencumbered cash held by the Debtors
at the time of the commencement of the liquidation case. Such cash
amount would be reduced by the costs and expenses of the liquidation
and by such additional administrative and priority claims that may
result from the termination of the Debtors' businesses and the use of
chapter 7 for the purposes of liquidation.
The Debtors' costs of liquidation under chapter 7 would
include the fees payable to a trustee in bankruptcy, as well as those
payable to attorneys and other professionals that such a trustee may
engage, plus any unpaid expenses incurred by the Debtors during the
Chapter 11 Cases, such as compensation for attorneys, financial
advisors, accountants and costs and expenses of members of the
Creditors' Committee and the Equity Committee that are allowed in the
chapter 7 case. In addition,
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claims would arise by reason of the breach or rejection of obligations
incurred and executory contracts entered into or assumed by the Debtors
during the pendency of the Chapter 11 Cases.
The foregoing types of Claims and such other claims which may
arise in the liquidation case or result from the pending Chapter 11
Cases would be paid in full from the liquidation proceeds before the
balance of those proceeds would be made available to pay Unsecured
Claims.
To determine if the Plan is in the best interests of each
impaired class, the present value of the distributions from the
proceeds of the liquidation of the Debtors' assets and properties
(after subtracting the amounts attributable to the aforesaid claims) is
then compared with the present value offered to such classes of Claims
and Equity Interests under the Plan.
In applying the "best interests" test, it is possible that
Claims and Equity Interests in the chapter 7 case may not be classified
according to the seniority of such Claims and Equity Interests. In the
absence of a contrary determination by the Bankruptcy Court, all
pre-chapter 11 Unsecured Claims which have the same rights upon
liquidation would be treated as one class for the purposes of
determining the potential distribution of the liquidation proceeds
resulting from the chapter 7 case of the Debtors. The distributions
from the liquidation proceeds would be calculated on a Pro Rata basis
according to the amount of the Claim held by each creditor. Therefore,
creditors, if any, who claim to be third-party beneficiaries of any
contractual subordination provisions might have to seek to enforce such
contractual subordination provisions in the Bankruptcy Court or
otherwise. The Debtors believe that the most likely outcome of
liquidation proceedings under chapter 7 would be the application of the
rule of absolute priority of distributions. Under that rule, no junior
creditor receives any distribution until all senior creditors are paid
in full with interest, and no stockholder receives any distribution
until all creditors are paid in full with post-petition interest.
Consequently, the Debtors believe that under chapter 7, holders of
Equity Interests would receive no distributions.
After consideration of the effects that a chapter 7
liquidation would have on the ultimate proceeds available for
distribution to creditors in the chapter 11 case, including: (a) the
increased costs and expenses of a liquidation under chapter 7 arising
from fees payable to a trustee in bankruptcy and professional advisors
to such trustee; (b) the substantial erosion in value of assets in a
chapter 7 case in the context of the expeditious liquidation required
under chapter 7 and the "forced sale" atmosphere that would prevail;
(c) the adverse effects on the salability of business segments as a
result of the departure of key employees, the loss of customers and
suppliers; and (d) the substantial increases in claims which would be
satisfied on a priority basis or on parity with creditors in the
Chapter 11 Cases, the Debtors believe that confirmation of the Plan
will provide each holder of an Allowed Claim or Allowed Equity Interest
with not less than the amount it would receive pursuant to liquidation
of the Debtors under chapter 7 of the Bankruptcy Code.
The Debtors' Liquidation Analysis is set forth in Section XI,
below.
The Debtors also believe that the value of any distributions
from the liquidation proceeds to each class of allowed claims in a
chapter 7 case would be less than the value of distributions on a
consolidated basis under the Plan because such distributions in a
chapter 7 case would not occur for a substantial period of time. It is
likely that distribution of the proceeds of the liquidation could be
delayed for at least a year or more after the completion of such
liquidation in order to resolve claims and prepare for distributions.
In the likely event litigation were necessary to resolve claims
asserted in the chapter 7 case, the delay could be prolonged.
IX.
PROJECTIONS
A. INTRODUCTION
1. Responsibility for and Purpose of the Projections
As a condition to confirmation of a plan, the Bankruptcy Code
requires, among other things, that the Bankruptcy Court determine that
confirmation is not likely to be followed by the liquidation or the
need for further financial reorganization of the debtor. See Section
VIII.B. above, Confirmation of the Plan -- Requirements for
Confirmation of the Plan. In connection with the development of the
Plan, and for purposes of determining whether the Plan satisfies this
feasibility
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standard, Leslie Fay's management has analyzed the ability of the
Debtors to meet their obligations under the Plan. In this regard, the
Debtors prepared an analysis of the value of the assets of Reorganized
Leslie Fay as of the Effective Date, after giving effect to the sale or
transfer of the Sassco Assets to New Sassco and the transfer of Eight
Million Dollars ($8,000,000), Dress and Sportswear Assets, and Leslie
Fay Intellectual Property to Reorganized Leslie Fay Operating Company.
See Section VIII.B.3 above, Confirmation of the Plan -- Requirements
For Confirmation of the Plan -- Feasibility. Additionally, Leslie Fay's
management have developed business plans and Projections of earnings,
cash flows and financial position for the four-year period beginning
December 29, 1996.
The Projections should be read in conjunction with the
assumptions, qualifications, and the footnotes to tables containing the
Projections set forth herein, the historical consolidated financial
information (including the notes and schedules thereto) and the other
information set forth in the Annual Report on Form 10-K and the
Quarterly Report on Form 10-Q annexed hereto as Exhibits "C" and "D",
respectively, the full texts of which are incorporated herein by
reference, and the Selected Financial Data appearing in Section X
below, Financial Information. The Projections were prepared in good
faith based upon assumptions believed to be reasonable and applied in a
manner consistent with past practice.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO COMPLYING
WITH THE GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY
THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. THE DEBTORS'
INDEPENDENT ACCOUNTANTS, ARTHUR ANDERSEN, LLP, HAVE NEITHER COMPILED
NOR EXAMINED THE ACCOMPANYING PROSPECTIVE FINANCIAL INFORMATION TO
DETERMINE THE REASONABLENESS THEREOF AND, ACCORDINGLY, HAVE NOT
EXPRESSED ANY OPINION OR ANY OTHER FORM OF ASSURANCE WITH RESPECT
THERETO.
LESLIE FAY DOES NOT, AS A MATTER OF COURSE, PUBLISH ITS
BUSINESS PLANS AND STRATEGIES OR PROJECTIONS OF ITS ANTICIPATED
FINANCIAL POSITION, RESULTS OF OPERATIONS OR CASH FLOWS. ACCORDINGLY,
LESLIE FAY DOES NOT INTEND, AND DISCLAIMS ANY OBLIGATION TO, (A)
FURNISH UPDATED BUSINESS PLANS OR PROJECTIONS TO HOLDERS OF CLAIMS OR
EQUITY INTERESTS PRIOR TO THE EFFECTIVE DATE OR TO HOLDERS OF
REORGANIZED LESLIE FAY COMMON STOCK OR NEW SASSCO COMMON STOCK OR ANY
OTHER PARTY AFTER THE EFFECTIVE DATE, (B) INCLUDE SUCH UPDATED
INFORMATION IN ANY DOCUMENTS WHICH MAY BE REQUIRED TO BE FILED WITH THE
SEC OR (C) OTHERWISE MAKE SUCH UPDATED INFORMATION PUBLICLY AVAILABLE.
THE PROJECTIONS PROVIDED IN THE DISCLOSURE STATEMENT HAVE
BEEN PREPARED BY LESLIE FAY'S MANAGEMENT, THE PROPOSED MANAGEMENT OF
REORGANIZED LESLIE FAY AND THE PROPOSED MANAGEMENT OF NEW SASSCO. THESE
PROJECTIONS, WHILE PRESENTED WITH NUMERICAL SPECIFICITY, NECESSARILY
ARE BASED UPON A VARIETY OF ESTIMATES AND ASSUMPTIONS, WHICH, THOUGH
CONSIDERED REASONABLE BY MANAGEMENT, MAY NOT BE REALIZED, AND ARE
INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE PARTIES'
CONTROL. THE DEBTORS CAUTION THAT NO REPRESENTATIONS CAN BE MADE AS TO
THE ACCURACY OF THESE FINANCIAL PROJECTIONS OR TO THE ABILITY OF NEW
SASSCO AND REORGANIZED LESLIE FAY TO ACHIEVE THE PROJECTED RESULTS.
SOME ASSUMPTIONS INEVITABLY WILL NOT MATERIALIZE, AND EVENTS AND
CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE ON WHICH THESE
PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM THOSE ASSUMED, OR MAY
BE UNANTICIPATED AND THUS MAY AFFECT FINANCIAL RESULTS IN A MATERIAL
AND POSSIBLY ADVERSE MANNER. THE PROJECTIONS, THEREFORE, MAY NOT BE
RELIED UPON AS A GUARANTY OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT
WILL OCCUR.
THE FOREGOING ASSUMPTIONS AND RESULTANT COMPUTATIONS WERE
MADE SOLELY FOR PURPOSES OF PREPARING THE PROJECTIONS. REORGANIZED
LESLIE FAY WILL BE REQUIRED TO DETERMINE THE DEBTORS' REORGANIZATION
VALUE, THE FAIR VALUE OF THEIR ASSETS, AND THEIR ACTUAL LIABILITIES AS
OF THE EFFECTIVE DATE. SUCH DETERMINATION WILL BE BASED UPON THE FAIR
VALUES AS OF THAT DATE, WHICH COULD BE MATERIALLY GREATER OR LOWER THAN
THE VALUES ASSUMED IN THE FOREGOING COMPUTATIONS. IN ALL EVENTS, THE
REORGANIZATION VALUE, AS WELL AS THE DETERMINATION OF THE FAIR VALUE OF
THE REORGANIZED DEBTORS' ASSETS AND THE DETERMINATION OF THEIR ACTUAL
LIABILITIES, WILL BE MADE AS OF THE
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EFFECTIVE DATE. ALTHOUGH LESLIE FAY EXPECTS TO UTILIZE A CONSISTENT
METHODOLOGY, THE CHANGES BETWEEN THE AMOUNTS OF ANY OR ALL OF THE
FOREGOING ITEMS AS ASSUMED IN THE PROJECTIONS AND THE ACTUAL AMOUNTS
THEREOF AS OF THE EFFECTIVE DATE MAY BE MATERIAL.
2. Summary of Significant Assumptions
(a) Effective Date and Plan Terms
The Projections assume an Effective Date of December 30,
1996, with Allowed Claims and Equity Interests treated in accordance
with the treatment provided in the Plan with respect to such Allowed
Claims and Equity Interests. The Projections consider the ongoing
operations of Reorganized Leslie Fay and New Sassco and their proposed
strategies for managing their operations. As the Debtors will not
emerge from bankruptcy until January 1997, additional bankruptcy
expenses will be incurred. These expenses could impact the Debtors'
results of operations and cash flows.
(b) Definitions
EBITDA: Earnings before interest, taxes,
depreciation and amortization.
(c) Economic Assumptions
The overall economic assumptions of the Projections consist
of a five percent (5%) non-payroll inflation rate and a five percent
(5%) payroll inflation rate for fiscal years 1997 through 2000. Within
individual expense categories, assumptions other than a five percent
(5%) rate have been employed where appropriate and are identified
herein.
(d) Significant Accounting Policies
(i) Basis of Consolidation
The consolidated financial statements include the accounts of
the Debtors and their direct and indirect subsidiaries, all of which
are wholly owned and have not filed for protection under chapter 11 of
the Bankruptcy Code. All significant intercompany balances and
transactions have been eliminated in consolidation.
(ii) Fiscal Year
New Sassco and Reorganized Leslie Fay will have a 52- 53 week
fiscal year with the last day of the fiscal year being the Saturday
closest to December 31. Each year consists of 52 weeks except fiscal
year 1997.
(iii) Inventories
Inventories are stated at the lower of cost or market using
the first-in, first-out ("FIFO") method or the Retail Inventory method.
(iv) Depreciation and Amortization
Plant and equipment are depreciated on a straight-line basis
over the estimated useful lives of the assets. Leasehold improvements
are amortized on a straight-line basis over the shorter of the lease
term or the useful lives.
(e) Sales Assumptions
Sales are assumed to grow between five to ten percent (5-10%)
per year depending upon customer and label under which the product is
sold.
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(i) Reorganized Leslie Fay
Net sales are projected to grow from a projected level of One
Hundred Twenty-Three Million Six Hundred Fifty- Five Thousand Dollars
($123,655,000) in 1997 to One Hundred Forty-Four Million Nine Hundred
Thirty-Eight Thousand Dollars ($144,938,000) in 2000; a four-year
compounded annual growth rate of five and four-tenths percent (5.4%)
Net sales growth over the projected period is driven by, but not
limited to, the recovery of a portion of the "store" and "door"
penetration previously achieved and through the intensification of
Special Sizes distribution. No new labels are planned to be introduced
during the projection period.
(ii) New Sassco
Net sales are projected to grow from a level of Three Hundred
Twelve Million Eight Hundred Eighty-Seven Thousand Dollars
($312,887,000) in 1996 to Three Hundred Seventy-Three Million Five
Hundred Ninety-Eight Thousand Dollars ($373,598,000) in 2000; a
four-year compounded annual growth rate of four and eight-tenths
percent (4.8%) Net sales growth over the projected period is driven by,
but not limited to, the Sportswear line and the Nina Charles knitwear
business (with Fall 1996 as the first season), in addition to expanding
the retail segment of the business.
(f) Gross Margin Assumptions
(i) Reorganized Leslie Fay
Gross profit is projected to grow from Twenty-Five Million
Three Hundred Fifty-Three Thousand Dollars ($25,353,000) in 1997 to
Thirty Million Three Hundred Sixteen Thousand Dollars ($30,316,000) in
2000. Accompanying this growth in gross profit, gross margins are
expected to increase from twenty-two and six-tenths percent (22.6%) of
sales in 1996 to twenty-three and seven-tenths percent (23.7%) of sales
in 2000. This increase in profitability is driven by the expansion of
each of the business segments, as described above, as well as a number
of key factors affecting each business segment including the
implementation of a "cut to order" business for the Sportswear
Division's customers and the use of shorter production cycles for the
manufacture of dresses, thereby allowing for better reaction to changes
in the marketplace.
Selling, general and administrative expenses ("SG&A") are
projected to decrease from a projected level of Twenty-Two Million
Three Hundred Fifty-Three Thousand Dollars ($22,353,000) in 1997 to
Twenty-Five Million Eight Hundred Twenty-Three Thousand Dollars
($25,823,000) in 2000. Among the key factors affecting this decrease
are the strategies implemented in 1995 to reduce headcount, reduce
overall occupancy costs through consolidation and through lower lease
rates. Following July 1997, fixed SG&A is planned to increase only at
the rate of inflation, five percent (5%), as all reductions to achieve
the minimum expense level to support the company during the projection
period have taken place prior to that date.
(ii) New Sassco
Gross profit is projected to grow from Seventy-Five Million
Six Hundred Twenty-Two Thousand Dollars ($75,622,000) in 1996 to One
Hundred Fourteen Million Four Hundred Thirty- Three Thousand Dollars
($114,433,000) in 2000. Accompanying this growth in gross profit, gross
margins are expected to increase from twenty-four and seventeen tenths
percent (24.17%) of sales in 1996 to thirty and sixty-three tenths
percent (30.63%) of sales in 2000. This increase in profitability is
driven by a number of key factors affecting each business segment
including the following: increase in the retail segment of the business
which carries a higher margin, in addition to reducing wholesale
markdowns and allowances due to better management of inventories.
SG&A expenses are projected to increase from Fifty Three
Million One Hundred Fifty-Three Thousand Dollars ($53,153,000) in 1996
to Sixty-Seven Million One Hundred Forty- Eight Thousand Dollars
($67,148,000) in 2000. The key factors affecting the increase are the
growth in the retail store segment of the business and the additional
expenses due to the spinoff from Leslie Fay.
74
<PAGE>
(g) Interest Costs (net)
Interest costs are related to facility commitment and
administrative fees, letter of credit costs, and any seasonal usage of
credit facilities. Interest income is offset against interest expense.
The average interest rates for Reorganized Leslie Fay are assumed as
follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
($000) % ($000) %
---- ----- ----- -----
<S> <C> <C> <C> <C>
Interest on Revolver Credit 176 11.0% 152 11.0%
Factoring Fee 526 0.4% 559 0.4%
Commitment Fee Amortization 125 N/A 115 N/A
L/C Fees 147 1.5% 148 1.5%
Other Fees 107 N/A 102 N/A
----- -----
Total Interest Expense 1,081 1,076
Interest Income (165) (93)
----- -----
Net Interest Expense 915 983
===== =====
</TABLE>
The average interest rates for New Sassco are assumed as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
($000) % ($000) %
----- ----- ----- -----
<S> <C> <C> <C> <C>
Interest on Revolver Credit 2,672 9.00% 2,019 9.00%
Factoring Fee 1,113 0.40% 1,174 0.40%
Commitment Fee Amortization 450 N/A 450 N/A
L/C Fees 613 1.75% 613 1.75%
Other Fees 374 N/A 340 N/A
Senior Subordinated 14,024 12.75% 14,024 12.75%
Trademark Note 400 8.00% 400 8.00%
------ ------
Total Interest Expense 19,646 19,020
Interest Income 0 0
------ ------
Net Interest Expense 19,646 19,020
====== ======
</TABLE>
75
<PAGE>
B. SIGNIFICANT BALANCE SHEET ADJUSTMENTS
(i) Other Current Assets
Other current assets consist of piece goods advances,
amortized financing commitment fee and other employee related
receivables.
(ii) Property, Plant and Equipment
The aggregate capital expenditures during the period covered
by the Projection amount to Two Million Four Hundred Forty-One Thousand
Dollars ($2,441,000) with respect to Reorganized Leslie Fay and Nine
Million Six Hundred Fifty-One Thousand Dollars ($9,651,000) with
respect to New Sassco, which are principally allocated to facility
improvements, information technology enhancements and miscellaneous,
respectively.
(iii) Other Noncurrent Assets
This asset category includes prepaid pension costs, debt
issuance costs and deposits.
(iv) Accounts Payable
This liability account represents amounts owing to trade
creditors for merchandise purchased and services performed.
(v) Accrued Expenses
This liability account includes amounts owing for selling,
general and administrative expenses such as supplies, occupancy costs,
payroll and payroll taxes as well as accrued interest expense.
(vi) Noncurrent Liabilities
This liability account is primarily composed of a liability
for post-retirement benefits.
(vii) Liabilities Subject to Compromise
Liabilities that are subject to settlement under the Plan.
C. LONG-TERM DEBT
The Projections assume that, after the Effective Date, the
debt portion of Leslie Fay's capital will consist of the Reorganized
Leslie Fay Credit Agreement, which would include a sublimit for letters
of credit for $17,500,000, in
the following table:
<TABLE>
<CAPTION>
Description Creditor Interest Rate Maturity Commitment
----------- -------- ------------- -------- ----------
<S> <C> <C> <C> <C>
Credit Facility CIT Group Chase Prime plus 1.0% 2 years $30,000,000
</TABLE>
The Projections assume that, after the Effective Date, the
debt portion of New Sassco's capital will consist of the New Sassco
Credit Agreement, which would include a sublimit for letters of credit
of $50,000,000, in the following table:
<TABLE>
<CAPTION>
Description Creditor Interest Rate Maturity Commitment
----------- -------- ------------- -------- ----------
<S> <C> <C> <C> <C>
Credit Facility FNBB Base Rate plus 0.75% 3 years $100,000,000
New Sassco Notes Classes 3, 12.75% 7 years $110,000,000
4 and 6
</TABLE>
76
<PAGE>
REORGANIZED LESLIE FAY
CONDENSED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Leslie Fay Co., Inc. Ex. Sassco
------------------------------------------
Actual Actual Projected Consummation
Year End Year End Year End Adjustments
12/31/94 12/30/95 12/28/96 12/28/96
-------- -------- -------- --------
ASSETS:
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 31,339 $ 30,504 $ 2,203 $ 30,000
Receivables, Net 19,738 7,130 12,992
Inventories 56,122 16,790 19,776
Other Current Assets 12,778 12,653 1,747
------- ------- ------- -------
TOTAL CURRENT ASSETS 119,977 67,077 36,718 30,000
Property, Plant and Equip-
ment, Net 16,500 8,203 6,281
Other Assets 4,318 964 340
Goodwill 12,908 8,672 7,476
------- ------- ------- -------
TOTAL ASSETS $153,703 $ 84,916 $ 50,815 $ 30,000
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts Payable $ 22,361 $ 16,500 $ 6,691 0
Accrued Expenses 50,414 22,007 23,133 5,779
------- ------- ------- -----
TOTAL CURRENT LIABILITIES 72,775 38,507 29,823 5,779
Liabilities Subject to
Compromise 328,315 337,153 336,589 (336,589)
Other Non-Current Liabilities 111
Working Capital Facility
Long-Term Debt
------- ------- ------- -------
Stockholders' Equity
Common Stock 20,000 20,000 20,000 (19,966)
Paid in Capital 49,012 49,012 49,012 (3,831)
Retained Earnings (316,510) (359,756) (384,609) 384,607
------- ------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $153,703 $ 84,916 $ 50,815 $ 30,000
======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Reorganized Leslie Fay
-----------------------------------------------------
Projected
Post
Consum-
mation Projected Projected Projected Projected
Ended Year End Year End Year End Year End
12/28/96 01/03/98 01/02/99 01/01/00 12/31/00
-------- -------- -------- -------- --------
ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and Cash Equivalents $32,203 $ 4,762 $ 4,986 $ 7,226 $ 8,651
Receivables, Net 12,991 16,610 18,650 19,570 20,537
Inventories 19,776 19,879 21,010 22,060 23,163
Other Current Assets 1,748 482 388 476 493
------ ------ ------ ------ ------
TOTAL CURRENT ASSETS 66,718 41,734 45,035 49,332 52,844
Property, Plant and Equip-
ment, Net 6,281 5,219 4,204 3,268 2,413
Other Assets 341 340 340 340 340
Goodwill 7,476 6,957 6,438 5,919 5,400
------ ------ ------ ------ ------
TOTAL ASSETS $80,816 $54,250 $56,017 $58,860 $60,997
====== ====== ====== ====== ======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts Payable $ 6,690 $ 4,714 $ 4,827 $ 5,013 $ 5,209
Accrued Expenses 28,911 2,871 3,064 4,067 4,214
------ ------ ------ ------ ------
TOTAL CURRENT LIABILITIES 35,600 7,584 7,890 9,080 9,423
Liabilities Subject to
Compromise 0 0 0 0 0
Other Non-Current Liabilities
Working Capital Facility 0 0 0 0 0
Long-Term Debt 0 0 0 0 0
----- ------ ------ ------ ------
Stockholders' Equity
Common Stock 34 34 34 34 34
Paid in Capital 45,181 45,181 45,181 45,181 45,181
Retained Earnings 0 1,451 2,911 4,565 6,359
------ ------ ------ ------ ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $80,816 $54,250 $56,017 $58,860 $60,997
====== ====== ====== ====== ======
</TABLE>
These Projections should be read only in conjunction with the accompanying
assumptions and notes.
77
<PAGE>
NEW SASSCO
CONDENSED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Sassco Carve Out from Leslie Fay
----------------------------------
Projected
Pre
Actual Actual Consummation Consummation
Year End Year End Year End Adjustments
12/31/94 12/30/95 12/28/96 12/28/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
ASSETS:
Cash and Cash Equivalents $ 1,374 $ 1,820 $ 2,000 $ 0
Receivables, Net 42,259 47,936 24,923 0
Inventories 61,546 84,445 124,842 0
Other Current Assets 617 1,978 2,138 0
------- ------- ------- -------
TOTAL CURRENT ASSETS 105,796 136,179 153,903 0
Property, Plant and Equip-
ment, Net 4,774 6,467 10,815 0
Other Assets 326 1,481 1,515 2,250
Goodwill & Trademarks 17,035 16,937 16,322 110,818
------- ------- ------- -------
TOTAL ASSETS $127,931 $161,064 $182,555 $113,068
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts Payable $ 12,749 $ 15,351 $ 12,921 $ 0
Accrued Expenses 5,619 10,877 7,193 3,259
------ ------ ------- -------
TOTAL CURRENT LIABILITIES 18,368 26,228 20,114 3,259
Other Non-Current Liabilities 0
Working Capital Facility 0 32,250
Long-Term Debt 0 115,000
------ ------ ------- -------
Stockholders' Equity
Common Stock 68
Paid in Capital 124,932
Retained Earnings 109,563 134,836 162,441 (162,441)
------- ------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $127,931 $161,064 $182,555 $113,068
======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New Sassco
--------------------------------------------------------
Projected
Post
Consummation Projected Projected Projected Projected
Ended Year End Year End Year End Year End
12/28/96 01/03/98 01/02/99 01/01/00 12/31/00
-------- -------- -------- -------- --------
ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and Cash Equivalents $ 2,000 $ 2,000 $ 8,151 $ 25,913 $ 38,219
Receivables, Net 24,923 26,528 25,020 26,504 29,159
Inventories 124,842 107,101 109,664 109,717 118,225
Other Current Assets 2,138 2,502 2,502 2,502 2,502
------- ------- ------- ------- -------
TOTAL CURRENT ASSETS 153,903 138,131 145,337 164,636 188,105
Property, Plant and Equip-
ment, Net 10,815 11,960 11,173 10,135 8,847
Other Assets 3,765 3,315 2,865 2,415 1,965
Goodwill & Trademarks 127,140 123,621 120,102 116,582 113,063
------- ------- ------- ------- -------
TOTAL ASSETS $295,623 $277,027 $279,477 $293,768 $311,980
======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts Payable $ 12,921 $ 16,166 $ 23,999 $ 25,655 $ 28,336
Accrued Expenses 10,452 5,136 5,265 5,523 5,940
------- ------- ------- ------- -------
TOTAL CURRENT LIABILITIES 23,373 21,302 29,264 31,178 34,276
Other Non-Current Liabilities 0 484 1,474 2,631 3,790
Working Capital Facility 32,250 13,343 (0) 0 (0)
Long-Term Debt 115,000 115,000 115,000 115,000 115,000
------- ------- ------- ------- -------
Stockholders' Equity
Common Stock 68 68 68 68 68
Paid in Capital 124,932 124,932 124,932 124,932 124,932
Retained Earnings 0 1,898 8,739 19,959 33,914
------- ------- ------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $295,623 $277,027 $279,477 $293,768 $311,980
======= ======= ======= ======= =======
</TABLE>
These Projections should be read only in conjunction with the accompanying
assumptions and notes.
78
<PAGE>
REORGANIZED LESLIE FAY
NOTES TO CONDENSED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)
BASIS OF PRESENTATION:
The unaudited condensed balance sheet is based upon the
actual financial statements of the Reorganized Debtors for the four
years ending January 3, 1998, January 2, 1999, January 1, 2000 and
December 31, 2000, respectively, and should be read in conjunction with
the historical financial statements, the related notes and the other
information contained in this Disclosure Statement.
PRO FORMA ADJUSTMENTS:
The determination of the fair value of Reorganized Leslie
Fay's fixed assets and inventories and the determination of their
actual liabilities, will be made as of the Effective Date, and there
may be material differences between the amounts of any or all of the
foregoing items assumed in preparing the pro forma financial
information and the actual amounts thereof as of the Effective Date.
a) To record the payment and settlement of liabilities and
the write off of associated debt costs in connection with the Plan. The
treatment of certain Claims provided for in the Plan takes into account
interest accrued on, and payments made on account of, such Claims
during the pendency of the Chapter 11 Cases. In addition, the amounts
recorded reflect the Debtors' estimates of the amounts of certain
Claims that will ultimately be allowed by the Bankruptcy Court. The
amounts of such Claims actually allowed could vary materially from such
estimated amounts.
b) To record payment of the fees associated with the proposed
Reorganized Leslie Fay Credit Facility, as well as the professional
fees associated with the conclusion of the Chapter 11 Cases.
79
<PAGE>
NEW SASSCO
NOTES TO CONDENSED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)
BASIS OF PRESENTATION:
The unaudited condensed balance sheet is based upon the
actual financial statements of the Reorganized Debtors for the four
years ending January 3, 1998, January 2, 1999, January 1, 2000 and
December 31, 2000, respectively, and should be read in conjunction with
the historical financial statements, the related notes and the other
information contained in this Disclosure Statement.
PRO FORMA ADJUSTMENTS:
New Sassco will be required to determine the amount by which
their Reorganization Value as of the Effective Date actually exceeds,
or actually is less than, the fair value of their assets. In all
events, such valuation, as well as the determination of the fair value
of New Sassco's fixed assets and inventories and the determination of
their actual liabilities, will be made as of the Effective Date, and
there may be material differences between the amounts of any or all of
the foregoing items assumed in preparing the pro forma financial
information and the actual amounts thereof as of the Effective Date.
80
<PAGE>
REORGANIZED LESLIE FAY
CONDENSED STATEMENT OF OPERATIONS AND CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Leslie Fay Co., Inc. Ex. Sassco Reorganized Leslie Fay
------------------------------- ---------------------------------------
Actual Actual Projected Consummation Projected Projected Projected Projected
Year End Year End Year End Adjustments Year End Year End Year End Year End
12/31/94 12/30/95 12/28/96 12/28/96 01/03/98 01/02/99 01/01/00 12/31/00
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net Sales $291,867 $162,110 $119,909 $123,655 $131,463 $138,036 $144,938
Cost of Sales 255,752 138,730 95,340 98,302 103,965 109,164 114,622
------- ------- ------- ------- ------- ------- -------
GROSS PROFIT 36,115 23,380 24,569 25,353 27,498 28,873 30,317
Royalty Income 2,457 2,285 2,169 1,535 1,470 1,470 1,470
Selling, General and
Administrative Expenses 81,906 41,357 26,977 22,353 23,380 24,571 25,823
------- ------- ------- ------- ------- ------- -------
EBRITDA (43,334) (15,692) (239) 4,535 5,588 5,772 5,964
% of Net Sales -14.8% -9.7% -0.2% 3.7% 4.3% 4.2% 4.1%
Depreciation and Amortization 9,223 5,083 2,465 2,169 2,122 2,072 2,022
------- ------- ------- ------- ------- ------- -------
OPERATING PROFIT (LOSS) (52,557) (20,775) (2,704) 2,366 3,466 3,699 3,942
% of Net Sales -18.0% -12.8% -2.3% 1.9% 2.6% 2.7% 2.7%
Accrued Reorganization Expense 115,769 16,575 2,279 0 0 0 0
------- ------- ------- ------- ------- ------- -------
EBIT (168,326) (37,350) (4,983) 2,366 3,466 3,699 3,942
Interest Costs, Net 5,062 2,737 2,430 915 983 884 884
Income Tax Provision (9,663) (9,621) (2,574) 0 1,022 1,162 1,263
------- ------- ------- ------- ------- ------- -------
NET INCOME (LOSS) ($163,725) (30,466) ($4,839) $1,451 $1,461 $1,654 $1,794
======= ======= ======= ======= ======= ======= =======
STATEMENT OF CASH FLOWS:
EBRITDA ($43,334) ($15,692) ($239) $4,535 $5,588 $5,772 $5,964
Working Capital
(Inc. Income Taxes) 11,743 54,551 (11,431) (4,315) (3,591) (2,030) (3,007)
Capital Expenditures, Net (4,539) (1,111) (1,988) (588) (588) (617) (648)
Other 1,193 3,081 2,351
Other Assets and Liabilities
Interest Costs, Net (5,062) (2,737) (2,430) (915) (983) (884) (884)
------- ------- ------- ------- ------- ------- ------- -------
OPERATING CASH FLOW (39,999) 38,092 (13,737) 0 (1,283) 426 2,240 1,425
Discontinued Operations and
Reorganization Items (28,361) (25,792) (8,110) (17,119) (202)
Liabilities Subject to
Compromise (9,038)
Income Tax Refund 23,182 10,345
Cash (To) From Sassco 1,881 (13,003) (14,024) 30,000
Equity Transactions (217) (132) (775)
------- ------- ------- ------- ------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ($43,514) ($835) ($26,301) $30,000 ($27,440) $224 $2,240 $1,426
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
These Projections should be read only in conjunction with the accompanying
assumptions and notes.
81
<PAGE>
NEW SASSCO
CONDENSED STATEMENTS OF OPERATIONS AND CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Sassco Carve Out from Leslie Fay New Sassco
---------------------------------- ------------------------------------------
Actual Actual Projected Consummation Projected Projected Projected Projected
Year End Year End Year End Adjustments Year End Year End Year End Year End
12/31/94 12/30/95 12/28/96 12/28/96 01/03/98 01/02/99 01/01/00 12/31/00
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net Sales $239,976 $279,974 $312,887 $302,754 $320,719 $339,593 $373,598
Cost of Sales 172,234 207,161 237,265 218,975 226,908 235,513 259,165
-------- -------- -------- -------- -------- -------- --------
GROSS PROFIT 67,742 72,813 75,622 83,779 93,811 104,080 114,433
Royalty Income 1,033 835 830 880 968 1,065 1,171
Selling, General and
Administrative Expenses 41,913 49,605 53,153 55,716 57,657 61,272 67,148
-------- -------- -------- -------- -------- -------- --------
EBRITDA 26,862 24,043 23,299 28,943 37,122 43,873 48,456
% of Net Sales 11.2% 8.6% 7.4% 9.6% 11.6% 12.9% 13.0%
Depreciation and Amortization 1,583 2,033 2,312 6,025 6,306 6,557 6,807
-------- -------- -------- -------- -------- -------- --------
OPERATING PROFIT (LOSS) 25,279 22,010 20,987 22,918 30,816 37,316 41,649
% of Net Sales 10.5% 7.9% 6.7% 7.6% 9.6% 11.0% 11.1%
ACCRUED REORGANIZATION EXPENSE 0 0 $0 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
EBIT 25,279 22,010 20,987 22,918 30,816 37,316 41,649
Interest Costs, Net 450 525 1,612 19,646 19,021 17,970 17,588
Income Tax Provision 10,644 8,860 7,737 1,374 4,954 8,125 10,105
------ ------ ----- -------- ------- -------- --------
NET INCOME (LOSS) $14,185 12,625 $11,638 $1,898 $6,841 $11,220 $13,955
======= ====== ======= ======== ======= ======== ========
STATEMENT OF CASH FLOWS:
EBRITDA $26,862 $24,043 $23,299 $28,943 $37,122 $43,873 $48,456
Working Capital (Inc. Income Taxes) (23,777) (33,209) (29,490) 12,327 1,953 (7,748) (18,170)
Capital Expenditures, Net (1,272) (2,866) (6,050) (3,651) (2,000) (2,000) (2,000)
Other 9 0 0 0 0
Other Assets and Liabilities 0 0 0 (2,250) 934 1,440 1,607 1,609
Interest Costs, Net (450) (525) (1,612) (19,646) (19,021) (17,970) (17,588)
------- ------- ------- ------- -------- ------- ------- -------
OPERATING CASH FLOW 1,363 (12,557) (13,844) (2,250) (18,907) 19,494 17,762 12,307
Discontinued Operations and
Reorganization Items 0 0 0 0
Liabilities Subject to Compromise
Income Tax Refund
Cash (To) From Leslie Fay (1,881) 13,003 14,024 (30,000)
Equity Transactions 0 0 0 0 0 0 0
------- ------- ------- -------- -------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ($518) $446 $180 $32,250 $18,907 $19,494 $17,762 $12,307
======= ======= ======= ======== ======= ======= ======= =======
</TABLE>
These Projections should be read only in conjunction with the accompanying
assumptions and notes.
82
<PAGE>
NOTES TO CONDENSED STATEMENTS OF OPERATIONS AND CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
BASIS OF PRESENTATION:
The unaudited condensed statement of operations and cash
flows is based upon the projected financial statements of Reorganized
Leslie Fay/New Sassco for the four years ending January 3, 1998,
January 2, 1999, January 1, 2000 and December 31, 2000, respectively,
and should be read in conjunction with the historical financial
statements, the related notes and the other information contained in
this Disclosure Statement.
CONFIRMATION ADJUSTMENTS:
a) To record the debt discharge net book gain for
the conversion of liabilities subject to compromise into debt
and equity.
b) To record payment of the fees associated with the
professional fees associated with the conclusion of the Chapter 11
Cases.
c) To record the payment and settlement of liabilities and
the write off of associated debt costs in connection with the Plan. The
treatment of certain Claims provided for in the Plan takes into account
interest accrued on, and payments made on account of, such Claims
during the pendency of the Chapter 11 Cases. In addition, the amounts
recorded reflect the Debtors' estimates of the amounts of certain
Claims that will ultimately be allowed by the Bankruptcy Court. The
amounts of such Claims actually allowed could vary materially from such
estimated amounts.
NOTES TO PRO FORMA COMPARABLES
The following tables have been prepared as a Pro Forma of
fiscal years 1994, 1995 and 1996 Operating Results under assumptions
intended to be more "comparable" to 1997's projected operating
conditions following the Debtors' exit from chapter 11. As such, the
tables exclude the results of discontinued operations and certain
non-recurring costs. In addition, the tables attempt to recast
historical costs on the basis of separate stand-alone operations rather
than the shared operations that actually existed in fiscal years 1994,
1995 and 1996. Each of the adjustments that have been made involve
substantial assumptions and estimates. The footnotes that are included
in the tables outline several, but not all, of the adjustments that
have been made. It is also important to note that the actual operating
conditions during 1997 may differ substantially from what has been
projected.
83
<PAGE>
REORGANIZED LESLIE FAY
PROJECTED PRO FORMA COMPARABLE
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma Comparable Leslie Fay
-------------------------------
Actual Actual Projected
Year End Year End Year End
12/31/94 12/30/95 12/28/96
-------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net Sales A $122,356 $118,311 $111,498
Cost of Sales B 121,822 107,443 88,984
-------- -------- -------
GROSS PROFIT 534 10,868 22,514
Royalty Income 2,457 2,285 2,169
Selling, General and
Administrative Expenses C 29,113 22,388 21,230
-------- -------- --------
EBRITDA (26,122) (9,235) 3,454
% of Net Sales -21.3% -7.8% 3.1%
Depreciation and Amortization D 1,898 2,028 2,028
-------- -------- --------
OPERATING PROFIT (LOSS) (28,020) (11,263) 1,426
========= ======== =========
% of Net Sales -22.9% -9.5% 1.3%
</TABLE>
FOOTNOTES:
A Adjusted to remove discontinued divisions including: Nipon Studio,
Andrea Gayle, LF Evenings, Nipon Boutique, Nipon Nights, Sportswear
Coll & HAB., LF Retail Operations, THEOmiles, Hue Inc., Next Day
Apparel and Foreign Operations. Also removes Castleberry.
B Adjusted to remove costs of closed factories and discontinued
divisions.
C Corporate expenses set comparable to 1997 Projections, net of
transition costs, adjusted for 5% inflation.
D 1) Depreciation expense for 1995 and 1994 adjusted to equal 1996.
2) Amortization adjusted to include Hue License in 1994 for partial
year.
84
<PAGE>
NEW SASSCO
PROJECTED PRO FORMA COMPARABLE
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Pro Forma Comparable Sassco
---------------------------
Actual Actual Projected
Year End Year End Year End
12/31/94 12/30/95 12/28/96
-------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net Sales $250,748 $279,976 $312,895
Cost of Sales A 179,127 206,441 235,536
-------- -------- --------
GROSS PROFIT 71,621 73,535 77,359
Royalty Income 1,033 835 830
Selling, General and
Administrative Expenses B 36,112 42,457 48,595
-------- -------- --------
EBRITDA 36,542 31,913 29,594
% of Net Sales 14.6% 11.4% 9.5%
Depreciation and Amortization 1,486 2,033 2,105
-------- -------- --------
OPERATING PROFIT (LOSS) 35,056 29,880 27,489
======== ======== ========
% of Net Sales 14.0% 10.7% 8.8%
</TABLE>
FOOTNOTES:
A Includes adjustment to reduce:
1) Kerrison profit sharing to conform to proposed sharing
agreement.
2) Cost for write off of excess piece goods above normal in
1996.
3) Additional cost related to U.S. Customs overpayments in 1996
not refundable.
B Includes adjustments to reduce:
1) CEO's profit sharing to conform to proposed sharing
agreement.
2) The allocated management service fee from Leslie Fay to
present costs as if Sassco had been operating as an unaffiliated
entity.
3) Start up costs for Retail Operations in 1995 and 1996.
4) Rent expense for one time write off of prepayment to landlord
in 1996.
85
<PAGE>
X.
FINANCIAL INFORMATION
A. GENERAL
The audited consolidated balance sheets for the fiscal years
ended December 30, 1995 and December 31, 1994 and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for
each of the three years ended December 30, 1995, December 31, 1994, and
January 1, 1994 (unaudited), of Leslie Fay and its subsidiaries are
contained in the Annual Report on Form 10-K, a copy of which is annexed
hereto as Exhibit "C", and the full text of which is incorporated herein by
reference. In addition, the unaudited consolidated balance sheets for the
fiscal quarter ended September 28, 1996, and the related consolidated
statements of operations and cash flows for the fiscal quarter ended
September 28, 1996 of Leslie Fay and its subsidiaries are contained in the
Quarterly Report on Form 10-Q, a copy of which is annexed hereto as Exhibit
"D", and the full text of which is incorporated herein by reference. The
aforementioned financial information is provided to permit the holders of
Claims to better understand the Debtors' historical business performance
and the impact of the Chapter 11 Cases on the Debtors' businesses.
B. SELECTED FINANCIAL DATA
Reference is made to "Item 6. Selected Financial Data" set
forth in the Annual Report on Form 10-K and "Part I. Financial Information"
set forth in the Quarterly Report on Form 10-Q, which are annexed hereto as
Exhibits "C" and "D", respectively, and the full texts of which are
incorporated herein by reference.
C. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For a detailed discussion by management of the Debtors'
financial condition, most recent results of operations, liquidity and
capital resources, reference is made to "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Annual
Report on Form 10-K and Quarterly Report on Form 10-Q, which are annexed
hereto as Exhibits "C" and "D", respectively, and the full texts of which
are incorporated herein by reference.
XI.
VALUATION
A. ESTIMATED LIQUIDATION VALUE OF ASSETS
As a condition to confirmation of the Plan, section
1129(a)(7)(A)(ii) of the Bankruptcy Code requires that each holder of a
Claim or Equity Interest in an impaired class of Claims or Equity Interests
that has not voted to accept the Plan must receive or retain at least the
amount or value it would receive if the Debtor were liquidated under
chapter 7 of the Bankruptcy Code on the Effective Date. The information
below provides a summary of the liquidation values of the Debtors' assets,
on a consolidated basis, assuming a chapter 7 liquidation in which a
trustee appointed by the Bankruptcy Court would liquidate the assets of the
Debtors' estates. Reference should be made to the Liquidation Analysis
below, which was prepared by the Debtors.
Underlying the Liquidation Analysis are a number of estimates
and assumptions that, although developed and considered reasonable by
management, are inherently subject to significant economic and competitive
uncertainties and contingencies beyond the control of the Debtors and
management. The Liquidation Analysis is also based upon assumptions with
regard to liquidation decisions that are subject to change. Accordingly,
the values reflected may not be realized if the Debtors were, in fact, to
undergo such a liquidation. The chapter 7 liquidation period is assumed to
be a period of six to twelve months following the discontinuance of
operations. This period would allow for the collection of receivables,
selling of assets, and the winding down of operations.
86
<PAGE>
THE LESLIE FAY COMPANIES, INC. ET AL.
LIQUIDATION ANALYSIS
<TABLE>
<CAPTION>
Sources of Estimated Liquidation Proceeds: (in thousands)
--------------
<S> <C>
Proceeds from liquidation of operating businesses (a) $110,066
Proceeds from sale of trademarks (b) 69,777
Cash on Hand 3,320
--------
Total Proceeds from Liquidation $183,163
Application of Estimated Liquidation Proceeds:
Chapter 7 Administrative costs and wind-down expenses (c) $32,716
Estimated Trustee Fees (d) 4,513
Administrative Claims (e) 55,496
Priority Claims (f) 7,588
Secured Claims 0
-------
LIQUIDATION PROCEEDS AVAILABLE TO UNSECURED CREDITORS $82,850
=======
</TABLE>
Allocation of Proceeds Available to Unsecured Creditors
<TABLE>
<CAPTION>
Estimated
Claims Liquidation Recovery
Class Class Description (in thousands) Percent
------------------------------------------------------------------
<S><C> <C> <C>
3 Bank Claims $178,004 25.33%
------------------------------------------------------------------
4 Senior Note Claims 50,053 25.33%
------------------------------------------------------------------
5 Senior Subordinated Note 25,029 25.33%
Claims
------------------------------------------------------------------
6 General Unsecured Claims 73,983 25.33%
------ ------
------------------------------------------------------------------
Total of All Classes $327,069 25.33%
-------- ------
------------------------------------------------------------------
</TABLE>
NOTES TO THE CHAPTER 7 CONSOLIDATED LIQUIDATION ANALYSIS
THE LESLIE FAY COMPANIES, INC.
(amounts expressed in thousands)
The analysis assumes a Chapter 7 liquidation of all assets of the
Leslie Fay Companies, Inc. and its subsidiaries and divisions
commencing on December 28, 1996 and continuing for twelve months.
(a) Proceeds from liquidation of the operating businesses consist
primarily of accounts receivable and inventories. Accounts
receivable are assumed to be recovered at 74% of gross value.
Inventory is assumed to have recoveries of book values ranging
from 10% on raw materials to 70% on finished goods.
(b) Proceeds from the sale of trademarks have been estimated by
management based upon historic sales, assumed license fees and
capitalization of such fees.
(c) Chapter 7 wind down and administrative costs consist of
estimated costs and expenses to be incurred by the Chapter
7 trustee to conduct limited operations during the
liquidation process and to administer the estate. The
major components of these costs are estimated to be
operating costs such as salary, wages and facility related
costs of $10,502, costs to convert work-in-process
inventory to finish goods for sale of $13,810, WARN Act
notices in the amount of $3,904, professional fees of
$1,000 and miscellaneous costs of $3,500.
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<PAGE>
(d) Estimated transfer fees are assumed to be equal to three percent
(3%) of proceeds after payment of Chapter 7 Administrative costs
and wind down expenses.
(e) Administrative claims as estimated include claims incurred by the
Company since its Chapter 11 filing such as trade accounts
payable, accrued expenses, severance and professional fees. The
major components of the claims are accounts payable and accrued
expenses of $38,288, severance and contract payments of $7,034,
professional fees $8,725 and $1,449 of reclamation claims.
(f) Priority claims as estimated include both tax claims, $1,605, and
non-tax claims, $5,983.
B. REORGANIZATION VALUE
The Debtors have been advised by Blackstone, their financial
advisors, with respect to the reorganization value of the Debtors.
Solely for purposes of the Plan, the estimated range of the
reorganization value (which includes an estimate of the range of the
reorganization enterprise value of Reorganized Leslie Fay and New
Sassco businesses) was assumed by the Debtors, based upon advice from
Blackstone, to be approximately $20 million to $30 million for
Reorganized Leslie Fay and approximately $220 million to $260 million
for New Sassco based upon an assumed Effective Date of December 30,
1996.
THE ASSUMED RANGE OF THE REORGANIZATION VALUE AS OF NOVEMBER
15, 1996 REFLECTS WORK PERFORMED BY BLACKSTONE ON THE BASIS OF
INFORMATION IN RESPECT OF THE BUSINESSES AND ASSETS OF THE DEBTORS
AVAILABLE TO BLACKSTONE AS OF NOVEMBER 15, 1996. NEITHER BLACKSTONE NOR
THE DEBTORS HAVE UPDATED THE ESTIMATED RANGE OF THE REORGANIZATION
ENTERPRISE VALUE TO REFLECT INFORMATION AVAILABLE TO THE DEBTORS OR
BLACKSTONE SUBSEQUENT TO NOVEMBER 15, 1996.
1. Reorganized Leslie Fay
Based upon the assumed range of the reorganization enterprise
value of Reorganized Leslie Fay of between $20 million and $30 million
of Reorganized Leslie Fay, the Debtors have employed an imputed
estimate of the range of the reorganization equity value for
Reorganized Leslie Fay of approximately $20 million to $30 million or
approximately $5.88 per share to $8.82 per share of Reorganized Leslie
Fay Common Stock (based upon an assumed distribution of Three Million
Four Hundred Thousand (3,400,000) shares of Reorganized Leslie Fay
Common Stock under the Plan and an aggregate amount of zero (0) shares
outstanding upon completion of such distribution).
The foregoing estimates of the reorganization value of
Reorganized Leslie Fay are based on a number of assumptions, including
a successful reorganization of the Debtors' businesses and finances in
a timely manner, the implementation of the Reorganized Leslie Fay's
business plan, the achievement of the forecasts reflected in the
Projections, market conditions as of November 15, 1996, continuing
through the assumed Effective Date of December 30, 1996, and the Plan
becoming effective in accordance with its terms, on a basis consistent
with the estimates and other assumptions discussed herein.
2. New Sassco
Based upon the assumed range of the reorganization enterprise
value of New Sassco of between $220 million and $260 million and based
upon an assumed total long-term debt obligation of $115 million of New
Sassco, the Debtors have employed an imputed estimate of the range of
the reorganization equity value for New Sassco of approximately $105
million to $145 million or approximately $15.44 per share to $21.32 per
share of New Sassco Common Stock (based upon an assumed distribution of
Six Million Eight Hundred Thousand (6,800,000) shares of New Sassco
Common Stock under the Plan and an aggregate amount of zero (0) shares
outstanding upon completion of such distribution).
The foregoing estimates of the reorganization value of New
Sassco are based on a number of assumptions, including a successful
reorganization of the Debtors' businesses and finances in a timely
manner, the implementation of New Sassco's business plan, the
achievement of the forecasts reflected in the Projections, market
conditions as of November 15, 1996
88
<PAGE>
continuing through the assumed Effective Date of December 30, 1996 and
the Plan becoming effective in accordance with its terms, on a basis
consistent with the estimates and other assumptions discussed herein.
IN ESTIMATING THE RANGE OF THE REORGANIZATION VALUE OF
REORGANIZED LESLIE FAY AND NEW SASSCO, BLACKSTONE: (I) REVIEWED CERTAIN
HISTORICAL FINANCIAL INFORMATION OF THE DEBTORS FOR RECENT YEARS AND
INTERIM PERIODS; (II) REVIEWED CERTAIN INTERNAL FINANCIAL AND OPERATING
DATA OF THE DEBTORS, INCLUDING FINANCIAL PROJECTIONS, PREPARED AND
PROVIDED BY MANAGEMENT RELATING TO ITS BUSINESSES AND THEIR PROSPECTS;
(III) MET WITH CERTAIN MEMBERS OF SENIOR MANAGEMENT OF THE DEBTORS, AND
THE PROPOSED SENIOR MANAGEMENT OF REORGANIZED LESLIE FAY AND NEW SASSCO
TO DISCUSS THE DEBTORS' OPERATIONS AND FUTURE PROSPECTS; (IV) REVIEWED
PUBLICLY AVAILABLE FINANCIAL DATA AND CONSIDERED THE MARKET VALUES OF
PUBLIC COMPANIES WHICH BLACKSTONE DEEMED GENERALLY COMPARABLE TO THE
OPERATING BUSINESSES OF THE DEBTORS; (V) CONSIDERED CERTAIN ECONOMIC
AND INDUSTRY INFORMATION RELEVANT TO THE OPERATING BUSINESSES; AND (VI)
REVIEWED CERTAIN ANALYSES PREPARED BY OTHER FIRMS RETAINED BY THE
DEBTORS AND CONDUCTED SUCH OTHER STUDIES, ANALYSES INQUIRIES, AND
INVESTIGATIONS AS IT DEEMED APPROPRIATE. ALTHOUGH BLACKSTONE CONDUCTED
A REVIEW AND ANALYSIS OF THE DEBTORS' BUSINESSES, OPERATING ASSETS AND
LIABILITIES AND REORGANIZED LESLIE FAY'S AND NEW SASSCO'S BUSINESS
PLANS, IT ASSUMED AND RELIED ON THE ACCURACY AND COMPLETENESS OF ALL
(I) FINANCIAL AND OTHER INFORMATION FURNISHED TO IT BY THE DEBTORS AND
BY OTHER FIRMS RETAINED BY THE DEBTORS, AND (II) PUBLICLY AVAILABLE
INFORMATION. IN ADDITION, BLACKSTONE DID NOT INDEPENDENTLY VERIFY
MANAGEMENT'S PROJECTIONS IN CONNECTION WITH SUCH ESTIMATES OF THE
REORGANIZATION VALUE, AND NO INDEPENDENT VALUATIONS OR APPRAISALS OF
THE DEBTORS WERE SOUGHT OR OBTAINED IN CONNECTION HEREWITH.
ESTIMATES OF THE REORGANIZATION VALUE DO NOT PURPORT TO BE
APPRAISALS OR NECESSARILY REFLECT THE VALUES WHICH MAY BE REALIZED IF
ASSETS ARE SOLD AS A GOING CONCERN, IN LIQUIDATION, OR OTHERWISE.
IN THE CASES OF REORGANIZED LESLIE FAY AND NEW SASSCO, THE
ESTIMATES OF THE REORGANIZATION VALUE PREPARED BY BLACKSTONE REPRESENT
HYPOTHETICAL REORGANIZATION ENTERPRISE VALUES OF REORGANIZED LESLIE FAY
AND NEW SASSCO OR THE OWNERS AND OPERATORS OF THE ASSETS AND BUSINESSES
TO BE ACQUIRED BY EACH SUCH ENTITY UNDER THE PLAN. SUCH ESTIMATES WERE
DEVELOPED SOLELY FOR PURPOSES OF THE FORMULATION AND NEGOTIATION OF A
PLAN OF REORGANIZATION AND THE ANALYSIS OF IMPLIED RELATIVE RECOVERIES
TO CREDITORS THEREUNDER. SUCH ESTIMATES REFLECT COMPUTATIONS OF THE
RANGE OF THE ESTIMATED REORGANIZATION ENTERPRISE VALUE OF REORGANIZED
LESLIE FAY AND NEW SASSCO THROUGH THE APPLICATION OF VARIOUS VALUATION
TECHNIQUES AND DO NOT PURPORT TO REFLECT OR CONSTITUTE APPRAISALS,
LIQUIDATION VALUES OR ESTIMATES OF THE ACTUAL MARKET VALUE THAT MAY BE
REALIZED THROUGH THE SALE OF ANY SECURITIES TO BE ISSUED PURSUANT TO
THE PLAN, WHICH MAY BE SIGNIFICANTLY DIFFERENT THAN THE AMOUNTS SET
FORTH HEREIN.
THE VALUE OF AN OPERATING BUSINESS IS SUBJECT TO NUMEROUS
UNCERTAINTIES AND CONTINGENCIES WHICH ARE DIFFICULT TO PREDICT, AND
WILL FLUCTUATE WITH CHANGES IN FACTORS AFFECTING THE FINANCIAL
CONDITION AND PROSPECTS OF SUCH A BUSINESS. AS A RESULT, THE ESTIMATE
OF THE RANGE OF THE REORGANIZATION ENTERPRISE VALUE OF REORGANIZED
LESLIE FAY AND NEW SASSCO SET FORTH HEREIN IS NOT NECESSARILY
INDICATIVE OF ACTUAL OUTCOMES, WHICH MAY BE SIGNIFICANTLY MORE OR LESS
FAVORABLE THAN THOSE SET FORTH HEREIN. BECAUSE SUCH ESTIMATES ARE
INHERENTLY SUBJECT TO UNCERTAINTIES, NEITHER THE DEBTORS, BLACKSTONE
NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR ITS ACCURACY. IN
ADDITION, THE VALUATION OF NEWLY ISSUED DEBT AND EQUITY IS SUBJECT TO
ADDITIONAL UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE DIFFICULT
TO PREDICT. ACTUAL MARKET PRICES OF SUCH SECURITIES AT ISSUANCE WILL
DEPEND UPON, AMONG OTHER THINGS, PREVAILING INTEREST RATES, CONDITIONS
IN THE FINANCIAL MARKETS, THE ANTICIPATED INITIAL SECURITIES
89
<PAGE>
HOLDINGS OF PREPETITION CREDITORS, SOME OF WHICH MAY PREFER TO
LIQUIDATE THEIR INVESTMENT RATHER THAN HOLD IT ON A LONG-TERM BASIS,
AND OTHER FACTORS WHICH GENERALLY INFLUENCE THE PRICES OF DEBT AND
EQUITY.
THE ESTIMATES OF THE REORGANIZATION VALUE DETERMINED BY
BLACKSTONE REPRESENT ESTIMATED REORGANIZATION VALUES AND DO NOT REFLECT
VALUES THAT COULD BE ATTAINABLE IN THE PUBLIC OR PRIVATE MARKETS. THE
IMPUTED ESTIMATE OF THE RANGE OF THE REORGANIZATION VALUE OF
REORGANIZED LESLIE FAY AND NEW SASSCO ASCRIBED IN THE ANALYSIS DOES NOT
PURPORT TO BE AN ESTIMATE OF THE POST-REORGANIZATION MARKET TRADING
VALUE OF THE DEBT AND EQUITY SECURITIES ISSUED UNDER THE PLAN. ANY SUCH
TRADING VALUE MAY BE MATERIALLY DIFFERENT FROM THE IMPUTED ESTIMATE OF
THE REORGANIZATION VALUE RANGE FOR REORGANIZED LESLIE FAY AND NEW
SASSCO ASSOCIATED WITH BLACKSTONE'S VALUATION ANALYSIS.
Reorganized Leslie Fay and New Sassco will seek to list the
Reorganized Leslie Fay Common Stock and New Sassco Common Stock,
respectively, for trading on one of the exchanges. There can be no
assurance, however, that the stock will be so listed and, if so listed,
that an active trading market would develop.
3. Reorganized Leslie Fay
As discussed above, the Debtors' project that the assets of
Reorganized Leslie Fay, as of the Effective Date (and prior to
Reorganized Leslie Fay making any distributions under the Plan), will
have an aggregate value of $260 million.
XII.
ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
The Debtors have evaluated numerous alternatives to the Plan,
including the reorganization of the Debtors' businesses on a stand
alone basis, the sale of the Debtors as a going concern, either as a
whole or on a desegregated basis, and the liquidation of the Debtors.
After studying these alternatives, the Debtors have concluded that the
Plan is the best alternative and will maximize recoveries by holders of
Claims, assuming confirmation of the Plan. The following discussion
provides a summary of the Debtors' analysis leading to their conclusion
that a liquidation or alternative plan of reorganization would not
provide the highest value to holders of Claims.
A. LIQUIDATION UNDER CHAPTER 7
If no plan of reorganization can be confirmed, the Debtors'
Chapter 11 Cases may be converted to cases under chapter 7 of the
Bankruptcy Code in which a trustee would be elected or appointed to
liquidate the assets of the Debtors for distribution to their creditors
in accordance with the priorities established by the Bankruptcy Code.
As demonstrated in Section XI.A. above, Valuation -- Estimated
Liquidation Value of Assets, the Debtors believe that liquidation under
chapter 7 would result in (1) smaller distributions being made to
creditors than those provided for in the Plan and (2) no distributions
being made to holders of Equity Interests in Leslie Fay.
B. ALTERNATIVE PLAN OF REORGANIZATION
If the Plan is not confirmed, the Debtors or any other party
in interest could attempt to formulate a different plan. Such a plan
might involve either a reorganization and continuation of the Debtors'
businesses or an orderly liquidation of their assets. The Debtors
believe that the Plan, as described herein, enables holders of Claims
to realize the greatest recovery under the circumstances. In a
liquidation under chapter 11, the Debtors' assets would be sold in an
orderly fashion over a more extended period of time than in a
liquidation under chapter 7, probably resulting in somewhat greater
recoveries then under chapter 7. Further, if a trustee were not
appointed, because one is not required in a chapter 11 case, the
expenses for professional fees would most likely be lower than in a
chapter 7 case. Although preferable to a chapter 7 liquidation, the
Debtors believe that a liquidation under chapter 11 is a much less
attractive alternative to holders of Claims than the Plan
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<PAGE>
because the return to holders of Claims provided for in the Plan is
likely to be greater than the returns under a chapter 11 liquidation.
XIII.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion summarizes certain federal income
tax consequences of the implementation of the Plan to the Debtors and
to the holders of Allowed Claims in Classes 3, 4, 5 and 6. This summary
is based on the Internal Revenue Code of 1986, as amended (the "Tax
Code"), treasury regulations promulgated and proposed thereunder
("Treasury Regulations"), judicial decisions and published
administrative rules and pronouncements of the Internal Revenue Service
("IRS") as in effect on the date hereof. Changes in such rules or new
interpretations thereof may have retroactive effect and could
significantly affect the tax consequences described below.
The federal income tax consequences of the Plan are complex
and are subject to significant uncertainties. No rulings or opinions
have been requested from the IRS or counsel with respect to any of the
tax aspects of the Plan. Thus, no assurance can be given as to the
interpretation that the IRS will adopt with respect to the transactions
contemplated by the Plan. In addition, this summary does not address
state, local or foreign tax consequences of the Plan (which may be
significant), nor does it purport to address the federal income tax
consequences of the Plan to classes of taxpayers subject to special
treatment under the federal income tax laws (e.g., financial
institutions, foreign taxpayers, broker-dealers, mutual funds,
insurance companies, small business investment companies, regulated
investment companies, tax-exempt organizations and investors in
pass-through entities).
ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN FEDERAL INCOME
TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A
SUBSTITUTE FOR CAREFUL TAX PLANNING. EACH PARTY IN INTEREST IS URGED TO
CONSULT ITS OWN TAX ADVISOR AS TO THE CONSEQUENCES OF THE PLAN TO IT
UNDER FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS IN LIGHT OF SUCH
PERSON'S INDIVIDUAL CIRCUMSTANCES.
A. TRANSACTION STEPS
Under the Plan, the following transactions will occur on the
Effective Date, in seriatim:
(i) Reorganized Leslie Fay will sell the Special Sassco
Assets to New Sassco for an amount of cash currently
estimated to be Thirty Million Dollars ($30,000,000);
(ii) Reorganized Leslie Fay will transfer an
undivided eighty percent (80%) interest in the
remaining Sassco Assets (subject to eighty
percent (80%) of the outstanding Sassco
Liabilities) (the "Sassco Asset Interest") to
the Creditor Representative on behalf of the
holders of Claims in Classes 3, 4, 5 and 6, in
satisfaction of Claims in such Classes having a
fair market value equal to the fair market value
of such Sassco Asset Interest;
(iii) The Creditor Representative, on behalf of the
holders of Claims in Classes 3, 4, 5 and 6, will
contribute the Sassco Asset Interest to New
Sassco in exchange for eighty percent (80%) of
the New Sassco Common Stock and Eighty-Eight
Million Dollars ($88,000,000) in aggregate
principal amount of New Sassco Notes (provided
that holders of Claims in Class 5 will not
receive New Sassco Notes);
(iv) Reorganized Leslie Fay will transfer an undivided twenty
percent (20%) interest in the Sassco Assets remaining
after the sale contemplated in step (i) above (subject
to twenty percent (20%) of the outstanding Sassco
Liabilities) to New Sassco;
(v) At the direction of Reorganized Leslie Fay, New
Sassco will issue twenty percent (20%) of the
New Sassco Common Stock and Twenty-Two Million
Dollars ($22,000,000) in aggregate principal
amount of New Sassco Notes to the Creditor
Representative on behalf of the holders of
Claims in Classes 3, 4, 5, and 6 and in
satisfaction of Claims in such Classes having a
fair market value equal to the
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<PAGE>
amount of such stock and notes (provided that holders of
Claims in Class 5 will not receive New Sassco Notes);
and
(vi) Reorganized Leslie Fay will issue the Reorganized Leslie
Fay Common Stock for distribution to holders of, and in
discharge and full satisfaction of, Claims in Classes 3,
4, 5 and 6.
The following discussion of federal income tax consequences
assumes that the transactions described above are respected in
accordance with their form. However, there is no assurance that the IRS
will not take a contrary position. Were the IRS successfully to reorder
or otherwise recharacterize the transactions (e.g., as if the Debtors
had transferred all of the Sassco Assets directly to New Sassco), the
federal income tax consequences to the Debtors and the Creditors
described below could be significantly different. The following
discussion also assumes that New Sassco will be organized as a United
States domestic corporation.
B. CONSEQUENCES TO THE DEBTORS
1. Transfers of Sassco Assets.
(a) Taxable Disposition. The transfers of the Sassco Assets
to the Creditor Representative (on behalf of holders of Claims) and to
New Sassco have been structured as taxable transactions (a "Taxable
Transfer"), in which the Debtors would recognize substantial gain and
New Sassco would obtain a stepped-up fair market value tax basis in the
Sassco Assets. (See discussion under "New Sassco Tax Attributes,"
below.) However, there is no assurance that the transaction would be so
treated by the IRS.
For example, if the transfers of the Sassco Assets to New
Sassco were deemed to constitute a tax-free reorganization under
Section 368(a)(1)(G) of the Tax Code (a "G reorganization"), gain or
loss generally would not be recognized by the Debtors on such transfer.
In such a case, New Sassco would succeed to any net operating losses of
the Debtors, subject to possible reductions and limitations, but would
not be entitled to amortization deductions with respect to goodwill.
To qualify as a G reorganization, it would be necessary for
Leslie Fay to transfer "substantially all" its assets to New Sassco and
for Reorganized Leslie Fay to distribute its remaining assets to the
Creditors. Alternatively, it would be necessary for Leslie Fay to
distribute more than eighty percent (80%) of the New Sassco Common
Stock to holders of instruments treated as "securities" for federal
income tax purposes. Based in part on Reorganized Leslie Fay's
intention to continue to own and operate the Leslie Fay dress and
sportswear divisions and the Leslie Fay licensing business after the
Effective Date (through the continued ownership of Reorganized Leslie
Fay Operating Company and Reorganized Leslie Fay Licensing Company),
the Debtors believe that the transfers of the Sassco Assets to New
Sassco will not qualify as a G reorganization.
(b) Recognition of Gain. The Debtors have reported
substantial net operating losses ("NOLs") for federal income tax
purposes through 1995. Based on this, on estimates of the Debtors'
taxable income for 1996, on estimates of the Debtors' aggregate tax
basis in the Sassco Assets and on the estimated fair market value of
the Sassco Assets on the Effective Date as reflected in the
reorganization value, the Debtors currently anticipate that sufficient
NOLs should be available to offset all or a substantial portion of any
gain recognized by the Debtors upon the transfers of the Sassco Assets
pursuant to the Plan, subject to the application of the alternative
minimum tax ("AMT") discussed below. However, the amount of such NOLs
is subject to adjustment on audit by the IRS. In addition, the fair
market value of the Sassco Assets may vary from current estimates and
is subject to challenge by the IRS. Were the IRS successfully to assert
that less NOLs than expected are available to offset the gain, or that
the amount of gain is greater than estimated, Reorganized Leslie Fay
could incur a federal income tax liability on the transfers of the
Sassco Assets (exclusive of AMT), which liability could be significant.
(c) New Sassco Tax Attributes. Assuming a Taxable Transfer,
New Sassco would obtain an aggregate tax basis in the Sassco Assets
equal to their fair market value as of the Effective Date and would not
succeed to any remaining NOLs of the Debtors. Under Section 197 of the
Tax Code, the portion of the consideration allocable to goodwill and
certain other intangible assets in a Taxable Transfer generally is
amortizable and deductible by the acquiror over fifteen years for
federal income tax purposes, unless certain exceptions apply to limit
or deny such deductibility. The application of Section 197 to the
transfers of the Sassco Assets to New Sassco under the Plan may depend
on the proper interpretation of certain legal and
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<PAGE>
factual issues. However, based on the form of the transactions and on
representations made by the Creditors' Committee with respect to the
anticipated ownership of New Sassco and Reorganized Leslie Fay on the
Effective Date (and the relationship of the two ownership groups), it
is anticipated that New Sassco will be entitled to such amortization
deductions to the extent the value of the Sassco Assets is allocable to
amortizable intangible assets.
2. Reorganized Leslie Fay Tax Attributes.
As the continuation of the Debtors, Reorganized Leslie Fay
generally will retain any NOLs and other tax attributes of the Debtors
remaining after the transfers of the Sassco Assets and the
implementation of the Plan. Any such NOLs may be subject to reduction
and limitation (and, possibly, elimination), as described below.
(a) Cancellation of Indebtedness Income. A debtor generally
must include in gross income the amount of any discharge of
indebtedness income realized, unless payment of the discharged
liability would have resulted in a deduction. Discharge of indebtedness
income is realized to the extent that the adjusted issue price of any
indebtedness exceeds the amount of cash and the fair market value of
property used to satisfy the indebtedness. However, gross income does
not include amounts attributable to a discharge of indebtedness arising
from a confirmed plan in a case under the Bankruptcy Code. Under this
bankruptcy discharge exception, the debtor does not include the
discharged amount in income but, generally, must reduce its NOL
carryforwards and certain other tax attributes (including its tax basis
in its assets) by such amount.
Under an exception to the requirement that discharge of
indebtedness income be realized (or tax attributes reduced), stock
issued by a debtor in a case commenced under the Bankruptcy Code prior
to 1994 (such as the Debtors' case) generally is deemed to fully
satisfy any indebtedness for which it is issued, even if the stock has
a value less than the amount of the indebtedness (the "Stock for Debt
Exception"). However, the Stock for Debt Exception will not apply if
the amount of Reorganized Leslie Fay Common Stock issued to a holder of
an Allowed Claim is "nominal or token." In addition, the Stock for Debt
Exception will not apply with respect to stock issued to any unsecured
creditor if the ratio of the value of the Reorganized Leslie Fay Common
Stock received by such unsecured creditor to the amount of its
indebtedness which is cancelled or exchanged for Reorganized Leslie Fay
Common Stock is less than fifty percent (50%) of a similar ratio
computed for all unsecured creditors participating in the workout.
Although the issue is not free from doubt, the Debtors
believe that the Stock for Debt Exception would apply to the issuance
of Reorganized Leslie Fay Common Stock to the holders of Allowed Claims
in Classes 3, 4, 5 and 6 and, as such, Reorganized Leslie Fay would not
be required to recognize discharge of indebtedness income or suffer a
reduction of its tax attributes as a result of the cancellation of such
Claims. In any event, as any such reduction would only take effect at
the beginning of the taxable year following the year of the discharge,
any reduction in the Debtors' NOLs would not affect the determination
of their federal income tax liability in respect of the transfers of
the Sassco Assets.
(b) Limitation on Use of Net Operating Losses. In general, a
corporation may "carry forward" its unused NOLs to the fifteen taxable
years after the losses were incurred. However, Section 382 of the Tax
Code generally limits a corporation's use of its NOLs and certain
"built-in" losses following an "ownership change." Similar limitations
apply to capital loss and credit carryforwards. The cancellation of the
Leslie Fay Equity Interests under the Plan will constitute an ownership
change for purposes of Section 382.
<PAGE>
Under Section 382, the amount of a loss corporation's
post-ownership change annual taxable income that can be offset by its
pre-ownership change NOLs and recognized built-in losses generally
cannot exceed an amount (the "Section 382 Annual Limitation") equal to
the product of (i) the fair market value of the equity of such
corporation immediately before the ownership change (subject to various
adjustments) and (ii) the federal long-term tax-exempt rate in effect
on the date of the ownership change (5.64% for ownership changes
occurring in December 1996). However, if the loss corporation has a
"net unrealized built-in gain" (i.e., the fair market value of its
assets immediately before the ownership change exceeds the aggregate
tax basis of such assets by a certain threshold amount), then gain
realized upon the disposition of such built-in gain assets may be
offset by the NOLs. In the case of an ownership change resulting from
an exchange of debt for stock in a case under the Bankruptcy Code, the
value of the company for the purpose of computing the Section 382
Annual Limitation will reflect the increase in value, if any, resulting
from any cancellation of creditors' claims in the transaction.
Notwithstanding the foregoing, pursuant to Section 382(l)(5)
of the Tax Code (the "Special Bankruptcy Rule"), the Section 382
limitations described above do not apply following an ownership change
pursuant to a bankruptcy plan (unless
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the debtor elects otherwise) if the shareholders and certain historic
creditors of the corporation (determined immediately before the
ownership change) receive stock of the reorganized corporation which
represents at least fifty percent (50%) of the total voting power and
value of the corporation's stock (determined immediately after the
ownership change). Under the Special Bankruptcy Rule, the debtor's NOLs
are (i) recomputed as if no deductions were allowed for interest paid
or accrued on that portion of the debt which creditors converted into
stock and for which the Debtors previously had claimed deductions
during the three years prior to the ownership change year and the
pre-change portion of the ownership change year and (ii) reduced by
fifty percent (50%) of the discharge of indebtedness income excluded as
a result of the Stock for Debt Exception.
Based upon representations made by the Creditors' Committee,
it is anticipated that less than fifty percent (50%) of the Reorganized
Leslie Fay Common Stock will be beneficially owned by qualifying
historic creditors. Thus, it is anticipated that Reorganized Leslie Fay
will not qualify for the Special Bankruptcy Rule.
3. Alternative Minimum Tax.
The AMT is imposed on a corporation's alternative minimum
taxable income at a twenty percent (20%) rate if such amount exceeds
the corporation's regular federal income tax. For purposes of computing
alternative minimum taxable income, certain tax deductions and other
benefits that are allowed for regular tax purposes are modified or
eliminated. In particular, even though a corporation otherwise might be
able to offset all of its taxable income for regular tax purposes by
available NOL carryforwards, only ninety percent (90%) of a
corporation's alternative minimum taxable income may be offset by
available NOL carryforwards. Thus, Reorganized Leslie Fay will be
liable for AMT with respect to ten percent (10%) of the gain on the
transfers of the Sassco Assets contemplated by the Plan, regardless of
whether it has sufficient NOLs to offset all of its income for regular
tax purposes, except to the extent it has current year deductions or
losses (as opposed to carryforwards) sufficient to offset such income.
In addition, if a corporation undergoes an "ownership change"
within the meaning of Section 382 of the Tax Code (as discussed above)
and is in a net built-in loss position (as determined for AMT purposes)
on the date of the ownership change, the corporation's aggregate tax
basis in its assets would be reduced for AMT purposes to reflect the
fair market value of such assets as of the ownership change date.
Any AMT that a corporation pays generally will be allowed as
a nonrefundable credit against its regular federal income tax liability
in future taxable years when the corporation is no longer subject to
the AMT.
4. Treatment of New Sassco Notes.
If the New Sassco Notes are issued with original issue
discount ("OID"), such notes may be treated as applicable high-yield
discount obligations ("AHYDO") within the meaning of Section 163(e)(5)
of the Tax Code if, among other requirements, their yield to maturity
is at least five percentage points over the applicable federal rate in
effect for the calendar month in which such notes are issued (6.21% for
December 1996). If the New Sassco Notes are treated as AHYDOs, a
portion of the accrued discount attributable to the "disqualified
portion," if any, of the interest deduction otherwise allowable as OID
would be disallowed (as discussed below), and the balance of such
deduction would be deferred until actually paid in cash. See Section
XIII.C. below, Certain Federal Income Tax Consequences of the Plan --
Consequences to Holders of Certain Allowed Unsecured Claims -- Original
Issue Discount on New Sassco Notes.
The "disqualified portion" of any interest deduction
otherwise allowable as OID on the New Sassco Notes is that portion, if
any, of the total OID multiplied by a fraction, the numerator of which
is equal to the "disqualified yield" (i.e., the excess of the yield to
maturity of the notes over the sum of the applicable federal rate for
the calendar month in which the notes are issued plus six percentage
points) and the denominator of which is equal to the total yield to
maturity of the notes.
C. CONSEQUENCES TO HOLDERS OF CERTAIN ALLOWED UNSECURED
CLAIMS
The aggregate distributions under the Plan to holders of
Allowed Claims in Classes 3, 4, 5 and 6 are summarized above under
"Transaction Steps." The following discussion assumes that the
transfers of the Sassco Assets under the Plan constitute a Taxable
Transfer and not a tax-free reorganization for federal income tax
purposes. See Section XIII.B.1(a) above, Certain Federal Income Tax
Consequences of the Plan -- Transfers of Sassco Assets -- Taxable
Disposition.
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1. Gain or Loss.
The federal income tax consequences of the implementation of
the Plan to a holder of an Allowed Claim in Classes 3, 4, 5 and 6 will
depend, in part, on whether such holder's Claim constitutes a
"security" of Leslie Fay for federal income tax purposes. The term
"security" is not defined in the Tax Code or the Treasury Regulations
and has not been defined clearly by judicial decisions. One of the most
significant factors considered in determining whether a particular debt
is a "security" is its original term. As a rule of thumb, a debt
instrument having an original term of ten (10) years or more will be
considered a security and a debt instrument having an original term of
fewer than five (5) years will not. Each holder of an Allowed Claim in
Classes 3, 4, 5 and 6 is urged to consult its own tax advisor regarding
the status of its Claim.
(a) Allowed Claims Not Constituting Securities. In general,
each holder of an Allowed Unsecured Claims that does not constitute a
"security" for federal income tax purposes will recognize gain or loss
equal to the difference between:
(i) the sum of (A) the fair market value of the New Sassco
Common Stock described in step (v) of "Transaction Steps," above,
(B) the fair market value of the Reorganized Leslie Fay Common
Stock, (C) the fair market value of the Sassco Asset Interest, (D)
the fair market value of twenty percent (20%) of any New Sassco
Notes and the adjusted issue price of eighty percent (80%) of any
New Sassco Notes and (E) the amount of any cash, received by or on
behalf of such holder (except to the extent such receipt is
attributable to a Claim for accrued interest), and
(ii) its adjusted tax basis in the Claim exchanged therefor
(other than a Claim for accrued interest).
See Section XIII.C.2. below, Certain Federal Income Tax Consequences of
the Plan -- Consequences to Holders of Certain Allowed Unsecured Claims
-- Treatment of Accrued Interest. Because a holder of an Allowed Claim
may receive additional New Securities after the Effective Date, e.g.,
as a result of the disallowance of Disputed Claims, it is possible that
any loss, or a portion of any gain, as the case may be, may be deferred
until all such securities are actually received. (A portion of any
subsequent distributions may be treated as imputed interest for federal
income tax purposes.) Each holder should consult its own tax advisor
regarding the potential for reporting on the installment method a
portion of any gain realized.
The character of such gain or loss as long-term or short-term
capital gain or loss or as ordinary income or loss will depend on a
number of factors, including the tax status of the holder, whether the
Claim constitutes a capital asset in the hands of the holder, whether
the Claim has been held for more than one year or was purchased at a
discount, and whether the holder has taken a bad debt or worthless
security deduction with respect to all or a portion of the Claim.
The contribution by the Creditor Representative on behalf of
the holders of Claims in Classes 3, 4, 5 and 6 of the Sassco Asset
Interest to New Sassco will be treated as a tax-free contribution to
capital for federal income tax purposes.
A Creditor's tax basis in any Reorganized Leslie Fay Common
Stock or New Sassco Common Stock should be equal to the fair market
value of such stock when issued to such Creditor. The tax basis of New
Sassco Notes received (i) from Reorganized Leslie Fay should be equal
to their fair market value and (ii) from New Sassco should be equal to
their adjusted issue price. The holding period of any such property
generally will begin on the day following their issuance.
<PAGE>
(b) Allowed Claims Constituting Securities. In general,
holders of Allowed Unsecured Claims that constitute "securities" for
federal income tax purposes and who receive Reorganized Leslie Fay
Common Stock under the Plan will be treated as participating in a
partially tax-free recapitalization. Any such holder generally will not
recognize any loss on the distributions under the Plan but will
recognize any gain (computed as described in the preceding section) to
the extent of the consideration (other than Reorganized Leslie Fay
Common Stock) received in satisfaction of its Claim pursuant to the
Plan (excluding any portion of such consideration attributable to a
Claim for accrued interest). See Section XIII.C.2. below, Certain
Federal Income Tax Consequences of the Plan -- Consequences to Holders
of Certain Allowed Unsecured Claims -- Treatment of Accrued Interest.
The character and timing of such gain would be determined in accordance
with the principles discussed in the preceding section. The tax basis
and holding period of any securities other than Reorganized Leslie Fay
Common Stock also would be determined in the manner discussed in the
preceding section.
The tax basis in Reorganized Leslie Fay Common Stock received
by a holder of an Allowed Unsecured Claim that constitutes a "security"
for federal income tax purposes will be equal to the holder's tax basis
in its Claim (including any Claim for accrued interest), decreased by
the amount of consideration (other than Reorganized Leslie Fay Common
Stock)
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received in satisfaction of its Claim pursuant to the Plan and
increased by the amount of any gain or interest income recognized on
the exchange. The holding period for such Reorganized Leslie Fay Common
Stock will include the period during which the holder held the
securities exchanged therefor, provided such securities were held as a
capital asset on the date of the exchange.
2. Treatment of Accrued Interest.
To the extent any portion of the consideration received under
the Plan by a holder of an Allowed Unsecured Claim is allocated to
accrued and unpaid interest on such Claim, such amount would be taxable
to the holder as interest income (if not previously included in the
holder's gross income). An accrual method holder would be allowed a
deduction to the extent the amount allocated to accrued and unpaid
interest is less than the amount previously included in such holder's
gross income in respect of such interest.
3. Original Issue Discount on New Sassco Notes.
It is possible that the New Sassco Notes will be treated as
having been issued with OID. OID is the excess, beyond a de minimis
amount, of the stated redemption price at maturity of a debt obligation
over its issue price. The "stated redemption price at maturity" of the
New Sassco Notes should be its stated principal amount. The "issue
price" of the New Sassco Notes will depend upon whether the New Sassco
Notes are traded on an "established securities market." If traded on an
established securities market, the issue price of the New Sassco Notes
would be their fair market value, with the potential for OID to the
extent the fair market value is less than the stated principal amount
of the notes; if not, the issue price of the New Sassco Notes would
also be the stated principal amount of the notes, with no resulting
OID. Pursuant to Treasury Regulations, an "established securities
market" includes a system of general circulation (including a computer
listing disseminated to subscribing brokers, dealers, or traders) that
provides a reasonable basis to determine fair market value by
disseminating either recent price quotations or actual prices of recent
sale transactions.
If the New Sassco Notes are issued with OID, such OID would
have to be accrued and generally includible in the holder's gross
income as interest over the term of the notes, based on the constant
interest method. As a result, holders could be required to include
amounts in gross income in advance of any receipt of cash in respect of
such income.
If the New Sassco Notes are treated as "Applicable High-Yield
Debt Obligations" (AHYDOs) (see Section XIII.B.4. above, Certain
Federal Income Tax Consequences -- Consequences to the Debtors --
Treatment of New Sassco Notes), a portion of a corporate holder's share
of the accrued OID attributable to the "disqualified portion," if any,
of the interest deduction otherwise allowable to New Sassco as OID (as
described in the above-referenced discussion) may be treated as a
dividend for purposes of the dividends-received-deduction to the extent
such amount would be so treated if it had been a distribution made by
New Sassco with respect to its stock (i.e., to the extent New Sassco
has sufficient earnings and profits such that a distribution in respect
of stock would constitute a dividend for federal income tax purposes
and, presumably, subject to certain holding period and taxable income
requirements and other limitations on the
dividends-received-deductions. In determining the amount of the
disqualified portion that is characterized as a dividend for any year,
the earnings and profits of the issuer are not reduced by any amount of
OID attributable to the disqualified portion for that year. The
legislative history provides that, for purposes of determining earnings
and profits in subsequent years, however, this special rule does not
apply.
Non-corporate holders of the New Sassco Notes are not
affected by the AHYDO rules, and must include all OID on such notes as
interest income as its accrues under the regular OID rules.
<PAGE>
4. Future Stock Gains.
Any gain recognized by a holder upon a subsequent taxable
disposition of Reorganized Leslie Fay Common Stock received pursuant to
the Plan in satisfaction of a Claim (or any stock or other property
received for it in a later tax-free exchange) will be treated as
ordinary income to the extent of the aggregate amount of (i) any bad
debt deductions (or additions to a bad debt reserve) claimed with
respect to its Claim and not recaptured and any ordinary loss deduction
incurred upon satisfaction of its Claim, and (ii) with respect to a
cash-basis holder, any amounts which would have been included in its
gross income if its Claim had been satisfied in full but which was not
included by reason of the cash method of accounting.
In addition, the Treasury Department is expected to
promulgate regulations that will provide that any accrued "market
discount" not treated as ordinary income upon a tax-free exchange of
market discount bonds would carry over to the
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<PAGE>
nonrecognition property received in the exchange. If such regulations
are promulgated and applicable to the Plan, any holder that holds a
Claim which constitutes a "security" for federal income tax purposes
and which has accrued market discount would carry over such accrued
market discount to any Reorganized Leslie Fay Common Stock received
pursuant to the Plan, such that any gain recognized by the holder upon
a subsequent disposition of such Reorganized Leslie Fay Common Stock
also would be treated as ordinary income to the extent of any accrued
market discount not previously included in income. In general, a Claim
will have accrued "market discount" if such Claim was acquired after
its original issuance at a discount to its adjusted issue price.
5. Withholding and Reporting Requirements.
All distributions to holders of Allowed Claims under the Plan
are subject to any applicable withholding (including employment tax
withholding) and reporting requirements. Under federal income tax law,
interest, dividends and other "reportable payments" may, under certain
circumstances, be subject to "backup withholding" at a thirty-one
percent (31%) rate. Backup withholding generally applies if the payee
(i) fails to furnish to the Debtors or the Disbursing Agent its social
security number or other taxpayer identification number ("TIN"), (ii)
furnishes an incorrect TIN, (iii) fails properly to report interest or
dividends, or (iv) under certain circumstances, fails to provide a
certified statement, signed under penalty of perjury, that the TIN
provided is its correct number and that it is not subject to backup
withholding. Backup withholding is not an additional tax but merely an
advance payment which may be refunded to the extent it results in an
overpayment of tax. Certain persons are exempt from backup withholding,
including, in certain circumstances, corporations and financial
institutions.
AS INDICATED ABOVE, THE FOREGOING IS INTENDED TO BE A SUMMARY
ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING WITH A TAX
PROFESSIONAL. ACCORDINGLY, EACH HOLDER OF A CLAIM OR EQUITY INTEREST IS
STRONGLY URGED TO CONSULT WITH ITS OWN TAX ADVISOR REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN.
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XIV.
CONCLUSION
The Debtors believe that the Plan is in the best interests of
all Creditors and Equity Interest Holders and urge the holders of
impaired Claims in Classes 3, 4, 5 and 6 and to vote to accept the Plan
and to evidence such acceptance by returning their ballots so that they
will be actually received on or before 5:00 p.m., Eastern Standard
Time, on January 8, 1997.
Dated: New York, New York
December 5, 1996
Respectfully submitted,
THE LESLIE FAY COMPANIES, INC.
By: /s/ John J. Pomerantz
---------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY LICENSING CORP.
By: /s/ John J. Pomerantz
---------------------------
Name: John J. Pomerantz
Title: Chairman
HUE, INC.
By: /s/ John J. Pomerantz
---------------------------
Name: John J. Pomerantz
Title: Chairman
SPITALNICK CORP.
By: /s/ John J. Pomerantz
---------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY RETAIL OUTLETS, INC.
By: /s/ John J. Pomerantz
---------------------------
Name: John J. Pomerantz
Title: Chairman
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LESLIE FAY FACTORY OUTLET
(ALABAMA), INC.
By: /s/ John J. Pomerantz
---------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(CALIFORNIA), INC.
By: /s/ John J. Pomerantz
---------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(IOWA), INC.
By: /s/ John J. Pomerantz
---------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(TENNESSEE), INC.
By: /s/ John J. Pomerantz
---------------------------
Name: John J. Pomerantz
Title: Chairman
/s/ Brian S. Rosen /s/ Chaim J. Fortgang
------------------------ ---------------------------
BRIAN S. ROSEN (BR 0571) CHAIM J. FORTGANG (CF 0895)
A Member of the Firm A Member of the Firm
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors and Attorneys for the Official
Debtors in Possession Committee of Unsecured Creditors
767 Fifth Avenue of The Leslie Fay Companies, Inc.
New York, New York 10153 51 West 52nd Street
(212) 310-8000 New York, New York 10019
(212) 403-1000
99
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
EXHIBIT A
TO DISCLOSURE STATEMENT
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------X
In re :
Chapter 11 Case No.
THE LESLIE FAY COMPANIES, INC., : 93 B 41724 et seq. (TLB)
et al., (Jointly Administered)
:
Debtors.
--------------------------------X
AMENDED JOINT PLAN OF REORGANIZATION FOR DEBTORS PURSUANT
TO CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
PROPOSED BY DEBTORS AND CREDITORS' COMMITTEE
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors Attorneys for the Official
in Possession Committee of Unsecured
767 Fifth Avenue Creditors of The Leslie Fay
New York, New York 10153 Companies, Inc.
(212) 310-8000 51 West 52nd Street
New York, New York 10019
(212) 403-1000
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS............................ 1
1.1 Administrative Expense Claim........... 1
1.2 Affiliate.............................. 1
1.3 Allowed Administrative Expense Claim... 1
1.4 Allowed Bank Claim..................... 1
1.5 Allowed Claim.......................... 1
1.6 Allowed General Unsecured Claim........ 1
1.7 Allowed Priority Non-Tax Claim......... 2
1.8 Allowed Priority Tax Claim............. 2
1.9 Allowed Secured Claim.................. 2
1.10 Allowed Senior Note Claim.............. 2
1.11 Allowed Senior Subordinated
Note Claim........................... 2
1.12 Allowed Unsecured Claim................ 2
1.13 Amended Bylaws of Reorganized
Leslie Fay........................... 2
1.14 Amended Certificate of
Incorporation of Reorganized
Leslie Fay........................... 2
1.15 Ballot................................. 2
1.16 Ballot Date............................ 2
1.17 Bank Cash Amount....................... 2
1.18 Bank Claim............................. 2
1.19 Bank Leslie Fay Stock Amount........... 3
1.21 Bank Sassco Note Amount................ 3
1.22 Bank Sassco Stock Amount............... 3
1.23 Bankruptcy Code........................ 3
1.24 Bankruptcy Court....................... 3
1.25 Bankruptcy Rules....................... 3
1.26 Business Day........................... 4
1.27 Cash................................... 4
1.28 Cash Available for Distribution........ 4
1.29 Cash Equivalents....................... 4
1.30 Castleberry Assets..................... 4
1.32 Castleberry Liabilities................ 4
1.33 Chapter 11 Cases....................... 4
1.34 Claim.................................. 4
1.35 Class.................................. 4
1.36 Class Action........................... 4
1.37 Collateral............................. 4
1.38 Confirmation Date...................... 4
1.39 Confirmation Order..................... 5
1.40 Consummation Cash Shortfall Amount..... 5
1.41 Convenience Claims..................... 5
1.42 Creditor............................... 5
1.43 Creditor Representative................ 5
1.44 Creditors' Committee................... 5
1.45 Debtor................................. 5
1.46 Debtor in Possession................... 5
i
<PAGE>
Page
----
1.48 Disbursement Account(s)................ 5
1.49 Disbursing Agent....................... 5
1.50 Disclosure Statement................... 5
1.51 Disputed Claim......................... 6
1.52 Dress and Sportswear Assets............ 6
1.53 Effective Date......................... 6
1.54 Effective Date Anniversary............. 6
1.55 Entity................................. 6
1.56 Equity Committee....................... 6
1.57 Equity Interest........................ 6
1.58 Final Distribution Date................ 6
1.59 Final Order............................ 6
1.60 General Unsecured Cash Amount.......... 6
1.61 General Unsecured Claim................ 7
1.62 General Unsecured Leslie Fay
Stock Amount......................... 7
1.63 General Unsecured LFC Fraction......... 7
1.64 General Unsecured Sassco Note Amount... 7
1.65 General Unsecured Sassco Stock Amount.. 7
1.66 Guarantee.............................. 7
1.67 Hue.................................... 7
1.68 Hue Equity Interest.................... 7
1.69 Intercompany Affiliate................. 7
1.70 Intercompany Affiliate Claim........... 7
1.71 Leslie Fay............................. 7
1.72 Leslie Fay Assets...................... 7
1.73 Leslie Fay Dress Division.............. 7
1.74 Leslie Fay Equity Interest............. 7
1.75 Leslie Fay Intellectual Property....... 7
1.76 Leslie Fay Liabilities................. 8
1.77 Leslie Fay Sportswear Division......... 8
1.78 Levine................................. 8
1.79 Levine Employment Agreement............ 8
1.80 Licensing.............................. 8
1.81 Licensing Equity Interest.............. 8
1.82 Lien................................... 8
1.83 New Castleberry........................ 8
1.84 New Castleberry Bylaws................. 8
1.85 New Castleberry Certificate of
Incorporation........................ 8
1.86 New Castleberry Common Stock........... 8
1.87 New Sassco............................. 8
1.88 New Sassco Bylaws...................... 8
1.89 New Sassco Certificate of
Incorporation........................ 8
1.90 New Sassco Common Stock................ 8
1.91 New Sassco Credit Agreement............ 8
1.92 New Sassco EBIT........................ 8
1.93 New Sassco Indenture................... 9
1.94 New Sassco Indenture Trustee........... 9
1.95 New Sassco Lender...................... 9
1.96 New Sassco Management Options.......... 9
1.97 New Sassco Management Recipients....... 9
ii
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Page
----
1.98 New Sassco Notes....................... 9
1.99 New Sassco Registration Rights
Agreement............................ 9
1.100 New Securities......................... 9
1.101 New Securities Available for
Distribution......................... 9
1.102 1986 Stock Option Plan................. 9
1.103 Nipon Agreement........................ 9
1.104 Nipon Trademarks....................... 9
1.105 Outlander.............................. 9
1.106 Person................................. 9
1.107 Petition Date.......................... 9
1.108 Plan................................... 9
1.109 Plan Administration Agreement.......... 10
1.110 Plan Administrator..................... 10
1.111 Plan Assets............................ 10
1.112 Plan Supplement........................ 10
1.113 Pomerantz.............................. 10
1.114 Priority Non-Tax Claim................. 10
1.115 Priority Tax Claim..................... 10
1.116 Proponents............................. 10
1.117 Pro Rata Bank Fraction................. 10
1.118 Pro Rata General Unsecured Fraction.... 10
1.119 Pro Rata Senior Note Fraction.......... 11
1.120 Pro Rata Senior Subordinated
Fraction............................. 11
1.121 Pro Rata Share......................... 11
1.122 Reorganized Leslie Fay................. 11
1.123 Reorganized Leslie Fay Common Stock.... 11
1.124 Reorganized Leslie Fay Credit
Agreement............................ 11
1.125 Reorganized Leslie Fay EBITDA.......... 11
1.126 Reorganized Leslie Fay Lender.......... 11
1.127 Reorganized Leslie Fay
Licensing Agreement.................. 11
1.128 Reorganized Leslie Fay
Licensing Company.................... 11
1.129 Reorganized Leslie Fay
Licensing Company By-Laws............ 11
1.130 Reorganized Leslie Fay Licensing
Company Certificate of
Incorporation........................ 11
1.131 Reorganized Leslie Fay Licensing
Company Common Stock................. 11
1.132 Reorganized Leslie Fay Operating
Company.............................. 12
1.133 Reorganized Leslie Fay Operating
Company Bylaws....................... 12
1.134 Reorganized Leslie Fay Operating
Company Certificate of
Incorporation........................ 12
1.135 Reorganized Leslie Fay Operating
Company Common Stock................. 12
1.136 Reorganized Leslie Fay Operating
Company Liabilities.................. 12
1.137 Reorganized Leslie Fay
Registration Rights Agreement........ 12
1.138 Reorganized Leslie Fay
Senior Managers...................... 12
1.139 Reorganized Leslie Fay Stock Options... 12
1.140 Reorganized Leslie Fay Target EBITDA... 12
1.141 Retail (Alabama)....................... 12
1.142 Retail (Alabama) Equity Interest....... 12
1.143 Retail (California).................... 12
1.144 Retail (California) Equity Interest.... 12
1.145 Retail Debtor.......................... 12
1.146 Retail (Iowa).......................... 12
1.147 Retail (Iowa) Equity Interest.......... 12
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1.148 Retail Outlets......................... 12
1.149 Retail Outlets Equity Interest......... 12
1.150 Retail (Tennessee)..................... 12
1.151 Retail (Tennessee) Equity Interest..... 12
1.152 Retiree................................ 13
1.153 Retiree Administrative Claim........... 13
1.154 Retiree Benefit Plans.................. 13
1.155 Revolving Credit Notes................. 13
1.156 Rights................................. 13
1.157 Rights Agreement....................... 13
1.158 Sassco................................. 13
1.159 Sassco Assets.......................... 13
1.160 Sassco Liabilities..................... 13
1.161 Schedule of Leslie Fay and
Castleberry Assets and Liabilities... 13
1.162 Schedule of Sassco Assets and
Liabilities.......................... 13
1.163 Schedules.............................. 13
1.164 Secured Claim.......................... 13
1.165 Securities Act......................... 14
1.166 Senior Bank Fraction................... 14
1.167 Senior Note Cash Amount................ 14
1.168 Senior Note Claim...................... 14
1.169 Senior Note Documents.................. 14
1.170 Senior Note Fraction................... 14
1.171 Senior Note Leslie Fay Stock Amount.... 14
1.172 Senior Note LFC Fraction............... 14
1.173 Senior Note Sassco Note Amount......... 15
1.174 Senior Note Sassco Stock Amount........ 15
1.175 Senior Notes........................... 15
1.176 Senior Subordinated LFC Fraction....... 15
1.177 Senior Subordinated Note Claim......... 15
1.178 Senior Subordinated Notes.............. 15
1.179 Special Sassco Assets.................. 15
1.180 Spitalnick............................. 15
1.181 Spitalnick Equity Interest............. 15
1.182 Statutorily Subordinated Claims........ 16
1.183 Statutory Lien Claim................... 16
1.184 Stock Option........................... 16
1.185 Subsidiary............................. 16
1.186 Subsidiary Guaranty Claims............. 16
1.187 Taxes.................................. 16
1.188 Unsecured Claim........................ 16
1.189 Other Definitions...................... 16
ARTICLE II COMPROMISE AND SETTLEMENT OF DISPUTES;
SUBSTANTIVE CONSOLIDATION OF DEBTORS;
ASSUMPTION OF OBLIGATION UNDER THE
PLAN................................... 16
2.1 Compromise and Settlement.............. 16
2.2 Substantive Consolidation.............. 17
2.3 Cancellation of Intercompany Claims.... 17
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ARTICLE III SEPARATION OF SASSCO AND LESLIE FAY.... 17
3.1 Merger and Consolidation............... 17
3.2 Effective Date Transactions............ 17
ARTICLE IV NEW SASSCO MATTERS..................... 18
4.1 New Sassco Management Options.......... 18
4.2 Levine Employment...................... 18
4.3 New Sassco Credit Agreement............ 18
4.4 New Sassco Registration Rights
Agreement............................ 18
4.5 Certain Corporate Governance Matters... 19
(a) Organization...................... 19
(b) Board of Directors................ 19
(c) Certain Transactions.............. 19
4.6 Miscellaneous.......................... 19
4.7 Additional Stock Options............... 20
ARTICLE V REORGANIZED LESLIE FAY MATTERS......... 20
5.1 Employment Contracts................... 20
5.3 Additional Pomerantz Arrangements...... 20
5.4 Board of Directors..................... 20
5.5 Reorganized Leslie Fay Credit
Agreement............................ 20
5.6 Reorganized Leslie Fay Registration
Rights Agreement..................... 20
ARTICLE VI PROVISIONS FOR PAYMENT OF ADMINISTRATIVE
EXPENSE CLAIMS AND PRIORITY TAX CLAIMS 20
6.1 Administrative Expense Claims.......... 20
6.2 Compensation and Reimbursement Claims.. 21
6.3 Payment of Priority Tax Claims......... 21
ARTICLE VII CLASSIFICATION OF CLAIMS AND EQUITY
INTERESTS.............................. 21
ARTICLE VIII PROVISIONS FOR TREATMENT OF PRIORITY
NON-TAX CLAIMS (CLASS 1)............... 22
8.1 Payment of Allowed Priority
Non-Tax Claims....................... 22
ARTICLE IX PROVISIONS FOR TREATMENT OF SECURED
CLAIMS (CLASS 2)....................... 22
9.1 Payment of Secured Claims.............. 22
ARTICLE X PROVISIONS FOR ALLOWANCE AND TREATMENT
OF BANK CLAIMS (CLASS 3)............... 22
10.1 Allowance of Bank Claims............... 22
10.2 Payment of Allowed Bank Claims......... 23
ARTICLE XI PROVISIONS FOR ALLOWANCE AND TREATMENT
OF SENIOR NOTE CLAIMS (CLASS 4)........ 23
11.1 Allowance of Senior Note Claims........ 23
11.2 Payment of Allowed Senior Note Claims.. 23
ARTICLE XII PROVISIONS FOR ALLOWANCE AND TREATMENT
OF SENIOR SUBORDINATED NOTE CLAIMS
(CLASS 5).............................. 23
12.1 Allowance of Senior Subordinated
Note Claims.......................... 23
12.2 Payment of Senior Subordinated
Note Claims.......................... 23
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ARTICLE XIII [Intentionally Omitted.]............... 24
ARTICLE XIV PROVISION FOR TREATMENT OF GENERAL
UNSECURED CLAIMS (CLASS 6)............. 24
14.1 Payment of Allowed General Unsecured
Claims............................... 24
14.2 Allowed Claims of Two Hundred
Fifty Dollars or More................ 24
ARTICLE XV PROVISIONS FOR TREATMENT OF CONVENIENCE
CLAIMS (CLASS 7)....................... 24
ARTICLE XVI PROVISIONS FOR TREATMENT OF STATUTORILY
SUBORDINATED CLAIMS (CLASS 8).......... 25
ARTICLE XVII PROVISIONS FOR TREATMENT OF LESLIE
FAY EQUITY INTERESTS (CLASS 9)......... 25
ARTICLE XVIII PROVISIONS FOR TREATMENT OF HUE EQUITY
INTERESTS (CLASS 10)................... 25
ARTICLE XIX PROVISIONS FOR TREATMENT OF SPITALNICK
EQUITY INTERESTS (CLASS 11)............ 25
ARTICLE XX PROVISIONS FOR TREATMENT OF LICENSING
EQUITY INTERESTS (CLASS 12)............ 25
ARTICLE XXI PROVISIONS FOR TREATMENT OF RETAIL
OUTLETS EQUITY INTERESTS (CLASS 13).... 26
ARTICLE XXII PROVISIONS FOR TREATMENT OF RETAIL
(ALABAMA) EQUITY INTERESTS (CLASS 14).. 26
ARTICLE XXIII PROVISIONS FOR TREATMENT OF RETAIL
(CALIFORNIA) EQUITY INTERESTS
(CLASS 15)............................. 26
ARTICLE XXIV PROVISIONS FOR TREATMENT OF RETAIL
(IOWA) EQUITY INTERESTS (CLASS 16)..... 26
ARTICLE XXV PROVISIONS FOR TREATMENT OF RETAIL
(TENNESSEE) EQUITY INTERESTS
(CLASS 17)............................. 26
ARTICLE XXVI PROVISIONS FOR TREATMENT OF DISPUTED
CLAIMS UNDER THE PLAN.................. 27
26.1 Objections to Claims; Prosecution
of Disputed Claims................... 27
26.2 Estimation of Claims................... 27
26.3 Payments and Distributions on
Disputed Claims...................... 27
ARTICLE XXVII PROSECUTION OF CLAIMS HELD BY
THE DEBTORS............................ 28
27.1 Prosecution of Claims.................. 28
27.2 Net Payment by Defendants.............. 28
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ARTICLE XXVIII ACCEPTANCE OR REJECTION OF PLAN;
EFFECT OF REJECTION BY ONE OR MORE
CLASSES OF CLAIMS...................... 28
28.1 Impaired Classes to Vote............... 28
28.2 Acceptance by Class of Creditors....... 28
28.3 Cramdown............................... 29
ARTICLE XXIX IDENTIFICATION OF CLAIMS AND EQUITY
INTERESTS NOT IMPAIRED BY THE PLAN..... 29
29.1 Unimpaired Classes..................... 29
29.2 Impaired Classes to Vote on Plan....... 29
29.3 Controversy Concerning Impairment...... 29
ARTICLE XXX PROVISIONS FOR TIMING OF DISTRIBUTIONS 29
30.1 Time and Manner of Payments............ 29
(a) Initial Payments................ 29
(b) Quarterly Payments.............. 29
30.2 Timeliness of Payments................. 30
30.3 Distributions by Disbursing Agent...... 30
30.4 Calculation of Distribution Amounts
of Securities........................ 30
30.5 Delivery of Distributions.............. 30
30.6 Undeliverable Distributions............ 30
(a) Holding of Undeliverable
Distributions.................. 30
(b) Failure to Claim Undeliverable
Distributions.................. 30
30.7 Compliance with Tax Requirements....... 31
30.8 Time Bar to Cash Payments.............. 31
30.9 Distributions After Effective Date..... 31
30.10 Set-Offs............................... 31
30.11 Surrender and Cancellation of
Instruments.......................... 31
30.12 De Minimis Distributions............... 31
30.13 HSR Compliance......................... 31
30.14 Termination of Subordination Rights
and Settlement of Related Claims and
Controversies........................ 31
ARTICLE XXXI RIGHTS AND POWERS OF DISBURSING AGENT.. 32
31.1 Exculpation............................ 32
31.2 Powers of the Disbursing Agent......... 32
31.3 Expenses Incurred From and After
the Effective Date................... 32
31.4 Method of Payment...................... 32
ARTICLE XXXII THE PLAN ADMINISTRATOR................. 33
32.1 Appointment of Plan Administrator...... 33
32.2 Responsibilities of Plan Administrator 33
32.3 Powers of Plan Administrator........... 33
32.4 Compensation of Plan Administrator..... 33
32.5 Termination of Plan Administrator...... 33
ARTICLE XXXIII COMMITTEES............................. 33
33.1 Creditors' Committee Composition and
Term................................. 33
33.2 Duties and Powers of the Creditors'
Committee............................ 34
33.3 Equity Committee....................... 34
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ARTICLE XXXIV EXECUTORY CONTRACTS AND UNEXPIRED LEASES 34
34.1 Assumption of Executory Contracts and
Unexpired Leases..................... 34
34.2 Cure of Defaults for Assumed Executory
Contracts and Unexpired Leases....... 34
34.3 Rejection Damage Claims................ 34
ARTICLE XXXV CONDITIONS PRECEDENT TO EFFECTIVENESS
OF THE PLAN............................ 35
35.1 Conditions Precedent to Effective
Date of the Plan..................... 35
(a) Entry of the Confirmation Order.. 35
(b) Post-Consummation New Sassco
Financing........................ 35
(c) Post-Consummation Reorganized
Leslie Fay Financing............. 35
(d) Execution of Documents; Other
Actions.......................... 35
(e) Appointment of Plan Administrator 35
(f) Amendment to Reorganized Leslie
Fay Certificate of Incorporation;
Incorporation of Reorganized
Leslie Fay Operating Company,
Reorganized Leslie Fay
Licensing Company and New
Castleberry..................... 35
(g) Incorporation of New Sassco..... 35
(h) Allowed Amount of Claims........ 35
(i) Satisfaction of Debtor in
Possession Financing............ 35
35.2 Waiver of Conditions Precedent......... 36
ARTICLE XXXVI PROVISIONS FOR THE ESTABLISHMENT AND
MAINTENANCE OF DISBURSEMENT ACCOUNTS... 36
36.1 Establishment of Disbursement Account.. 36
36.2 Maintenance of Disbursement Account(s) 36
ARTICLE XXXVII EFFECT OF CONFIRMATION................. 36
37.1 Reorganized Leslie Fay Authority....... 36
(a) General Authority................ 36
(b) Compromise and Settlement of
Certain Class of Controversies... 36
37.2 Title to Assets; Discharge of
Liabilities.......................... 36
37.3 Discharge of Debtors................... 37
37.4 Injunction............................. 37
37.5 Term of Existing Injunctions or Stays.. 37
37.6 Limited Release of Directors,
Officers and Employees............... 37
37.8 Preservation of Rights of Action....... 38
37.9 Injunction............................. 38
ARTICLE XXXVIII RETENTION OF JURISDICTION.............. 38
38.1 Retention of Jurisdiction.............. 38
38.2 Modification of Plan................... 39
ARTICLE XXXIX PROVISIONS FOR MANAGEMENT.............. 39
39.1 Directors.............................. 39
39.2 Officers............................... 39
39.3 Employment Contracts................... 40
ARTICLE XL ARTICLES OF INCORPORATION AND BY-LAWS
OF THE DEBTORS......................... 40
40.1 Amendment of Articles of Incorporation
and By-Laws.......................... 40
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ARTICLE XLI MISCELLANEOUS PROVISIONS............... 40
41.1 Payment of Statutory Fees.............. 40
41.2 Retiree Benefits....................... 40
41.3 Post-Effective Date Fees and Expenses.. 40
41.4 Severability........................... 40
41.5 Governing Law.......................... 40
41.6 Notices................................ 40
41.7 Closing of Cases....................... 41
41.8 Section Headings....................... 42
Exhibit A Certain Terms of, and Restrictions on,
New Sassco Management Options
Exhibit B Principal Terms of Levine Employment
Agreement
Exhibit C Reorganized Leslie Fay Employment
Arrangements
Exhibit D Reorganized Leslie Fay Stock Options
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The Leslie Fay Companies, Inc., Hue, Inc., Spitalnick Corp.,
Leslie Fay Licensing Corp., Leslie Fay Retail Outlets, Inc., Leslie Fay
Factory Outlet (Alabama), Inc., Leslie Fay Factory Outlet (California),
Inc., Leslie Fay Factory Outlet (Iowa), Inc., Leslie Fay Factory Outlet
(Tennessee), Inc. and The Official Committee of Unsecured Creditors of
The Leslie Fay Companies, Inc. hereby propose the following plan of
reorganization pursuant to sections 1121(a) and (c) and 1123 of the
Bankruptcy Code.
ARTICLE I
DEFINITIONS
As used in the Plan, the following terms shall have the
respective meanings specified below and be equally applicable to the
singular and plural of terms defined:
1.1 Administrative Expense Claim. Any Claim constituting a
cost or expense of administration of the Chapter 11 Cases asserted
under section 503(b) of the Bankruptcy Code, including, without
limitation, any actual and necessary costs and expenses of preserving
the estates of the Debtors, any actual and necessary costs and expenses
of operating the businesses of the Debtors in Possession, any
indebtedness or obligations incurred or assumed by the Debtors in
Possession in connection with the conduct of their businesses or for
the acquisition or lease of property or the procurement or rendition of
services, any costs and expenses of the Debtors in Possession for the
management, maintenance, preservation, sale or other disposition of any
assets, the administration and implementation of the Plan, the
administration, prosecution or defense of Claims by or against the
Debtors and for distributions under the Plan, any Claims for
compensation and reimbursement of expenses arising during the period
from and after the Petition Date and prior to the Effective Date or
otherwise in accordance with the provisions of the Plan, and any fees
or charges assessed against the Debtors' estates under section 1930,
chapter 123, Title 28, United States Code.
1.2 Affiliate. Any Entity that is an "affiliate" of
a Debtor within the meaning of section 101(2) of the Bankruptcy
Code.
1.3 Allowed Administrative Expense Claim. An
Administrative Expense Claim, to the extent it is or has become
an Allowed Claim.
1.4 Allowed Bank Claim. A Bank Claim, to the extent
it is or has become an Allowed Claim.
1.5 Allowed Claim. Any Claim against a Debtor, (a) (i) proof
of which was filed (x) in the case of the Retail Debtors, on or before
December 12, 1995, the date designated by the Bankruptcy Court as the
last date for filing proofs of claim against the Retail Debtors, (y) in
the case of the other Debtors, on or before December 10, 1993, the date
designated by the Bankruptcy Court as the last date for filing proofs
of claim against such other Debtors or (z) in either case, such other
date as has been authorized by an order of the Bankruptcy Court, or
(ii) if no proof of Claim has been timely filed, which has been or
hereafter is listed by a Debtor in its Schedules as liquidated in
amount and not disputed or contingent and (iii) whether or not a proof
of claim has been filed, a Claim as to which no objection to the
allowance thereof has been interposed within the applicable period of
limitation fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules
or a Final Order, or as to which an objection has been interposed and
such Claim has been allowed in whole or in part by a Final Order or (b)
in the case of Bank Claims, Senior Note Claims and Senior Subordinated
Note Claims, allowed pursuant to Sections 10.1, 11.1, and 12.1 hereof,
respectively. For purposes of determining the amount of an "Allowed
Claim", there shall be deducted therefrom an amount equal to the amount
of any claim which a Debtor may hold against the holder thereof, to the
extent such claim may be set off pursuant to section 553 of the
Bankruptcy Code.
1.6 Allowed General Unsecured Claim. A General
Unsecured Claim, to the extent it is or has become an Allowed
Claim.
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1.7 Allowed Priority Non-Tax Claim. A Priority Non-
Tax Claim, to the extent it is or has become an Allowed Claim.
1.8 Allowed Priority Tax Claim. A Priority Tax
Claim, to the extent it is or has become an Allowed Claim.
1.9 Allowed Secured Claim. A Secured Claim, to the
extent it is or has become an Allowed Claim.
1.10 Allowed Senior Note Claim. A Senior Note
Claim, to the extent it is or has become an Allowed Claim.
1.11 Allowed Senior Subordinated Note Claim. A
Senior Subordinated Note Claim, to the extent it is or has
become an Allowed Claim.
1.12 Allowed Unsecured Claim. An Unsecured Claim,
to the extent it is or has become an Allowed Claim.
1.13 Amended Bylaws of Reorganized Leslie Fay. The amended
bylaws of Reorganized Leslie Fay, which amended bylaws shall be in
substantially the form included in the Plan Supplement.
1.14 Amended Certificate of Incorporation of Reorganized
Leslie Fay. The Certificate of Incorporation of Reorganized Leslie Fay,
as amended, which certificate of incorporation shall be in
substantially the form included in the Plan Supplement.
1.15 Ballot. The form distributed to holders of impaired
Claims on which such holders indicate acceptance or rejection of the
Plan and any election for treatment of such impaired Claim provided
under the Plan.
1.16 Ballot Date. The date set by the Bankruptcy
Court by which all Ballots for acceptance or rejection of the
Plan or elections for alternative treatment under the Plan must
be received.
1.17 Bank Cash Amount. The sum of:
(a) The product of:
(i) the Cash Available for Distribution times
(ii) the Pro Rata Bank Fraction, plus
(b) The product of:
a. the Cash Available for Distribution times
the Pro Rata Senior Subordinated Fraction, times
b. the Senior Bank Fraction.
1.18 Bank Claim. Any Claim against any Debtor arising under
or governed by that certain Financing Agreement, dated as of January
15, 1992, by and among Leslie Fay, Chemical Bank, Manufacturers Hanover
Trust Company, Marine Midland Bank, National Westminster Bank USA, The
Bank of New York and Chemical Bank, as Agent, as amended, supplemented
or otherwise modified, including, without limitation, any Claim arising
from or related to the Revolving Credit Notes.
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1.19 Bank Leslie Fay Stock Amount. The number of
shares of Reorganized Leslie Fay Common Stock equal to the sum
of:
(a) The product of Three Million Four Hundred
Thousand (3,400,000) times the Bank LFC Fraction, plus
(b) The product of:
(i) the excess, if any, of (x) Three Million Four
Hundred Thousand (3,400,000) times the Senior Subordinated LFC Fraction
over (y) Two Hundred Four Thousand (204,000), times
(ii) the Senior Bank Fraction.
1.20 Bank LFC Fraction. The fraction (a) the numerator of
which shall be the aggregate amount of Allowed Bank Claims and (b) the
denominator of which shall be the sum of the aggregate amount of
Allowed Bank Claims, Allowed Senior Note Claims, Allowed Senior
Subordinated Note Claims and Allowed General Unsecured Claims.
1.21 Bank Sassco Note Amount. The aggregate
principal amount of New Sassco Notes equal to the sum of:
(a) The product of One Hundred Ten Million Dollars
($110,000,000) times the Pro Rata Bank Fraction, plus
(b) The product of:
a. the product of One Hundred Ten Million
Dollars ($110,000,000) times the Pro Rata Senior Subordinated
Fraction, times
b. the Senior Bank Fraction.
1.22 Bank Sassco Stock Amount. The number of shares
of New Sassco Common Stock equal to the sum of:
(a) The product of Six Million Eight Hundred
Thousand (6,800,000) times the Pro Rata Bank Fraction, plus
(b) The product of:
a. the excess, if any, of (x) Six Million
Eight Hundred Thousand (6,800,000) times the Pro Rata Senior
Subordinated Fraction over (y) Four Hundred Eight Thousand
(408,000), times
b. the Senior Bank Fraction.
1.23 Bankruptcy Code. The Bankruptcy Reform Act of
1978, codified at Title 11 of the United States Code, as
amended, as applicable to the Chapter 11 Cases.
1.24 Bankruptcy Court. The United States Bankruptcy Court for
the Southern District of New York or such other court having
jurisdiction over the Chapter 11 Cases.
1.25 Bankruptcy Rules. The Federal Rules of Bankruptcy
Procedure, as promulgated by the United States Supreme Court under
section 2075 of Title 28 of the United States Code, and any Local Rules
of the Bankruptcy Court, as amended.
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1.26 Business Day. A day other than a Saturday, a
Sunday or any other day on which commercial banks in New York,
New York are required or authorized to close.
1.27 Cash. Lawful currency of the United States of
America.
1.28 Cash Available for Distribution. At any time of
determination thereof, the excess, if any, of (a) all Cash and Cash
Equivalents in the Disbursement Account(s) over (b) such amounts of
Cash (i) reasonably determined by the Disbursing Agent, and consented
to by the Creditors' Committee, as necessary to satisfy, in accordance
with the terms and conditions of the Plan, Administrative Expense
Claims, Priority Non-Tax Claims, Priority Tax Claims, Convenience
Claims, Special Unsecured Claims and Secured Claims and (ii) necessary
to make Pro Rata distributions to holders of Disputed Claims as if such
Disputed Claims were, at such time, Allowed Claims.
1.29 Cash Equivalents. Equivalents of Cash in the form of
readily marketable securities or instruments issued by a person other
than the Debtors or an Affiliate, including, without limitation,
readily marketable direct obligations of, or obligations guaranteed by,
the United States of America, commercial paper of domestic corporations
carrying a Moody's Rating of "A" or better, or equivalent rating of any
other nationally recognized rating service, or interest-bearing
certificates of deposit or other similar obligations of domestic banks
or other financial institutions having a shareholders' equity or
equivalent capital of not less than One Hundred Million Dollars
($100,000,000), having maturities of not more than one (1) year, at the
then best generally available rates of interest for like amounts and
like periods.
1.30 Castleberry Assets. Substantially all of the
assets of the Castleberry Division as of the Effective Date,
all as identified in the Schedule of Leslie Fay and Castleberry
Assets and Liabilities included in the Plan Supplement.
1.31 Castleberry Division. The division of Leslie
Fay engaged in the design and manufacture and sale of women's
knitwear apparel and blouses marketed under "CASTLEBERRY" and
related labels.
1.32 Castleberry Liabilities. The current obligations and
liabilities of the Debtors incurred from and after the Petition Date in
the ordinary course of business of the Castleberry Division, all as
identified in the Schedule of Leslie Fay and Castleberry Assets and
Liabilities.
1.33 Chapter 11 Cases. The cases commenced under chapter 11
of the Bankruptcy Code by the Debtors on their respective Petition
Dates.
1.34 Claim. Any right to payment from any of the Debtors,
whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured, known or unknown;
or any right to an equitable remedy for breach of performance if such
breach gives rise to a right of payment from any of the Debtors,
whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed,
secured, or unsecured.
1.35 Class. A category of holders of Claims or
Equity Interests as set forth in Article VII of the Plan.
1.36 Class Action. The litigation, styled In re:
The Leslie Fay Companies, Inc. Securities Litigation, pending
before the United States District Court for the Southern
District of New York, Civil Action No. 92-CIV-8036 (WCC).
1.37 Collateral. Any property or interest in property of the
estate of any Debtor that is subject to an unavoidable Lien to secure
the payment or performance of a Claim.
1.38 Confirmation Date. The date upon which the
Clerk of the Bankruptcy Court enters the Confirmation Order.
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1.39 Confirmation Order. The order of the
Bankruptcy Court confirming the Plan in accordance with the
provisions of chapter 11 of the Bankruptcy Code.
1.40 Consummation Cash Shortfall Amount. An amount of Cash,
estimated to be Twenty-Two Million Dollars ($22,000,000), equal to the
excess of (A) the sum of (i) the amount of Cash, if any, to be
transferred by the Debtors or Reorganized Leslie Fay to New Sassco and
its Subsidiaries on the Effective Date (including any Cash held on the
Effective Date by any Subsidiary of Reorganized Leslie Fay the stock of
which is transferred to New Sassco), (ii) the amount of Cash required
by the Plan to be paid by the Debtors on or about the Effective Date to
holders of Allowed Priority Claims, (iii) the amount of Cash required
to pay Allowed Administrative Expense Claims that will become due and
payable on or within 90 days after the Effective Date and (iv) the
amount of Cash required to pay certain other costs and expenses
(including taxes) of the Debtors arising from the implementation of the
Plan, as determined by the Debtors and the Creditors' Committee on or
prior to the Effective Date, over (B) the amount of Cash remaining with
the Debtors, net of outstanding checks, as of the Effective Date.
1.41 Convenience Claims. Any General Unsecured Claim against
any Debtor in an amount of Two Hundred Fifty Dollars ($250.00) or less;
provided, however, that if the holder of a General Unsecured Claim
shall make an election to reduce such Claim to Two Hundred Fifty
Dollars ($250.00) in accordance with Section 14.2 hereof, such Claim
shall be treated as a Convenience Claim for all purposes.
1.42 Creditor. Any person that has a Claim against any of the
Debtors that arose or is deemed to have arisen on or before the
Petition Date, including, without limitation, a Claim against the
Debtors' estates of a kind specified in sections 502(g), 502(h) or
502(i) of the Bankruptcy Code.
1.43 Creditor Representative. The Person designated
by the Creditors' Committee to effectuate the transactions
described in Section 3.2 hereof on behalf of the Creditors in
Classes 3, 4, 5, 6 and 7.
1.44 Creditors' Committee. The Official Committee of
Unsecured Creditors appointed by the Bankruptcy Court and the United
States Trustee in the Chapter 11 Cases pursuant to section 1102 of the
Bankruptcy Code, as reconstituted from time to time.
1.45 Debtor. Each of Leslie Fay, Hue, Spitalnick
and Licensing, the debtors in Chapter 11 Cases Nos. 93 B 41724
(TLB) through 93 B 41727 (TLB), and each Retail Debtor.
1.46 Debtor in Possession. Each Debtor as a debtor
in possession pursuant to sections 1107(a) and 1108 of the
Bankruptcy Code.
1.47 Derivative Action. The litigation, styled
Isadore Langer, derivatively on behalf of The Leslie Fay
Companies, Inc. v. John J. Pomerantz, et al., pending before
the Supreme Court of the State of New York, County of New York,
Case No. 104544193.
1.48 Disbursement Account(s). The account(s) to be
established by the Debtors on the Effective Date in accordance
with Section 36.1 of the Plan, together with any interest
earned thereon.
1.49 Disbursing Agent. Reorganized Leslie Fay, the Plan
Administrator or such other Entity as may be designated by the Debtors
and the Creditors' Committee, solely in its capacity as agent of the
Debtors to effectuate the distributions contemplated under this Plan.
1.50 Disclosure Statement. The disclosure statement
related to the Plan and approved by the Bankruptcy Court in
accordance with section 1125 of the Bankruptcy Code.
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1.51 Disputed Claim. A Claim against any of the Debtors, to
the extent the allowance of which is the subject of a timely objection
or request for estimation in accordance with the Plan, the Bankruptcy
Code, the Bankruptcy Rules or a Final Order, or is otherwise disputed
by a Debtor in accordance with applicable law, which objection, request
for estimation or dispute has not been withdrawn or determined by a
Final Order; provided, however, that for purposes of determining the
aggregate amount of Disputed Claims against the Debtors' chapter 11
estates and the deduction for disputed claims in determining Cash
Available for Distribution and New Securities Available for
Distribution, "Disputed Claims" shall mean the lesser of (a) Disputed
Claims as filed with, or allowed by, the Bankruptcy Court and (b)
Disputed Claims as estimated by the Bankruptcy Court pursuant to
section 502(c) of the Bankruptcy Code; and provided, further, that, in
the event the Bankruptcy Court shall estimate a Disputed Claim for
purposes of allowance, such estimation shall constitute and represent
the maximum amount in which such Claim may ultimately become an Allowed
Claim.
1.52 Dress and Sportswear Assets. Substantially all of the
assets of the Leslie Fay Dress Division and the Leslie Fay Sportswear
Division as of the Effective Date, and substantially all of the assets
of Leslie Fay in the design, production and sale of its Outlander line
of products as of the Effective Date, all as identified in the Schedule
of Leslie Fay and Castleberry Assets and Liabilities included in the
Plan Supplement, but in any event excluding the Leslie Fay Intellectual
Property.
1.53 Effective Date. The first (1st) Business Day following
the satisfaction of the conditions precedent specified in Section 35.1
of the Plan, unless otherwise waived as provided in Section 35.2 of the
Plan.
1.54 Effective Date Anniversary. An anniversary of
the Effective Date.
1.55 Entity. An individual, a corporation, a general
partnership, a limited partnership, a limited liability company, a
limited liability partnership, an association, a joint stock company, a
joint venture, an estate, a trust, an unincorporated organization, a
government or any subdivision thereof or any other entity.
1.56 Equity Committee. The Official Committee of Equity
Interest holders appointed by the Bankruptcy Court and the United
States Trustee in the Chapter 11 Case of Leslie Fay pursuant to section
1102 of the Bankruptcy Code, as reconstituted from time to time.
1.57 Equity Interest. Any equity interest in any of the
Debtors represented by duly authorized, validly issued and outstanding
shares of stock or any interest or right to convert into an interest or
acquire any equity interest which was in existence immediately prior to
the Petition Date, including, without limitation, any Leslie Fay Equity
Interest.
1.58 Final Distribution Date. The date on which a final
distribution is made to holders of Allowed Claims pursuant to the Plan,
which date shall occur after all Disputed Claims have been resolved by
Final Order and all Plan Assets have been converted to Cash or
abandoned, as the case may be, pursuant to a Final Order.
1.59 Final Order. An order of the Bankruptcy Court as to
which the time to appeal, petition for certiorari or move for
reargument or rehearing has expired and as to which no appeal, petition
for certiorari or other proceedings for rear- gument or rehearing shall
then be pending; and if an appeal, writ of certiorari, reargument or
rehearing thereof has been sought, such order shall have been affirmed
by the highest court to which such order was appealed, or certiorari
shall have been denied or reargument or rehearing shall have been
denied or resulted in no modification of such order, and the time to
take any further appeal, petition for certiorari or move for reargument
or rehearing shall have expired; provided, however, that the
possibility that a motion under Rule 59 or Rule 60 of the Federal Rules
of Civil Procedure or any analogous rule under the Bankruptcy Rules,
may be but has not then been filed with respect to such order, shall
not cause such order not to be a Final Order.
1.60 General Unsecured Cash Amount. The product of
(a) Cash Available for Distribution times (b) the Pro Rata
General Unsecured Fraction.
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1.61 General Unsecured Claim. An Unsecured Claim,
other than an Intercompany Affiliate Claim, a Bank Claim, a
Senior Note Claim, a Senior Subordinated Note Claim, a
Statutorily Subordinated Claim or a Convenience Claim.
1.62 General Unsecured Leslie Fay Stock Amount. The number of
shares of Reorganized Leslie Fay Common Stock equal to the product of
(a) Three Million Four Hundred Thousand (3,400,000) times the General
Unsecured LFC Fraction.
1.63 General Unsecured LFC Fraction. The fraction (a) the
numerator of which shall be the aggregate amount of Allowed General
Unsecured Claims and (b) the denominator of which shall be the sum of
the aggregate amount of Allowed Bank Claims, Allowed Senior Note
Claims, Allowed Senior Subordinated Note Claims and Allowed General
Unsecured Claims.
1.64 General Unsecured Sassco Note Amount. The aggregate
principal amount of New Sassco Notes equal to the product of (a) One
Hundred Ten Million Dollars ($110,000,000) times (b) the Pro Rata
General Unsecured Fraction.
1.65 General Unsecured Sassco Stock Amount. The
number of shares of New Sassco Common Stock equal to the
product of (a) Six Million Eight Hundred Thousand (6,800,000)
times (b) the Pro Rata General Unsecured Fraction.
1.66 Guarantee. The Guarantees, each dated as of
January 15, 1992, executed by Spitalnick and Licensing in favor
of Manufacturers Hanover Trust Company, as agent, Manufacturers
Hanover Trust Company, Chemical Bank, Bankers Trust Company and
Marine Midland Bank, N.A., as amended.
1.67 Hue. Hue, Inc., a New York corporation.
1.68 Hue Equity Interest. A common Equity Interest
in Hue.
1.69 Intercompany Affiliate. Any of the Debtors and
any other direct or indirect Subsidiary of Leslie Fay.
1.70 Intercompany Affiliate Claim. Any Unsecured
Claim held by any Intercompany Affiliate against any Debtor.
1.71 Leslie Fay. The Leslie Fay Companies, Inc., a
Delaware corporation.
1.72 Leslie Fay Assets. Substantially all of the assets of
the Leslie Fay Dress Division, the Leslie Fay Sportswear Division and
Hue as of the Effective Date, including, without limitation, the
intellectual property associated therewith, and substantially all of
the assets of Leslie Fay in the design, production and sale of its
Outlander line of products as of the Effective Date, including, without
limitation, the intellectual property associated therewith, all as
identified in the Schedule of Leslie Fay and Castleberry Assets and
Liabilities included in the Plan Supplement.
1.73 Leslie Fay Dress Division. The Dress Division
of Leslie Fay.
1.74 Leslie Fay Equity Interest. A common Equity Interest in
Leslie Fay represented by (i) one of the 18,771,836 issued and
outstanding shares of common stock of Leslie Fay, (ii) any Stock Option
or other right arising from or related to the 1986 Stock Option Plan
and (iii) any Rights arising from or related to the Rights Agreement.
1.75 Leslie Fay Intellectual Property. All trademarks, trade
names and other intellectual property associated with Hue, the Leslie
Fay Dress Division, the Leslie Fay Sportswear Division and Outlander as
of the Effective Date, all as identified in the Schedule of Leslie Fay
and Castleberry Assets and Liabilities included in the Plan Supplement,
which intellectual property shall be subject to the Reorganized Leslie
Fay Licensing Agreement.
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1.76 Leslie Fay Liabilities. The current obligations of the
Debtors incurred from and after the Petition Date in the ordinary
course of business of the Leslie Fay Dress Division, the Leslie Fay
Sportswear Division and Hue, and not in connection with Sassco's
business operations, the Sassco Assets, Castleberry's business
operations or the Castleberry Assets, all as identified in the Schedule
of Leslie Fay and Castleberry Assets and Liabilities included in the
Plan Supplement.
1.77 Leslie Fay Sportswear Division. The Sportswear
Division of Leslie Fay.
1.78 Levine. Arthur S. Levine, an individual.
1.79 Levine Employment Agreement. As defined in
Section 4.3 hereof.
1.80 Licensing. Leslie Fay Licensing Corp., a
Delaware corporation.
1.81 Licensing Equity Interest. A common Equity
Interest in Licensing.
1.82 Lien. Any charge against or interest in
property to secure payment of a debt or performance of an
obligation.
1.83 New Castleberry. A corporation to be organized
pursuant to the laws of the State of Delaware as a wholly-owned
Subsidiary of Reorganized Leslie Fay on or before the Effective
Date.
1.84 New Castleberry Bylaws. The bylaws of New
Castleberry, which bylaws shall be in substantially the form
included in the Plan Supplement.
1.85 New Castleberry Certificate of Incorporation.
The certificate of incorporation of New Castleberry, which
certificate of incorporation shall be in substantially the form
set forth in the Plan Supplement.
1.86 New Castleberry Common Stock. The shares of
common stock of New Castleberry to be issued on the Effective
Date, having a par value of $0.01 per share.
1.87 New Sassco. A corporation to be organized by
the Creditor Representative on or before the Effective Date
pursuant to Section 4.5(a) hereof.
1.88 New Sassco Bylaws. The bylaws of New Sassco,
which bylaws shall be in substantially the form included in the
Plan Supplement.
1.89 New Sassco Certificate of Incorporation. The
Certificate of Incorporation of New Sassco, which Certificate
of Incorporation shall be in substantially the form included in
the Plan Supplement.
1.90 New Sassco Common Stock. The shares of common
stock of New Sassco, having a par value of $.01 per share, of
which Six Million Eight Hundred Thousand (6,800,000) shares
shall be issued on and as of the Effective Date pursuant to the
terms of the Plan.
1.91 New Sassco Credit Agreement. The Credit Agreement
between New Sassco and the New Sassco Lender, which Credit Agreement
shall (a) be in substantially the form included in the Plan Supplement
and (b) contain a working capital facility in the amount of One Hundred
Million Dollars ($100,000,000) (or such higher amount as may be agreed
by Levine and the Creditors' Committee).
1.92 New Sassco EBIT. The earnings before interest and taxes
of New Sassco as determined in accordance with generally accepted
accounting principles in the United States of America in effect from
time to time.
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1.93 New Sassco Indenture. An indenture executed by
New Sassco and the New Sassco Indenture Trustee, which
indenture shall be in substantially the form included in the
Plan Supplement.
1.94 New Sassco Indenture Trustee. A financial
institution reasonably acceptable to the Creditors' Committee
and Levine.
1.95 New Sassco Lender. The First National Bank of
Boston and/or such other financial institution(s) as may be
reasonably acceptable to Levine and the Creditors' Committee.
1.96 New Sassco Management Options. As defined in
Section 4.1 hereof.
1.97 New Sassco Management Recipients. As defined
in Section 4.1 hereof.
1.98 New Sassco Notes. The 12.75% Senior Notes of New Sassco
in the original principal amount of One Hundred Ten Million Dollars
($110,000,000), maturing on or about the seventh anniversary of
Effective Date, which Notes shall be in substantially the form included
in the Plan Supplement.
1.99 New Sassco Registration Rights Agreement. A registration
rights agreement governing the resale of New Sassco Common Stock by
Creditors who may be "affiliates" of New Sassco, which registration
rights agreement shall be in substantially the form included in the
Plan Supplement.
1.100 New Securities. Reorganized Leslie Fay Common
Stock, New Sassco Notes and New Sassco Common Stock.
1.101 New Securities Available for Distribution. At the time
of determination thereof, all Reorganized Leslie Fay Common Stock, New
Sassco Notes and New Sassco Common Stock, less such amounts of
Reorganized Leslie Fay Common Stock, New Sassco Notes and New Sassco
Common Stock necessary to make distributions to holders of Disputed
Claims as if such Disputed Claims were, at such time, Allowed Claims.
1.102 1986 Stock Option Plan. The 1986 Stock Option
Plan, dated as of June 27, 1986, established by Leslie Fay for
the benefit of key senior management employees.
1.103 Nipon Agreement. The Agreement, dated
January 6, 1988, between Leslie Fay and Albert Nipon, Inc.
1.104 Nipon Trademarks. All of the Debtors' rights
and interests in and to the trademarks, tradenames and other
intellectual property acquired pursuant to the Nipon Agreement.
1.105 Outlander. The Outlander label, trademarks and
tradenames utilized by Leslie Fay in connection with the distribution
and sale of certain product lines.
1.106 Person. An individual or Entity.
1.107 Petition Date. April 5, 1993, the date on which Leslie
Fay, Hue, Spitalnick and Licensing, and November 15, 1995, the date on
which the Retail Debtors, respectively, filed their respective
voluntary petitions for relief commencing their Chapter 11 Cases.
1.108 Plan. This Amended Joint Plan of
Reorganization for Debtors Pursuant to Chapter 11 of the United
States Bankruptcy Code Proposed by Debtors and Creditors'
Committee, including, without limitation, the exhibits and
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schedules hereto and the Plan Supplement, either in its present form or
as the same may be amended, modified or supplemented from time to time
in accordance with the terms and provisions hereof.
1.109 Plan Administration Agreement. The agreement
prescribing the powers, duties and rights of the Plan Administrator in
administering the Plan, which agreement shall be in substantially the
form included in the Plan Supplement.
1.110 Plan Administrator. The Person to be designated by the
Debtors and the Creditors' Committee and retained, as of the Effective
Date, by Reorganized Leslie Fay, with the approval of the Bankruptcy
Court, as the employee or fiduciary responsible for, among other
things, the matters described in Section 32.2 hereof.
1.111 Plan Assets. All Cash, Cash Equivalents and other
tangible and intangible assets and properties of the Debtors in
existence immediately prior to the Effective Date, including, without
limitation, all causes of action of the Debtors against third parties,
whether or not subject to pending litigation, and all proceeds thereof,
but excluding the Sassco Assets, Castleberry Assets and Leslie Fay
Assets.
1.112 Plan Supplement. A separate volume, to be filed with
the Clerk of the Bankruptcy Court, containing, among other things,
forms of the Amended Bylaws of Reorganized Leslie Fay, Amended
Certificate of Incorporation of Reorganized Leslie Fay, Reorganized
Leslie Fay Credit Agreement, Reorganized Leslie Fay Operating Company
Certificate of Incorporation, Reorganized Leslie Fay Operating Company
Bylaws, Reorganized Leslie Fay Licensing Company Certificate of
Incorporation, Reorganized Leslie Fay Licensing Company Bylaws, New
Castleberry Certificate of Incorporation, New Castleberry Bylaws, New
Sassco Certificate of Incorporation, New Sassco Bylaws, New Sassco
Credit Agreement, New Sassco Notes, New Sassco Indenture, Schedule of
Leslie Fay and Castleberry Assets and Liabilities, Schedule of Sassco
Assets and Liabilities, Plan Administration Agreement, Reorganized
Leslie Fay Licensing Agreement, New Sassco Registration Rights
Agreement, Reorganized Leslie Fay Registration Rights Agreement, the
Levine Registration Rights Agreement and the definitive documentation
for the New Sassco Management Options and Reorganized Leslie Fay
Management Options, all in form and substance satisfactory to the
Debtors and the Creditors' Committee. The Plan Supplement (containing
drafts or final versions of the foregoing documents) shall be filed
with the clerk of the Bankruptcy Court as early as practicable (but in
no event later than one (1) Business Day) prior to the commencement of
the hearing to consider confirmation of the Plan, or on such other date
as the Bankruptcy Court may establish.
1.113 Pomerantz. John J. Pomerantz, an individual.
1.114 Priority Non-Tax Claim. Any Claim against any of the
Debtors, other than an Administrative Expense Claim or a Priority Tax
Claim, entitled to priority in payment under section 507(a) of the
Bankruptcy Code, but only to the extent entitled to such priority.
1.115 Priority Tax Claim. Any Claim against any of
the Debtors entitled to priority in payment under section
507(a)(8) of the Bankruptcy Code.
1.116 Proponents. Collectively, Leslie Fay, Hue,
Spitalnick, Licensing, the Retail Debtors and the Creditors'
Committee.
1.117 Pro Rata Bank Fraction. The fraction (a) the numerator
of which shall be the aggregate amount of Allowed Bank Claims and (b)
the denominator of which shall be the sum of the aggregate amount of
Allowed Bank Claims, Allowed Senior Note Claims, Allowed Senior
Subordinated Note Claims and Allowed General Unsecured Claims.
1.118 Pro Rata General Unsecured Fraction. The fraction (a)
the numerator of which shall be the aggregate amount of Allowed General
Unsecured Claims and (b) the denominator of which shall be the sum of
the aggregate amount of Allowed Bank Claims, Allowed Senior Note
Claims, Allowed Senior Subordinated Note Claims and Allowed General
Unsecured Claims.
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1.119 Pro Rata Senior Note Fraction. The fraction (a) the
numerator of which shall be the aggregate amount of Allowed Senior Note
Claims and (b) the denominator of which shall be the sum of the
aggregate amount of Allowed Bank Claims, Allowed Senior Note Claims,
Allowed Senior Subordinated Note Claims and Allowed General Unsecured
Claims.
1.120 Pro Rata Senior Subordinated Fraction. The fraction (a)
the numerator of which shall be the aggregate amount of Allowed Senior
Subordinated Note Claims and (b) the denominator of which shall be the
sum of the aggregate amount of Allowed Bank Claims, Allowed Senior Note
Claims, Allowed Senior Subordinated Note Claims and Allowed General
Unsecured Claims.
1.121 Pro Rata Share. With respect to Allowed Claims and
Allowed Equity Interests within the same class, the proportion that an
Allowed Claim or Allowed Equity Interest bears to all Allowed Claims or
Equity Interests, as the case may be, within such class.
1.122 Reorganized Leslie Fay. The surviving
corporation of the merger described in Section 3.1 hereof.
1.123 Reorganized Leslie Fay Common Stock. The common stock
of Reorganized Leslie Fay, having a par value of $.01 per share, of
which Three Million Four Hundred Thousand (3,400,000) shares shall be
issued on and as of the Effective Date pursuant to the terms of the
Plan.
1.124 Reorganized Leslie Fay Credit Agreement. The Credit
Agreement between Reorganized Leslie Fay Operating Company and the
Reorganized Leslie Fay Lender, substantially in the form included in
the Plan Supplement, pursuant to which the Reorganized Leslie Fay
Lender shall have agreed to provide working capital financing to
Reorganized Leslie Fay Operating Company on terms and conditions
satisfactory to the Debtors and the Creditors' Committee.
1.125 Reorganized Leslie Fay EBITDA. The earnings before
interest, taxes, depreciation and amortization of Reorganized Leslie
Fay determined in accordance with generally accepted accounting
principles in the United States of America in effect from time to time.
1.126 Reorganized Leslie Fay Lender. One or more
financial institutions acceptable to the Debtors and the
Creditors' Committee.
1.127 Reorganized Leslie Fay Licensing Agreement. An
agreement between Reorganized Leslie Fay and Reorganized Leslie Fay
Operating Company substantially in the form to be included in the Plan
Supplement, pursuant to which, and on the terms and subject to the
conditions set forth therein, Reorganized Leslie Fay shall grant to
Reorganized Leslie Fay Operating Company a perpetual royalty-free
license to the Leslie Fay Intellectual Property.
1.128 Reorganized Leslie Fay Licensing Company. A
corporation to be organized pursuant to the laws of the State
of Delaware as a wholly-owned Subsidiary of Reorganized Leslie
Fay on or prior to the Effective Date.
1.129 Reorganized Leslie Fay Licensing Company ByLaws. The
bylaws of Reorganized Leslie Fay Licensing Company, which bylaws shall
be in substantially the form included in the Plan Supplement.
1.130 Reorganized Leslie Fay Licensing Company Certificate of
Incorporation. The certificate of incorporation of Reorganized Leslie
Fay Licensing Company, which certificate of incorporation shall be in
substantially the form included in the Plan Supplement.
1.131 Reorganized Leslie Fay Licensing Company Common Stock.
The shares of common stock of reorganized Leslie Fay Licensing Company
to be issued on the Effective Date, having a par value of $0.01 per
share.
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1.132 Reorganized Leslie Fay Operating Company. A
corporation to be organized pursuant to the laws of the State
of Delaware as a wholly-owned Subsidiary of Reorganized Leslie
Fay on or prior to the Effective Date.
1.133 Reorganized Leslie Fay Operating Company
Bylaws. The bylaws of Reorganized Leslie Fay Operating
Company, which bylaws shall be in substantially the form
included in the Plan Supplement.
1.134 Reorganized Leslie Fay Operating Company Certificate of
Incorporation. The certificate of incorporation of Reorganized Leslie
Fay Operating Company, which certificate of incorporation shall be in
substantially the form included in the Plan Supplement.
1.135 Reorganized Leslie Fay Operating Company Common Stock.
The shares of common stock of Reorganized Leslie Fay Operating Company
to be issued on the Effective Date, having a par value of $0.01 per
share.
1.136 Reorganized Leslie Fay Operating Company Liabilities.
All Leslie Fay Liabilities consisting of obligations incurred in the
ordinary course of business of the Leslie Fay Dresswear Division and
the Leslie Fay Sportswear Division, as set forth in the Schedule of
Leslie Fay and Castleberry Assets and Liabilities.
1.137 Reorganized Leslie Fay Registration Rights Agreement. A
registration rights agreement governing the resale of Reorganized
Leslie Fay Common Stock by Creditors who may be "affiliates" of
Reorganized Leslie Fay, which registration rights agreement shall be in
substantially the form included in the Plan Supplement.
1.138 Reorganized Leslie Fay Senior Managers. As
defined in Section 5.1 hereof.
1.139 Reorganized Leslie Fay Stock Options. As
defined in Section 5.2 hereof.
1.140 Reorganized Leslie Fay Target EBITDA. As
defined in Exhibit F hereof.
1.141 Retail (Alabama). Leslie Fay Factory Outlet
(Alabama), Inc., an Alabama corporation.
1.142 Retail (Alabama) Equity Interest. A common
Equity Interest in Retail (Alabama).
1.143 Retail (California). Leslie Fay Factory
Outlet (California), Inc., a California corporation.
1.144 Retail (California) Equity Interest. A common
Equity Interest in Retail (California).
1.145 Retail Debtor. Each of Retail Outlets, Retail
(Alabama), Retail (California), Retail (Iowa) and Retail
(Tennessee), the debtors in Chapter 11 Cases Nos. 95 B 45357
(TLB) through 95 B 45361 (TLB).
1.146 Retail (Iowa). Leslie Fay Factory Outlet
(Iowa), an Iowa corporation.
1.147 Retail (Iowa) Equity Interest. A common
Equity Interest in Retail (Iowa).
1.148 Retail Outlets. Leslie Fay Retail Outlets,
Inc., a Delaware corporation.
1.149 Retail Outlets Equity Interest. A common
Equity Interest in Retail Outlets.
1.150 Retail (Tennessee). Leslie Fay Factory Outlet
(Tennessee), Inc., a Tennessee corporation.
1.151 Retail (Tennessee) Equity Interest. A common
Equity Interest in Retail (Tennessee).
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1.152 Retiree. Any person who retired from employment with
the Debtors prior to the Petition Date and was and continues to be
eligible for medical, death or insurance benefits provided in the
Retiree Benefit Plans as required by section 1114 of the Bankruptcy
Code.
1.153 Retiree Administrative Claim. The Claim of a
Retiree under the Retiree Benefit Plans, to the extent such
Claim is entitled to treatment as an Administrative Expense
Claim.
1.154 Retiree Benefit Plans. Any plan or policy of the
Debtors in full force and effect as of the Petition Date under which
medical, death or insurance benefits are provided to Retirees, as any
such plan or policy may have been modified during the pendency of the
Chapter 11 Cases.
1.155 Revolving Credit Notes. The Revolving Credit Notes
issued by Leslie Fay pursuant to that certain Financing Agreement,
dated as of January 15, 1992, by and among Leslie Fay, Chemical Bank,
Manufacturers Hanover Trust Company, Marine Midland Bank, N.A.,
National Westminster Bank USA, The Bank of New York and Chemical Bank,
as Agent, as amended.
1.156 Rights. The rights to purchase Leslie Fay
Equity Interests granted pursuant to the Rights Agreement.
1.157 Rights Agreement. The Rights Agreement, dated as of
April 5, 1993, between Leslie Fay, as issuer, and Chemical Bank, as
rights agent, pursuant to which Rights to purchase one share of Leslie
Fay common stock for each outstanding share of Leslie Fay common stock,
subject to adjustment, were issued.
1.158 Sassco. The Sassco Fashions, Ltd. Division of
Leslie Fay.
1.159 Sassco Assets. The assets of the Debtors used
or owned in connection with the Sassco business and the Nipon
Trademarks, as identified in the Schedule of Sassco Assets and
Liabilities.
1.160 Sassco Liabilities. The current obligations and
liabilities of the Debtors incurred after the Petition Date in
connection with the Sassco business and the Nipon Trademarks, all as
identified in the Schedule of Sassco Assets and Liabilities, including
without limitation the following: (i) "accounts payable", "accrued
expenses" and "other liabilities" as reflected on Sassco's divisional
balance sheet as of the Effective Date and (ii) outstanding pro-rated
liabilities attributable to Sassco as of the Effective Date, including
without limitation payroll, health insurance payments, workers'
compensation payments, 401(k) contributions, audit fees, vacation pay
and certain state taxes.
1.161 Schedule of Leslie Fay and Castleberry Assets and
Liabilities. The schedule included in the Plan Supplement identifying,
to the reasonable satisfaction of the Debtors and the Creditors'
Committee, the Leslie Fay Assets, Leslie Fay Liabilities, Castleberry
Assets and Castleberry Liabilities, which schedule shall be updated as
of the Effective Date to the reasonable satisfaction of the Debtors and
the Creditors' Committee.
1.162 Schedule of Sassco Assets and Liabilities. The schedule
included in the Plan Supplement identifying, to the reasonable
satisfaction of the Debtors and the Creditors' Committee, the Sassco
Assets and Sassco Liabilities, which schedule shall be updated as of
the Effective Date to the reasonable satisfaction of the Debtors and
the Creditors' Committee.
1.163 Schedules. The respective schedules of assets and
liabilities and the statements of financial affairs filed by the
Debtors under section 521 of the Bankruptcy Code and the Official
Bankruptcy Forms of the Bankruptcy Rules as such schedules and
statements have been or may be supplemented or amended.
1.164 Secured Claim. A Claim against a Debtor that is secured
by a Lien on Collateral or that is subject to setoff under section 553
of the Bankruptcy Code, to the extent of the value of the Collateral or
to the extent of the amount subject to setoff, as applicable, as
determined in accordance with section 506(a) of the Bankruptcy Code.
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1.165 Securities Act. The Securities Act of 1933,
as amended, and the rules and regulations promulgated
thereunder.
1.166 Senior Bank Fraction. The fraction (a) the numerator of
which shall be the aggregate amount of Allowed Bank Claims and (b) the
denominator of which shall be the sum of the aggregate amount of
Allowed Bank Claims and Allowed Senior Note Claims.
1.167 Senior Note Cash Amount. The sum of:
(a) The product of:
(i) the Cash Available for Distribution times
(ii) the Pro Rata Senior Note Fraction, plus
(b) The product of:
(i) the Cash Available for Distribution times
the Pro Rata Senior Subordinated Fraction, times
(ii) the Senior Note Fraction.
1.168 Senior Note Claim. Any Claim based upon or
evidenced by a Senior Note.
1.169 Senior Note Documents. Those certain Note Agreements,
each dated January 4, 1990, between Leslie Fay and The Prudential
Insurance Company of America and Leslie Fay and The Northwestern Mutual
Life Insurance Company pursuant to which the Senior Notes and the
Senior Subordinated Notes were issued.
1.170 Senior Note Fraction. The fraction (a) the numerator of
which shall be the aggregate amount of Allowed Senior Note Claims and
(b) the denominator of which shall be the sum of the aggregate amount
of Allowed Bank Claims and Allowed Senior Note Claims.
1.171 Senior Note Leslie Fay Stock Amount. The
number of shares of Reorganized Leslie Fay Common Stock equal
to the sum of:
(a) The product of Three Million Four Hundred
Thousand (3,400,000) times the Senior Note
LFC Fraction, plus
(b) The product of:
a. the excess, if any, of (x) Three Million
Four Hundred Thousand (3,400,000) times the
Senior Subordinated LFC Fraction over (y)
Two Hundred Four Thousand (204,000), times
b. The Senior Note Fraction.
1.172 Senior Note LFC Fraction. The fraction (a) the
numerator of which shall be the aggregate amount of Allowed Senior Note
Claims and (b) the denominator of which shall be the sum of the
aggregate amount of Allowed Bank Claims, Allowed Senior Note Claims,
Allowed Senior Subordinated Note Claims and
Allowed General Unsecured Claims.
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1.173 Senior Note Sassco Note Amount. The aggregate
principal amount of New Sassco Notes equal to the sum of:
(a) The product of One Hundred Ten Million Dollars
($110,000,000) times the Pro Rata Senior Note
Fraction, plus
(b) The product of:
a. the product of One Hundred Ten Million
Dollars ($110,000,000) times the Pro Rata
Senior Subordinated Fraction, times
b. the Senior Note Fraction.
1.174 Senior Note Sassco Stock Amount. The number
of shares of New Sassco Common Stock equal to the sum of:
(a) The product of Six Million Eight Hundred
Thousand (6,800,000) times the Pro Rata Senior
Note Fraction, plus
(b) The product of:
a. the excess, if any, of (x) Six Million Eight
Hundred Thousand (6,800,000) times the Pro
Rata Senior Subordinated Fraction over (y)
Four Hundred Eight Thousand (408,000), times
b. the Senior Note Fraction.
1.175 Senior Notes. The 9.53% promissory notes executed and
delivered by Leslie Fay pursuant to the Senior Note Documents in the
aggregate original principal amount of Fifty Million Dollars
($50,000,000.00).
1.176 Senior Subordinated LFC Fraction. The fraction (a) the
numerator of which shall be the aggregate amount of Allowed Senior
Subordinated Note Claims and (b) the denominator of which shall be the
sum of the aggregate amount of Allowed Bank Claims, Allowed Senior Note
Claims, Allowed Senior Subordinated Note Claims and Allowed General
Unsecured Claims.
1.177 Senior Subordinated Note Claim. Any Claim
based upon or evidenced by a Senior Subordinated Note.
1.178 Senior Subordinated Notes. The 10.54% Senior
Subordinated Notes executed and delivered by Leslie Fay
pursuant to the Senior Note Documents in the aggregate original
principal amount of Twenty-Five Million Dollars
($25,000,000.00).
1.179 Special Sassco Assets. Sassco Assets identified by the
Debtors and the Creditors' Committee on or prior to the Effective Date
having a fair market value on the Effective Date equal to the sum of
the Consummation Cash Shortfall Amount plus Eight Million Dollars
($8,000,000).
1.180 Spitalnick. Spitalnick Corp., a New York
corporation.
1.181 Spitalnick Equity Interest. A common Equity
Interest in Spitalnick.
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1.182 Statutorily Subordinated Claims. Any Claim that is
subject to subordination under section 510(b) of the Bankruptcy Code,
including, without limitation, the Claims, if any, of present and
former officers and directors of the Debtors for reimbursement,
indemnity or contribution in connection with the Class Action and the
Derivative Action.
1.183 Statutory Lien Claim. Any Secured Claim
secured by a Lien attaching by operation of law in favor of a
seller, artisan, materialman, mechanic, warehouseman, carrier
or other similar Person.
1.184 Stock Option. An option to purchase Leslie
Fay Equity Interests and stock appreciation rights granted
pursuant to the 1986 Stock Option Plan.
1.185 Subsidiary. With reference to any Entity, any
corporation, partnership or other business entity of which more than
fifty percent (50%) of the issued and outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether at the time capital stock of
any other class or classes of such corporation has or might have voting
power upon the occurrence of any contingency) or, as to any partnership
or other legal entity, ordinary equity capital interests, is at the
applicable date directly or indirectly owned or controlled by such
Entity, by such Entity and one or more of its other Subsidiaries, or by
one or more other Subsidiaries of such Entity.
1.186 Subsidiary Guaranty Claims. Any Claim against
any Debtor arising under or governed by a Guarantee.
1.187 Taxes. As defined in Section 4.1 hereof.
1.188 Unsecured Claim. Any Claim against a Debtor,
other than an Administrative Expense Claim, a Retiree
Administrative Claim, a Priority Non-Tax Claim, a Priority Tax
Claim or a Secured Claim.
1.189 Other Definitions. Unless the context otherwise
requires, any capitalized term used and not defined herein or elsewhere
in the Plan but that is defined in the Bankruptcy Code shall have the
meaning assigned to that term in the Bankruptcy Code. Unless otherwise
specified, all section, schedule or exhibit references in the Plan are
to the respective section in, article of, or schedule or exhibit to,
the Plan, as the same may be amended, waived, or modified from time to
time. The words "herein," "hereof," "hereto," "hereunder," and other
words of similar import refer to the Plan as a whole and not to any
particular section, subsection, or clause contained in the Plan.
ARTICLE II
COMPROMISE AND SETTLEMENT OF DISPUTES;
SUBSTANTIVE CONSOLIDATION OF DEBTORS;
ASSUMPTION OF OBLIGATION UNDER THE PLAN
2.1 Compromise and Settlement. The Plan incorporates the
compromise and settlement of certain issues which were disputed by the
Proponents and which were resolved in the negotiations of the
provisions of the Plan. These issues related primarily to whether the
estates of each of the Debtors should be treated separately for
purposes of making distributions to Creditors and whether all of the
Debtors' assets should be sold or otherwise disposed of pursuant to the
Plan. The provisions of the Plan relating to substantive consolidation
of the Debtors, the cancellation of Intercompany Affiliate Claims, the
treatment of each Class of Claims under the Plan, the satisfaction and
cancellation of contractual subordination rights in favor of certain
Creditors and the election of alternative treatment under the Plan
reflect this compromise and settlement, which, upon the Effective Date,
shall be binding upon the Debtors, all Creditors and all Persons
receiving any payments or other distributions under the Plan.
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2.2 Substantive Consolidation. On the Effective Date, the
Chapter 11 Cases shall be substantively consolidated pursuant to order
of the Bankruptcy Court entered after notice and a hearing. For
purposes of the Plan, the assets and liabilities of the Debtors shall
be pooled and all Claims shall be satisfied from the assets of the
single consolidated estate. Any Claims against one or more of the
Debtors based upon a guaranty, indemnity, co-signature, surety or
otherwise, of Claims against another Debtor, including, without
limitation, the Subsidiary Guaranty Claims and the Guarantees related
thereto, shall be treated as a single Claim against the consolidated
estate of all of the Debtors and shall be entitled to distribution
under the Plan only with respect to such single Claims.
2.3 Cancellation of Intercompany Claims. On the Effective
Date, all Intercompany Affiliate Claims shall be extinguished, except
to the extent that an Intercompany Affiliate Claim held by Leslie Fay
against an Affiliate exceeds the amount, if any, of an Intercompany
Affiliate Claim held by such Affiliate against Leslie Fay.
ARTICLE III
SEPARATION OF SASSCO AND LESLIE FAY
3.1 Merger and Consolidation. On the Effective Date, the
estates of Hue, Spitalnick, Licensing, Retail Outlets, Retail
(Alabama), Retail (California), Retail (Iowa) and Retail (Tennessee)
shall be merged with and into Leslie Fay.
3.2 Effective Date Transactions. On the Effective
Date the following transactions shall be consummated pursuant
to documentation in form and substance satisfactory to the
Debtors and the Creditors' Committee:
(a) Reorganized Leslie Fay will sell, without recourse,
the Special Sassco Assets to New Sassco (or a Subsidiary thereof)
for an amount of Cash equal to the sum of the Consummation Cash
Shortfall Amount plus Eight
Million Dollars ($8,000,000);
(b) Reorganized Leslie Fay shall sell and transfer,
without recourse, to the Creditor Representative on behalf of the
Creditors holding Claims in Classes 3, 4, 5 and 6, an undivided
eighty percent (80%) interest in the Sassco Assets other than the
Special Sassco Assets (subject to 80% of the outstanding Sassco
Liabilities), in exchange for the cancellation of Claims in such
Classes in an amount equal to the fair market value of such Sassco
Assets (subject to such Sassco Liabilities);
(c) Reorganized Leslie Fay shall sell and transfer,
without recourse, to New Sassco, an undivided twenty percent (20%)
interest in the Sassco Assets other than the Special Sassco Assets
(subject to 20% of the outstanding Sassco Liabilities);
(d) the Creditor Representative, on behalf of the
Creditors holding Claims in Classes 3, 4, 5 and 6, shall
contribute, without recourse, to New Sassco the undivided eighty
percent (80%) interest in the Sassco Assets received by the
Creditor Representative pursuant to Section 3.2(b) hereof (subject
to 80% of the outstanding Sassco Liabilities);
(e) New Sassco shall (i) assume all of the Sassco
Liabilities and (ii) issue to the Creditor Representative (x) on
behalf of the Creditors holding Claims in Classes 3, 4, 5 and 6,
(aa) Five Million Four Hundred Forty Thousand (5,440,000) shares
of New Sassco Common Stock and (bb) Eighty-Eight Million Dollars
($88,000,000) in aggregate principal amount of New Sassco Notes
and (y) on behalf of the Creditors holding Claims in Classes 3, 4,
5 and 6 at the direction of Reorganized Leslie Fay (aa) One
Million Three Hundred Sixty Thousand (1,360,000) shares of New
Sassco Common Stock and (bb) Twenty-Two Million Dollars
($22,000,000) in aggregate principal amount of New Sassco Notes;
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(f) the Creditor Representative shall remit, without
recourse, to the Disbursing Agent, all of the New Sassco Notes and
shares of the New Sassco Common Stock received pursuant to Section
3.2(e) hereof, for distribution to the Creditors holding Claims in
Classes 3, 4, 5 and 6 pursuant to Article XXX hereof;
(g) Reorganized Leslie Fay shall (i) issue to the
Disbursing Agent Three Million Four Hundred Thousand (3,400,000)
shares of Reorganized Leslie Fay Common Stock, for distribution to
Creditors holding Claims in Classes 3, 4, 5 and 6 pursuant to
Article XXX hereof, (ii) execute and deliver the Reorganized
Leslie Fay Licensing Agreement and (iii) transfer to (x)
Reorganized Leslie Fay Operating Company Eight Million Dollars
($8,000,000) in Cash and all of the Dress and Sportswear Assets,
(y) Reorganized Leslie Fay Licensing Company all of the Leslie Fay
Intellectual Property (subject to the rights of Reorganized Leslie
Fay Operating Company pursuant to the Reorganized Leslie Fay
Licensing Agreement) and (z) New Castleberry all of the
Castleberry Assets (subject to the Castleberry Liabilities);
(h) New Castleberry shall (i) issue to Reorganized
Leslie Fay all of the New Castleberry Common Stock and (ii) assume
all of the Castleberry Liabilities;
(i) Reorganized Leslie Fay Operating Company shall (i)
assume all of the Reorganized Leslie Fay Operating Company
Liabilities, (ii) issue to Reorganized Leslie Fay all of the
issued and outstanding shares of Reorganized Leslie Fay Operating
Company Common Stock and (iii) execute and deliver the Reorganized
Leslie Fay Licensing Agreement; and
(j) Reorganized Leslie Fay Licensing Company shall issue
to Reorganized Leslie Fay all of the issued and outstanding shares
of Reorganized Leslie Fay Licensing Company Common Stock.
ARTICLE IV
NEW SASSCO MATTERS
4.1 New Sassco Management Options. New Sassco will issue
to Levine and the other members of New Sassco's senior management
("New Sassco Management Recipients") nonqualified options (the
"New Sassco Management Options") to purchase up to 22.5% of the
New Sassco Common Stock on a fully diluted basis. The New Sassco
Management Options will have the terms and restrictions set forth
on Exhibit A hereto, and such other terms and restrictions as may
be mutually satisfactory to the Creditors' Committee (or, after
the Effective Date, the New Sassco Board of Directors) and Levine.
The definitive documentation for the New Sassco Management Options
will be in substantially the form set forth in the Plan
Supplement, with such modifications, if any, as to which the
Creditors' Committee (or, after the Effective Date, the New Sassco
Board of Directors) and Levine may agree.
4.2 Levine Employment. On or prior to the Effective
Date, Levine will enter into an employment agreement with New
Sassco having the principal terms described in Exhibit B hereto,
and otherwise being in form and substance reasonably satisfactory
to Levine and the Creditors' Committee (the "Levine Employment
Agreement"), with such modifications, if any, as to which Levine
and the Creditors' Committee (or, after the Effective Date, the
New Sassco Board of Directors) may agree.
4.3 New Sassco Credit Agreement. On the
Effective Date, New Sassco shall execute and deliver the
New Sassco Credit Agreement.
4.4 New Sassco Registration Rights Agreement.
On the Effective Date, New Sassco shall execute and
deliver the New Sassco Registration Rights Agreement.
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4.5 Certain Corporate Governance Matters. As
of the Effective Date:
(a) Organization. New Sassco will be organized in a
jurisdiction within the United States mutually acceptable to the
Creditors' Committee and Levine (or, if the same is acceptable to
the Creditors' Committee, in a jurisdiction outside of the United
States).
(b) Board of Directors. The board of directors of New
Sassco will initially have seven members, five of whom will be
designees of the Creditors' Committee (in the case of the initial
members of the board of directors) or holders of New Sassco Common
Stock (in the case of subsequent members) and two of whom, during
Levine's term of employment, will be Levine and a designee of
Levine. During Levine's term of employment, (i) Levine will have
the right to designate one observer to the board of directors and
(ii) if the size of the board of directors is increased after the
Effective Date, Levine will be entitled to designate at least 28%
of the members of the board of directors. During the term of his
employment, Levine will be Chairman and Chief Executive Officer of
New Sassco.
(c) Certain Transactions. The New Sassco Certificate of
Incorporation, New Sassco Bylaws and/or Levine Employment
Agreement will specify extraordinary transactions as to which
(unless otherwise agreed by New Sassco and Levine) Levine's
approval will be required, so long as he is employed by New
Sassco, including without limitation a sale or merger of New
Sassco, or a material amendment to the New Sassco Certificate of
Incorporation or New Sassco Bylaws.
4.6 Miscellaneous. On the Effective Date:
(a) Levine's affiliate's Claims will be allowed by an
order of the Bankruptcy Court (which may be the Confirmation
Order) in full in the aggregate amount of One Million Four Hundred
Fifty Thousand Dollars ($1,450,000) as General Unsecured Claims;
(b) the Debtors' claims against Levine arising prior to
the Effective Date will be released in full.
(c) Levine and his Affiliates will be reimbursed in the
aggregate amount of Two Hundred Thousand Dollars ($200,000) for
their out-of-pocket expenses in connection with the transactions
contemplated herein and their prior efforts to purchase Sassco.
(d) New Sassco will enter into a customary registration
rights agreement (the "New Sassco Management Registration Rights
Agreement") with Levine and other New Sassco Management Recipients
in form and substance satisfactory to the Creditors' Committee,
pursuant to which the New Sassco Management Recipients will be
granted "piggyback" registration rights with respect to New Sassco
Common Stock issuable upon exercise of New Sassco Management
Options. Such registration rights agreement will contain customary
language to the effect that if the managing underwriter in an
offering initiated by New Sassco or a Person holding "demand"
registration rights, and with respect to which Levine exercises
such "piggyback" rights, believes that the amount of securities to
be included in the offering exceeds the amount which can be sold
within an acceptable price range, then the offering will include
that amount of securities which may be sold within such range, in
the following priority: first, all securities proposed to be sold
by New Sassco for its own account, or by the Person exercising
"demand" rights; and second, securities covered by Levine's
"piggyback" rights (pro rata with securities to be sold by other
holders, if any, of "piggyback" rights).
(e) New Sassco will enter into customary employment
contracts with other key New Sassco managers, at compensation
levels commensurate with the compensation presently paid to such
personnel, and with such other provisions to be satisfactory to
Levine and the Creditors' Committee.
(f) All claims against Leonard Feinberg relating to his
previous employment with the Debtors will be released.
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4.7 Additional Stock Options. After the Effective Date, the
New Sassco board of directors will have the authority to establish
a program pursuant to which New Sassco will grant one or more
members of management of New Sassco, options to purchase 2% of the
New Sassco Common Stock, all on terms and conditions established
by the New Sassco board of directors in its discretion.
ARTICLE V
REORGANIZED LESLIE FAY MATTERS
5.1 Employment Contracts. On or before the Effective
Date, Reorganized Leslie Fay will enter into employment contracts
with certain senior managers (the "Reorganized Leslie Fay Senior
Managers") having the principal terms set forth in Exhibit C
hereto, and such other terms as to which the Debtors and the
Creditors' Committee (or, after the Effective Date, the
Reorganized Leslie Fay board of directors) may agree.
5.2 Reorganized Leslie Fay Stock Options. On the
Effective Date, Reorganized Leslie Fay Senior Managers will
receive options to purchase Reorganized Leslie Fay Common Stock
("Reorganized Leslie Fay Stock Options") having the principal
terms set forth in Exhibit D hereto, and such other terms as to
which the Debtors and the Creditors' Committee (or, after the
Effective Date, the Reorganized Leslie Fay board of directors) may
agree, such Reorganized Leslie Fay Stock Options to be shared
among the Reorganized Leslie Fay Senior Managers as they may
agree. The definitive documentation for the Reorganized Leslie Fay
Stock Options will be set forth in the Plan Supplement, with such
modifications, if any, as to which the Creditors' Committee (or,
after the Effective Date, the Reorganized Leslie Ray Board of
Directors) and the Reorganized Leslie Fay Senior Managers may
agree.
5.3 Additional Pomerantz Arrangements.
(a) Pomerantz will be the Chairman and Chief
Executive Officer of Reorganized Leslie Fay.
(b) Reorganized Leslie Fay will continue Pomerantz's
existing health insurance coverage for life, so long as the annual
cost thereof to Reorganized Leslie Fay is less than or equal to
$20,000.
(c) Pomerantz will release his Claims, if any, for
unpaid amounts under his current contract.
5.4 Board of Directors. The initial board of directors
will have seven members, five of whom will be designees of the
Creditors' Committee and two of whom will be Pomerantz and a
designee of Pomerantz.
5.5 Reorganized Leslie Fay Credit Agreement.
On the Effective Date, Reorganized Leslie Fay Operating
Company shall execute and deliver the Reorganized Leslie
Fay Credit Agreement.
5.6 Reorganized Leslie Fay Registration Rights
Agreement. On the Effective Date, Reorganized Leslie Fay
shall execute and deliver the Reorganized Leslie Fay
Registration Rights Agreement.
ARTICLE VI
PROVISIONS FOR PAYMENT OF ADMINISTRATIVE
EXPENSE CLAIMS AND PRIORITY TAX CLAIMS
6.1 Administrative Expense Claims. On the
later to occur of (a) the Effective Date and (b) the date
on which such a Claim shall become an Allowed Claim, the
Debtors shall (i) pay to each holder of an Allowed
Administrative
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Expense Claim, in Cash, the full amount of such Allowed
Administrative Expense Claim, or (ii) satisfy and discharge such
Claim in accordance with such other terms as may be agreed upon by
and between the holder thereof and the Debtors; provided, however,
that Allowed Administrative Expense Claims representing
liabilities or obligation incurred or assumed by the Debtors in
Possession in the ordinary course of business or liabilities
arising under loans made or advances extended to the Debtors in
Possession, whether or not incurred in the ordinary course of
business, shall be assumed and paid by New Sassco, Reorganized
Leslie Fay, Reorganized Leslie Fay Operating Company or New
Castleberry, as applicable, in accordance with the terms and
conditions of the particular transaction and any agreements
relating thereto.
6.2 Compensation and Reimbursement Claims. All Persons
or Entities that are awarded compensation or reimbursement of
expenses by the Bankruptcy Court in accordance with section 330 or
331 of the Bankruptcy Code or entitled to the priorities
established pursuant to section 503(b)(2), 503(b)(3), 503(b)(4) or
503(b)(5) of the Bankruptcy Code, shall be paid in full, in Cash,
the amounts allowed by the Bankruptcy Court (a) on or as soon as
reasonably practicable following the later to occur of (i) the
Effective Date and (ii) the date upon which the Bankruptcy Court
order allowing such Claim becomes a Final Order or (b) upon such
other terms as may be mutually agreed upon between such holder of
an Allowed Administrative Expense Claim and the Debtors.
6.3 Payment of Priority Tax Claims. Each holder of an
Allowed Priority Tax Claim shall be paid the full amount of such
Allowed Priority Tax Claim. At the sole option and discretion of
Reorganized Leslie Fay, which option shall be exercised on or
prior to the Effective Date, such payment shall be made (a) in
full, in Cash, on the Effective Date, (b) in accordance with
section 1129(a)(9)(c) of the Bankruptcy Code, in full, in Cash, in
up to twenty-four (24) equal quarterly installments, commencing on
the first (1st) Business Day following the date of assessment of
such Allowed Priority Tax Claim, together with interest accrued
thereon at a rate to be determined by the Bankruptcy Court, or (c)
by mutual agreement of the holder of such Allowed Priority Tax
Claim and Reorganized Leslie Fay.
ARTICLE VII
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
Claims and Equity Interests are classified as follows:
7.1 Class 1 - Priority Non-Tax Claims
7.2 Class 2 - Secured Claims
7.3 Class 3 - Bank Claims
7.4 Class 4 - Senior Note Claims
7.5 Class 5 - Senior Subordinated Note Claims
7.6 Class 6 - General Unsecured Claims
7.7 Class 7 - Convenience Claims
7.8 Class 8 - Statutorily Subordinated Claims
7.9 Class 9 - Leslie Fay Equity Interests
7.10 Class 10 - Hue Equity Interests
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7.11 Class 11 - Spitalnick Equity Interests
7.12 Class 12 - Licensing Equity Interests
7.13 Class 13 - Retail Outlets Equity Interests
7.14 Class 14 - Retail (Alabama) Equity
Interests
7.15 Class 15 - Retail (California) Equity
Interests
7.16 Class 16 - Retail (Iowa) Equity Interests
7.17 Class 17 - Retail (Tennessee) Equity
Interests
ARTICLE VIII
PROVISIONS FOR TREATMENT OF
PRIORITY NON-TAX CLAIMS (CLASS 1)
8.1 Payment of Allowed Priority Non-Tax Claims. On the
Effective Date, Reorganized Leslie Fay shall pay to each holder of
an Allowed Priority Non-Tax Claim, in Cash, the full amount of
such Allowed Priority Non-Tax Claim, unless the holder of such
Allowed Priority Non-Tax Claim and Reorganized Leslie Fay agree to
a different treatment thereof. Any Priority Non-Tax Claim not
Allowed as of the Effective Date shall be paid in full, in Cash,
as soon as practicable after the date upon which the Bankruptcy
Court order allowing such Claim becomes a Final Order.
ARTICLE IX
PROVISIONS FOR TREATMENT OF
SECURED CLAIMS (CLASS 2)
9.1 Payment of Secured Claims. On the Effective Date,
each holder of an Allowed Secured Claim shall receive one of the
following distributions: (a) the payment of such holder's Allowed
Secured Claim in full, in Cash; (b) the sale or disposition
proceeds of the property securing any Allowed Secured Claim to the
extent of the value of their respective interests in such
property; (c) the surrender to the holder or holders of any
Allowed Secured Claim of the property securing such Claim; or (d)
such other distributions as shall be necessary to satisfy the
requirements of chapter 11 of the Bankruptcy Code. The manner and
treatment of each Allowed Secured Claim shall be determined by the
Debtors, in their discretion, on or before the Confirmation Date,
and upon notice to each Secured Creditor.
ARTICLE X
PROVISIONS FOR ALLOWANCE AND
TREATMENT OF BANK CLAIMS (CLASS 3)
10.1 Allowance of Bank Claims. As of the
Effective Date, the Bank Claims are hereby allowed in the
aggregate amount of One Hundred Seventy-Eight Million
Three Thousand Eight Hundred Fifty Dollars ($178,003,850).
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10.2 Payment of Allowed Bank Claims. Commencing on the
Effective Date, each holder of an Allowed Bank Claim shall be
entitled to receive distributions as follows:
(a) The aggregate principal amount of New Sassco Notes
equal to such holder's Pro Rata Share of the Bank Sassco Note
Amount.
(b) The aggregate number of shares of New Sassco Common
Stock equal to such holder's Pro Rata Share of the Bank Sassco
Stock Amount.
(c) The aggregate number of shares of Reorganized Leslie
Fay Common Stock equal to such holder's Pro Rata Share of the Bank
Leslie Fay Stock Amount.
(d) Such holder's Pro Rata Share of the Bank
Cash Amount.
ARTICLE XI
PROVISIONS FOR ALLOWANCE AND
TREATMENT OF SENIOR NOTE CLAIMS (CLASS 4)
11.1 Allowance of Senior Note Claims. As of
the Effective Date, the Senior Note Claims are hereby
allowed in the aggregate amount of Fifty Million Fifty Two
Thousand Nine Hundred Forty Three Dollars ($50,052,943).
11.2 Payment of Allowed Senior Note Claims.
Commencing on the Effective Date, each holder of an
Allowed Senior Note Claim shall be entitled to receive:
(a) The aggregate principal amount of New Sassco Notes
equal to such holder's Pro Rata Share of the Senior Note Sassco
Note Amount.
(b) The aggregate number of shares of New Sassco Common
Stock equal to such holder's Pro Rata Share of the Senior Note
Sassco Stock Amount.
(c) The aggregate number of shares of Reorganized Leslie
Fay Common Stock equal to such holder's Pro Rata Share of the
Senior Note Leslie Fay Stock Amount.
(d) Such holder's Pro Rata Share of the Senior
Note Cash Amount.
ARTICLE XII
PROVISIONS FOR ALLOWANCE AND TREATMENT OF
SENIOR SUBORDINATED NOTE CLAIMS (CLASS 5)
12.1 Allowance of Senior Subordinated Note
Claims. As of the Effective Date, the Senior Subordinated
Note Claims are hereby allowed in the aggregate amount of
Twenty-Five Million Twenty Nine Thousand Two Hundred Seventy Eight
Dollars ($25,029,278).
12.2 Payment of Senior Subordinated Note Claims.
Commencing on the Effective Date, each holder of an Allowed Senior
Subordinated Note Claim shall be entitled to receive such holder's
Pro Rata Share of:
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(a) Four Hundred Eight Thousand (408,000)
shares of New Sassco Common Stock and
(b) Two Hundred Four Thousand (204,000) shares
of Reorganized Leslie Fay Common Stock.
ARTICLE XIII
[Intentionally Omitted.]
ARTICLE XIV
PROVISION FOR TREATMENT OF GENERAL
UNSECURED CLAIMS (CLASS 6)
Each holder of an Allowed General Unsecured Claim shall
be entitled to receive distributions in accordance with Section
14.1 or 14.2 hereof.
14.1 Payment of Allowed General Unsecured
Claims. Commencing on the Effective Date, each holder of
an Allowed General Unsecured Claim shall be entitled to
receive:
(a) The aggregate principal amount of New Sassco Notes
equal to such holder's Pro Rata Share of the General Unsecured
Sassco Note Amount.
(b) The aggregate number of shares of New Sassco Common
Stock equal to such holder's Pro Rata Share of the General
Unsecured Sassco Stock Amount.
(c) The aggregate number of shares of Reorganized Leslie
Fay Common Stock equal to such holder's Pro Rata Share of the
General Unsecured Leslie Fay Stock Amount.
(d) Such holder's Pro Rata Shares of the
General Unsecured Cash Amount.
14.2 Allowed Claims of Two Hundred Fifty Dollars or
More. Notwithstanding the provisions of Section 14.1 of the Plan,
any holder of an Allowed General Unsecured Claim whose Allowed
General Unsecured Claim is more than Two Hundred Fifty Dollars
($250.00), and who elects to reduce the amount of such Allowed
Claim to Two Hundred Fifty Dollars ($250.00), shall, at such
holder's option, be entitled to receive, based on such Allowed
Claim as so reduced, distributions pursuant to Article XV hereof,
in full settlement, satisfaction, release and discharge of such
Allowed Claim. Such election must be made on the Ballot and be
received by the Debtors on or prior to the Ballot Date. Any
election made after the Ballot Date shall not be binding upon the
Debtors unless the Ballot Date is expressly waived, in writing, by
the Debtors.
ARTICLE XV
PROVISIONS FOR TREATMENT
OF CONVENIENCE CLAIMS (CLASS 7)
15.1 On the Effective Date, each holder of an Allowed
Convenience Claim shall be entitled to receive Cash equal to the
amount of such Allowed Convenience Claim.
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ARTICLE XVI
PROVISIONS FOR TREATMENT OF
STATUTORILY SUBORDINATED CLAIMS (CLASS 8)
16.1 On the Effective Date, all Statutorily Subordinated
Claims will be deemed expunged and extinguished.
ARTICLE XVII
PROVISIONS FOR TREATMENT OF
LESLIE FAY EQUITY INTERESTS (CLASS 9)
17.1 On the Effective Date, all Allowed Leslie Fay
Equity Interests shall be deemed extinguished and the certificates
representing such Equity Interests, including, without limitation,
Stock Options and Rights, shall be cancelled and of no force and
effect.
ARTICLE XVIII
PROVISIONS FOR TREATMENT OF
HUE EQUITY INTERESTS (CLASS 10)
18.1 On the Effective Date, in accordance with Section
2.2 of the Plan, Hue Equity Interests shall be deemed
extinguished, and the certificates representing such Equity
Interests shall be cancelled and of no force and effect.
ARTICLE XIX
PROVISIONS FOR TREATMENT OF
SPITALNICK EQUITY INTERESTS (CLASS 11)
19.1 On the Effective Date, in accordance with Section
2.2 of the Plan, Spitalnick Equity Interests shall be deemed
extinguished, and the certificates representing such Equity
Interests shall be cancelled and of no force and effect.
ARTICLE XX
PROVISIONS FOR TREATMENT OF
LICENSING EQUITY INTERESTS (CLASS 12)
20.1 On the Effective Date, in accordance with Section
2.2 of the Plan, Licensing Equity Interests shall be deemed
extinguished, and the certificates representing such Equity
Interests shall be cancelled and of no force and effect.
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ARTICLE XXI
PROVISIONS FOR TREATMENT OF
RETAIL OUTLETS EQUITY INTERESTS (CLASS 13)
21.1 On the Effective Date, in accordance with Section
2.2 of the Plan, Retail Outlets Equity Interests shall be deemed
extinguished, and the certificates representing such Equity
Interests shall be cancelled and of no force and effect.
ARTICLE XXII
PROVISIONS FOR TREATMENT OF
RETAIL (ALABAMA) EQUITY INTERESTS (CLASS 14)
22.1 On the Effective Date, in accordance with Section
2.2 of the Plan, Retail (Alabama) Equity Interests shall be deemed
extinguished, and the certificates representing such Equity
Interests shall be cancelled and of no force and effect.
ARTICLE XXIII
PROVISIONS FOR TREATMENT OF
RETAIL (CALIFORNIA) EQUITY INTERESTS (CLASS 15)
23.1 On the Effective Date, in accordance with Section
2.2 of the Plan, Retail (California) Equity Interests shall be
deemed extinguished, and the certificates representing such Equity
Interests shall be cancelled and of no force and effect.
ARTICLE XXIV
PROVISIONS FOR TREATMENT OF
RETAIL (IOWA) EQUITY INTERESTS (CLASS 16)
24.1 On the Effective Date, in accordance with Section
2.2 of the Plan, Retail (Iowa) Equity Interests shall be deemed
extinguished, and the certificates representing such Equity
Interests shall be cancelled and of no force and effect.
ARTICLE XXV
PROVISIONS FOR TREATMENT OF
RETAIL (TENNESSEE) EQUITY INTERESTS (CLASS 17)
25.1 On the Effective Date, in accordance with Section
2.2 of the Plan, Retail (Tennessee) Equity Interests shall be
deemed extinguished, and the certificates representing such Equity
Interests shall be cancelled and of no force and effect.
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ARTICLE XXVI
PROVISIONS FOR TREATMENT OF
DISPUTED CLAIMS UNDER THE PLAN
26.1 Objections to Claims; Prosecution of Disputed
Claims. The Debtors or Reorganized Leslie Fay shall object to the
allowance of Claims filed with the Bankruptcy Court with respect
to which it disputes liability in whole or in part. All objections
shall be litigated to Final Order; provided, however, that
Reorganized Leslie Fay (within such parameters as may be
established by the Board of Directors of Reorganized Leslie Fay)
shall have the authority to file, settle, compromise or withdraw
any objections to Claims, without approval of the Bankruptcy
Court. Unless otherwise ordered by the Bankruptcy Court, the
Debtors or Reorganized Leslie Fay shall file and serve all
objections to Claims as soon as practicable, but in no event later
than the Effective Date or such later date as may be approved by
the Bankruptcy Court.
26.2 Estimation of Claims. The Debtors or Reorganized
Leslie Fay may at any time request that the Bankruptcy Court
estimate any contingent or Disputed Claim pursuant to section
502(c) of the Bankruptcy Code regardless of whether the Debtors or
Reorganized Leslie Fay previously have objected to such Claim or
whether the Bankruptcy Court has ruled on any such objection, and
the Bankruptcy Court will retain jurisdiction to estimate any
Claim at any time during litigation concerning any objection to
any Claim, including, without limitation, during the pendency of
any appeal relating to any such objection. In the event that the
Bankruptcy Court estimates any contingent or Disputed Claim, the
amount so estimated shall constitute either the allowed amount of
such Claim or a maximum limitation on such Claim, as determined by
the Bankruptcy Court. If the estimated amount constitutes a
maximum limitation on the amount of such Claim, the Debtors or
Reorganized Leslie Fay may pursue supplementary proceedings to
object to the allowance of such Claim. All of the aforementioned
objection, estimation and resolution procedures are intended to be
cumulative and not necessarily exclusive of one another. Claims
may be estimated and subsequently compromised, settled, withdrawn
or resolved by any mechanism approved by the Bankruptcy Court.
26.3 Payments and Distributions on Disputed Claims. (a)
From and after the Effective Date, the Disbursing Agent shall
remit to the Plan Administrator, and the Plan Administrator shall
reserve and hold in trust for the benefit of each holder of a
Disputed Claim, Cash, and New Securities in an amount equal to the
Pro Rata distributions which the holder of such Disputed Claim
would have received if it were an Allowed Claim based upon the
lesser of the amount (i) of the Disputed Claim and (ii) estimated
by the Bankruptcy Court pursuant to section 502 of the Bankruptcy
Code for purposes of allowance, which amount shall constitute and
represent the maximum amount of such Claim if it ultimately
becomes an Allowed Claim. Any Cash or New Securities reserved and
held for the benefit of a holder of a Disputed Claim shall be
treated as a payment and reduction on account of such Disputed
Claim for purposes of computing (a) any additional amounts to be
paid in Cash or distributed in New Securities in the event the
Disputed Claim ultimately becomes an Allowed Claim, or (b) any
interest payable in accordance with the Plan with respect to such
Disputed Claim at the time or times such Cash or interests are
reserved. Cash reserved for the benefit of holders of Disputed
Claims shall be either (x) held by the Plan Administrator in trust
for the benefit of such holders in an interest-bearing account or
(y) invested in interest-bearing obligations issued by the United
States Government, or by an agency of the United States Government
and guaranteed by the United States Government, and having (in
either case) a maturity of not more than thirty (30) days, pending
determination of their entitlement thereto under the terms of the
Plan.
(b) At such time as a Disputed Claim becomes, in whole
or in part, an Allowed Claim, the Plan Administrator shall remit
to the Disbursing Agent for distribution to such holder the
payments and distributions to which such holder is then entitled
under the Plan, together with any interest which has accrued on
the amount of Cash so reserved, but only to the extent that such
interest is attributable to the amount of the Allowed Claim. Such
payments shall be made as soon as practicable after the date that
the order or judgment of the Bankruptcy Court allowing such Claim
becomes a Final Order but in no event more than thirty (30) days
thereafter. To the extent that a Disputed Claim ultimately becomes
an Allowed Claim in an amount less than the Disputed Claim, the
Plan Administrator shall remit to the Disbursing Agent the balance
of any Cash and New Securities
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previously reserved for and on account of a Disputed Claim, for
inclusion in Cash Available for Distribution and New Securities
Available for Distribution, respectively.
(c) For purposes of determining the accrual of interest
or rights in respect of any other payment from and after the
Effective Date, the New Securities to be issued shall be deemed
issued as of the Effective Date regardless of the date on which
they are actually dated, authenticated or received by the holders
of Allowed Claims; provided, however, that the Plan Administrator
shall withhold any payment until such distribution actually is
made.
ARTICLE XXVII
PROSECUTION OF CLAIMS HELD BY THE DEBTORS
27.1 Prosecution of Claims. From and after the
Confirmation Date, Reorganized Leslie Fay shall, as a
representative of the estates of the Debtors, litigate any
avoidance or recovery actions under sections 544, 545, 547, 548,
549, 550, 551 and 553 of the Bankruptcy Code and any other causes
of action, rights to payments of claims that belong to the Debtors
or Debtors in Possession, that may be pending on the Confirmation
Date or instituted by Debtors thereafter, to a Final Order, and
Reorganized Leslie Fay may compromise and settle such claims,
without approval of the Bankruptcy Court (but with approval of, or
within parameters established by, the Board of Directors of
Reorganized Leslie Fay). The net proceeds of any such litigation
or settlement (after satisfaction of all costs and expenses
incurred in connection therewith) shall be remitted to the
Disbursing Agent for inclusion in Cash Available for Distribution.
27.2 Net Payment by Defendants. Notwithstanding anything
to the contrary herein, in the event that a defendant in a
litigation of the kind described in Section 27.1 hereof is
required by a Final Order to make payment (a "Disgorgement
Payment") to Reorganized Leslie Fay, and such Disgorgement Payment
(if so made) would give rise to a Claim, (a) such defendant will
be required to pay (a "Net Payment") in Cash (and will have no
Claim in respect thereof) only the excess, if any, of (i) the
amount of such Disgorgement Payment over (ii) the fair market
value of the distributions ("Initial Distributions") on such Claim
pursuant to this Plan that would have been received by such
defendant if such defendant had made such Disgorgement Payment
(which fair market value shall be determined as of the date of
such Net Payment by agreement between Reorganized Leslie Fay and
such defendant, or by Final Order) and (b) if any distributions
("Subsequent Distributions") are made hereunder after such
defendant makes such Net Payment, such defendant shall receive
such defendant's Pro Rata Share of such Subsequent Distributions
(or, at Reorganized Leslie Fay's election, the fair market value
thereof determined as of the date of such Subsequent Distributions
by agreement between Reorganized Leslie Fay and such defendant, or
by Final Order), which Pro Rata Share shall be calculated as if
such defendant had made such Disgorgement Payment and received
Initial Distributions in respect thereof.
ARTICLE XXVIII
ACCEPTANCE OR REJECTION OF PLAN;
EFFECT OF REJECTION BY ONE OR MORE CLASSES OF CLAIMS
28.1 Impaired Classes to Vote. Each impaired Class of
Creditors with Claims against the Debtors' estates shall be
entitled to vote separately to accept or reject the Plan.
28.2 Acceptance by Class of Creditors. A Class of
Creditors shall have accepted the Plan if the Plan is accepted by
at least two-thirds (2/3) in amount and more than one-half (1/2)
in number of the Allowed Claims of such Class that have accepted
or rejected the Plan.
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28.3 Cramdown. In the event that any impaired Class of
Claims against the Debtors' chapter 11 estates shall fail to
accept the Plan in accordance with section 1129(a) of the
Bankruptcy Code, the Proponents reserve the right to request that
the Bankruptcy Court confirm the Plan in accordance with section
1129(b) of the Bankruptcy Code or amend the Plan.
ARTICLE XXIX
IDENTIFICATION OF CLAIMS AND
EQUITY INTERESTS NOT IMPAIRED BY THE PLAN
29.1 Unimpaired Classes. All Claims and Equity
Interests other than Claims and Equity Interests in
Classes 1, 2 and 7 of the Plan, are impaired under the
Plan.
29.2 Impaired Classes to Vote on Plan. The Claims and
Equity Interests included in Classes 3, 4, 5 and 6 of the Plan are
impaired and are therefore entitled to vote to accept or reject
the Plan. In accordance with section 1126(g) of the Bankruptcy
Code, Classes 8, 9, 10, 11, 12, 13, 14, 15, 16 and 17 are deemed
to have rejected the Plan.
29.3 Controversy Concerning Impairment. In the event of
a controversy as to whether any Class of Claims or Equity
Interests is impaired under the Plan, the Bankruptcy Court shall,
after notice and a hearing, determine such controversy.
ARTICLE XXX
PROVISIONS FOR TIMING OF DISTRIBUTIONS
30.1 Time and Manner of Payments. Payments under the
Plan shall be made to each holder of an Allowed Unsecured Claim as
follows:
(a) Initial Payments. On or as soon as practicable after
the Effective Date, the Disbursing Agent shall distribute, or
cause to be distributed, to the Plan Administrator on behalf of
holders of Disputed Claims, and to each holder of (i) an Allowed
Bank Claim, (ii) an Allowed Senior Note Claim, (iii) an Allowed
Senior Subordinated Note Claim and (iv) an Allowed General
Unsecured Claim, such Creditor's share, if any, of Cash Available
for Distribution and New Securities Available for Distribution as
determined pursuant to Articles X, XI, XII and XIV hereof,
respectively.
(b) Quarterly Payments. On the first (1st) Business Day
that is after the close of one full calendar quarter following the
date of the initial Effective Date distributions, and, thereafter,
on each first (1st) Business Day following the close of calendar
quarters, the Disbursing Agent shall distribute, or cause to be
distributed, to the Plan Administrator on behalf of holders of
Disputed Claims, and to each holder of (i) an Allowed Bank Claim,
(ii) an Allowed Senior Note Claim, (iii) an Allowed Senior
Subordinated Note Claim and (iv) an Allowed General Unsecured
Claim, an amount equal to such Creditor's share, if any, of Cash
Available for Distribution and New Securities Available for
Distribution as determined pursuant to Articles X, XI, XII, XIII
and XIV hereof, until such time as there are no longer any
potential Cash or Interests Available for Distribution.
Notwithstanding the foregoing, at the direction of the Plan
Administrator, the Disbursing Agent shall retain each distribution
to a Creditor under this Section 30.1(b) consisting of Fifty
Dollars ($50) or less in aggregate principal amount of New Sassco
Notes or Five (5) shares or less of New Sassco Common
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Stock or Reorganized Leslie Fay Common Stock; provided, however, that
on the Final Distribution Date, the Disbursing Agent shall
distribute, or cause to be distributed, to such Creditor, (i) the New
Sassco Notes, if any, so retained, plus interest received thereon, if
the aggregate principal amount thereof is greater than Fifty Dollars
($50), (ii) Cash in an amount equal to the aggregate principal amount
of all New Sassco Notes so retained, plus interest received thereon,
if such aggregate principal amount is Fifty Dollars ($50) or less,
(iii) the New Sassco Common Stock or Reorganized Leslie Fay Common
Stock, if any, so retained, if the number of shares of New Sassco
Common Stock or Reorganized Leslie Fay Common Stock, as applicable,
is greater than Five (5) and (iv) Cash in aggregate amount equal to
the fair market value of the New Sassco Common Stock or Reorganized
Leslie Fay Common Stock, if any so retained, if the number of shares
of New Sassco Common Stock or Reorganized Leslie Fay Common Stock, as
applicable, so retained is Five (5) or less.
30.2 Timeliness of Payments. Any payments or distributions
to be made by the Debtors pursuant to the Plan shall be deemed to be
timely made if made within twenty (20) days after the dates specified
in the Plan.
30.3 Distributions by Disbursing Agent. All distributions
under the Plan shall be made by the Disbursing Agent at the direction
of the Plan Administrator. The Disbursing Agent shall not be required
to post any bond or surety or other security for the performance of
its duties. The Disbursing Agent shall be deemed to hold all property
to be distributed hereunder, in trust for the benefit of the Persons
entitled to receive the same. The Disbursing Agent shall not hold an
economic or beneficial interest in such property.
30.4 Calculation of Distribution Amounts of Securities. No
fractional shares of Reorganized Leslie Fay Common Stock, or New
Sassco Common Stock shall be issued. Fractional shares of Reorganized
Leslie Fay Common Stock and New Sassco Common Stock shall be rounded
to the next greater or next lower number of shares in accordance with
the following method: (a) fractions of one-half (1/2) or greater
shall be rounded to the next higher whole number, and (b) fractions
of less than one-half (1/2) shall be rounded to the next lower whole
number. For purposes of this Section 30.4, all references to holders
of Allowed Claims herein shall refer to the beneficial owners of such
Allowed Claims, and all calculations relating to the rounding
provisions of this Section 30.4 shall be made based upon such
beneficial ownership. The total number of shares or interests of
Reorganized Leslie Fay Common Stock and New Sassco Common Stock to be
distributed to a Class of Claims shall be adjusted as necessary to
account for the rounding provided for in this Section 30.4.
30.5 Delivery of Distributions. Subject to the provisions
of Rule 9010 of the Bankruptcy Rules, distributions and deliveries to
holders of Allowed Claims shall be made at the address of each such
holder as set forth on the Schedules filed with the Bankruptcy Court
unless superseded by the address set forth on proofs of claim filed
by such holders, or at the last known address of such a holder if no
proof of claim is filed or if the Debtors have been notified in
writing of a change of address.
30.6 Undeliverable Distributions.
(a) Holding of Undeliverable Distributions. If any
distribution to any holder is returned to the Disbursing Agent as
undeliverable, no further distributions shall be made to such holder
unless and until the Disbursing Agent is notified, in writing, of
such holder's then-current address. Undeliverable distributions shall
remain in the possession of the Disbursing Agent until such time as a
distribution becomes deliverable. All Persons ultimately receiving
undeliverable Cash, including, without limitation, any interest
earned thereon or dividends distributed with respect to Reorganized
Leslie Fay Common Stock and New Sassco Common Stock shall not be
entitled to any other interest or other accruals of any kind. Nothing
contained in the Plan shall require the Disbursing Agent to attempt
to locate any holder of an Allowed Claim.
(b) Failure to Claim Undeliverable Distributions. Any
holder of an Allowed Claim that does not assert its rights pursuant
to the Plan to receive a distribution within two (2) years from and
after the Effective Date shall have its Claim for such undeliverable
distribution discharged and shall be forever barred from asserting
any such Claim against Reorganized Leslie Fay, Reorganized Leslie Fay
Licensing Company, Reorganized Leslie Fay Operating Company, New
Castleberry and New Sassco, or their respective property. In such
cases, (x) the Disbursing Agent shall distribute unclaimed Cash and
New Sassco Common Stock to holders of Allowed Claims in Classes 3, 4,
5, 6 and 7 on the Final Distribution Date with such holders to
receive their respective Pro Rata distributions of such unclaimed
Cash and New Sassco Common Stock in the manner provided for in
Articles X, XI, XII, XIII and XIV of the Plan; and (y) any
Reorganized Leslie Fay Common Stock held for distribution on account
of such Claims shall be cancelled and discharged as if it had never
been issued in the first place.
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30.7 Compliance with Tax Requirements. To the extent
applicable, the Disbursing Agent, Reorganized Leslie Fay and New
Sassco shall comply with all tax withholding and reporting
requirements imposed on them by any governmental unit, and all
distributions pursuant to the Plan shall be subject to such
withholding and reporting requirements.
30.8 Time Bar to Cash Payments. Checks issued by the
Disbursing Agent on account of Allowed Claims shall be null and
void if not negotiated within ninety (90) days from and after the
date of issuance thereof. Any amounts paid to the Disbursing Agent
in respect of such a check shall be promptly returned to
Reorganized Leslie Fay by the Disbursing Agent. Requests for
reissuance of any check shall be made directly to the Disbursing
Agent by the holder of the Allowed Claim with respect to which
such check originally was issued. Any claim in respect of such a
voided check shall be made on or before the later of (a) the
second (2nd) anniversary of the Effective Date or (b) ninety (90)
days after the date of issuance of such check, if such check
represents a final distribution hereunder on account of such
Claim. After such date, all Claims in respect of voided checks
shall be discharged and forever barred.
30.9 Distributions After Effective Date. Distributions
made after the Effective Date to holders of Claims that are not
Allowed Claims as of the Effective Date but which later become
Allowed Claims shall be deemed to have been made on the Effective
Date.
30.10 Set-Offs. Reorganized Leslie Fay may, pursuant to
section 553 of the Bankruptcy Code or applicable nonbankruptcy
law, set off against any Allowed Claim and the distributions to be
made pursuant to the Plan on account of such Claim (before any
distribution is made on account of such Claim), the claims, rights
and causes of action of any nature that the Debtors or Reorganized
Leslie Fay may hold against the holder of such Allowed Claim;
provided, however, that neither the failure to effect such a
set-off nor the allowance of any Claim hereunder shall constitute
a waiver or release by the Debtors or Reorganized Leslie Fay of
any such claims, rights and causes of action that the Debtors or
Reorganized Leslie Fay may possess against such holder.
30.11 Surrender and Cancellation of Instruments. Except
as Reorganized Leslie Fay otherwise may agree, (a) each holder of
a promissory note or other instrument evidencing a Claim shall
surrender such promissory note or instrument to the Disbursing
Agent, and the Disbursing Agent shall distribute or shall cause to
be distributed to the holder thereof the appropriate distributions
hereunder, (b) no distribution hereunder shall be made to or on
behalf of any holder of such a Claim unless and until such
promissory note or instrument is received or the unavailability of
such note or instrument is reasonably established to the
satisfaction of the Disbursing Agent and (c) in accordance with
section 1143 of the Bankruptcy Code, any such holder of such a
Claim that fails to (i) surrender or cause to be surrendered such
promissory note or instrument or to execute and deliver an
affidavit of loss and indemnity reasonably satisfactory to the
Disbursing Agent and (ii) in the event that the Disbursing Agent
requests, furnish a bond in form and substance (including amount)
reasonably satisfactory to the Disbursing Agent, within two (2)
years from and after the Effective Date shall be deemed to have
forfeited all rights, claims and interests and shall not
participate in any distribution hereunder.
30.12 De Minimis Distributions. No Cash payment of less
than Ten Dollars ($10.00) shall be made by the Disbursing Agent to
any holder of an Allowed Claim unless a request therefor is made
in writing to the Disbursing Agent.
30.13 HSR Compliance. Any shares of Reorganized Leslie
Fay Common Stock or New Sassco Common Stock to be distributed
hereunder to any Entity required to file a Premerger Notification
and Report Form under Hart-Scott-Rodino Antitrust Improvement Act
of 1976, as amended, shall not be distributed until the
notification and waiting periods applicable under such act to such
Entity shall have expired or been terminated.
30.14 Termination of Subordination Rights and Settlement
of Related Claims and Controversies. The classification and manner
of satisfying all Claims under the Plan take into consideration
all contractual, legal and equitable subordination rights, whether
arising under general principles of equitable subordination,
section 510(c) of the Bankruptcy Code or otherwise, that a holder
of a Claim may have against other Claim Holders with respect to
any distribution made pursuant to the Plan. On the Effective Date,
all contractual, legal or equitable subordination rights that a
holder of a Claim may have with
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respect to any distribution to be made pursuant to the Plan shall
be discharged and terminated, and all actions related to the
enforcement of such subordination rights shall be permanently
enjoined. Accordingly, distributions pursuant to the Plan to
holders of Allowed Claims shall not be subject to payment to a
beneficiary of such terminated subordination rights, or to levy,
garnishment, attachment or other legal process by any beneficiary
of such terminated subordination rights. Pursuant to Bankruptcy
Rule 9019 and in consideration for the distributions and other
benefits provided under the Plan, the provisions of this Section
29.14 shall constitute a good faith compromise and settlement of
all claims or controversies relating to the termination of all
contractual, legal and equitable subordination rights that a
holder of a Claim may have with respect to any Allowed Claim, or
any distribution to be made on account of an Allowed Claim. The
entry of the Confirmation Order shall constitute the Bankruptcy
Court's approval of the compromise or settlement of all such
claims or controversies and the Bankruptcy Court's finding that
such compromise or settlement is in the best interests of the
Debtors, Reorganized Leslie Fay, New Sassco and their respective
property and holders of Claims and is fair, equitable and
reasonable.
ARTICLE XXXI
RIGHTS AND POWERS OF DISBURSING AGENT
31.1 Exculpation. From and after the Effective Date, the
Disbursing Agent shall be exculpated by all Persons and Entities,
including, without limitation, holders of Claims and Equity
Interests and other parties in interest, from any and all claims,
causes of action and other assertions of liability arising out of
the discharge of the powers and duties conferred upon such
Disbursing Agent by the Plan or any order of the Bankruptcy Court
entered pursuant to or in furtherance of the Plan, or applicable
law, except for actions or omissions to act arising out of the
gross negligence, willful misconduct or breach of fiduciary duty
of such Disbursing Agent. No holder of a Claim or an Equity
Interest or other party in interest shall have or pursue any claim
or cause of action against the Disbursing Agent for making
payments in accordance with the Plan or for implementing the
provisions of the Plan.
31.2 Powers of the Disbursing Agent. Except to the
extent that the responsibility for the same is vested in the Plan
Administrator pursuant to the Plan Administration Agreement, the
Disbursing Agent shall be empowered to (a) take all steps and
execute all instruments and documents necessary to effectuate the
Plan, (b) make distributions contemplated by the Plan, (c) comply
with the Plan and the obligations thereunder, (d) employ
professionals to represent it with respect to its
responsibilities, and (e) exercise such other powers as may be
vested in the Disbursing Agent pursuant to order of the Bankruptcy
Court, pursuant to the Plan, or as deemed by the Disbursing Agent
to be necessary and proper to implement the provisions of the
Plan. The Disbursing Agent shall be bonded pursuant to
arrangements with a bonding company in form and substance
reasonably satisfactory to the Debtors and the Creditors'
Committee.
31.3 Expenses Incurred From and After the Effective
Date. Except as otherwise ordered by the Bankruptcy Court, the
amount of any fees and expenses incurred by the Disbursing Agent
from and after the Effective Date (including taxes) and any
compensation and expense reimbursement claims, including, without
limitation, reasonable fees and expenses of counsel, made by the
Disbursing Agent, shall be paid in Cash by Reorganized Leslie Fay.
31.4 Method of Payment. Payments of Cash to be made by
the Debtors pursuant to the Plan shall be made, at the election of
the Debtors, by check drawn on a domestic bank or by wire transfer
of immediately available funds.
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ARTICLE XXXII
THE PLAN ADMINISTRATOR
32.1 Appointment of Plan Administrator. On the Effective
Date, compliance with the provisions of the Plan shall become the
general responsibility of the Plan Administrator (subject to the
supervision of the Board of Directors of Reorganized Leslie Fay)
pursuant to and in accordance with the provisions of the Plan and
the Plan Administration Agreement.
32.2 Responsibilities of Plan Administrator. The
responsibilities of the Plan Administrator shall include (a)
liquidating Plan Assets, (b) facilitating Reorganized Leslie Fay's
prosecution or settlement of objections to and estimations of
Claims, (c) facilitating Leslie Fay's prosecution and/or
settlement of claims and causes of action, (d) calculating and
assisting the Disbursing Agent in implementing all distributions
in accordance with the Plan, (e) filing all required tax returns
and paying taxes and all other obligations on behalf of
Reorganized Leslie Fay from funds held by Reorganized Leslie Fay,
(f) periodic reporting to the Bankruptcy Court, of the status of
the Claims resolution process, distributions on Allowed Claims and
prosecution of causes of action, and (g) such other
responsibilities as may be vested in the Plan Administrator
pursuant to the Plan, the Plan Administration Agreement or
Bankruptcy Court order or as may be necessary and proper to carry
out the provisions of the Plan.
32.3 Powers of Plan Administrator. The powers of the
Plan Administrator shall, without any further Bankruptcy Court
approval in each of the following cases, include (a) the power to
invest funds in, and withdraw, make distributions and pay taxes
and other obligations owed by Reorganized Leslie Fay from funds
held by the Plan Administrator and/or Reorganized Leslie Fay in
accordance with the Plan, (b) the power to engage employees and
professional persons to assist the Plan Administrator with respect
to its responsibilities, (c) the power to dispose of, and deliver
title to others of, Plan Assets on behalf of Reorganized Leslie
Fay, (d) the power to compromise and settle claims and causes of
action on behalf of or against Reorganized Leslie Fay, and (e)
such other powers as may be vested in or assumed by the Plan
Administrator pursuant to the Plan, the Plan Administration
Agreement or as may be necessary and proper to carry out the
provisions of the Plan.
32.4 Compensation of Plan Administrator. In addition to
reimbursement for actual out-of-pocket expenses incurred by the
Plan Administrator, the Plan Administrator shall be entitled to
receive reasonable compensation for services rendered on behalf of
Reorganized Leslie Fay in an amount and on such terms as may be
agreed to by the Debtors or Reorganized Leslie Fay and the
Creditors' Committee as reflected in the Plan Administration
Agreement. Any dispute with respect to such compensation shall be
resolved by agreement among the parties or, if the parties are
unable to agree, determined by the Bankruptcy Court.
32.5 Termination of Plan Administrator. The
duties, responsibilities and powers of the Plan
Administrator shall terminate on the date set forth in the
Plan Administration Agreement.
ARTICLE XXXIII
COMMITTEES
33.1 Creditors' Committee Composition and Term. From the
Confirmation Date up to and including the Effective Date, the
members of the Creditors' Committee appointed pursuant to section
1102 of the Bankruptcy Code, and their duly appointed successors,
shall continue to serve. Upon the disallowance by Final Order of
the Claim held by a Creditor that is a member of the Creditors'
Committee, such membership shall terminate and no replacement
shall be appointed. Upon the resignation, death or disability of a
member of the Creditors' Committee, the Creditor having appointed
such member shall have the right to designate a replacement. In
the event such Creditor shall fail to designate a replacement, no
other replacement may be appointed to the Creditors' Committee.
Members of the Creditors' Committee shall serve without
compensation but shall be
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entitled to reimbursement of their reasonable out-of-pocket
expenses which are attributable to their attendance at Creditors'
Committee meetings. The Creditors' Committee shall be entitled to
retain legal counsel and such other professionals as may be
authorized by the Bankruptcy Court, the fees and expenses of which
shall be entitled to payment as Administrative Expense Claims. On
the Effective Date, the Creditors' Committee shall be dissolved
and the members thereof and the professionals retained by the
Creditors' Committee in accordance with section 1103 of the
Bankruptcy Code shall be released and discharged from their
respective fiduciary obligations.
33.2 Duties and Powers of the Creditors' Committee.
Until the Effective Date, the duties and powers of the Creditors'
Committee shall consist of the monitoring of litigation and
settlements concerning Disputed Claims and claims of the Debtors
in connection with the Seidman Litigation, and the consummation of
the transactions contemplated by the Plan.
33.3 Equity Committee. On the Confirmation Date, the
Equity Committee shall be dissolved and the members thereof and
the professionals retained by the Equity Committee in accordance
with section 327 of the Bankruptcy Code shall be released and
discharged from their respective fiduciary obligations, if the
same has not occurred prior to the Confirmation Date.
ARTICLE XXXIV
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
34.1 Assumption of Executory Contracts and Unexpired
Leases. Any executory contracts or unexpired leases which have not
expired by their own terms on or prior to the Effective Date,
which have not been rejected with the approval of the Bankruptcy
Court, or which are not the subject of a motion to reject the same
pending as of the Effective Date shall be deemed assumed by the
Debtors in Possession on the Effective Date and assigned to New
Sassco or Reorganized Leslie Fay, as applicable, and the entry of
the Confirmation Order by the Bankruptcy Court shall constitute
approval of such rejections and assumptions pursuant to sections
365(a) and 1123 of the Bankruptcy Code. The Debtors' collective
bargaining agreement effective June 1, 1994 through May 31, 1997,
with the Union of Needletrades, Industrial and Textile Employees
("UNITE"), the successor to the International Ladies' Garment
Workers' Union ("ILGWU"), is binding on its successors, including
successors due to a plan of reorganization. New Sassco and
Reorganized Leslie Fay are bound by the terms and conditions of
the extant collective bargaining agreement between the Debtors and
UNITE.
34.2 Cure of Defaults for Assumed Executory Contracts
and Unexpired Leases. Any monetary amounts required as cure
payments on each executory contract and unexpired lease to be
assumed pursuant to the Plan shall be satisfied, pursuant to
section 365(b)(1) of the Bankruptcy Code, by payment of the cure
amount in Cash on the Effective Date or upon such other terms and
dates as the parties to such executory contracts or unexpired
leases otherwise may agree. In the event of a dispute regarding
(a) the amount of any cure payment, (b) the ability of the Debtors
or any assignee to provide "adequate assurance of future
performance" (within the meaning of section 365 of the Bankruptcy
Code) under the contract or lease to be assumed or (c) any other
matter pertaining to assumption, the cure payments required by
section 365(b)(1) of the Bankruptcy Code shall be made following
the entry of a Final Order resolving such dispute.
34.3 Rejection Damage Claims. Not later than ten (10)
days prior to the Confirmation Date, the Debtors shall file with
the Bankruptcy Court a list of executory contracts and unexpired
leases to be rejected by the Debtors as of the Effective Date. If
the rejection of an executory contract or unexpired lease by any
of the Debtors results in damages to the other party or parties to
such contract or lease, any claim for such damages, if not
heretofore evidenced by a filed proof of claim, shall be forever
barred and shall not be enforceable against the Debtors, or their
respective properties or agents, successors, or assigns, unless a
proof of claim is filed with the Bankruptcy Court and served upon
counsel for the Debtors on or before fifteen (15) days after the
later of (a) the Confirmation Date and (b) the date of entry of an
order by the Bankruptcy Court authorizing rejection of a
particular executory contract or lease. Unless otherwise ordered
by the Bankruptcy Court or
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provided in the Plan, all such Claims for which proofs of claim
are timely filed will be treated as General Unsecured Claims
subject to the provisions of Section 13.1 of the Plan.
ARTICLE XXXV
CONDITIONS PRECEDENT TO EFFECTIVENESS OF THE PLAN
35.1 Conditions Precedent to Effective Date of
the Plan. The occurrence of the Effective Date and the
substantial consummation of the Plan are subject to
satisfaction of the following conditions precedent:
(a) Entry of the Confirmation Order. The Clerk of the
Bankruptcy Court shall have entered the Confirmation Order, in
form and substance satisfactory to the Debtors and the Creditors'
Committee, and the Confirmation Order shall have become a Final
Order or such Confirmation Order shall not have been stayed,
enjoined or restrained.
(b) Post-Consummation New Sassco Financing. The closing
under each of the New Sassco Credit Agreement and the New Sassco
Indenture shall have occurred or shall be ready to occur subject
only to the occurrence of the Effective Date.
(c) Post-Consummation Reorganized Leslie Fay Financing.
The closing under the Reorganized Leslie Fay Credit Agreement
shall have occurred or shall be ready to occur subject only to the
occurrence of the Effective Date.
(d) Execution of Documents; Other Actions. All other
actions and documents necessary to implement the Plan shall have
been effected or executed. Without limiting the generality of the
foregoing, the Disbursement Account(s) shall have sufficient Cash
in order that Cash payments may be made on or about the Effective
Date as, and to the extent, contemplated herein.
(e) Appointment of Plan Administrator. The Plan
Administrator shall have been appointed in accordance with Article
XXXII of the Plan and the Plan Administrator shall have executed
the Plan Administration Agreement evidencing the Plan
Administrator's agreement to serve in such capacity.
(f) Amendment to Reorganized Leslie Fay Certificate of
Incorporation; Incorporation of Reorganized Leslie Fay Operating
Company, Reorganized Leslie Fay Licensing Company and New
Castleberry. The Amended Certificate of Incorporation of
Reorganized Leslie Fay shall have become effective, and
Reorganized Leslie Fay Operating Company, Reorganized Leslie Fay
Licensing Company and New Castleberry shall have been incorporated
pursuant to the Reorganized Leslie Fay Operating Company
Certificate of Incorporation, the Reorganized Leslie Fay Licensing
Company Certificate of Incorporation and the New Castleberry
Certificate of Incorporation, respectively, and shall be
authorized to conduct business.
(g) Incorporation of New Sassco. New Sassco
shall have been incorporated pursuant to the New Sassco
Certificate of Incorporation and shall be authorized to
conduct business.
(h) Allowed Amount of Claims. The Debtors shall have
filed with the Bankruptcy Court a statement that the Debtors
believe, after conducting an analysis of the Claims in Class 6,
that the Allowed Claims in such Class, together with the Allowed
Claims in Classes 3, 4, 5 and 7, will not exceed Three Hundred
Forty Million Dollars ($340,000,000.00) in aggregate amount.
(i) Satisfaction of Debtor in Possession Financing. All
financing provided to the Debtors pursuant to section 364 of the
Bankruptcy Code shall have been repaid or replaced, or other
arrangements satisfactory to the lenders providing such financing,
the Debtors and the Creditors' Committee, regarding the
termination of such financing shall have been made.
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\ 35.2 Waiver of Conditions Precedent. Each of the
conditions precedent in Section 35.1, other than those set forth
in subsections (a) and (i) thereof, may be waived, in whole or in
part, by the Proponents, in their respective discretion. Any such
waiver of a condition precedent in Section 34.1 hereof may be
effected at any time, without notice or leave or order of the
Bankruptcy Court and without any formal action other than a
writing.
ARTICLE XXXVI
PROVISIONS FOR THE ESTABLISHMENT
AND MAINTENANCE OF DISBURSEMENT ACCOUNTS
36.1 Establishment of Disbursement Account. On or before
the Effective Date, the Debtors shall establish one or more
segregated bank accounts in the name of Reorganized Leslie Fay as
Disbursing Agent under the Plan, which accounts shall be trust
accounts for the benefit of Creditors pursuant to the Plan and
utilized solely for the investment and distribution of Cash
consistent with the terms and conditions of the Plan. On or before
the Effective Date, the Debtors shall deposit into such
Disbursement Account(s) all Cash and Cash Equivalents of the
Debtors, less the sum of Eight Million Dollars ($8,000,000.00) to
satisfy the working capital needs of Reorganized Leslie Fay
Operating Company as described in Section 3.2(g) hereof. From and
after the Effective Date, the Plan Administrator shall deposit
into the Disbursement Account(s) all Cash proceeds of Plan Assets
less amounts, if any, necessary to supplement the amounts referred
to in this Section 36.1 of the Plan.
36.2 Maintenance of Disbursement Account(s).
Disbursement Account(s) shall be maintained at one or more
domestic banks or financial institutions of Reorganized Leslie
Fay's choice having a shareholder's equity or equivalent capital
of not less than One Hundred Million Dollars ($100,000,000.00).
Reorganized Leslie Fay shall invest Cash in Disbursement
Account(s) in Cash Equivalents; provided, however, that sufficient
liquidity shall be maintained in such account or accounts to (a)
make promptly when due all payments upon Disputed Claims if, as
and when they become Allowed Claims, and (b) make promptly when
due the other payments provided for in the Plan.
ARTICLE XXXVII
EFFECT OF CONFIRMATION
37.1 Reorganized Leslie Fay Authority.
(a) General Authority. During the period from the
Confirmation Date up to but not including the Effective Date, the
Bankruptcy Court shall retain custody and jurisdiction of the
Debtors, their property and their operations. On the Effective
Date, Reorganized Leslie Fay, its property and its operations
shall be released from the custody and jurisdiction of the
Bankruptcy Court, except as provided in Section 38.1 hereof.
(b) Compromise and Settlement of Certain Class of
Controversies. From and after the Confirmation Date, all
controversies pending before any court other than the Bankruptcy
Court shall constitute a class of controversies under Rule 9019(b)
of the Bankruptcy Rules and Reorganized Leslie Fay may compromise
or settle any controversy in such class without further approval
by the Bankruptcy Court.
37.2 Title to Assets; Discharge of Liabilities. Except
as otherwise provided by the Plan, on the Effective Date, title to
all assets and properties encompassed by the Plan shall vest in
Reorganized Leslie Fay, New Sassco, Reorganized Leslie Fay
Operating Company, Reorganized Leslie Fay Licensing Company or New
Castleberry, as the case may be, in accordance with section 1141
of the Bankruptcy Code, and the Confirmation Order shall be a
judicial determination of discharge of the Debtors' liabilities
except as provided in the Plan.
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37.3 Discharge of Debtors. The rights afforded in the
Plan and the treatment of all holders of Claims or Equity
Interests herein shall be in exchange for and in complete
satisfaction, discharge and release of all Claims or Equity
Interests of any nature whatsoever, known or unknown, including
any interest accrued or expenses incurred thereon from and after
the Petition Date against any of the Debtors or any of their
respective estates or properties or interests in property. Except
as otherwise provided herein, upon the Effective Date, all Claims
and equity Interests in the Debtors will be satisfied, discharged
and released in full exchange for the consideration provided for
hereunder. All Persons and Entities shall be precluded from
asserting against any Debtor, their successors, including, without
limitation, Reorganized Leslie Fay, Reorganized Leslie Fay
Operating Company, New Castleberry and New Sassco, their agents
and employees, or their respective assets or properties, any other
or further Claims based upon any act or omission, transaction or
other activity of any kind or nature arising from or related to
the Debtors or the Chapter 11 Cases that occurred prior to the
Effective Date.
37.4 Injunction. Except as otherwise expressly provided
in the Plan, the Confirmation Order will provide, among other
things, that all Persons or Entities who have held, hold or may
hold Claims or Equity Interests are permanently enjoined, from and
after the Effective Date, from (a) commencing or continuing in any
manner any action or other proceeding of any kind on any such
Claim or Equity Interest against a Debtor, Reorganized Leslie Fay,
Reorganized Leslie Fay Operating Company, Reorganized Leslie Fay
Licensing Company, New Castleberry or New Sassco, (b) the
enforcement, attachment, collection or recovery by any manner or
means of any judgment, award, decree or order against the Debtors,
(c) creating, perfecting, or enforcing any encumbrance of any
kind against the Debtors or against the property or interests in
property of the Debtors, and (d) asserting any right of setoff,
subrogation or recoupment of any kind against any obligation due
from the Debtors or against the property or interests in property
of the Debtors, with respect to any such Claim.
37.5 Term of Existing Injunctions or Stays. Unless
otherwise provided, all injunctions or stays provided for in the
Chapter 11 Cases pursuant to sections 105 or 362 of the Bankruptcy
Code, or otherwise, and in existence on the Confirmation Date,
shall remain in full force and effect until the Effective Date.
37.6 Limited Release of Directors, Officers and
Employees. As of the Effective Date, the Debtors shall be deemed
to have waived and released their present and former directors,
officers and employees who were directors, officers and employees,
respectively, during the Chapter 11 Cases and on or before April
5, 1993, from any and all claims of the Debtors, including,
without limitation, claims which the Debtors or Debtors in
Possession otherwise have legal power to assert, compromise or
settle in connection with the Chapter 11 Cases, arising on or
prior to the Effective Date; provided, however, that this
provision shall not operate as a waiver or release of any claim
(i) in respect to any loan, advance or similar payment by any
Debtor to any such person, (ii) in respect of any contractual
obligation owed by such person to any Debtor, (iii) relating to
such person's fraud or gross negligence or (iv) to the extent
based upon or attributable to such person gaining in fact a
personal profit to which such person was not legally entitled,
including, without limitation, profits made from the purchase or
sale of equity securities of the Debtors which are recoverable by
the Debtors pursuant to section 16(b) of the Securities Exchange
Act of 1934, as amended.
37.7 Exculpation. None of the Debtors, Reorganized
Leslie Fay, the Plan Administrator, the Creditor Representative or
any of their respective directors, officers, employees, advisors
and agents (acting in such capacity), nor the Creditors' Committee
and the Equity Committee and their respective members and
professionals (acting in such capacity), shall have or incur any
liability to any entity for any act taken or omitted to be taken
in connection with or related to the formulation, preparation,
dissemination, implementation, confirmation or consummation of the
Plan, the disclosure statement related thereto or any contract,
instrument, release or other agreement or document created or
entered into, or any other act taken or omitted to be taken in
connection with the Plan; provided, however, that the foregoing
provisions of this Section 37.7 shall not affect the liability of
any entity that otherwise would result from any such act or
omission to the extent that such act or omission is determined in
a Final Order to have constituted gross negligence, willful
misconduct or breach of fiduciary duty. The Debtors, the
Creditors' Committee and their respective advisors, attorneys and
agents shall have no liability under the Plan to any Creditor or
holder of an Equity Interest by virtue of being a proponent of the
Plan.
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37.8 Preservation of Rights of Action. Except as
otherwise provided in the Plan or in any contract, instrument,
release, or other agreement entered into in connection with the
Plan, in accordance with section 1123(b) of the Bankruptcy Code,
Reorganized Leslie Fay shall retain the sole and exclusive
authority to enforce any claims, rights and causes of action that
the Debtors or their chapter 11 estates may hold against any
entity, including any claims, rights or causes of action arising
under sections 544, 547, 548, 549 and 550 of the Bankruptcy Code.
Reorganized Leslie Fay may pursue such retained claims, rights or
causes of action, as appropriate, in accordance with the best
interests of Reorganized Leslie Fay.
37.9 Injunction. Except as provided herein, as of the
Effective Date, all non-Debtor entities are permanently enjoined
from commencing or continuing in any manner, any action or
proceeding, whether directly, derivatively, on account of or
respecting any claim, debt, right or cause of action of the
Debtors or Reorganized Leslie Fay which the Debtors or Reorganized
Leslie Fay, as the case may be, retain sole and exclusive
authority to pursue in accordance with Section 26.1 of the Plan or
which has been released by the Debtors or Reorganized Leslie Fay
in accordance with Section 37.6 of the Plan.
ARTICLE XXXVIII
RETENTION OF JURISDICTION
38.1 Retention of Jurisdiction. The Bankruptcy Court
shall retain and have exclusive jurisdiction over the Chapter 11
Cases for the following purposes:
(a) to resolve any matters related to the assumption,
assumption and assignment or rejection of any executory contract
or unexpired lease to which the Debtors are a party or with
respect to which the Debtors may be liable and to hear, determine
and, if necessary, liquidate, any Claims arising therefrom,
including those matters related to the amendment after the
Effective Date (pursuant to Section 34.3 of the Plan), to add any
executory contracts or unexpired leases to the list of executory
contracts and unexpired leases to be rejected;
(b) to enter such orders as may be necessary or
appropriate to implement or consummate the provisions of the Plan
and all contracts, instruments, releases, indentures and other
agreements or documents created in connection with the Plan;
(c) to determine any and all adversary proceedings,
applications and contested matters other than any controversy in
the class of controversies fixed in Section 28.3 hereof;
(d) to ensure that distributions to holders of
Allowed Claims are accomplished as provided herein;
(e) to hear and determine any timely objections to
Administrative Expense Claims or to proofs of claim and equity
interests filed, both before and after the Confirmation Date,
including any objections to the classification of any Claim or
Equity Interest, and to allow, disallow, determine, liquidate,
classify, estimate or establish the priority of secured or
unsecured status or any Claim, in whole or in part;
(f) to enter and implement such orders as may be
appropriate in the event the Confirmation Order is for any reason
stayed, revoked, modified, reversed or vacated;
(g) to issue such orders in aide of execution
of the Plan, to the extent authorized by section 1142 of
the Bankruptcy Code;
(h) to consider any modifications of the Plan, to cure
any defect or omission, or reconcile any inconsistency in any
order of the Bankruptcy Court, including the Confirmation Order;
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(i) to hear and determine all applications for
awards of compensation for services rendered and
reimbursement of expenses incurred prior to the Effective
Date;
(j) to hear and determine disputes arising in connection
with the interpretation, implementation, or enforcement of the
Plan or the extent of any entity's obligations incurred in
connection with or released under the Plan;
(k) to issue injunctions, enter and implement other
orders or take such other actions as may be necessary or
appropriate to restrain interference by any entity with
consummation or enforcement of the Plan, except as otherwise
provided herein;
(l) to determine any other matters that may arise in
connection with or relate to the Plan, the Disclosure Statement,
the Confirmation Order or any contract, instrument, release,
indenture or other agreement or document created in connection
with the Plan or the Disclosure Statement;
(m) to hear and determine matters concerning state,
local and federal taxes in accordance with sections 346, 505, and
1146 of the Bankruptcy Code;
(n) to hear any other matter or for any purpose
specified in the Confirmation Order that is not
inconsistent with the Bankruptcy Code; and
(o) to enter a final decree closing the Chapter
11 Cases.
38.2 Modification of Plan. The Proponents reserve the
right, in accordance with the Bankruptcy Code and the Bankruptcy
Rules, to amend or modify the Plan at any time prior to the entry
of the Confirmation Order. After the entry of the Confirmation
Order, the Proponents may, upon order of the Bankruptcy Court,
amend or modify the Plan, in accordance with section 1127(b) of
the Bankruptcy Code, or remedy any defect or omission or reconcile
any inconsistency in the Plan in such manner as may be necessary
to carry out the purpose and intent of the Plan. A holder of a
Claim that has accepted the Plan shall be deemed to have accepted
the Plan as modified if the proposed modification does not
materially and adversely change the treatment of the Claim of such
holder.
ARTICLE XXXIX
PROVISIONS FOR MANAGEMENT
39.1 Directors. As of the Effective Date, the directors
of Reorganized Leslie Fay shall be such Persons as the Creditors'
Committee and Pomerantz shall designate, in accordance with
Section 5.4 hereof, subject to the approval of the Bankruptcy
Court, on or prior to the Confirmation Date. As of the Effective
Date, the directors of New Sassco shall be such Persons as the
Creditors' Committee and Levine shall designate, in accordance
with Section 4.6 hereof, subject to the approval of the Bankruptcy
Court, on or prior to the Confirmation Date. Thereafter, the terms
and manner of selection of the directors of Reorganized Leslie Fay
and New Sassco shall be as provided in the Amended Bylaws of
Reorganized Leslie Fay and New Sassco Bylaws (and, in the case of
New Sassco, the Levine Employment Agreement), as applicable, as
the same may be amended.
39.2 Officers. The officer(s) of the Debtors and Sassco
on the Effective Date shall continue to serve as officer(s) of
Reorganized Leslie Fay or New Sassco, as the case may be, after
the Effective Date and until such time as they may resign, be
removed or be replaced or their employment contracts, if any, may
expire.
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39.3 Employment Contracts. After the Effective Date, New
Sassco and Reorganized Leslie Fay may enter into such employment
contracts with its officers, agents or employees as the Board of
Directors of New Sassco or the Board of Directors of Reorganized
Leslie Fay, respectively, may approve.
ARTICLE XL
ARTICLES OF INCORPORATION AND BY-LAWS OF THE DEBTORS
40.1 Amendment of Articles of Incorporation and By-Laws.
The articles of incorporation and by-laws of the Debtors shall be
amended on the Effective Date to read substantially as set forth
in the Amended Certificate of Incorporation of Reorganized Leslie
Fay and Amended Bylaws
of Reorganized Leslie Fay.
ARTICLE XLI
MISCELLANEOUS PROVISIONS
41.1 Payment of Statutory Fees. All fees payable
pursuant to section 1930 of title 28 of the United States Code, as
determined by the Bankruptcy Court at the Confirmation Hearing,
shall be paid on the Consummation Date.
41.2 Retiree Benefits. From and after the Effective
Date, pursuant to section 1129(a)(13) of the Bankruptcy Code,
Reorganized Leslie Fay shall continue to pay all retiree benefits
(within the meaning of section 1114 of the Bankruptcy Code), at
the level established in accordance with subsection (e)(1)(B) or
(g) of section 1114 of the Bankruptcy Code, at any time prior to
the Confirmation Date, at the level and for the duration of the
period during which each Debtor has obligated itself to provide
such benefits.
41.3 Post-Effective Date Fees and Expenses. From and
after the Effective Date, Reorganized Leslie Fay shall, in the
ordinary course of business and without the necessity for any
approval by the Bankruptcy Court, pay the reasonable fees and
expenses of the professional persons thereafter incurred by
Reorganized Leslie Fay or the Plan Administrator related to
implementation and consummation of the Plan.
41.4 Severability. If, prior to the Confirmation Date,
any term or provision of the Plan is held by the Bankruptcy Court
to be invalid, void or unenforceable, the Bankruptcy Court shall,
with the consent of the Debtors, have the power to alter and
interpret such term or provision to make it valid or enforceable
to the maximum extent practicable, consistent with the original
purpose of the term or provision held to be invalid, void or
unenforceable, and such term or provision shall then be applicable
as altered or interpreted. Notwithstanding any such holding,
alteration or interpretation, the remainder of the terms and
provisions of the Plan shall remain in full force and effect and
shall in no way be affected, impaired or invalidated by such
holding, alteration or interpretation. The Confirmation Order
shall constitute a judicial determination and shall provide that
each term and provision of the Plan, as it may have been altered
or interpreted in accordance with the foregoing, is valid and
enforceable pursuant to its terms.
41.5 Governing Law. Except to the extent that the
Bankruptcy Code or other federal law is applicable, or to the
extent that an Exhibit hereto or document contained in the Plan
Supplement provides otherwise, the rights, duties and obligations
arising under this Plan shall be governed by, and construed and
enforced in accordance with, the Bankruptcy Code and, to the
extent not inconsistent therewith, the laws of the State of New
York, without giving effect to principles of conflicts of laws.
41.6 Notices. All notices, requests, and demands to or
upon the Debtors or Reorganized Leslie Fay to be effective shall
be in writing, including by facsimile transmission, and, unless
otherwise expressly provided herein, shall be
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deemed to have been duly given or made when actually delivered or,
in the case of notice by facsimile transmission, when received and
telephonically confirmed, addressed as follows:
The Leslie Fay Companies, Inc.
1412 Broadway
New York, New York 10018
Attention: General Counsel
Telecopier: (212) 221-4285
Telephonic Confirmation: (212) 221-4160
With a copy to:
(1) Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Alan B. Miller, Esq.
Telecopier: (212) 735-4965
Telephonic Confirmation: (212) 310-8272
- and -
(2) The Official Committee of Unsecured
Creditors of The Leslie Fay Companies, Inc.
c/o Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Chaim J. Fortgang, Esq.
Telecopier: (212) 403-2000
Telephonic Confirmation: (212) 403-1000
41.7 Closing of Cases. Reorganized Leslie Fay shall,
promptly upon the full administration of the Chapter 11 cases,
file with the Bankruptcy Court all documents required by
Bankruptcy Rule 3022 and any applicable order of the Bankruptcy
Court.
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41.8 Section Headings. The section headings
contained in this Plan are for reference purposes only and
shall not affect in any way the meaning or interpretation
of the Plan.
Dated: New York, New York
December 5, 1996
Respectfully submitted,
THE LESLIE FAY COMPANIES, INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY LICENSING CORP.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
HUE, INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
SPITALNICK CORP.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY RETAIL OUTLETS, INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
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LESLIE FAY FACTORY OUTLET
(ALABAMA), INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(CALIFORNIA), INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(IOWA), INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(TENNESSEE), INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
/s/ Brian S. Rosen /s/ Chaim J. Fortgang
------------------------- -----------------------------------
BRIAN S. ROSEN (BR 0571) CHAIM J. FORTGANG (CF 0895)
A Member of the Firm A Member of the Firm
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors and Attorneys for the Official
Debtors in Possession Committee of Unsecured Creditors
767 Fifth Avenue of The Leslie Fay Companies, Inc.
New York, New York 10153 51 West 52nd Street
(212) 310-8000 New York, New York 10019
(212) 403-1000
43
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Exhibit A to Plan
Certain Terms of, and Restrictions
on, New Sassco Management Options
A. Grant of Senior Management Options. New Sassco Management
Recipients will receive New Sassco Management Options to
purchase New Sassco Stock on a fully-diluted basis, as
follows.
i. Effective Date. On the Effective Date, New Sassco
Management Options (the "Initial Options") will be granted
for 10% of the New Sassco Stock.
ii. 1997 Fiscal Year. If New Sassco achieves an EBITDA of at
least $29,000,000 in the 1997 fiscal year, New Sassco
Management Options (the "1997 Options") will be granted for
an additional 5% of the New Sassco Stock.
iii. 1998 Fiscal Year. If New Sassco achieves an EBITDA of
$33,000,000 for the 1998 fiscal year, New Sassco Management
Options (the "1998 Options") will be granted for an
additional 5% of the New Sassco Stock.
iv. Home Run. If New Sassco achieves an EBITDA of $44,000,000
in or before the 2001 fiscal year, New Sassco Management
Options (the "Home Run Options") will be granted for an
additional 2.5% of the New Sassco Stock.
v. Alternative Grant. If the 1997 Options and/or 1998 Options
are not granted pursuant to clauses (a)(ii) and (a)(iii)
above, New Sassco Management Options will be granted in
equivalent amounts if, in the 1999 fiscal year, New Sassco
achieves an EBITDA equal to the lesser of (x) $37,500,000
and (y) the Budgeted EBITDA (as defined in Exhibit B) for
the 1999 fiscal year.
B. Additional Terms of New Sassco Management Options.
i. Vesting of Initial Options. 25% of the Initial Options will
vest on the Effective Date. 15% of the Initial Options will
vest on each of the first five Anniversaries.
Notwithstanding the foregoing, vesting will occur
automatically upon the death, permanent disability,
termination without cause or resignation for good reason of
the Management Recipient.
ii. Transferability of Initial Options. Vested Initial Options
held by a New Sassco Management Recipient will become
transferable during the periods set forth in column 1 below
in an amount equal to such Management Recipient's ratable
share of the percentage of aggregate vested and non-vested
Initial Options set forth in column 2 below:
1 2
--- ----
Prior to the first Anniversary 0%
On and after the first Anniversary 10%
On and after the second Anniversary 10%
On and after the third Anniversary 10%
On and after the fourth Anniversary 25%
On and after the fifth Anniversary 45%
A-1
<PAGE>
Notwithstanding the above, Levine will have the right
to sell up to $1 million per year (based upon actual
gross sales price) on a cumulative basis (i.e., up to
$1 million on and after the first Anniversary, up to $2
million (less prior sales) on and after the second
Anniversary, etc.) of his vested New Sassco Management
Options and/or stock acquired upon exercise of New
Sassco Management Options, subject to applicable law.
iii. Vesting of Other Senior Management Options. 1997 Options
and 1998 Options, if granted, will vest in accordance with
the schedule set forth above for Initial Options (as if
they had been granted on the Effective Date). Home Runs
Options, if granted, will vest immediately upon the date of
grant.
iv. Transferability of Other Senior Management Options. 1997
Options and 1998 Options, if granted, will be transferable
in accordance with the schedule set forth above for Initial
Options (as if they had been granted on the Effective
Date). Home Runs Options, if granted, will be transferable
immediately upon the date of grant.
v. Exercise Price. The exercise price of New Sassco Management
Options will be the average market price of New Sassco
Stock during the (i) ten days before the thirtieth day
after the Effective Date and (ii) ten days after such
thirtieth day.
vi. Cashless Exercise. New Sassco Management Recipients will be
allowed to exercise New Sassco Management Options on a
cashless basis. The value of the block of New Sassco Stock
to be used as "currency" in the exercise will be the
average market price over the fifteen-day trading period
immediately prior to the date of exercise, less (in the
case of New Sassco Management Options exercised on or
before the end of the thirtieth month immediately following
the Effective Date) the discount, if any, that an
independent broker retained by New Sassco determines to be
appropriate in order to reflect "thinness" of trading
volume over such period when compared to the amount of
"currency" stock.
vii. Exercise Period. New Sassco Management Options will be
exercisable from the date of vesting thereof until (i) the
ninetieth day following the date of the New Sassco
Management Recipient's retirement, resignation (other than
for good reason) or termination for cause, if the same
occurs prior to the fifth Anniversary, (ii) the later of
(x) the end of the sixth calendar month following the sixth
Anniversary and (y) eighteen months following the date of
termination of employment, if the New Sassco Management
Recipient remains employed by New Sassco through, or is
terminated without cause or resigns for good reason prior
to, the fifth Anniversary or (iii) in the event of the
death or permanent disability of a New Sassco Management
Recipient, the earlier of (x) the end of the second
calendar year after the date of such death or permanent
disability and (y) the end of the sixth calendar month
following the sixth Anniversary. All New Sassco Management
Options not exercised by such date will expire
automatically.
viii. Forfeiture. In the event that a New Sassco Management
Recipient is terminated for cause or voluntarily retires or
resigns other than for good reason, all non-vested New
Sassco Management Options received by such New Sassco
Management Recipient will be automatically forfeited to,
and cancelled by, New Sassco.
A-2
<PAGE>
Exhibit B to Plan
Principal Terms of Levine Employment Agreement
On the Effective Date, Levine and New Sassco will enter into
a five-year employment contract. In addition to the compensation terms
set forth below, such contract will contain customary terms and
provisions, including a non-competition agreement by Levine expiring on
the fifth Anniversary.
A. Base Salary. Levine's base salary will be $2 million per
annum.
B. Bonus. Commencing with the 1998 fiscal year, Levine will
be entitled to annual bonuses based upon New Sassco's
achievement of EBITDA targets as set forth below, so long
as he remains employed by New Sassco:
i. 1998 fiscal year. If New Sassco's EBITDA for the 1998
fiscal year (the "1998 EBITDA") is at least $34 million,
Levine will earn a cash bonus (the "1998 Bonus") equal to
the sum of (x) $500,000 plus (y) 50% of 1998 EBITDA in
excess of $34 million; provided, however, that (aa) in no
event shall the 1998 Bonus exceed $1.5 million and (bb) in
the event that New Sassco's 1998 EBITDA is less than $36.5
million, New Sassco shall defer payment of $500,000 of the
1998 Bonus and pay the same to Levine promptly after the
first fiscal year following the 1998 fiscal year in which
New Sassco's EBITDA is at least $36.5 million.
ii. 1999 fiscal year and thereafter. For each fiscal year
following the 1998 fiscal year, if New Sassco's EBITDA is
(a) less than or equal to 85% of the Budgeted EBITDA (as
hereinafter defined) for such year (the "Minimum
Percentage"), Levine will receive no bonus or (b) greater
than the Minimum Percentage, Levine will receive a cash
bonus of $100,000 or portion thereof for each percentage
point or portion thereof of such Budgeted EBITDA by which
such EBITDA exceeds the Minimum Percent- age; provided,
however, that Levine shall not be entitled to a bonus in
excess of $1.5 million for any fiscal year. "Budgeted
EBITDA" for any fiscal year shall be the single EBITDA
target for such fiscal year contained in the operating
budget established by the New Sassco board of directors
(the "New Sassco Board") in good faith for New Sassco as a
whole.
C. Termination.
i. Termination for Cause. If Levine is terminated for "cause",
Levine will receive the following, pro-rated through the
date of termination: (i) his base salary plus (ii) if
Levine is terminated pursuant to paragraph (c)(iii)(c)
below, his bonus, if any, for the fiscal year of such
termination.
ii. Termination Without Cause, or Resignation for Good Reason.
If Levine is terminated without "cause" or resigns for
"good reason", Levine will receive the present value of his
base salary for the remainder of his contract term (using a
10% discount factor) (the "Termination Amount"); provided,
however, that if the sole basis for Levine's resignation
for "good reason" is a "change in control" of New Sassco,
Levine will receive only 57% of the Termination Amount.
iii. Definition of "Cause". "Cause" will be defined as (a)
conviction of Levine for a felony; (b) perpetration by
Levine of (x) an illegal act which causes significant
economic injury to New Sassco or (y) a common law fraud
against New Sassco; or (c) willful violation by Levine
(following a warning in writing with respect thereto from
the New Sassco Board) of a specific written direction from
the New Sassco Board concerning one or more matters
material to New Sassco's business and not within the
purview of Levine as Chief Executive Officer as described
in the next succeeding sentence ("Material
Insubordination"). It is understood that the day-to-day
operations of New Sassco shall be within the purview of
Levine as Chief Executive Officer to the maximum extent
consistent with the standards in New Sassco's industry for
comparable public companies. In the event of a dispute by
the
B-1
<PAGE>
parties, the issue of whether Levine has committed
Material Insubordination will be submitted to
arbitration.
iv. "Good reason" will be defined as the continuation of
any of the following events for more than ten (10) days
after New Sassco's receipt from Levine of written
notice thereof.
(a) Levine shall fail to be re-elected as a
Director of New Sassco and as Chairman of
the New Sassco Board of Directors or shall
be removed from such position or the
position of Chief Executive Officer of New
Sassco at any time during the term of his
employment (other than for "cause"), or
Levine's designee(s) or observer shall
fail to be re-elected or shall be removed
as a Director or observer during such
term, or the size of the New Sassco Board
of Directors shall be expanded and Levine
shall not be given reasonable opportunity
to designate one or more additional
Directors such that Levine and all
Directors designated by Levine shall
comprise at least 28% of the membership of
the New Sassco Board of Directors;
(b) Levine shall fail to be vested with the
powers and authority of Chief Executive
Officer of New Sassco as described above,
or the powers and authority of such
position or his authority and
responsibilities with respect thereto
shall be diminished in any material
respect;
(c) Levine shall have assigned to him without his
express written consent any duties, functions,
authority or responsibilities that are materially
inconsistent with Levine's positions described
above;
(d) Levine's principal place of employment is changed
to a location more than twenty-five miles from the
prior location without Levine's prior written
consent;
(e) any material failure by New Sassco to
comply with any of the provisions of
Levine's employment agreement including,
without limitation, failure to make any
material payment required to be made by
New Sassco within five (5) business days
after the date such payment is required to
be made;
(f) any purported termination by New Sassco of
Levine's employment otherwise than as expressly
permitted by, and in compliance with all
conditions and procedures of, Levine's employment
agreement;
(g) New Sassco shall fail to comply with the
provisions of Levine's employment agreement
concerning (i) maintenance of directors and
officers liability insurance and (ii) assumption
of New Sassco's obligations under Levine's
employment agreement by successors to New Sassco,
or
(h) a "change in control" shall have occurred
with respect to New Sassco.
D. Miscellaneous.
i. Levine's affiliate's claims of $1,450,000 against
Leslie Fay will be allowed in full as pre-petition,
unsecured claims and will receive their ratable share
of distributions to the Creditors. Leslie Fay's claims
against Levine will be released in full.
ii. Levine and his affiliates will be reimbursed in the
aggregate amount of $200,000 for their out-of-pocket
expenses in connection with this transaction and their
prior efforts to purchase Sassco.
B-2
<PAGE>
Exhibit C to Plan
Reorganized Leslie Fay Employment Arrangements
A. Salary. The following Reorganized Leslie Fay Senior
Managers will have employment contracts with Reorganized
Leslie Fay that will expire on the first anniversary of
the Effective Date, at the corresponding per annum
salaries and allowances (collectively with the bonuses
described in paragraph 3 below, "Compensation"):
Base Salary Auto Allowance Clothing Allowance
----------- -------------- ------------------
J. Pomerantz $ 430,000 Company car $ 0
J. Ward 400,000 $1140/month 0
C. Bandel 250,000 900/month 200/month
D. Fellicetti 325,000 900/month 0
W. Wishart 200,000 900/month 0
$1,605,000
B. Termination Pay. If a Reorganized Leslie Fay Senior Manager
is terminated without cause (including Reorganized Leslie Fay
determination (other than for cause) not to renew the
Reorganized Leslie Fay Senior Manager's contract at the end of
its term), the Reorganized Leslie Fay Senior Manager will
receive severance equal to: (a) if the termination occurs in
conjunction with a change of control, the remaining
Compensation under the Reorganized Leslie Fay Manager's
contract plus the greater of (i) one year's Compensation minus
profits, if any, realized on options, or option stock, in
connection with the change of control and (ii) six months'
Compensation and (b) if the termination does not occur in
conjunction with a change of control, the greater of (i) six
months' Compensation and (ii) the remaining Compensation due
under the Reorganized Leslie Fay Senior Manager's contract.
C. Cash Bonuses.
i. Amount. If Reorganized Leslie Fay EBITDA (before profit
sharing, excluding Castleberry and "Transco" allocation
(as defined in the financial reporting package
periodically presented to the Creditors' Committee) and
including Hue licensing revenue) is greater than or equal
to 85% ("Minimum Percentage") of Target EBITDA (as defined
in Exhibit D), Reorganized Leslie Fay Senior Managers
(including J. Pomerantz) will earn aggregate annual cash
bonuses ("Cash Bonus Pool") equal to the sum of (a) 9.6%
of Reorganized Leslie Fay EBITDA plus (b) 0.2% of
Reorganized Leslie Fay EBITDA for each percentage point,
if any, of Target EBITDA by which Reorganized Leslie Fay
EBITDA exceeds the Minimum Percentage; provided, however,
that the Cash Bonus Pool shall not exceed 12.5% of
Reorganized Leslie Fay EBITDA.
C-1
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<PAGE>
Exhibit D to Plan
Reorganized Leslie Fay Stock Options
Reorganized Leslie Fay Senior Managers will receive
nontransferable Reorganized Leslie Fay Stock Options as follows (to be
shared among members of senior management as they agree):
A. Options for 5% of Reorganized Leslie Fay common stock upon the
Effective Date. One third of such options will vest on each of
first three anniversaries of Effective Date; provided, however,
that all options will vest immediately upon a change of control.
Strike price will equal a $21,000,000 Reorganized Leslie Fay
valuation (or $6.18 per share based on 3,400,000 shares).
B. Options for another 5% of Reorganized Leslie Fay common stock (at
same strike price) if Reorganized Leslie Fay's 1996 Target EBITDA
is achieved. One third of such options will vest on each of first
three anniversaries of grant; provided, however, that all options
will vest immediately upon a change of control.
C. Options for another 7.5% of Reorganized Leslie Fay common stock
(at same strike price) if a "Home Run" is achieved. All such
options vest upon occurrence of "Home Run." "Home Run" will be
defined as a business combination, underwritten equity offering or
other similar corporate transaction pursuant to which the
enterprise value imputed to Reorganized Leslie Fay is at least:
i. $40 million if the transaction occurs on or
before the first anniversary of the Effective
Date; provided, however, that if the enterprise
value is $37.5 million, "Home Run" options will
be granted for 2.5% of Reorganized Leslie Fay
common stock, with another 0.1% granted for
each additional $50,000 in enterprise value up
to $40 million.
ii. $60 million if the transaction occurs on or
before the second anniversary of the Effective
Date; provided, however, that if the enterprise
value is $45 million, "Home Run" options will
be granted for 2.5% of Reorganized Leslie Fay
common stock, with another 0.1% granted for
each additional $300,000 in enterprise value up
to $60 million.
iii. $80 million if the transaction occurs on or
before the third anniversary of the Effective
Date; provided, however, that if the enterprise
value is $60 million, "Home Run" options will
be granted for 2.5% of Reorganized Leslie Fay
common stock, with another 0.1% granted for
each additional $400,000 in enterprise value up
to $80 million, or
iv. $100 million if the transaction occurs after
the third anniversary of the Effective Date;
provided, however, that if the enterprise value
is $75 million, "Home Run" options will be
granted for 2.5% of Reorganized Leslie Fay
common stock, with another 0.1% granted for
each additional $500,000 in enterprise value up
to $100 million.
For purposes of the foregoing thresholds, a transaction that
was begun in the prior year (pursuant to execution of definitive
documentation) but not consummated until the following year, will be
valued as occurring in the prior year.
D. Target EBITDA. "Target EBITDA" means (i) for 1996, $4.2
million (before profit sharing, excluding Castleberry, and
including Hue licensing revenues), (ii) for 1997, the
projected EBITDA used by Reorganized Leslie Fay to procure
exit financing from the Chapter 11 Cases and (iii) for all
years thereafter, the target EBITDA for Reorganized Leslie
Fay established by the Reorganized Leslie Fay board of
directors.
E. Board of Directors. The initial board of directors will
have seven members, five of whom will be designees of the
Committee and two of whom will be Pomerantz and a designee
of Pomerantz.
D-1
<PAGE>
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<PAGE>
EXHIBIT B
TO DISCLOSURE STATEMENT
<PAGE>
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<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- -----------------------------------X
In re :
Chapter 11 Case No.
THE LESLIE FAY COMPANIES, : 93 B 41724 et seq. (TLB)
INC., et al., Jointly Administered
:
Debtors.
:
- -----------------------------------X
ORDER (A) APPROVING DISCLOSURE STATEMENT, (B)
ESTABLISHING PROCEDURES FOR SOLICITATION AND
TABULATION OF VOTES TO ACCEPT OR REJECT PLAN OF
REORGANIZATION AND ELECT DISTRIBUTIONS WITH RESPECT
THERETO, AND (C) APPROVING NOTICE AND PUBLICATION
PROCEDURES FOR CONFIRMATION OF THE PLAN OF REORGANIZATION
A hearing having been held on November 21, 1996, and continued on
November 26, 1996 (collectively, the "Hearing"), pursuant to a scheduling order
of the Court, dated November 15, 1995 (the "Scheduling Order"), to consider the
motion (the "Motion"), dated November 15, 1995, of The Leslie Fay Companies,
Inc. ("Leslie Fay"), Spitalnick Corp., Hue, Inc., Leslie Fay Licensing Corp.,
Leslie Fay Retail Outlets, Inc., Leslie Fay Factory Outlet (Alabama), Inc.,
Leslie Fay Factory Outlet (California), Inc., Leslie Fay Factory Outlet (Iowa),
Inc., and Leslie Fay Factory Outlet (Tennessee), Inc., as debtors and debtors in
possession (collectively, the "Debtors"), for an order approving, among other
things, the adequacy of the information contained in that certain Disclosure
Statement For Amended Plan of Reorganization of Debtors Pursuant to Chapter 11
of the United States Bankruptcy Code, dated November 15, 1995 (the "Original
Disclosure Statement"), pursuant to section 1125 of title 11, United States Code
(the "Bankruptcy Code"); and responses and objections to the adequacy of the
information contained in the Original Disclosure Statement having been filed by
The ILGWU National Retirement Fund (the "Fund"), Debt Acquisition Company of
America II, L.P. and Debt Acquisition Company of America III, L.P.
(collectively, "DACA"), the Securities and Exchange Commission, Paul Polishan,
and Juan Kelley (collectively, the "Original Objections"); and the Debtors and
the Official Committee of Unsecured Creditors (the "Creditors' Committee")
having filed that certain Disclosure Statement for Amended Plan of
Reorganization of Debtors Pursuant to Chapter 11 of the United States Bankruptcy
Code, dated November 15, 1996 (the "Amended Disclosure Statement") in connection
with the Debtors' proposed Joint Plan of Reorganization For Debtors Pursuant to
Chapter 11 of the United States Bankruptcy Code, dated November 15, 1996 (as the
same has been, and may be further, amended or modified from time to time, the
"Plan");(1) and pursuant to the Scheduling Order and subsequent orders of the
Court, the Debtors having provided a copy of the Amended Disclosure Statement to
the parties having submitted the Original Objections; and subsequent responses
having been filed or submitted by the Fund, DACA, the Office of the United
States Trustee (the "U.S. Trustee") and Eric R. Kuhn (collectively, the
"Subsequent Objections"); and the Court having determined that the notice of the
Hearing was adequate and appropriate with respect to all affected parties; and
the appearances of all interested parties having been noted in the record of the
Hearing; and the Debtors and the Creditors' Committee having filed (1) an
amended disclosure statement, dated December 5, 1996 (the "Second Amended
Disclosure Statement") to address issues raised in the Subsequent Objections and
at the Hearing and (2) a shortened form of the Second Amended Disclosure
Statement (the "Short Form"), a copy of which is annexed hereto as Exhibit "A",
to be served upon Leslie Fay's equity interest
_______________
1. Unless otherwise defined herein, capitalized terms used herein shall have the
meanings ascribed to them in the Plan.
<PAGE>
holders; and, upon the Motion, and all of the proceedings held before the Court,
the Court having considered the adequacy of the Second Amended Disclosure
Statement, the Short Form and the materials to be transmitted therewith; and
after due deliberation and sufficient cause appearing therefor, it is
ORDERED that the Motion be, and it hereby is, approved in all
respects; and it is further
ORDERED that the Original Objections and the Subsequent Objections be,
and each of them hereby is, overruled or rendered moot based upon the
information contained in the Second Amended Disclosure Statement; and it is
further
ORDERED that, in accordance with section 1125 of the Bankruptcy Code
and Bankruptcy Rule 3017(b), (i) the Second Amended Disclosure Statement and the
Short Form (and all exhibits and schedules thereto), as the same may be amended
and modified from time to time to incorporate any modifications that the Debtors
and the Creditors' Committee determine to be appropriate and which do not
materially change the Second Amended Disclosure Statement or the Short Form or
materially affect any rights of a party in interest, and (ii) the cover letter
to the Second Amended Disclosure Statement from the Debtors, substantially in
the form of the letter annexed hereto as Exhibit "B" (the "Letter"), be, and
each of them hereby is, approved as containing "adequate information" within the
meaning of section 1125(a) of the Bankruptcy Code; and it is further
ORDERED that a hearing to consider confirmation of the Plan (the
"Confirmation Hearing") shall be held before the Honorable Tina L. Brozman,
United States Bankruptcy Judge, in Room 723 of the United States Bankruptcy
Court, Alexander Hamilton Custom House, One Bowling Green, New York, New York on
January 14, 1997, at 2:00 p.m., or as soon thereafter as counsel may be heard;
and it is further
ORDERED that the Confirmation Hearing may be adjourned from time to
time by the Court without prior notice to holders of claims, holders of equity
interests or parties in interest other than the announcement of the adjourned
hearing date at the Confirmation Hearing; and it is further
ORDERED that Leslie Fay be, and it hereby is, appointed as balloting
agent to receive and calculate acceptances and rejections to the Plan (the
"Balloting Agent"); and it is further
ORDERED that the forms of ballot for accepting or rejecting the Plan
(collectively, the "Ballots," and individually, a "Ballot") and balloting
instructions, substantially in the form annexed hereto as Exhibit "C", be, and
each of them hereby is, approved in all respects pursuant to Bankruptcy Rule
3018(c) as conforming with Official Form No. 14; and it is further
ORDERED that, pursuant to Bankruptcy Rule 3018(a), December 5, 1996
(the "Record Date") be, and it hereby is, established as the record date for
purposes of determining which Creditors (including the holders of publicly
traded debt securities and assignees of claims and interests) are entitled to
receive a Solicitation Package, as defined below, and vote to accept of reject
the Plan and elect alternative distributions with respect thereto; and it is
further
ORDERED that only the holders of Claims as of the Record Date that are
impaired under the Plan may vote to accept or reject the Plan by indicating
their acceptance or rejection of the Plan on the Ballots provided therefor; and
it is further
ORDERED that, in order to be counted as a vote to accept or reject the
Plan, a Ballot must be properly executed, completed and delivered to the
Balloting Agent by (i) mail at Leslie Fay Plan Ballots, P.O. Box 1436, New York,
New York 10018-1436, Attn: John J. Caliolo, or (ii) overnight courier or
personal delivery at Leslie Fay Plan Ballots, 1412 Broadway, New York, New York
10018-5281, Attn: John J. Caliolo, so that they are actually received by the
Balloting Agent no later than 5:00 p.m., Eastern Standard Time, on January 8,
1997 (the "Voting Deadline"); and it is further
2
<PAGE>
ORDERED that (i) any executed Ballot which does not indicate an
acceptance or rejection of the Plan shall be counted as an acceptance of the
Plan, (ii) notwithstanding the provisions of Bankruptcy Rule 3018(a), in the
event that a holder of a Claim casts more than one Ballot prior to the Voting
Deadline with respect to a single Claim, the last Ballot received by the
Balloting Agent prior to the Voting Deadline shall supersede any prior Ballots,
(iii) any Ballot that partially rejects and partially accepts the Plan will not
be counted, and (iv) any vote indicated on a Ballot on which the convenience
claim election is made will not be counted for purposes of accepting or
rejecting the Plan; and it is further
ORDERED that, pursuant to Bankruptcy Rule 3017(d), the form of notice
(the "Confirmation Notice") of, among other things, the Voting Deadline, the
Objection Deadline, as defined below, and the Confirmation Hearing,
substantially in the form annexed hereto as Exhibit "D", be, and it hereby is,
approved in all respects; and it is further
ORDERED that objections, if any, to confirmation of the Plan must be
in writing, state the name and address of the objecting party and the nature of
the claim or interest of such party, state with particularity the basis and
nature of each objection or proposed modification to the Plan and be filed,
together with proof of service, with the Court (with two (2) copies delivered
directly to Chambers) and served upon (a) Weil, Gotshal & Manges LLP, Attorneys
for the Debtors, 767 Fifth Avenue, New York, New York 10153, Attn: Alan B.
Miller, Esq., (b) Wachtell, Lipton, Rosen & Katz, Attorneys for Creditors'
Committee, 51 West 52nd Street, New York, New York 10019, Attn: Chaim J.
Fortgang, Esq., (c) Bingham, Dana & Gould, Attorneys for the DIP Lenders, 150
Federal Street, Boston, Massachusetts 02110-1726, Attn: Robert A.J. Barry, Jr.,
Esq. and (d) the Office of the United States Trustee, 80 Broad Street, 3rd
Floor, New York, New York 10004, Attn: Diana Adams, Esq., so as to be received
no later than 5:00 p.m., Eastern Standard Time, on January 8, 1997 (the
"Objection Deadline"); and it is further
ORDERED that any objections, responses or comments to confirmation of
the Plan that are not timely filed and served as set forth in the foregoing
decretal paragraph shall be deemed waived; and it is further
ORDERED that the Debtors be, and they hereby are, authorized to mail,
or cause to be mailed, by first-class mail, no later than December 13, 1996, (a)
a copy of the Confirmation Notice, and (b) the Second Amended Disclosure
Statement, together with all exhibits thereto, including, without limitation,
the Plan, which have been filed with the Court prior to the date of the mailing
of same, to the following persons or entities, unless such person or entity
shall receive a Solicitation Package, as hereinafter defined, pursuant to this
Order: (i) all persons or entities that have filed proofs of claim on or before
the Record Date, other than any person or entity that has filed with the Court a
notice (or notices) of transfer of claim under Bankruptcy Rule 3001(e) on or
before the Record Date reflecting the transfer of all of such holder's Claims;
(ii) all persons or entities listed in the Schedules as Creditors and all
amendments thereto through the Record Date, other than any person or entity that
has filed with the Court a notice (or notices) of transfer of claim under
Bankruptcy Rule 3001(e) on or before the Record Date reflecting the transfer of
all of such holder's Claims; (iii) all other known holders of Claims against the
Debtors, if any, as of the Record Date; (iv) all persons or entities that have
acquired a Claim pursuant to a notice of the transfer of a claim under
Bankruptcy Rule 3001(e) filed with the Court on or before the Record Date; (v)
all parties in interest that have filed a notice pursuant to Bankruptcy Rule
2002 in the Debtors' chapter 11 cases on or before the Record Date; (vi) the
Office of the United States Trustee; (vii) the Securities and Exchange
Commission; (viii) the District Director of the Internal Revenue Service for the
Southern District of New York; and (ix) any other party as may be entitled to
notice in accordance with Bankruptcy Rule 2002; and it is further
ORDERED that the Debtors be, and they hereby are, authorized to mail,
or cause to be mailed, by first-class mail, no later than December 13, 1996, a
copy of the Short Form to all known Equity Interest holders of the Debtors as of
the Record Date; and it is further
ORDERED that the Debtors be, and they hereby are, authorized to mail,
or cause to be mailed, by first-class mail, no later than December 13, 1996, to
the holders of record on the Record Date of all Claims that are entitled to vote
to
3
<PAGE>
accept or reject the Plan, (a) the Confirmation Notice, (b) the Second Amended
Disclosure Statement and all exhibits and attachments thereto, including,
without limitation, the Plan, (c) an appropriate form of Ballot and a Ballot
return envelope, and (d) the Letter (collectively, the "Solicitation Package");
provided, however, that Solicitation Packages for (i) holders of Claims against,
or interests in, any Debtor placed within a class under the Plan that is deemed
to accept or reject the Plan under sections 1126(f) or 1126(g) of the Bankruptcy
Code, and (ii) holders of Claims that have been objected to by the Debtors,
shall not include a Ballot and a Ballot return envelope; and it is further
ORDERED that the Debtors be, and they hereby are, directed to cause
the Confirmation Hearing Notice to be published no less than fifteen (15) days
prior to the date of the Confirmation Hearing in Women's Wear Daily and The Wall
Street Journal (National Edition); and it is further
ORDERED that the provision for notice in accordance with the
procedures set forth in this Order shall be deemed good and sufficient notice of
the Confirmation Hearing, the time fixed for filing objections to the Plan and
the time within which holders of Claims may vote to accept or reject the Plan
and elect alternative distributions with respect thereto; and it is further
ORDERED that the Debtors are not required to mail Solicitation
Packages to any individual or entity at an address from which notice of the
Hearing was returned by the United States Postal Service as undeliverable,
unless the Debtors were provided with an accurate address by such individual or
entity prior to December 5, 1996; and it is further
ORDERED that the Debtors be, and they hereby are, authorized and
empowered to take such steps and perform such acts as may be necessary to
implement and effectuate this Order; and it is further
ORDERED that the foregoing constitutes the findings of fact and
conclusions of law of the Court pursuant to Federal Rule of Civil Procedure 52,
as made applicable herein by Bankruptcy Rule 7052.
Dated: New York, New York
December 9, 1996
/s/ Tina L. Brozman
---------------------------
United States Bankruptcy Judge
4
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Exhibits To Order Approving Disclosure Statement and Establishing
Procedures for Solicitation and Tabulation of Votes:
Exhibit A Short Form Disclosure Statement [Intentionally Omitted]
Exhibit B Debtors' Recommendation Letter [Intentionally Omitted]
Exhibit C Proposed Form of Ballots [Intentionally Omitted]
Exhibit D Notice of Hearing to Consider Confirmation of Plan of Reorganization
and Solicitation of Votes to Accept or Reject Plan of Reorganization
and Elect Distributions with Respect Thereto [Intentionally Omitted]
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EXHIBIT C
TO DISCLOSURE STATEMENT
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===============================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995 COMMISSION FILE NO. 1-9196
THE LESLIE FAY COMPANIES, INC.
DELAWARE 13-3197085
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1412 BROADWAY
NEW YORK, NEW YORK 10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 221-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $1 par value
Common Stock Purchase Rights
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 and (2) has been subject to such filing requirements for
the past 90 days. YES X NO
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein. [ ]
The aggregate market value of the voting stock (based on the closing price of
such stock on the New York Stock Exchange) held by non-affiliates of the
registrant at March 30, 1996 was approximately $2,933,100.
There were 18,771,836 shares of Common Stock outstanding at March 30, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. BUSINESS.
The Leslie Fay Companies, Inc. (The Leslie Fay Companies, Inc.
being sometimes individually referred to, and together with its subsidiaries
collectively referred to, as the "Company" as the context may require) is
engaged principally in the design, manufacture and sale of diversified lines of
moderate and better price women's dresses, suits and sportswear. The Company's
products cover a broad retail price range, offer the consumer a wide selection
of styles, fabrics and colors suitable for different ages, sizes and fashion
preferences and are appropriate for social, business and leisure activities. The
Company believes that it is the leading producer of moderate and better price
dresses and suits in the United States and among the major producers of moderate
and better price sportswear, and that it is considered one of the major
resources to retailers of such products. The Company, through its Sassco
Fashions Division, currently operates 22 retail outlet stores and has wholesale
operations in the United Kingdom. The Leslie Fay business has been in continuous
operation as an apparel company since 1947.
During 1995, 1994 and 1993 dresses and suits accounted for
approximately 74%, 66% and 59% of the Company's net sales, respectively;
sportswear accounted for 17%, 26% and 33% respectively; and other (consisting of
legwear, intimate apparel, licensing and retail outlets) accounted for 9%, 8%
and 8%, respectively. As of January 1996, the Company had closed all of its
Leslie Fay retail stores and in June 1995, the Nipon Studio label of the
sportswear division was discontinued. As of March 1994 and March 1993, the
Company was no longer engaged in the sale of legwear and intimate apparel,
respectively. See "Other Recent Developments". Excluding the net sales of
intimate apparel, legwear, Nipon Studio and the Leslie Fay retail stores during
1995, 1994 and 1993, dresses and suits accounted for approximately 83%, 85% and
75% of the balance of the Company's net sales, respectively; sportswear
accounted for 17%, 14% and 25%, respectively; with other (consisting of
licensing and retail outlets) accounting for 1%, 1% and 0%, respectively.
The Company's business is seasonal in nature, with sales being
greatest in the third quarter and the least in the fourth quarter.
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RECENT DEVELOPMENTS
On March 13, 1996, the Company together with its creditors'
committee filed an Amended Joint Plan of Reorganization pursuant to chapter 11
of the Federal Bankruptcy Code (the "Bankruptcy Code"). This plan was
substantially similar to the one filed by the Company in October 1995 and calls
for a separation of the Company into two parts, "New Sassco" and "New Leslie
Fay." The Company's efforts to sell its Sassco Fashions division have been
discontinued. Although the legal structure of the reorganization plan and other
related issues continue to be developed, the Company believes that substantially
all other material issues have been or will be resolved shortly and a final plan
will be filed at the end of the second quarter of 1996. The Company anticipates,
in accordance with provisions of the Bankruptcy Code, that all cash and
securities to be distributed pursuant to its reorganization plan will be
distributed to its creditors and certain employees, and current stockholders of
the Company will not retain or receive any value for their investment.
COMMENCEMENT OF CHAPTER 11 CASES
As reported, on February 1, 1993, the Company announced that
due to accounting irregularities discovered at that time, the previously
reported audited results for 1991 and the previously reported unaudited results
for the nine months ended October 3, 1992 were incorrect. An investigation of
these irregularities was undertaken by the Audit Committee of the Board of
Directors. On February 25, 1993, BDO Seidman, the Company's independent
certified public accountants, withdrew its opinion on the consolidated financial
statements of the Company for 1991. It is the Company's understanding that the
audit opinion was withdrawn as a result of the Company's disclosure of the
accounting irregularities relating to its 1991 consolidated financial statements
referred to above. See page 5 for a discussion of the results of the Audit
Committee investigation.
On April 5, 1993 (the "Filing Date"), The Leslie Fay
Companies, Inc. and each of Leslie Fay Licensing Corp., Spitalnick Corp. and
Hue, Inc., wholly owned subsidiaries of The Leslie Fay Companies, Inc., filed
voluntary petitions under chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court")
. The Debtors concluded that the chapter 11 filings were necessary to protect
the value of the Company's assets and to ensure that it would have sufficient
financial resources to continue the timely flow of merchandise to its customers.
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On November 15, 1995 (the "Retail Filing Date"), each of
Leslie Fay Retail Outlets, Inc., Leslie Fay Factory Outlet (Alabama), Inc.,
Leslie Fay Factory Outlet (California), Inc., Leslie Fay Factory Outlet (Iowa),
Inc. and Leslie Fay Factory Outlet (Tennessee), Inc., all wholly-owned
subsidiaries of the Company (sometimes hereinafter collectively referred to as
the "Retail Debtors"), filed voluntary petitions under chapter 11 of the
Bankruptcy Code in the Bankruptcy Court. (The Company and all of the
wholly-owned subsidiaries that have filed for protection under chapter 11 of the
Bankruptcy Code are sometimes hereinafter collectively referred to as the
"Debtors".)
Pursuant to an order of the Bankruptcy Court, the Debtors'
chapter 11 cases were consolidated for procedural purposes only and are being
jointly administered by the Bankruptcy Court.
Since the Filing Date and the Retail Filing Date, the Debtors,
as debtors in possession, have continued the operation of their businesses and
the management of their properties with the exception of Spitalnick Corp., Hue,
Inc., Leslie Fay Canada, Inc. and Leslie Fay UK Limited, whose operations have
been discontinued, and Next Day Apparel, Inc., whose operations were sold, and
the Retail Debtors which are pursuing orderly liquidations of their assets
pursuant to chapter 11. The Debtors and the creditors' committee intend to
propose a plan of reorganization pursuant to chapter 11 of the Bankruptcy Code
and they anticipate the successful emergence from chapter 11 in the second half
of 1996. Additional information with respect to the chapter 11 cases and the
procedures followed therein is contained in Item 3. "Legal Proceedings".
POST-PETITION FINANCING
On April 28, 1993, the Company, and Leslie Fay Licensing
Corp., Spitalnick Corp. and Hue, Inc. (collectively, the "Guarantors") entered
into a Post-Petition Credit Agreement (as amended, the "DIP Credit Agreement")
with the initial lenders named therein (the "Initial Lenders") and Citibank,
N.A., as Agent, pursuant to which the Initial Lenders agreed to make
post-petition loans to the Company and issue letters of credit for the account
of the Company in the aggregate principal amount not to exceed $150,000,000, the
entire amount of which was made available under the DIP Credit Agreement
pursuant to orders of the Bankruptcy Court.
This facility was extended on April 26, 1994, with a
commitment level not to exceed $100,000,000. In March 1995, the parties to the
DIP Credit Agreement agreed to an amendment extending the term of the DIP Credit
Agreement until December 15, 1995 with a reduced commitment level not to exceed
$80,000,000.
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A replacement facility for a new $80,000,000 credit agreement
with the First National Bank of Boston ("FNBB") and BankAmerica Business Credit,
Inc. ("BABC"), as Facility Agents and FNBB as Administrative Agent (the "FNBB
Credit Agreement") was approved by the Bankruptcy Court and became effective on
May 2, 1995 and was subsequently extended to mature on the earlier of (i) June
30, 1996, (ii) the date of termination of the Commitments (as that term is
defined in the FNBB Credit Agreement) or (iii) the first date on which a
reorganization plan for the Company is substantially consummated.
The FNBB Credit Agreement provides for post-petition direct
borrowings and the issuance of letters of credit on the Debtors' behalf in an
aggregate amount not exceeding $80,000,000, subject to being permanently reduced
on a dollar-for-dollar basis to the extent aggregate net cash proceeds received
from the sales of assets after March 20, 1995 exceed $20,000,000 up to a maximum
of $40,000,000 on a cumulative basis. On November 15, 1995, the Facility was
amended to reduce the aggregate borrowing limit to $60,000,000. The following
direct borrowing sublimits are subject to being reduced by fifty percent (50%)
of any net cash proceeds received from the sales of assets: $25,000,000 from May
2, 1995 through July 1, 1995; $30,000,000 from July 2, 1995 through September
30, 1995; $20,000,000 from October 1, 1995 through October 28, 1995; and
$5,000,000 from October 29, 1995 through December 31, 1995. Commencing January
1, 1996 and through June 30, 1996, the sublimit is $15,000,000. The sublimit for
letters of credit is $50,000,000. No qualifying asset sales have been made which
would reduce the facility borrowing limits.
Direct borrowings bear interest at prime plus 1.5%. The FNBB
Credit Agreement, as amended, contains certain financial and operating covenants
related to minimum and maximum inventory levels, capital expenditures and
attainment of minimum earnings before reorganization, interest, taxation,
depreciation and amortization. As collateral for borrowings under the FNBB
Credit Agreement, the Company has granted to FNBB and BABC a security interest
in substantially all assets of the Company. In addition, the FNBB Credit
Agreement contains certain restrictive covenants, including limitations on the
incurrence of additional liens and indebtedness and a prohibition on paying
dividends. The Company is currently in compliance with all covenants contained
in the FNBB Credit Agreement, as amended.
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OTHER POST-PETITION EVENTS
As previously reported, the Company also announced in
September 1993 that the Audit Committee of the Board of Directors had completed
its investigation into the circumstances relating to the accounting
irregularities and presented its findings in a confidential report to the Board
of Directors. It was the conclusion of the Audit Committee that there was no
evidence that any then current member of senior management of the Company or the
Board of Directors knew of, or participated in, the perpetration of the
accounting irregularities. Additional information with respect to the completion
of the investigation is contained in the Company's Current Report on Form 8-K
dated September 28, 1993. In December 1993, the Company moved for the
appointment of an Examiner pursuant to the Bankruptcy Code to, among other
things, address any lingering concerns about the Audit Committee's
investigation. In January 1994, Charles A. Stillman, Esq. was appointed as the
Examiner. The Examiner concluded, preliminarily, that the Debtors likely have
viable claims worth pursuing against its former accounting firm, BDO Seidman.
With respect to the Company's then current officers and all of its directors and
certain third parties, the Examiner concluded that there was insufficient
evidence to establish viable claims under the applicable legal standards. The
Examiner concluded that while viable claims may exist against two former
officers, Mr. Polishan and Mr. Kenia, those individuals may lack sufficient
assets to warrant suing them. The Examiner also concluded that the investigation
of the accounting irregularities conducted by the Company's Audit Committee was
generally thorough and professional and that, in most respects, further
investigation was not warranted.
The Debtors currently retain the exclusive right to propose a
plan or plans of reorganization until May 31, 1996, subject only to the
concurrent right of the creditors' committee to file a plan of reorganization
during the same time period.
For information as to legal proceedings arising out of certain
of the aforementioned events, see Item 3. - "Legal Proceedings". For information
on the financial impact of such events, see Item 7. - "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Item 8. -
"Financial Statements and Supplementary Data".
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OTHER RECENT DEVELOPMENTS
In September 1995, the Company sold its fifty-one (51%)
percent interest in Next Day Apparel, Inc. ("Next Day") and its interest in
certain trademarks to West Union Apparel, Ltd. ("West Union"), Next Day's
minority shareholder, with the approval of the Bankruptcy Court. In connection
with the transaction, the Company agreed to contribute to the capital of Next
Day, $2.2 million of the principal amount of a $5 million subordinated loan
previously made by the Company to Next Day, evidenced by a subordinated note,
dated December 21, 1993 (the "Next Day Note"). In connection with the sale of
the Company's interest in Next Day, West Union agreed to purchase the Next Day
Note for $2.8 million, and the Company received a total of approximately
$3,486,000 from the sale.
The Collective Bargaining Agreement between the Company and
the International Ladies' Garment Workers' Union (the "ILGWU"), the union
representing the production and distribution employees, expired on May 31, 1994.
At that time the ILGWU called its members out on strike. On July 8, 1994, the
Company and the ILGWU reached a negotiated settlement agreement which concluded
the strike. This settlement was approved by the Bankruptcy Court on July 14,
1994, and its terms were incorporated in the successor Collective Bargaining
Agreement (the "ILGWU Agreement") with an expiration date of May 31, 1997. The
ILGWU Agreement included a forgiveness of all liquidated damage liabilities for
offshore and non-union production through the end of 1993 and a ceiling on
future similar charges. The ILGWU Agreement also provided, among other items, a
guarantee of 600 domestic manufacturing jobs through July 31, 1995 and payment
of approximately $2,300,000 for severance in connection with the closing of
manufacturing facilities and the reduction of the work force in the remaining
Pennsylvania manufacturing facilities. It was agreed that future domestic
employment commitments in the Pennsylvania manufacturing facilities would be
determined by an outside facilitator based upon a study by a joint
labor-management committee and a study by an independent consultant to determine
whether and under what conditions the Company could profitably produce dresses
domestically which could compete successfully in the moderate dress marketplace.
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The facilitator selected Deloitte & Touche, LLP to conduct an
independent study, which was completed on or about April 7, 1995. The
independent study concluded that it was not possible for the Company to
profitably produce moderate dresses at the Pennsylvania manufacturing facility.
The Joint Labor Management Committee was unable to present a unanimous
recommendation to the facilitator as to the results of the independent study.
On May 5, 1995, the facilitator issued a binding
recommendation in which he concurred with the findings of the independent study
and relieved the Company of its obligation to maintain employment at its
Pennsylvania manufacturing facility after July 31, 1995. The manufacturing
facility was closed on or about August 4, 1995.
On or about August 31, 1995, the Company and the Union of
Needletrades, Industrial and Textile Employees ("UNITE"), the successor to the
ILGWU, negotiated a final settlement resolving all issues arising from the
closing of the Pennsylvania manufacturing facility. Pursuant to this settlement
agreement, the Company agreed to distribute approximately $3,661,000 to former
employees in termination benefits, inclusive of approximately $1,253,000
remaining from the severance fund established in the ILGWU Agreement as
described above.
For further discussion of the above described events, see
Notes 8 and 12 to the Company's Consolidated Financial Statements.
PRODUCTS
Historically, each of the Company's divisions and subsidiaries
has been operated in some respects as an independent and distinct business under
the separate direction of management teams with entrepreneurial incentives.
Certain day-to-day management decisions, as well as product design, marketing
and certain other operational and manufacturing decisions, were made at the
division or subsidiary level, subject to review by senior corporate officers.
The operations of the divisions and subsidiaries conformed to the Company's
overall manufacturing and marketing policies, which were determined at the
corporate level and monitored principally through budgetary and financial
information.
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DRESSES AND SUITS
DRESS DIVISION. The Dress Division sells moderate price one
piece dresses and dresses with coordinated jackets under the "Leslie Fay",
"Leslie Fay Petite", "Leslie Fay Women" and "Leslie Fay Women's Petites" labels.
The Division's products are offered in petite, misses and large sizes for both
daytime and evening wear.
SASSCO FASHIONS DIVISION. The Sassco Fashions Division offers
moderate, better, bridge and designer price suits under a number of different
labels, including "Kasper for A.S.L.", "Kasper II", "Nina Charles", "Le Suit",
"Albert Nipon" and "Albert Nipon Evening". The Division also offers better price
dresses under the "Kasper Dress" label and better price sportswear under the
"Kasper and Company A.S.L." label.
CASTLEBERRY KNITS DIVISION. The Castleberry Knits Division
sells better price two and three piece knit suits and one and two piece knit
dresses under the "Castleberry", "Castlebrook" and "Adolfo New York" labels.
SPORTSWEAR
SPORTSWEAR DIVISION. The Sportswear Division markets moderate
and better price related separates under the "Leslie Fay Sportswear", "Leslie
Fay Sportswear Petite" and "Leslie Fay Sportswear Woman". The Division's
products include skirts, blouses, sweaters, pants and jackets which are related
in color and material and are intended to be sold as coordinated outfits. The
Division's products are offered in petite, regular and large sizes.
During 1995, the Company repositioned the "Leslie Fay
Sportswear" labels to target its largest department store consumers interested
in traditional designs at moderate price points and now designs product
specifically for sales at their stores with their assistance.
This Division also offers contemporary knitted sportswear,
including knitted separates, dresses and suits under the "Outlander", "Outlander
Studio", "Outlander Petite" and "Outlander Woman" labels, styled to appeal to
women of a wide range of ages and available in misses, petite and large sizes.
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DESIGN
The styles that are produced under the names used by the
Company are created by the Company's fashion designers or stylists. The designs
for products sold under names which are licensed to the Company are also created
by the Company. Each division of the Company has its own designers, and in some
instances utilizes separate design staffs for different products within a
particular division. The design staff of a division meets regularly with
representatives of the division's merchandising, production and sales staff to
review the status of each collection and to discuss adjustments which may be
necessary in line composition, fabric selection, construction and product mix.
Most of the Company's divisions generally offer four or five
seasonal lines: Spring, Summer, Fall I, Fall II and Holiday. The Sassco Fashions
and Outlander divisions, however, have only two seasons. These seasonal lines
are typically offered by the Company in ten to twelve week selling periods.
TRADEMARKS AND LICENSES
The labels used by the Company are registered trademarks, most
of which are owned by the Company. The Company is licensed to use the name
"Kasper for A.S.L." and "Kasper II" for suits and dresses and the name "Kasper
and Company" for sportswear. The current license agreement with respect to the
use of the name "Kasper" has an expiration date of May 31, 1997 and may be
renewed at the Company's option for one additional two-year term. The Company's
license for the use of the mark "Nolan Miller" primarily for suits and dresses
expired on March 31, 1995 and the Company elected not to renew the license. The
Company entered into a licensing agreement on April 28, 1995 to use of the
"Adolfo" name and sell such merchandise through the Castleberry Knits division.
This agreement expires on December 31, 1997 and may be renewed for an additional
two year period.
The Company considers its trademarks and license agreements to
have significant value in the marketing of its products. The Company has
licensed certain of its names and trademarks to various companies for their use
in connection with the manufacture and distribution of their respective
products.
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MARKETS AND DISTRIBUTION
The Company's products were sold during 1995 principally to
department and specialty stores located throughout the United States, the
Company's retail outlets and through electronic retailing. During 1995,
Dillard's Department Stores, Inc. accounted for 15%, Federated Department Stores
accounted for 14%, JC Penney accounted for 11% and May Company accounted for 10%
of the Company's sales. No other customer accounted for as much as 10% of the
Company's sales. During 1995, the Company's ten largest customers accounted for
approximately 65% of such sales; its 100 largest customers accounted for
approximately 91% of such sales. Certain of these customers own a number of
department stores operating under different names. For the purposes hereof they
are each treated as one customer, although the Company believes that some of
these retailers make their own decisions regarding purchases of the Company's
products.
Each division maintains its own sales force and exhibits its
products in its principal showrooms in New York City and an additional showroom
in Dallas, Texas. For further discussion, see Item 2. "Properties". While in
some instances the Company's divisions may appear to compete with each other, as
a practical matter, there is little such competition because of the differences
in products, price points and market segments.
To most effectively reach its ultimate consumers, the Company
assists retailers in merchandising and marketing the Company's products. The
Company promotes its products through in-store fashion shows and special
in-store events prepared and produced by the Company, as well as through various
sales, promotions, in store fixturing, cooperative advertising and direct
customer mailings.
The Company's products are sold under brand names which are
advertised and promoted in national magazines and trade publications.
RETAIL OUTLET STORES
The Company closed its remaining Leslie Fay retail stores in
the fourth quarter of 1995 and the first quarter of 1996. These stores sold its
brand name merchandise generally within six to eight weeks (depending upon store
location) after the commencement of sales of such merchandise by the Company's
major customers. The stores were located across the United States and generally
were situated in selected geographic markets to avoid substantial competition
with the Company's primary customers. Most of the stores were leased under
long-term leases. The average store size was approximately 5,480 square feet.
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In June 1995, the Company established a new subsidiary, A.S.L.
Retail Outlets, Inc., to sell Sassco Fashions Division's merchandise. By
December 30, 1995, the Company operated 22 stores (23 stores as of March 30,
1996) to sell brand name merchandise of Sassco Fashions. The stores are located
across the United States and generally are situated in selected geographic
markets to avoid substantial competition with the Company's primary customers.
Three of the stores are operated under leases expiring in 1996. Twenty stores
are being operated under a Lease Assumption Agreement until June 30, 1996.
Pursuant to this agreement, the Company does not assume any obligations under
the leases other than the payment of current lease obligations until a plan of
reorganization is approved and confirmed by the Bankruptcy Court that provides
for the assignment of not less than eighteen (18) leases. The average store size
is 2,249 square feet.
MANUFACTURING
Apparel sold by the Company is produced in accordance with its
designs, specifications and production schedules. Approximately 98% of such
apparel is produced by a large number of independent contractors located
domestically and abroad. The balance was produced, in whole or in part, by the
Company in its manufacturing plant in Wilkes-Barre, Pennsylvania prior to its
closing in August 1995. For 1995, products representing approximately 91% of
sales were produced abroad and imported into the United States, principally from
Far Eastern countries, such as Hong Kong, Taiwan, China, the Philippines,
Thailand and South Korea, and the Caribbean Basin country of Guatemala.
One contractor manufactured 14% of the Company's products in
1995. The Company historically has had satisfactory, long-standing relationships
with most of its contractors. In 1995, approximately 8% of the Company's
domestic contracted production was produced by contractors who work exclusively
for the Company. The Company monitors production at each contractor's facility,
in the United States and abroad, to ensure quality control, compliance with its
specifications and timely delivery of finished goods to the Company's
distribution centers. The Company believes that because of the number and
geographical diversity of its manufacturing sources, it will continue to be able
to obtain the services of a sufficient number of independent suppliers to
produce quality products in conformity with its requirements.
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The Company manufactures in accordance with plans prepared
each year which are based primarily on projected orders, and to a lesser extent
on current orders and consultations with customers. These plans also take into
account current fashion trends and economic conditions. The average lead time
from the commitment of piece goods through the production and shipping of goods
ranges from two to four months for domestic products and four to six months for
imported products. These lead times impose substantial time constraints on the
Company in that they require production planning and other manufacturing
decisions and piece good commitments to be made substantially in advance of the
receipt of orders from customers for the bulk of the items to be produced.
Historically, the purchase of raw materials has been
controlled and coordinated by each division. The Company has combined and/or
centralized some functions between certain divisions, but divisional management
still has the authority and responsibility over most aspects of their product
production, manufacturing and purchasing functions. The Company supplies the raw
materials to its domestic contractors and certain of its foreign contractors.
Otherwise, the raw materials are purchased directly by the contractors in
accordance with the Company's specifications. Raw materials, which are in most
instances made and/or colored especially for the Company, consist principally of
piece goods and yarn and are purchased by the Company from a number of domestic
and foreign textile mills and converters. The Company does not have long-term,
formal arrangements with any of its suppliers of raw materials. The Company,
however, has experienced little difficulty in satisfying its raw material
requirements and considers its sources of supply adequate.
IMPORTS AND IMPORT RESTRICTIONS
The Company's import operations are subject to constraints
imposed by bilateral textile agreements between the United States and a number
of foreign countries, including Hong Kong, Taiwan, China, the Philippines,
Thailand, South Korea and Guatemala (the principal countries from which the
Company imports goods). These agreements impose quotas on the amount and type of
goods which can be imported into the United States from these countries. In
addition, each of the countries in which the Company's products are sold have
laws and regulations regarding import restrictions and quotas. Because the
United States and other countries in which the Company's products are
manufactured and sold, may, from time to time, impose new quotas, duties,
tariffs, surcharges or other import controls or restrictions, or adjust
presently prevailing quota allocations or duty or tariff rates or levels, the
Company intensively monitors import and quota-related developments. The Company
continually seeks to minimize its potential exposure to import and quota-related
risks
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through allocation of production to merchandise categories that are not subject
to quota pressures, adjustments in product design and fabrication, shifts of
production among countries and manufacturers and otherwise, as well as through
geographical diversification of its sources of supply and other measures. The
United States may enter into bilateral trade agreements with additional
countries and may, in the future, include other types of garments in existing
agreements.
Imports are also affected by the high cost of transportation
into the United States and by the increased competition resulting from greater
production demands abroad.
The Company's imported products are subject to United States
Customs duties and, in the ordinary course of its business, the Company is from
time to time subject to claims by the United States Customs Service ("Customs")
for duties and other charges. For further discussion, see Note 8 to the
Company's Consolidated Financial Statements.
In addition to the factors outlined above, the Company's
future import operations may be adversely affected by political instability
resulting in the disruption of trade from exporting countries, the imposition of
additional regulations relating to, or duties, taxes and other charges on,
imports, any significant fluctuation in the value of the dollar against foreign
currencies and restrictions on the transfer of funds.
BACKLOG
At April 6, 1996, the Company had unfilled orders of
approximately $131,000,000, compared to approximately $109,000,000 of such
orders for comparable continuing businesses at a comparable date in 1995. The
amount of unfilled orders at a particular time is affected by a number of
factors, including the scheduling of the manufacture and shipment of the
product, which in some instances is dependent on the desires of the customer.
Accordingly, a comparison of unfilled orders from period to period is not
necessarily meaningful and may not be indicative of eventual actual shipments.
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CREDIT AND COLLECTION
Historically, the Company managed substantially all of its
credit and collection functions internally. In connection therewith, it
regularly evaluated, approved and monitored the credit of the Company's
customers and was responsible for collection of accounts receivable. In February
1996, the Company entered an agreement with Heller Financial, Inc. to approve
credit and act as a collection agent for its Sassco Fashions division. The
Company continues to perform such functions for its other divisions.
The Company, like many of its competitors, sells to major
retail store customers, some of which have engaged in leveraged buyouts or
similar transactions in which retailers incurred significant amounts of debt,
and certain of these customers have filed for protection under chapter 11 of the
Bankruptcy Code. The obligations of these customers are being paid to the
Company on a current basis. It is not clear to what extent, if any, the current
financial condition of such retailers will affect the financial condition of the
Company; however, the Company continually monitors the financial condition of
its significant customers and believes that any financial difficulties such
retailers might have will not significantly impact the Company's operations.
COMPETITION
The sectors of the apparel industry for which the Company
designs, manufactures and markets products are highly competitive. The Company
competes with many other manufacturers, including manufacturers of one or more
apparel items. In addition, department stores, including some of the Company's
major customers, have from time to time varied the amount of goods manufactured
specifically for them and sold under their own labels. Many such stores have
also changed their manner of presentation of merchandise and in recent years
have become increasingly promotional. Some of the Company's competitors are
larger and have greater resources than the Company. Based upon its knowledge of
the industry, the Company believes that it is a leading producer of moderate and
better price dresses and suits in the United States, among the more significant
producers of moderate and better price sportswear, and that it is considered one
of the major resources of retailers of such products. The Company's business is
dependent upon its ability to evaluate and respond to changing consumer demand
and tastes and to remain competitive in the areas of style, quality and price,
while operating within the significant domestic and foreign production and
delivery constraints of the industry.
-14-
<PAGE>
EMPLOYEES
At December 30, 1995, the Company employed approximately 1,285
persons, of whom approximately 59% were production and shipping employees.
Approximately 33% of the Company's employees were members of unions, primarily
UNITE, the successor to the ILGWU. Upon the expiration of the Collective
Bargaining Agreement on May 31, 1994, the ILGWU called its members out on
strike. On July 8, 1994, the Company and the ILGWU resolved the strike and
negotiated a successor Collective Bargaining Agreement with an expiration date
of May 31, 1997. See "Other Recent Developments".
ITEM 2. PROPERTIES.
The Company maintains executive and sales offices as well as
design facilities in New York City. The Company also operates administrative
facilities in Hanover, Pennsylvania under a lease which expires in 1998, and in
Secaucus, New Jersey under a lease which expires in 2000. A regional sales
office and showroom are leased in Dallas, Texas.
The Company maintained one principal manufacturing facility,
which was closed in August 1995. Another location in the Wilkes-Barre area
consists of approximately 235,000 square feet and houses a major distribution
center under a lease expiring in 1996. A second renewal option of this lease
that would extend the current terms of the lease through April 1999, is
available and is currently being re-negotiated with the landlord. The other
principal distribution center is located in a 192,000 square foot facility in
Secaucus, New Jersey under a lease expiring in 1996. New lease negotiations have
begun but have not been finalized.
All of the Company's facilities are in good condition. None of
the Company's principal facilities are idle. The machinery and equipment
contained in the Company's facilities is modern and efficient.
As permitted by the Bankruptcy Code, the Company has rejected,
or will reject certain leases to which it is a party. The Company does not
anticipate that such rejections will have a significant affect on the Company.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
COMMENCEMENT OF CHAPTER 11 CASES
The following discussion provides general background
information regarding the chapter 11 cases, but is not intended to be an
exhaustive summary.
General. On April 5, 1993 and November 15, 1995, voluntary
petitions for relief under chapter 11 of the Bankruptcy Code were filed by the
Debtors. The Debtors' chapter 11 cases were consolidated for procedural purposes
only and are being jointly administered by the Bankruptcy Court. See Item 1.
"Business - Commencement of Chapter 11 Cases."
Chapter 11 Reorganization Under the Bankruptcy Code. Pursuant
to Section 362 of the Bankruptcy Code, during a chapter 11 case, creditors and
other parties-in-interest may not, without Bankruptcy Court approval: (i)
commence or continue a judicial, administrative or other proceeding against the
Debtors which was or could have been commenced prior to commencement of the
chapter 11 case, or recover a claim that arose prior to commencement of the
case; (ii) enforce any pre-petition judgments against the Debtors; (iii) take
any action to obtain possession of property of the Debtors or to exercise
control over property of the Debtors or their estates; (iv) create, perfect or
enforce any lien against the property of the Debtors; (v) collect, assess or
recover claims against the Debtors that arose before the commencement of the
case; or (vi) set off any debt owing to the Debtors that arose prior to the
commencement of the case against a claim of such creditor or party-in-interest
against the Debtors that arose before the commencement of the case.
Although the Debtors are authorized to operate their
businesses and manage their properties as debtors in possession, they may not
engage in transactions outside of the ordinary course of business without first
complying with the notice and hearing provisions of the Bankruptcy Code and
obtaining Bankruptcy Court approval when necessary.
An official unsecured creditors' committee and an official
committee of equity security holders have been appointed by the United States
Trustee and are acting in the chapter 11 cases of the Debtors. These committees
have the right to review and object to certain business transactions for which
Bankruptcy Court approval is sought and have participated in the formulation of
any plan or plans of reorganization filed to date. The Debtors are required to
pay certain expenses of the committees, including counsel, accountants' and
advisors' fees, to the extent allowed by the Bankruptcy Court.
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<PAGE>
As debtors in possession, the Debtors have the right, subject
to Bankruptcy Court approval and certain other limitations, to assume or reject
executory, pre-petition contracts and unexpired leases. In this context,
"assumption" requires the Debtors to perform their obligations and cure all
existing defaults under the assumed contract or lease and "rejection" means that
the Debtors are relieved from their obligations to perform further under the
rejected contract or lease, but are subject to a claim for damages for the
breach thereof subject to certain limitations contained in the Bankruptcy Code.
Any damage claims resulting from rejection are treated as general unsecured
claims in the reorganization.
Under the Bankruptcy Code, a creditor's claim is treated as
secured only to the extent of the value of such creditor's collateral, and the
balance of such creditor's claim is treated as unsecured. Generally, unsecured
and undersecured debt does not accrue interest after the filing, unless the
Debtor is solvent. A fully secured claim may, however, accrue interest after the
filing.
Pre-petition claims which were contingent or unliquidated at
the commencement of the chapter 11 cases are generally allowable against the
Debtors in amounts to be fixed by the Bankruptcy Court or otherwise agreed upon.
These claims, including, without limitation, those which arise in connection
with the rejection of executory contracts and unexpired leases, are expected to
be substantial.
On September 30, 1993, the Bankruptcy Court entered an order
requiring certain claimants against the four original Debtors, except those with
certain specified types of claims, to file proofs of claim in the Bankruptcy
Court by December 10, 1993 (the "Bar Date"). On November 15, 1995, the
Bankruptcy Court entered an order requiring all claimants against the Retail
Debtors to file proof of claims in the Bankruptcy Court by December 12, 1995
(the "Retail Bar Date"). Those claimants required by the order to file claims by
the Bar Date or the Retail Bar Date, as the case may be, and who failed to do so
are barred from voting upon or receiving distributions under any plan or plans
of reorganization of the Debtors. Excluded from this requirement to file by the
Bar Date or the Retail Bar Date, among others, were certain claims by the
Internal Revenue Service ("IRS") which were required to be filed no later than
March 31, 1995. On April 8, 1996, the Debtors filed a motion with the Bankruptcy
Court requesting that May 8, 1996 be set as the supplemental bar date for
holders of certain claims affected by the amended schedules.
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<PAGE>
There are approximately 4,300 scheduled liabilities and filed
proofs of claim against the Debtors. The aggregate amount of liabilities
reported by the Debtors and those claims which specified amounts, including IRS
claims, was over $1,000,000,000. Included among the claims filed have been
claims for unspecified amounts. Orders and other actions have been approved by
the Bankruptcy Court to remove overstated, duplicate or amended claims. The
remaining disputed or allowed claims total approximately $877,000,000. The
Debtors consider this amount to be highly inflated and a totally unreliable
estimate of their true liabilities. The Debtors intend to request the Bankruptcy
Court to approve additional reductions of, or to expunge, additional claims.
Liability for all claims will be addressed within the context of a plan or plans
of reorganization.
Plan of Reorganization - Procedures. For 120 days after the
date of the filing of a voluntary chapter 11 petition a debtor in possession has
the exclusive right to propose and file a plan of reorganization with the
Bankruptcy Court. If a debtor in possession files a plan of reorganization
during the exclusive period, no other party may file a plan of reorganization
until the expiration of the exclusive period or, if the disclosure statement has
been approved by an order of the Bankruptcy Court, no other party may file a
plan of reorganization unless confirmation of the plan of reorganization
proposed by the debtor in possession has been denied.
Given the magnitude of the Debtors' operations and the number
of interested parties asserting claims that must be resolved in the chapter 11
cases, the plan formulation process is complex. The Debtors currently retain the
exclusive right to propose a plan or plans of reorganization until May 31, 1996,
subject only to the concurrent right of the creditors' committee to propose a
plan during the same time period.
If a chapter 11 debtor fails to file its plan during the
exclusive period or after such plan has been filed fails to obtain acceptances
of such plan from impaired classes of creditors and equity security holders
during the exclusive solicitation period, any party in interest, including a
creditor, an equity security holder or a committee of creditors or equity
security holders, may file a plan of reorganization for such chapter 11 debtor.
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<PAGE>
Generally, after a plan has been filed with the Bankruptcy
Court, it will be sent, together with a disclosure statement approved by the
Bankruptcy Court following a hearing, to members of all classes of impaired
creditors and equity security holders for acceptance or rejection. Following
acceptance or rejection of any such plan, the Bankruptcy Court, after notice and
a hearing, would consider whether to confirm the plan. Among other things, to
confirm a plan the Bankruptcy Court is required to find that (i) each impaired
class of creditors and equity security holders will receive, pursuant to the
plan, at least as much as the class would have received in a liquidation of the
debtor, (ii) each impaired class of creditors and equity security holders has
accepted the plan by the requisite vote, and (iii) confirmation of the plan is
not likely to be followed by the liquidation or need for further financial
reorganization of the debtor or any successors unless the plan proposes such
liquidation or reorganization.
If any impaired class of creditors or equity security holders
does not accept a plan and assuming that all of the other requirements of the
Bankruptcy Code are met, the proponent of the plan may invoke the so-called
"cram down" provisions of the Bankruptcy Code. Under these provisions, the
Bankruptcy Court may confirm a plan notwithstanding the non-acceptance of the
plan by an impaired class of creditors or equity security holders if certain
requirements of the Bankruptcy Code are met, including that (i) at least one
impaired class of claims has accepted the plan, (ii) the plan "does not
discriminate unfairly" and (iii) the plan "is fair and equitable with respect to
each class of claims or interests that is impaired under, and has not accepted,
the plan." The phrases "discriminate unfairly" and "fair and equitable" have
narrow and specific meanings unique to bankruptcy law.
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<PAGE>
OTHER PENDING LEGAL PROCEEDINGS
In addition to, and concurrent with, the proceedings in the
Bankruptcy Court, the Company is involved in or settled during 1995 the
following legal proceedings of significance:
The Company was involved in litigation concerning a lease
agreement with Corporate Property Associates:3 ("CPA:3"), as the landlord of the
Company's former manufacturing facility at Route 315, Luzerne County,
Pennsylvania (the "315 Lease Agreement"). CPA:3 had also submitted a proof of
claim in the Bankruptcy Court in the approximate amount of $26,000,000. On
August 7, 1995, the Bankruptcy Court entered an order approving the Company's
settlement of litigation concerning the lease agreement with CPA:3. Pursuant to
the settlement, CPA:3 paid $250,000 to the Company; the Company released any
claims to the title of the Route 315 facility and surrendered the premises on or
about September 30, 1995. Furthermore, CPA:3 has agreed to limit its allowed
unsecured claim against the Company to the amount of $2,650,000.
In November 1992, a class action entitled "Stephen Warshaw and
Phillis Warshaw v. The Leslie Fay Companies, Inc. et al." was instituted in the
United States District Court for the Southern District of New York. In January
1993 and February 1993, the plaintiffs served amended complaints and thereafter
twelve other similar actions were commenced against the Company, certain of its
officers and directors and its then auditors, BDO Seidman. The complaint in
these cases, which purport to be on behalf of all persons who purchased or
acquired stock of the Company during the period from February 4, 1992 to and
including February 1, 1993, allege that the defendants knew or should have known
material facts relating to the sales and earnings which they failed to disclose
and that, if these facts had been disclosed, they would have affected the price
at which the Company's Common Stock was traded. A pre-trial order has been
entered which has the effect of consolidating all of these actions and, in
accordance therewith, the plaintiffs have served the defendants with a
consolidated class action complaint which, because of the chapter 11 filing by
the Company, does not name the Company as a defendant. In March 1994, plaintiffs
filed a consolidated and amended class action complaint. This complaint added
certain additional parties as defendants, including Odyssey Partners, L.P.
("Odyssey"), and expanded the purported class period from March 28, 1991 to and
including April 5, 1993. In March 1995, BDO Seidman filed an answer and
cross-claims against certain of the officers and directors of the Company
previously named in this action and filed third-party complaints against
Odyssey, certain current and former division heads of the Company and certain
current and former directors of the Company. These cross-claims and third-party
complaints allege that the Company's
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<PAGE>
senior management and certain of its directors engaged in fraudulent conduct and
negligent misrepresentation. BDO Seidman seeks contribution from certain of the
defendants and each of the third-party defendants if it is found liable in the
class action, as well as damages. Defendants' and third party defendants' time
to answer claims of BDO Seidman has not yet expired and discovery is ongoing.
In April 1995, an action was commenced in the name and on
behalf of the Debtors against BDO Seidman and certain of its partners in the
United States Bankruptcy Court for the Southern District of New York alleging
that BDO Seidman and such partners recklessly and negligently breached their
duties to the Debtors in connection with analyzing internal controls, auditing
their financial statements and providing unqualified certifications of the
financial statements. The damages sought are unspecified.
In February 1993, the Securities and Exchange Commission
obtained an order directing a private investigation of the Company in connection
with, among other things, the filing by the Company of annual and other reports
that may have contained misstatements, and the purported failure of the Company
to maintain books and records that accurately reflected its financial condition
and operating results. The Company is cooperating in this investigation.
In February 1993, the United States Attorney for the Middle
District of Pennsylvania issued a Grand Jury Subpoena seeking the production of
documents as a result of the Company's announcement of accounting
irregularities.
In March 1993, a stockholder derivative action entitled
"Isidore Langer, derivatively on behalf of The Leslie Fay Companies, Inc. v.
John J. Pomerantz et al." was instituted in the Supreme Court of the State of
New York, County of New York, against certain officers and directors of the
Company and its then auditors, BDO Seidman. This complaint alleges that the
defendants knew or should have known material facts relating to the sales and
earnings of the Company which they failed to disclose. Defendants' time to
answer, move or otherwise respond to the complaint has not yet expired. The
plaintiff seeks an unspecified amount of monetary damages, together with
interest thereon, and costs and expenses incurred in the action, including
reasonable attorneys' and experts' fees. The Company cannot presently determine
the ultimate outcome of this litigation and its impact on the financial
statements.
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<PAGE>
In August 1993, Customs submitted a proof of claim with the
Bankruptcy Court seeking approximately $102,347,000 in connection with the
importation of merchandise between July 1984 and December 31, 1987. Following
review and discussions with the Company, Customs reduced its claim to
approximately $411,000. The Company settled this claim for approximately
$402,000. This settlement was approved by the Bankruptcy Court on August 15,
1995.
The Company is obligated to contribute to the ILGWU National
Retirement Fund (the "Fund"), a multi-employer pension fund, pursuant to its
collective bargaining agreement with UNITE, formerly the ILGWU. The Fund has
filed a proof of claim with the Bankruptcy Court for the Company's estimated
withdrawal liability representing its allocable share of unfunded vested
benefits under the Multi-employer Pension Plan Amendments Act ("MPPA") of the
Employee Retirement Income Security Act ("ERISA"). The Fund's most recent
estimate of the Company's withdrawal liability through plan year 1994 is
approximately $16,000,000. The amount of unfunded vested benefits allocable to
the Company is subject to change on an annual basis and the amount of any
increase or decrease at the end of plan year 1995 cannot be determined at this
time. The Company believes that certain provisions of MPPA may apply to reduce
the Funds' claim and is attempting to negotiate a settlement with the Fund on
the amount of the claim and classification.
On February 23, 1996, Albert Nipon and American Pop Marketing
Group, Inc. commenced an action against the Company seeking, inter alia, a
declaratory judgment with respect to the use of the Company's "Albert Nipon"
trademark and tradename. The time for the Company to answer or otherwise move
has not yet expired. The Company intends to vigorously defend its trademark
rights with respect to "Albert Nipon."
As a result of the chapter 11 cases, and except with respect
to matters now before the Bankruptcy Court, all of the aforementioned litigation
insofar as the Company is concerned has been stayed. Except as described
hereinabove, the Company is not a party to any material litigation, other than
ordinary routine litigation incidental to the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company was listed on the New York
Stock Exchange under the ticker symbol "LES" until June 23, 1995, at which time
trading was suspended. Subsequent to June 23, 1995, the Company's stock has been
traded in the "pink sheets." The high and low sales prices for the Company's
Common Stock on the New York Stock Exchange (until June 23, 1995) and the high
bid and low asked prices on the pink sheets thereafter for each quarter during
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Period High Low Period High Low
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C> <C>
1995 First Quarter $1 1/8 $ 7/32 1994 First Quarter $4 1/4 $3
Second Quarter 5/8 7/32 Second Quarter 3 1/2 2 1/2
Third Quarter 1/8 1/32 Third Quarter 2 3/8 2 1/2
Fourth Quarter 3/8 1/32 Fourth Quarter 2 3/4 9/16
</TABLE>
As of February 24, 1996 there were 812 holders of record of
the Company's stock. The Company has not declared any cash dividends on its
stock and has no present intention to do so. Under the terms of the Company's
FNBB Credit Agreements, prohibitions exist with respect to the declaration of
cash dividends on the Company's stock. As detailed in Item 3. - "Legal
Proceedings", under chapter 11 of the Bankruptcy Code, the Company is precluded
from paying dividends while the chapter 11 cases are pending.
The Company anticipates, in accordance with provisions of the
Bankruptcy Code, that all cash and securities to be distributed pursuant to its
reorganization plan will be distributed to its creditors and certain employees,
and current stockholders of the Company will not retain or receive any value for
their investment.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data of the Company should be
read in conjunction with the Consolidated Financial Statements and related Notes
appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
For the Years (a)
-----------------
(unaudited) (unaudited)
(restated)
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
($'s in thousands, except per share)
<S> <C> <C> <C> <C> <C>
Net Sales $ 445,204 $ 535,333 $ 661,779 $ 772,069 $ 831,170
Restructuring and
Investigation
Costs 0 0 0 28,050(b) 0
Operating (Loss)
Income 1,235 (27,278) (32,574) (57,618) 44,157
Reorganization
Costs 16,575(c) 115,769(c) 45,139(c) 0 0
Interest and
Financing Costs 3,262(d) 5,512(d) 25,783 15,373 18,920
Taxes/(Benefits)
on Loss/Income (761)(e) 981(e) (8,258)(f) (7,390)(f) 16,411
Net (Loss) Income (17,841) (149,540) (95,238) (65,601) 8,826(g)
Net (Loss) Income
per Common Share (0.95) (7.97) (5.07) (3.45) 0.46
Total Assets 245,980 281,634 421,341 448,610 374,368
Assets of
Divisions Held for
Sale and 326(h) 21,063(h) 0 0 0
Disposition
Long-Term Debt
(Including
Capital Lease) 0 0 8,022(i) 8,356(j) 84,391
</TABLE>
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<PAGE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(a) Financial information for the years 1992 and 1991 has been restated to
reflect adjustments to correct accounting irregularities and other
restatement adjustments as described in Note 1 to the Consolidated
Financial Statements.
(b) In the fourth quarter of 1992, the Company accrued its estimate for
the costs of the investigation of the accounting irregularities and
certain restructuring decisions.
(c) The Company incurred reorganization costs in 1995, 1994 and 1993 while
operating as a debtor in possession. Included in 1995, 1994 and 1993
is a provision of $3,181,000, $53,000,000, and $1,642,000,
respectively, for a write-down of a portion of the excess purchase
price over net assets acquired in the 1984 leveraged buyout of The
Leslie Fay Company, related to certain of the Company's divisions,
which the Company believes will be unrecoverable.
(d) On January 2, 1994, the Company decided not to accrue interest on
approximately $253,000,000 of pre-petition debt. The Company had no
direct borrowings under the DIP Credit Agreement in 1994. The Company
incurred direct borrowings under the FNBB Credit Agreement for a total
of ten (10) days in the third quarter of 1995, the highest amount of
which was $3,956,000. Interest was incurred at a rate of prime plus
1.5%.
(e) The Company recognized an income tax credit of $1,811,000 in 1995
representing a reduction of foreign income tax liabilities as a result
of negotiated settlements on prior years' estimated taxes. The Company
only paid state, local and foreign taxes in 1995 and 1994. The
elimination of the income tax benefit in 1994, which was realized in
1993 and 1992, resulted from the complete utilization of tax refunds
from prior years' taxes paid.
(f) In 1993 and 1992, the Company realized an income tax benefit as a
result of the net losses incurred and the ability to recognize the
carryback of those losses against prior years' taxes paid.
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<PAGE>
(g) Includes a non-recurring pre-tax credit of $5,654,000 related to the
sale of the Company's HEAD Sportswear Division. Additionally, net
income was effected by a pre-tax charge of $4,460,000 related to
closing the Company's Mary Ann Restivo Division.
(h) The Company has classified assets of certain divisions as "Assets of
Divisions Held for Sale and Disposition," as the Company has announced
its intention to dispose of these divisions.
(i) All long-term debt except capital leases has been reclassified as
liabilities subject to compromise because of the Company's chapter 11
filing.
(j) All long-term debt except capital leases has been reclassified as
current debt because of the Company's chapter 11 filing.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
(A) RESULTS OF OPERATIONS
1995 AS COMPARED WITH 1994
The Company recorded net sales of $445,204,000 for the 52
weeks ended December 30, 1995 compared with $535,333,000 for the 52 weeks ended
December 31, 1994, a decrease of 16.8%. Contributing to this decrease was the
closing of the THEOmiles division in the third quarter of 1994, and the
Company's decision in the fourth quarter of 1994 to sell its 51% interest in
Next Day Apparel, Inc., to close its two foreign sales companies (Leslie Fay
Canada, Inc. and Leslie Fay UK Limited) and to close 12 Leslie Fay retail stores
and to discontinue selling under certain labels. During 1995, the Company
further decided to discontinue its Nipon Studio sportswear line and to close all
of its remaining Leslie Fay retail stores. The aggregate impact of these
closings and divestitures accounted for approximately $113,507,000 of the
decline in net sales. The Company also opened 22 retail stores under the Kasper
for ASL name and organized a separate entity to market Kasper suits in Europe.
Together these new businesses had 1995 net sales volume of $8,006,000. On a
comparable business basis, excluding these closings, divestitures, and new
businesses, the Company had a net sales increase of $15,372,000 or 3.6% over
1994. This net increase includes a volume reduction within the Leslie Fay Dress
division to eliminate unprofitable labels and customers and a growth in the
Company's suit and sportswear businesses.
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<PAGE>
Gross Profit in 1995 was 22.3% of net sales compared with
20.1% for 1994. This improvement in rate was experienced primarily in the
Company's Leslie Fay Dress and Sportswear businesses as the result of several
strategies which had impact mostly beginning in the second half of 1995. These
strategies both lowered markdowns and reduced production costs. The Company
lowered its markdowns by discontinuing sales to unprofitable accounts, by
achieving better regular price sell through and by working more closely with the
Company's key accounts. The Company lowered its production costs by shifting its
manufacturing base entirely to third party contractors, both domestic and
overseas, following the closure of the Company's owned manufacturing facilities
in August 1995.
Selling, warehouse, and general and administrative expenses
for 1995 decreased to 21.8% of net sales compared with 24.6% of net sales for
1994. Overall, including the impact of closed businesses, the Company's expenses
were reduced $34,503,000 or 26.3% below the levels of 1994. To improve
profitability while reducing overall sales volume, the Company continued through
1995 the programs begun in 1994 to reduce overhead. This program has reduced
payroll, rent and occupancy and other expenses.
As discussed previously, the Company has decided that it would
dispose of Next Day and the Leslie Fay retail store divisions. For these
divisions, in the years 1995 and 1994, respectively, net sales amounted to
approximately $34,843,000 and $88,968,000 and operating losses, before
allocation of corporate overhead, amounted to approximately $1,062,000 and
$2,793,000.
Amortization of intangibles consists primarily of the
amortization of the excess purchase price over net assets acquired and relates
principally to the leveraged buyout of The Leslie Fay Company in 1984 and the
acquisition of Hue, Inc. in 1992. The reduction in amortization expense is
related to the write-down of the asset by $53,000,000 at the end of 1994.
Interest and financing costs primarily represent the cost of
bank and other borrowings for working capital requirements, long-term debt and
the capitalized lease obligation. Interest and financing costs in 1995 were 0.7%
of net sales, as compared with 1.0% in 1994. This reduction was due to the
reduced financing fees paid in 1995 upon replacing the DIP Credit Agreement with
the FNBB Credit Agreement and was offset by the interest on ten days direct
borrowings under the FNBB Credit Agreement in 1995 versus none under the DIP
Credit Agreement in 1994.
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<PAGE>
While operating as a debtor in possession, the Company
incurred reorganization costs of approximately $16,575,000 in 1995 and
$115,769,000 in 1994. Reorganization costs included professional fees and other
costs of $7,995,000 in 1995 and $13,229,000 in 1994, closed facilities and
operations charges of $10,138,000 in 1995 and $39,753,000 in 1994, a provision
for a key employee severance and retention program of $3,000,000 in 1994, a
provision of $3,181,000 in 1995 and $53,000,000 in 1994 for a write-down of a
portion of the excess purchase price over net assets acquired related to certain
of the Company's divisions, which the Company believed would be unrecoverable,
and a fourth quarter 1994 provision for multi-employer pension plan withdrawal
liability of $8,500,000. The reduced reorganization costs were related to
discontinuing the use of certain consultants as it began executing its
restructuring plan and completing the closing of unprofitable divisions. The
increase in interest income to $4,739,000 in 1995 from $1,713,000 in 1994 also
decreased overall costs. This increase was the result of recognizing interest of
$3,399,000 related to income tax refunds.
The Company incurred state, local and foreign taxes of
$1,050,000 in 1995 and $981,000 in 1994. The recognition of an income tax credit
of $1,811,000, representing a reduction of foreign tax liabilities as a result
of negotiated settlements on prior years estimated taxes, offset the 1995 tax
expenses.
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<PAGE>
1994 AS COMPARED WITH 1993
The Company recorded net sales of $535,333,000 for the 52
weeks ended December 31 1994, compared with $661,779,000 for the 52 weeks ended
January 1, 1994, a decrease of 19.1%. A six week labor strike by the ILGWU at
all of the Company's manufacturing and distribution facilities commenced at the
expiration of the prior contract period, May 31, 1994, and was settled on July
8, 1994. The settlement was approved by the Bankruptcy Court on July 14, 1994.
This labor strike affected the Company's ability to manufacture, receive and
distribute merchandise during the strike, and continued to unfavorably impact
net sales throughout the third and fourth quarters of 1994 following the strike,
causing late deliveries of its Fall dress and sportswear merchandise. This in
turn resulted in canceled orders, increased markdowns and customer allowances,
further eroding net sales. The delays in shipments of Fall product in the third
quarter of 1994 impacted directly on the fourth quarter's results as customers
demanded large markdowns and allowances for Holiday shipments in the fourth
quarter due to the inability of the Company to provide its customers with
product for the full selling seasons. Also contributing to this decrease was the
closing of the Spitalnick division during the third quarter of 1993, the
licensing of the HUE trademark concurrent with the closing of the Hue Division
effective with the 1993 year end, and the closing of the THEOmiles Division at
the end of the third quarter of 1994, the aggregate of which caused net sales to
decline by approximately $56,000,000 in 1994 compared with 1993. The continued
impact of a weak economy and lackluster consumer demand at the retail level in
all women's apparel categories also played a major role in the decline in net
sales. Partially mitigating this net sales decline was increased net sales of
$7,060,000 from the continuing expansion of the Company's retail outlet business
with five new stores opened in 1994 and the annualization of sales for stores
opened during 1993.
Gross profit in 1994 was 20.1% of net sales as compared with
22.4% in 1993. This decrease in gross profit was directly attributable to higher
markdowns and customer allowances in the fourth quarter resulting from strike
related production inefficiencies causing late deliveries of Fall merchandise
and the problems with sell through of Holiday merchandise, as previously
discussed. In addition, higher product costs were incurred as a consequence of
the strike. Partially offsetting this decrease was the effect of the scheduled
reduction in production of Spring and Summer 1994 merchandise to minimize excess
inventory which required high markdowns in 1993. Increased gross profits from
the retail outlet operations and a settlement with the ILGWU recorded in the
second quarter also contributed to offsetting the decrease in 1994 gross
profits.
-29-
<PAGE>
Selling, warehouse, general and administrative expenses for
1994 decreased to 24.6% of net sales compared with 26.8% in 1993. This decrease
is a result of a major overhead reduction program which the Company undertook in
response to the declining sales. This included reviewing the expense structure
of all operations, followed by decisions to close the Spitalnick, Hue and
THEOmiles Divisions and excess showrooms and to consolidate operating facilities
thereby substantially reducing payroll, rent and occupancy costs during 1994 as
compared to 1993. Partially mitigating these savings is the decline in net sales
previously discussed and costs of opening an additional five Leslie Fay retail
stores.
For the divisions held for sale, in the years 1994 and 1993,
respectively, net sales amounted to approximately $88,968,000 and $77,351,000
and operating losses, before allocation of corporate overhead, amounted to
approximately $2,793,000 and $66,000.
Amortization of intangibles consists primarily of the
amortization of the excess purchase price over net assets acquired and relates
principally to the leveraged buyout of The Leslie Fay Company in 1984 and the
acquisition of Hue, Inc. in 1992.
Interest and financing costs primarily represent the cost of
bank and other borrowings for working capital requirements, long-term debt and
the capitalized lease obligation. Interest and financing costs in 1994 were 1.0%
of net sales, as compared with 3.9% in 1993. In the first quarter of 1993, prior
to the petition date, the Company accrued and paid interest on its pre-petition
debt. In order to be conservative, the Company accrued $13,366,000 for interest
on pre-petition debt during the post-petition period in 1993 even though all or
a significant portion of such interest may not be payable or paid as a
consequence of the Bankruptcy Code, which excuses such an obligation under
certain circumstances. For this reason, the Company made a decision not to
accrue this interest on pre-petition debt in 1994. The Company had no direct
borrowings under the DIP Credit Agreement in 1994.
-30-
<PAGE>
While operating as a debtor in possession, the Company
incurred reorganization costs of approximately $115,769,000 in 1994 and
$45,139,000 in 1993. This is comprised of professional fees and other costs of
$13,229,000 in 1994 and $13,254,000 in 1993, closed facilities and operations
charges of $39,753,000 in 1994 and $32,366,000 in 1993, a provision for a key
employee severance and retention program of $3,000,000 in 1994, a fourth quarter
provision for multi-employer pension plan withdrawal liability of $8,500,000 in
1994 and a fourth quarter of 1994 provision of $53,000,000 for a write-down of a
portion of the excess purchase price over net assets acquired in the 1984
leveraged buyout of The Leslie Fay Company, related to certain of the Company's
divisions, which the Company believes will be unrecoverable. This is offset by
interest income of $1,713,000 in 1994 and $481,000 in 1993.
The Company incurred state, local and foreign taxes of
$981,000 in 1994. In 1993, the Company realized an income tax benefit of
$8,258,000 as a result of the net losses incurred and the ability to recognize
the carryback of those losses against prior years' taxes paid. The elimination
of the income tax benefit in 1994 resulted from the complete utilization of tax
refunds from prior years' taxes paid.
-31-
<PAGE>
(B) LIQUIDITY AND CAPITAL RESOURCES
At December 30, 1995, there were no cash borrowings
outstanding under the FNBB Credit Agreement, and cash and cash equivalents
amounted to $32,324,000. The Company's working capital increased $1,493,000, to
$138,562,000 at December 30, 1995 from 1994 year end. The primary changes in the
components of working capital were a decrease in accounts receivable of
$3,980,000, an increase in income taxes refundable of $1,733,000, a decrease of
$19,392,000 in accrued expenses and other current liabilities, and a net
decrease in assets and liabilities of divisions held for sale and disposition of
$15,139,000. The change in accounts receivable resulted primarily from the
closing of the Nipon Studio label and the reduced sales volume in the Dress
division. The increase in income taxes refundable arose from the recognition of
an additional interest receivable of $2,375,000 on a tax refund due offset by
the collection of tax refunds due for $642,000. The sale of Next Day and the
liquidation of the Leslie Fay retail stores significantly reduced the net Assets
and Liabilities of divisions held for sale and disposition.
Citibank N.A. agreed to provide the Company with an interim
post-petition credit facility beginning on the Filing Date. This agreement was
refinanced on April 28, 1993, with a $150,000,000 DIP Credit Agreement and
extended on April 26, 1994 with a commitment level not to exceed $100,000,000.
This DIP Credit Agreement was further amended to extend the facility until
December 15, 1995 at a commitment level not to exceed $80,000,000.
A replacement facility for a new $80,000,000 credit agreement
with the First National Bank of Boston ("FNBB") and BankAmerica Business Credit,
Inc. ("BABC"), as Facility Agents and FNBB as Administrative Agent (the "FNBB
Credit Agreement") was approved by the Bankruptcy Court and became effective on
May 2, 1995 and was subsequently extended to mature on the earlier of (i) June
30, 1996, (ii) the date of termination of the Commitments (as that term is
defined in the FNBB Credit Agreement) or (iii) the first date on which a
reorganization plan for the Company is substantially consummated. The Company
and the lenders under the FNBB Credit Agreement have discussed the possibility
of extending this agreement beyond June 30, 1996, should the need arise. Based
on these discussions, the improved profitability of the Company, the historical
ability of the Company to acquire extensions or alternate financing and the
progress made towards achieving a concensual reorganization plan, management
believes the Company could extend its financing agreement beyond June 30, 1996,
if that becomes necessary, subject to Bankruptcy Court approval.
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<PAGE>
The FNBB Credit Agreement provides for post-petition direct
borrowings and the issuance of letters of credit on the Debtors' behalf in an
aggregate amount not exceeding $80,000,000, subject to being permanently reduced
on a dollar-for-dollar basis to the extent aggregate net cash proceeds received
from the sales of assets after March 20, 1995 exceed $20,000,000 up to a maximum
of $40,000,000 on a cumulative basis. On November 15, 1995, the Facility was
amended to reduce the aggregate borrowing limit to $60,000,000. The following
direct borrowing sublimits are subject to being reduced by fifty percent (50%)
of any net cash proceeds received from the sales of assets: $25,000,000 from May
2, 1995 through July 1, 1995; $30,000,000 from July 2, 1995 through September
30, 1995; $20,000,000 from October 1, 1995 through October 28, 1995; and
$5,000,000 from October 29, 1995 through December 31, 1995. Commencing January
1, 1996 and through June 30, 1996, the sublimit is $15,000,000. The sublimit for
letters of credit is $50,000,000. No qualifying asset sales have been made which
would reduce the facility borrowing limits.
Direct borrowings bear interest at prime plus 1.5%. The FNBB
Credit Agreement, as amended, contains certain financial and operating covenants
related to minimum and maximum inventory levels, capital expenditures and
attainment of minimum earnings before reorganization, interest, taxation,
depreciation and amortization. As collateral for borrowings under the FNBB
Credit Agreement, the Company has granted to FNBB and BABC a security interest
in substantially all assets of the Company. In addition, the FNBB Credit
Agreement contains certain restrictive covenants including limitations on the
incurrence of additional liens and indebtedness and a prohibition on paying
dividends. The Company is currently in compliance with all covenants contained
in the FNBB Credit Agreement, as amended.
The FNBB Credit Agreement is intended to be used, among other
things, to provide working capital to the Company and its subsidiaries to
purchase raw materials and inventory. As of March 30, 1996, the Company was
utilizing approximately $37,690,000 of this facility for letters of credit. In
addition, the Company has also relied on cash flow from operations, tax refunds
resulting from the carryback of its operating losses against tax payments made
in prior years and savings from reductions in overhead costs to fund its cash
needs. Operating losses, interest and financing and reorganization costs in
excess of $18,600,000 negatively impacted the 1995 results of operations and
cash flow. As a result, the Company has continued to review its organizational
structure to attempt to further consolidate its operations and improve its cash
flow.
-33-
<PAGE>
As discussed previously, the Company's total net sales have
declined during 1995 due to the Company's decisions to close unprofitable
labels. Although the Company's revised forecast indicates it will be in
compliance with its FNBB Credit Agreement covenants, no assurance can be given
that compliance will be achieved during 1996. In the event that such compliance
is not achieved, management will attempt to obtain appropriate waivers and
amendments from its bank lenders.
Based on current economic indicators and operating trends, the
Company anticipates the net sales declines experienced in prior years will not
recur in 1996. The filing under chapter 11 protects the Company from the actions
of its pre-petition creditors while a plan of reorganization is being
negotiated. Until a plan of reorganization under chapter 11 is confirmed by the
Bankruptcy Court and consummated, payments on pre-petition debt will not be made
(except as approved by the Bankruptcy Court) and all existing unexpired
contracts and leases will be reviewed to determine whether, subject to
Bankruptcy Court approval, they should be assumed or rejected.
Capital spending is expected to be approximately $5,649,000 in
1996, primarily for the transition costs related to the sale or spin off of the
Company's Sassco Fashions Division and improved management information systems.
The Company believes that its financing arrangements and anticipated level of
internally generated funds will be sufficient to finance its capital spending
during 1996.
Other than the capital expenditures described above, no other
long-term investment or financing activities are anticipated while the Company
remains in chapter 11. The Company has no plans to pay dividends in the
foreseeable future.
The ability of the Company to continue as a going concern is
dependent upon the confirmation of a plan of reorganization by the Bankruptcy
Court, the ability to maintain on-going debtor in possession financing and to
maintain compliance with all debt covenants under the financing, the achievement
of profitable operations and positive cash flow, resolution of uncertainties in
the reorganization proceedings discussed in Note 2 to Notes to Consolidated
Financial Statements, and the ability obtain financing for its operations that
will enable it to emerge from chapter 11.
(C) EFFECTS OF INFLATION
The moderate rate of inflation over the past few years has not
had a significant impact on the Company's sales or profitability.
-34-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Consolidated Financial Statements and Financial
Statement Schedule of The Leslie Fay Companies, Inc. and Subsidiaries attached
hereto and listed on the index to financial statements set forth in Item 14 of
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
As previously reported in the Company's Current Report on Form
8-K dated May 6, 1993, the Company and BDO Seidman mutually agreed on May 6,
1993 that the accounting firm would resign as the Company's independent
certified public accountants, a capacity in which it had served for many years.
BDO Seidman had been advised by the staff of the SEC that it does not consider
the firm to be "independent" under SEC regulations in light of the pending
stockholder suits, and in light of the current investigation by the SEC with
respect to accounting irregularities of the Company. See Item 3. "Legal
Proceedings". Consequently, the Company and BDO Seidman terminated their
relationship.
The events which led up to the resignation of BDO Seidman are
(i) the investigation into the accounting irregularities; (ii) the withdrawal by
BDO Seidman of its opinion on the consolidated financial statements of the
Company for 1991; (iii) the private investigation of the Company by the SEC; and
(iv) the institution of a derivative action and certain class actions by
stockholders of the Company, all as more fully described in Item 1. "Business -
Commencement of Chapter 11 Cases" and Item 3. "Legal Proceedings".
During 1992, 1991 and 1990, there were no disagreements
between the Company and BDO Seidman on any matter relating to accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures which disagreements if not resolved to BDO Seidman's satisfaction
would have caused them to make reference in connection with their opinions to
the subject matter of the disagreement. In addition, BDO Seidman's opinions on
the Company's financial statements for such periods contained no adverse
opinions or disclaimers of opinion nor were such opinions qualified or modified
as to uncertainty, audit scope or accounting principles. However, on February
25, 1993, BDO Seidman withdrew its opinion on the Company's Consolidated
Financial Statements for 1991 and on September 28, 1993, BDO Seidman withdrew
its opinion on the Company's Consolidated Financial Statements for 1990.
Additional information is contained in the Company's Current Reports on Forms
8-K dated May 6, 1993 and September 28, 1993.
-35-
<PAGE>
On May 6, 1993, the Company announced that its Board of
Directors appointed the accounting firm of Arthur Andersen LLP as the Company's
independent public accountants. Arthur Andersen LLP has audited the Company's
balance sheet at January 2, 1993, which reflects the reversal of the accounting
irregularities and certain other accounting adjustments, and subsequent
financial statements. The decision to change accountants was unanimously
approved by the Company's Audit Committee and the Company's Board of Directors.
There have been no disagreements with Arthur Andersen LLP on
accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
& OFFICES WITH THE DIRECTOR TERM
NAME AND AGE COMPANY SINCE EXPIRES
- ------------ -------------------- -------- -------
<S> <C> <C> <C>
Ralph Destino (60) Chairman of the Board of 1988 (8)
Cartier, Inc. (3)(6)(7)
John S. Dubel (37) Former Senior Vice 1993 (10)
President and Chief
Financial Officer
Steven M. General Partner of Eos 1984 (8)
Friedman (41) Partners, L.P. (3)(4)(5)(7)
Alan Golub (60) Former President and 1984 (9)
Chief Operating Officer
of the Company
Herman Gordon (71) Former Senior Vice 1986 (8)
President and General
Counsel of the Company(2)
Ira J. Hechler (77) Private investor (1)(3)(5) 1984 (10)
</TABLE>
-36-
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
& OFFICES WITH THE DIRECTOR TERM
NAME AND AGE COMPANY SINCE EXPIRES
- ------------ -------------------- -------- -------
<S> <C> <C> <C>
Peter W. May (53) President and Chief 1993 (10)
Operating Officer of
Triarc Companies, Inc.(6)(7)
John J. Pomerantz Chairman of the Board and 1984 (10)
(62) Chief Executive Officer
of the Company(1)(2)(4)
Laura H. Pomerantz Former Executive Vice 1986 (9)
(48) President of the Company(4)
Michael L. Tarnopol Senior Managing Director of 1986 (9)
(59) Bear, Stearns & Co. Inc.
and Executive Vice
President of The Bear
Stearns Companies, Inc.
(1)(3)(4)(5)(7)
Faye Wattleton (52) President of MEFEL 1993 (9)
Associates(6)(7)
</TABLE>
- -----------------------
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the SAR Committee of the Board of Directors.
(3) Member of the Audit Committee of the Board of Directors.
(4) Member of the Nominating Committee of the Board of Directors.
(5) Member of the Stock Option Committee of the Board of Directors.
(6) Member of the Compensation Committee of the Board of Directors.
(7) Member of the Special Committee of the Board of Directors. The
Special Committee is charged with the responsibility of
monitoring the operations of the Company pending the completion
of the restructuring of Chapter 11 proceedings and assisting in
the development and implementation of a plan of reorganization.
(8) Class I Directors whose terms would have expired in 1993 will
continue to serve until the next Annual Meeting of Stockholders
at which time Class I Directors will be elected for a term
expiring in 1996.
(9) Class II Directors whose terms would have expired in 1994 will
continue to serve until the next Annual Meeting of Stockholders
at which time Class II Directors will be elected for a term
expiring in 1997.
(10) Class III Directors whose terms would have expired in 1995 will
continue to serve until the next Annual Meeting of Stockholders
at which time Class III Directors will be elected for a term
expiring in 1998.
-37-
<PAGE>
EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES OF THE COMPANY.
The following are the executive officers and a significant
employee of the Company.
Offices
Name with the Company Age
---- ---------------- ---
John J. Pomerantz Chairman of the Board and 62
Chief Executive Officer
Warren T. Wishart Senior Vice President, 43
Chief Financial Officer
and Treasurer
John Ward Senior Vice President 42
Catharine Bandel Senior Vice President 38
Wirtshafter
Joan Ruby Vice President, General 42
Counsel and Secretary
James G. Bloise Vice President- 52
Administration
Paul J. Kittner Vice President- 46
Corporate Controller
Vernon K. Smith Vice President-Taxes 57
Arthur Levine -- 55
CERTAIN INFORMATION CONCERNING DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT
EMPLOYEES OF THE COMPANY
The term of office of each executive officer of the Company
expires on the date of the organizational meeting of the Board of Directors of
the Company following each Annual Meeting of Stockholders of the Company and
when his or her respective successor is elected and has qualified.
Ralph Destino has been Chairman of the Board of Cartier, Inc.,
a manufacturer, distributor and retailer of fine jewelry, since January 1986,
and its President for ten years prior thereto. Mr. Destino is a director of
Hanover Direct, Inc.
-38-
<PAGE>
John S. Dubel provides consulting services to troubled
companies. Mr. Dubel served as Senior Vice President and Chief Financial Officer
of the Company from April 1993 to August 1995, and continues as a Director.
Prior to being associated with the Company, Mr. Dubel was a partner with Arthur
Andersen & Co, SC, where he had worked for thirteen years, and was a founding
member and co-head of its Corporate Recovery Services Group. Mr. Dubel is a
Certified Insolvency and Reorganization Accountant and a member of the
Turnaround Management Association and the Association of Insolvency Accountants,
where he formerly was a member of the Board of Directors and Vice President.
Steven M. Friedman has been a General Partner of Eos Partners,
L.P. (an investment partnership) since January 1994. From 1988 to 1993, Mr.
Friedman was a General Partner of Odyssey Partners, L.P. (an investment
partnership) and was a principal of that firm from October 1983 to 1988. Mr.
Friedman is a director of Eagle Food Centers, Inc., The Caldor Corporation,
Forstmann & Company, Inc., Micom Communications, Inc., JPS Textile Group, Inc.
and Rickel Home Centers, Inc.
Alan Golub served as an executive of the Company and its
predecessors since 1965 and was their Senior Vice President from 1979 until he
became Vice Chairman of the Board of the Company in August 1986. He served as
Vice Chairman of the Board until June 1987, when he became President of the
Company. From October 1990 until January 1, 1993 when he retired, Mr. Golub
served as the Company's Chief Operating Officer. Mr. Golub also served as Chief
Executive Officer of the Leslie Fay Sportswear divisions from 1970 until
November 1988. Since his retirement, Mr. Golub has served as a consultant to the
Company.
Herman Gordon served as Senior Vice President and General
Counsel of the Company from October 1988 until December 31, 1993 when he
retired. Since his retirement, Mr. Gordon has served as a consultant to the
Company. For more than 25 years prior to joining the Company, he was a partner
in the law firm of Parker Chapin Flattau & Klimpl, general counsel to the
Company.
Ira J. Hechler has been a private investor for more than five
years. Mr. Hechler is a director of United States Banknote Corporation and
Concord Camera Corp.
Peter W. May has been the President and Chief Operating
Officer of Triarc Companies, Inc., the parent company of Royal Crown Cola Co.,
Arby's Inc., Graniteville Co., National Propane Co. and several other
businesses, since April 23, 1993. From 1989 until April 1993, Mr. May was
President and Chief Operating Officer of Trian Group, Limited Partnership. Prior
thereto, Mr. May was President and Chief Operating Officer of Triangle
Industries, Inc. Mr. May is a Certified Public Accountant.
-39-
<PAGE>
John J. Pomerantz has been the Chief Executive or Chief
Operating Officer of the Company and its predecessors since 1971, and an
executive thereof for over 30 years. Mr. Pomerantz was President of the Leslie
Fay business from 1971 until August 1986, when he became Chairman of the Board
of the Company.
Laura H. Pomerantz is the Executive Managing Director of S.L.
Green since July 1995. Ms. Pomerantz had served as Executive Vice President of
the Company from December 1992 until the cessation of her employment with the
Company in November 1994, upon the closing of the THEOmiles Division. She was
Chairwoman of the THEOmiles Division and oversaw the Castleberry Division. Prior
thereto, she served as Senior Vice President or Vice President of the Company
from 1986 to December 1992. She also served as Chairwoman of the Breckenridge
Division from 1985 to 1993 when it was consolidated into the THEOmiles Division.
For more than seven years prior to 1985, she served as Senior Vice President of
the Personal Sportswear Division. Prior to joining the Company, Mrs. Pomerantz
was an executive at Burdine's. Mrs. Pomerantz is the wife of John J. Pomerantz.
Michael L. Tarnopol is a director and an Executive Vice
President of The Bear Stearns Companies, Inc. and a Senior Managing Director and
a member of the Executive Committee of Bear, Stearns & Co. Inc. He has served in
such capacities since October 1985.
Faye Wattleton has served as President of MEFEL Associates, a
management consulting firm, since 1992. Prior thereto, she served as President
of Planned Parenthood Federation of America from 1978 to 1992. She is a director
of The Institute for International Education, the Henry J. Kaiser Family
Foundation, The Estee Lauder Companies, Empire Blue Cross and Blue Shield and
Quidel Corporation.
Warren T. Wishart joined the Company in March 1993. He held
the position of Vice President - Planning from July 1993 through August 1995. In
September 1995, he became Senior Vice-President, Chief Financial Officer and
Treasurer of the Company. Prior to joining the Company, Mr. Wishart was Vice
President - Strategic Planning at Galerias Preciados from 1991 to the end of
1992. Prior to that, he had seventeen years of financial management and business
planning experience with several department stores including Filene's and L.J.
Hooker Retail Group.
-40-
<PAGE>
Catharine Bandel Wirtshafter joined the Company in January
1994 as President of Sales and Marketing for the Leslie Fay and Nipon brands. In
June 1995, she was elected Senior Vice President of the Company and appointed
President of Leslie Fay Sportswear. Prior to joining the Company, from September
1987 until December 1993, she served as President of Missy Sportswear of
Bonaventure Textiles. Prior thereto, she was the President of Chaus Sport at
Bernard Chaus, Inc. from 1984 through 1987.
John Ward joined the Company in August 1989 as head of the
Andrea Gayle Division and since July 1991 he has been Chairman of the Leslie Fay
Sportswear Group. In June 1993 he became Chairman of the combined Leslie Fay
Dress and Sportswear Divisions. He was elected a Senior Vice President of the
Company in September 1991. From June 1988 until August 1989 he was Senior Vice
President and General Merchandise Manager for Ready-to-Wear, Men's and Boys' at
B. Altman & Co. For fifteen years prior thereto, he had been an executive at
Filene's.
Joan Ruby joined the Company in October 1993 as Vice
President-Legal Affairs. In June 1994, she was elected Vice President and
General Counsel. From October 1991 to October 1993, She served as Executive Vice
President of Norma Kamali, Inc. Prior thereto, she served at the law firm of
Phillips, Nizer, Benjamin, Krim & Ballon, specializing in labor and employment
law, as a partner since 1990 and as an associate from 1984 through 1990.
James G. Bloise joined the Company in March 1991 as Director
of Logistics. In June 1992, he became Vice President-Administration of the
Company. From March 1988 to January 1991, Mr. Bloise served as Vice
President-Logistics of Federated Department Stores, Inc. Prior thereto, he
served as Vice President and Corporate Controller of Mast Industries Division of
The Limited Stores, Inc.
Paul J. Kittner joined the Company in March 1993 as Vice
President-Corporate Controller. From 1989 to 1992 Mr. Kittner served as Senior
Vice President-Finance, Chief Financial Officer and Treasurer of the HE-RO Group
Ltd. Prior thereto, he served as Senior Vice President and Chief Financial
Officer of Loehmann's Inc. and Corporate Vice President, finance and internal
audit for Associated Dry Goods Corp.
Vernon K. Smith joined the Company in June 1993 as its Vice
President - Taxes. From October 1990 to May 1993, Mr. Smith served as Vice
President - Corporate Taxes of Ames Department Stores, Inc. Prior thereto, he
served as Director of Corporate Tax of The Foxboro Company from January 1988 to
September 1990.
Arthur Levine has been the President of the Company's Sassco
Fashions Division since 1980.
-41-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
Summary of Cash and Certain Other Information. The following
table shows, for 1995, 1994 and 1993, the compensation paid or accrued by the
Company and its subsidiaries to the Chief Executive Officer, and the other four
most highly compensated executive officers of the Company (the "Named Officers")
during 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
----------------------------------------- ---------------------------------
Awards Payouts
------------------------ -------
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Position Year Salary(1) Bonus Compensation(2) Awards Options(#) Payouts Compensation
- ------------------ ---- --------- ----- --------------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John J. Pomerantz 1995 $780,000 $ -- $41,206 None -- None $ 8,600(3)
Chairman of the 1994 $798,915 $ -- $ -- None -- None $19,850(4)
Board and Chief 1993 $798,915 $ -- $77,786 None 25,000 None $26,280(5)
Executive Officer
- ----------------------------------------------------------------------------------------------------------------------------------
John Ward 1995 $500,000 $ -- $15,116 None -- None $ 2,730(3)
Senior Vice 1994 $500,000 $ -- $ -- None -- None $ 7,371(4)
President 1993 $400,000 $139,005 $ -- None 12,500 None $ 9,872(5)
- ----------------------------------------------------------------------------------------------------------------------------------
Catharine Bandel
Wirtshafter (6) 1995 $274,038 $ -- $13,996 None -- None $ --
Senior Vice 1994 $160,000 $ 20,000 $ 8,434 None -- None $ --
President
- ----------------------------------------------------------------------------------------------------------------------------------
James G. Bloise 1995 $225,000 $ -- $ -- None -- None $ 2,230(3)
Vice President - 1994 $220,673 $ 50,000 $ 219 None -- None $ 2,230(4)
Administrations 1993 $225,000 $ -- $ -- None -- None $ 2,418(5)
- ----------------------------------------------------------------------------------------------------------------------------------
Warren T. Wishart(7) 1995 $198,461 $ -- $ 1,591 None -- None $ 2,535(3)
Senior Vice 1994 $160,000 $ -- $ 1,204 None -- None $ 2,182(4)
President, 1993 $135,769 $ 30,000 $ 1,025 None -- None $ --
Chief Financial
Officer and
Treasurer
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1995, 1994 and 1993 were 52 week years. Amounts represents annual salaries
as calculated on a 365 day year.
(2) In 1995 and 1994, perquisites and other personal benefits did not exceed
the lesser of $50,000 or 10% of reported annual salary and bonuses for any
of the Named Officers. In 1993, except for Mr. Pomerantz, perquisites and
other personal benefits did not exceed the lesser of $50,000 or 10% of
reported annual salary and bonus for any of the other Named Officers. With
respect to Mr. Pomerantz, includes $54,615 paid by the Company for an
automobile and other automobile related expenses.
-42-
<PAGE>
(3) For 1995, consists of the following (1) amounts contributed as Company
matching contributions for each Named Officer under the Company's 401(k)
Savings Plan as follows: Mr. Pomerantz $2,230, Mr. Ward $2,500, Mr. Bloise
$2,230 and Mr. Wishart $2,535; (b) amounts contributed by the Company under
the Company's defined benefit cash balance retirement plan as follows: Mr.
Pomerantz and Mr. Ward $500 each; (c) amounts paid by the Company for split
dollar life insurance coverage as follows: Mr. Pomerantz $5,870.
(4) For 1994, consists of the following (a) amounts contributed as Company
matching contributions for each Named Officer under the Company's 401(k)
Savings Plan as follows: Mr. Pomerantz $2,230, Mr. Ward $3,022, Mr. Bloise
$2,230 and Mr. Wishart $2,182; (b) amounts contributed by the Company under
the Company's defined benefit cash balance retirement plan as follows: Mr.
Pomerantz $12,299 and Mr. Ward $4,349; and (c) amounts paid by the Company
for split dollar life insurance coverage for Mr. Pomerantz $5,321.
(5) For 1993, consists of the following (a) amounts contributed as Company
matching contributions for each Named Officer under the Company's 401(k)
Savings Plan as follows: Mr. Pomerantz $2,499, Mr. Ward $2,948 and Mr.
Bloise $2,418; (b) amounts contributed by the Company under the Company's
defined benefit cash balance retirement plan as follows: Mr. Pomerantz
$19,313 and Mr. Ward $6,924; and (c) amounts paid by the Company for split
dollar life insurance coverage as follows: Mr. Pomerantz $4,468.
(6) Ms. Wirtshafter commenced her employment with the Company on January 3,
1994.
(7) Mr. Wishart commenced his employment with the Company on March 1, 1993.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The Company did not grant any stock options or SAR's to the Named
Officers during 1995.
-43-
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
VALUE TABLE
The following table sets forth information with respect to the
Named Officers concerning the exercise of options during 1995 and unexercised
options held as of the end of such year. The closing price of a share of Common
Stock of the Company on the close of business on December 30, 1995 was $0.0625.
Accordingly, none of the Named Officers would have realized any value if they
had exercised their options on such date.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options Options
at Fiscal at Fiscal
Year-End Year-End
Shares ----------- ----------------
Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized Unexercisable Unexercisable(1)
- --------------------- ------------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
John J. Pomerantz None N/A 37,500/12,500 $ 0/0
- -----------------------------------------------------------------------------------------------------------------------------
John Ward None N/A 11,250/ 6,250 $ 0/0
- -----------------------------------------------------------------------------------------------------------------------------
Catharine Wirtshafter None N/A 875/ 2,625 $ 0/0
- -----------------------------------------------------------------------------------------------------------------------------
James G. Bloise None N/A 4,375/ 625 $ 0/0
- -----------------------------------------------------------------------------------------------------------------------------
Warren T. Wishart None N/A 2,500/ 2,500 $ 0/0
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Aggregate market value of the shares of Common Stock covered by the options
on the date of exercise less the exercise price of such options.
-44-
<PAGE>
RETIREMENT PLAN
The Company's Retirement Plan is a defined benefit, cash
balance pension plan. Each year the Company contributes a percentage of earnings
to an account for each eligible employee based on attained age and years of
service. The benefit credits are calculated using a defined formula. In tabular
form, the formula is as follows:
Percent of Pay Percent of Pay
Age Plus Up to One-Half the Over One-Half the
Completed Social Security Social Security
Years of Service Wage Base Wage Base
- ---------------- ------------------ -----------------
Less than 50 2.00% 3.00%
50-59 2.75% 3.75%
60-69 3.75% 4.75%
70-79 5.25% 6.25%
80 or more 7.25% 8.25%
At December 30, 1995, the estimated annual benefits payable
upon retirement at normal retirement age for each of John J. Pomerantz, John
Ward, Catharine Bandel Wirtshafter, and James Bloise and Warren Wishart were
$59,844, $21,542, $ 0, $536 and $536, respectively. These projected amounts do
not reflect continued plan credits.
The Retirement Plan has been amended to freeze benefit
accruals effective December 31, 1994. The amounts do reflect an annual 5%
interest rate credit until normal retirement date.
COMPENSATION OF DIRECTORS
Each director who is not a full-time employee of or consultant
to the Company receives an annual director's fee of $20,000, as well as a fee of
$1,000 for each meeting of the Board of Directors or any committee thereof
attended.
-45-
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company has an employment agreement with John J. Pomerantz
which provides for his employment in his present capacity as an executive
officer until December 31, 1997 at a salary of $798,915 per annum. Mr.
Pomerantz's agreement also provides that in the event of his death, the Company
will pay to his spouse an amount equal to two times his annual base salary, or
if he is not survived by a spouse, the Company will pay to his estate an amount
equal to his annual base salary, in either case payable over a five year period.
The Company has in effect a Partnership and Management
Agreement, dated as of April 30, 1982 (as amended, the "Management Agreement"),
under the terms of which Mr. Pomerantz is entitled to receive, in addition to
the salary received under his employment agreement with the Company, additional
compensation based on an effective rate of 4.52% of the pre-tax "net earnings",
as defined, of the Company's business for the applicable year, if such earnings
exceed $16,000,000. Mr. Pomerantz is entitled to receive 100% of the additional
compensation payable under the Management Agreement. The Management Agreement is
scheduled to expire December 31, 1997.
The Company has in effect an employment agreement with John
Ward dated as of June 29, 1994 (the "Ward Employment Agreement"), pursuant to
which he is employed as Senior Vice President and as Chairman of the Leslie Fay
Dress Group at a minimum total compensation of $500,000 per annum until June 30,
1996. In addition to his base salary, the Ward Employment Agreement provides
that Mr. Ward is entitled to certain other perquisites and additional bonus
compensation based on the achievement of certain levels of Contribution, as
defined, of the Leslie Fay Dress Group.
The Company also has in effect an amended and restated
employment agreement with Warren T. Wishart dated as of May 1, 1995 (the
"Wishart Employment Agreement"), pursuant to which he is employed as Senior Vice
President, Chief Financial Officer and Treasurer of the Company at a base salary
of $200,000 per annum until June 30, 1996. In addition to such salary, the
Wishart Employment Agreement provides that Mr. Wishart is entitled to certain
other perquisites and additional bonus compensation based on the achievement of
certain corporate financial and personal goals, as agreed upon by the Company
and Mr. Wishart.
-46-
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee at the time
that 1994 compensation levels were set for officers. During 1994 and subject to
the terms of various employment agreements, the Board of Directors was
responsible for determining the compensation of officers. The Company's Chairman
of the Board and Chief Executive Officer, John J. Pomerantz; former President
and Chief Operating Officer, Michael J. Babcock; former Senior Vice President
and Chief Financial Officer, John Dubel and former Executive Vice President,
Laura H. Pomerantz each participated in deliberations of the Company's Board of
Directors concerning executive officer compensation during the period they were
directors. On April 12, 1994, the Board of Directors appointed a Compensation
Committee consisting of Ralph Destino, Peter W. May and Faye Wattleton, which
Committee was charged with determining the compensation of officers. Since the
commencement of the Bankruptcy Court proceedings on April 5, 1993, issues
regarding the compensation of officers have been submitted to the creditors
committee and/or the Bankruptcy Court for approval prior to Compensation
Committee of Board of Director action.
The members of the Stock Option Committee of the Company's
Board of Directors are Steven M. Friedman, Ira J. Hechler and Michael L.
Tarnopol.
Bear, Stearns & Co. Inc. ("Bear Stearns") and its affiliates
have rendered the following advisory services to the Company. Bear Stearns Asset
Management, a division of Bear Stearns, acts as investment manager for the
Company's 401(K) Savings Plan and Retirement Plan and receives fees therefor.
Michael L. Tarnopol, a director of the Company, is a Senior Managing Director
and a member of the Executive Committee of Bear Stearns and a director and
Executive Vice President of The Bear Stearns Companies, Inc., an affiliate of
Bear Stearns.
-47-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) The following table sets forth certain information with
respect to each person (including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) who is known to the
Company to be the beneficial owner of more than 5% of the Company's Common Stock
as of December 30, 1995:
Amount and
Name and Address Nature of Percent
of Beneficial of
Beneficial Owner Ownership Class
- ---------------- ---------- -------
John J. Pomerantz 1,534,583(1) 8.2%
1412 Broadway
New York, New York 10018
- -------------------
(1) Includes 200,000 shares held by Mr. Pomerantz as trustee for his daughters
and 31,433 shares owned by a charitable foundation of which Mr. Pomerantz is
President. Also includes 43,750 shares which Mr. Pomerantz has the right to
acquire upon exercise of stock options which are exercisable currently or
within 60 days. Does not include shares owned or held by Laura H. Pomerantz,
Mr. Pomerantz's wife, which are described in the table in paragraph (b)
below and footnote (6) thereof. Mr. Pomerantz disclaims beneficial ownership
of all shares referred to in this footnote (2) other than the 43,750 shares
subject to his stock options.
-48-
<PAGE>
(b) The following table sets forth certain information as of
December 30, 1995, with respect to the beneficial ownership of the Company's
Common Stock by each director, each of the Named Officers and by all directors
and executive Officers as a group.
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership(1) of Class
- ------------------------ ----------------------- --------
James Bloise 4,375(2) *
Ralph Destino 1,000 *
John Dubel 0 *
Steven M. Friedman 0 *
Alan Golub 484,215 2.6%
Herman Gordon 2,000 *
Ira J. Hechler 431,812(3) 2.3%
Peter W. May 0 *
John J. Pomerantz 1,534,583(4) 8.2%
Laura H. Pomerantz 222,500(5) 1.2%
Michael L. Tarnopol 10,000 *
Faye Wattleton 0 *
John Ward 14,375(6) *
Catharine Bandel Wirtshafter 1,750(7) *
Warren Wishart 2,500(8) *
All directors and executive 2,718,485(9) 14.5%
officers as a group (18
persons)
- ------------------
* Less than 1%.
(1) Except as otherwise indicated, each of the persons named above has sole
voting and investment power with respect to the shares of Common Stock
indicated as beneficially owned by him or her.
(2) Consists of 4,375 shares which Mr. Bloise has the right to acquire upon
exercise of stock options which are exercisable currently or within 60 days.
(3) Does not include 736,987 shares owned by Marilyn Hechler, Mr. Hechler's
wife. Mr. Hechler disclaims beneficial ownership of such shares.
(4) See footnote (1) to the table under (a) above for certain information
concerning Mr. Pomerantz's beneficial ownership of Common Stock.
-49-
<PAGE>
(5) Includes 122,500 shares held by Laura H. Pomerantz as trustee for her
daughter, with respect to which she disclaims beneficial ownership. Does not
include shares owned or held by John J. Pomerantz, Mrs. Pomerantz's husband,
which are described in footnote (1) to the table under (a) above.
(6) Consists of 14,375 shares which Mr. Ward has the right to acquire upon
exercise of stock options which are exercisable currently or within 60 days.
(7) Consists of 1,750 shares which Ms. Wirtshafter has the right to acquire upon
exercise of stock options which are exercisable currently or within 60 days.
(8) Consists of 2,500 shares which Mr. Wishart has the right to acquire upon
exercise of stock options which are exercisable currently or within 60 days.
(9) Includes 76,250 shares which all directors and executive officers have the
right to acquire upon exercise of stock options which are exercisable
currently or within 60 days.
Pursuant to Section 16 of the Securities Exchange Act of 1934,
as amended, officers, directors and holders of more than 10% of the outstanding
shares of the Company's Common Stock are required to file periodic reports of
their ownership of, and transactions involving, the Company's Common Stock with
the SEC. Based solely on its review of copies of such reports received by the
Company or written representations from certain reporting persons that no Annual
Statement of Changes in Beneficial Ownership on Form 5 (the "Annual Statement")
was required for those persons, the Company believes that its reporting persons
have complied with all Section 16 filing requirements applicable to them with
respect to the Company's fiscal year ended December 30, 1995, except that Joan
Ruby and Catharine Bandel Wirtshafter each filed a late Form 3 and Alan Golub,
Herman Gordon, John Pomerantz and Laura Pomerantz each filed a late Form 5.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company had in effect an agreement with Alan Golub.
Pursuant thereto, Mr. Golub was employed by the Company as an executive officer
through December 31, 1992. As permitted by an amendment to his agreement entered
into in 1987, Mr. Golub elected to become a consultant to the Company effective
January 1, 1993, until December 31, 1997, at an annual consulting fee of
$400,000. Payment of Mr. Golub's consulting fee has been suspended since
December 31, 1994. Mr. Golub has filed a claim in Bankruptcy Court for full
payment pursuant to the agreement and the Company has objected to this claim.
-50-
<PAGE>
Herman Gordon, a director and former executive officer of the
Company, was a senior partner in the firm of Parker Chapin Flattau & Klimpl,
general counsel to the Company, until October 1988, and of counsel to such firm
until December 31, 1993. Mr. Gordon was employed as the Senior Vice President
and General Counsel of the Company from October 1988 until his retirement from
the Company effective December 31, 1993. Mr. Gordon become a consultant to the
Company effective January 1, 1994 and received consulting fees of $100,000 and
$125,000 during 1995 and 1994, respectively. Mr. Gordon is entitled to receive a
consulting fee of $75,000 for 1996.
In connection with the termination of his employment, Michael
J. Babcock, President, Chief Operating Officer and a director of the Company,
who ceased to be employed by the Company on January 20, 1995, received a final
contractual payment of $1,111,000. During 1992, the Company made an interest
free advance to Mr. Babcock for personal use. The largest aggregate amount
outstanding at any one time since the beginning of 1994 was $250,000. On January
20, 1995, as part of his termination agreement, the Company forgave $50,000 of
this advance. Mr. Babcock repaid the balance in full.
On August 1, 1995, the Bankruptcy Court approved a Lease
Assumption Agreement between the Company and I.B. Diffusion, L.P. ("IBD").
Pursuant to this agreement, the Company does not assume any obligations under
the leases other than the payment of current lease obligations until a plan of
reorganization is approved and confirmed by the Bankruptcy Court that provides
for the assignment of not less than eighteen (18) leases. The Company, through
its subsidiary, A.S.L. Retail Outlets, Inc., intends to operate these retail
stores as outlets for the products of the Sassco Fashions Division. Ira Hechler,
a director of the Company, is a 33.15% owner of I.B.D. Acquisition, Inc., which
is a 50% owner of IBD. The Company paid approximately $ 500,000 in rent expense
to IBD in 1995.
-51-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
(1) Financial Statements:
The Consolidated Financial Statements are set forth in the
Index to Consolidated Financial Statements and Financial
Statement Schedules on page F-1 hereof.
(2) Financial Statement Schedule:
The Financial Statement Schedule is set forth on the Index
to Consolidated Financial Statements and Financial Statement
Schedule on page F-1 hereof.
(3) Exhibits:
Exhibits are set forth on the "Index to Exhibits" on page
E-1 hereof.
(b) Reports on Form 8-K:
Since the end of the third quarter of 1995, the Company has not
filed any Current Reports on Form 8-K.
-52-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 12, 1996
The Leslie Fay Companies, Inc.
--------------------------------
(Company)
By: /s/ John J. Pomerantz
-----------------------------
John J. Pomerantz,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John J. Pomerantz Chairman of the Board, April 12, 1996
- ---------------------------- Chief Executive Officer
John J. Pomerantz and Director (principal
executive officer)
/s/ Warren T. Wishart Senior Vice President, April 12, 1996
- ---------------------------- Chief Financial Officer
Warren T. Wishart and Treasurer (principal
financial and accounting
officer)
-53-
<PAGE>
/s/ Ralph Destino Director April 12, 1996
- ----------------------------
Ralph Destino
/s/ John Dubel Director April 12, 1996
- ----------------------------
John Dubel
/s/ Steven M. Friedman Director April 12, 1996
- ----------------------------
Steven M. Friedman
/s/ Alan Golub Director April 12, 1996
- ----------------------------
Alan Golub
/s/ Herman Gordon Director April 12, 1996
- ----------------------------
Herman Gordon
- ---------------------------- Director April 12, 1996
Ira J. Hechler
/s/ Peter W. May Director April 12, 1996
- ----------------------------
Peter W. May
/s/ Laura H. Pomerantz Director April 12, 1996
- ----------------------------
Laura H. Pomerantz
/s/ Michael L. Tarnopol Director April 12, 1996
- ----------------------------
Michael L. Tarnopol
/s/ Faye Wattleton Director April 12, 1996
- ----------------------------
Faye Wattleton
-54-
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession - Note 1)
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page No.
--------
Report of Independent Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' (Deficit) Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts F-30
F-1
<PAGE>
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To the Stockholders and Board of Directors of The Leslie Fay Companies, Inc.:
We have audited the accompanying consolidated balance sheets of The Leslie Fay
Companies, Inc. (a Delaware corporation) and subsidiaries as of December 30,
1995 and December 31, 1994, and the related consolidated statements of
operations, stockholders' (deficit) equity and cash flows for the fiscal years
ended December 30, 1995, December 31, 1994 and January 1, 1994. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Leslie Fay Companies, Inc.
and subsidiaries as of December 30, 1995 and December 31, 1994, and the results
of their operations and their cash flows for the fiscal years ended December 30,
1995, December 31, 1994 and January 1, 1994, in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to the
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
F-2
<PAGE>
ARTHUR ANDERSEN LLP
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The accompanying consolidated
statements of operations indicate that the Company has incurred recurring
losses. In addition, as discussed in Note 2 to the consolidated financial
statements, on April 5, 1993, the Company filed a petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. Furthermore, as indicated in Note
6 to the consolidated financial statements, the Company's debtor in possession
financing expires on June 30, 1996. These matters, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note 2. The
Company's ability to continue as a going concern is dependent upon acceptance of
a plan of reorganization by the Company's creditors and confirmation by the
Court, securing on-going debtor in possession financing, compliance with all
debt covenants under the debtor in possession financing, a favorable resolution
of the legal proceedings discussed in Note 8 to the consolidated financial
statements and the success of future operations. The ultimate outcome of these
matters is not presently determinable. The consolidated financial statements do
not include any adjustments relating to these uncertainties or the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
ARTHUR ANDERSEN LLP
New York, New York
March 12, 1996
F-3
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor in Possession - Note 1)
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 30, December 31,
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................... $ 32,324 $ 32,713
Accounts receivable- net of allowances for possible losses
of $23,091 and $26,668, respectively................................ 54,943 58,923
Inventories............................................................. 101,076 102,477
Prepaid expenses and other current assets............................... 4,283 4,424
Income taxes refundable................................................. 10,345 8,612
Assets of divisions held for sale and disposition....................... 326 21,063
--------- ---------
Total Current Assets.................................................... 203,297 228,212
Property, Plant and Equipment, at cost less accumulated depreciation
and amortization of $17,262 and $31,745, respectively................... 14,670 19,182
Excess of Purchase Price over Net Assets Acquired - net of
accumulated amortization of $10,003 and $8,856, respectively............ 25,609 29,943
Deferred Charges and Other Assets........................................... 2,404 4,297
--------- ---------
Total Assets............................................................ $ 245,980 $ 281,634
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable........................................................ $ 30,150 $ 30,429
Accrued expenses and other current liabilities.......................... 32,173 51,565
Income taxes payable.................................................... 2,132 3,271
Direct liabilities of divisions held for sale and disposition........... 280 5,878
--------- ---------
Total Current Liabilities........................................... 64,735 91,143
Deferred Credits and Other Noncurrent Liabilities........................... -- 111
Liabilities Subject to Compromise........................................... 337,153 328,315
--------- ---------
Total Liabilities....................................................... 401,888 419,569
--------- ---------
Commitments and Contingencies
Stockholders' Deficit:
Common stock, $1 par value; 50,000 shares authorized;
20,000 shares issued and outstanding................................ 20,000 20,000
Capital in excess of par value.......................................... 49,012 49,012
Excess of accumulated pension
obligation over plan assets......................................... (214) --
Accumulated deficit..................................................... (211,833) (193,992)
Foreign currency translation adjustment................................. 93 11
--------- ---------
Subtotal............................................................ (142,942) (124,969)
Treasury stock, at cost - 1,228 shares.................................. (12,966) (12,966)
--------- ---------
Total Stockholders' Deficit......................................... (155,908) (137,935)
--------- ---------
Total Liabilities and Stockholders' Deficit............................. $ 245,980 $ 281,634
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
F-4
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession- Note 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
For the Fiscal Years
-------------------------------------------------------
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Net Sales ................................................. $ 445,204 $ 535,333 $ 661,779
Cost of Sales ............................................. 345,891 427,986 513,528
------------ ------------ ------------
Gross profit .......................................... 99,313 107,347 148,251
------------ ------------ ------------
Operating Expenses:
Selling, warehouse, general and
administrative expenses ........................... 96,931 131,434 177,401
Amortization of intangibles ........................... 1,147 3,191 3,424
------------ ------------ ------------
Total operating expenses .............................. 98,078 134,625 180,825
------------ ------------ ------------
Operating income (loss) ............................... 1,235 (27,278) (32,574)
Interest and Financing Costs (excludes contractual interest
of $18,031 and $18,240 in 1995 and 1994, respectively) 3,262 5,512 25,783
------------ ------------ ------------
Loss before reorganization costs and
provision (benefit) for income taxes .............. (2,027) (32,790) (58,357)
Reorganization Costs ...................................... 16,575 115,769 45,139
------------ ------------ ------------
Loss before provision (benefit) for income taxes ...... (18,602) (148,559) (103,496)
Provision (Benefit) for Income Taxes ...................... (761) 981 (8,258)
------------ ------------ ------------
Net Loss .................................................. ($ 17,841) ($ 149,540) ($ 95,238)
============ ============ ============
Net Loss Per Share of Common Stock ........................ ($ 0.95) ($ 7.97) ($ 5.07)
============ ============ ============
Weighted Average Common Shares Outstanding ............ 18,771,836 18,771,836 18,771,836
============ ============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-5
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession - Note 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Excess of
Accumulated
Pension Retained
Common Stock Capital Obligation Earnings
---------------------- in Excess of Over Plan (Accumulated
Shares Par Value Par Value Assets Deficit)
------ --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 2, 1993 20,000,000 $ 20,000 $ 49,012 $ -- $ 50,786
Fiscal Year 1993
Net Loss -- -- -- -- (95,238)
Foreign Currency Translation Adjustments -- -- -- -- --
---------- ---------- ---------- --------- ----------
BALANCE AT JANUARY 1, 1994 20,000,000 20,000 49,012 -- (44,452)
Fiscal Year 1994
Net Loss -- -- -- -- (149,540)
Foreign Currency Translation Adjustments -- -- -- -- --
---------- ---------- ---------- --------- ----------
BALANCE AT DECEMBER 31, 1994 20,000,000 20,000 49,012 -- (193,992)
Fiscal Year 1995
Net Loss -- -- -- -- (17,841)
Deferred Pension Liability -- -- -- (214) --
Foreign Currency Translation Adjustments -- -- -- -- --
---------- ---------- ---------- --------- ----------
BALANCE AT DECEMBER 30, 1995 20,000,000 $ 20,000 $ 49,012 ($ 214) ($ 211,833)
========== ========== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Foreign Total
Currency Treasury Stock Stockholders'
Translation ----------------------- (Deficit)
Adjustment Shares Amount Equity
---------- ------ ------ ------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 2, 1993 ($ 110) 1,228,164 (12,966) $ 106,722
Fiscal Year 1993
Net Loss -- -- -- (95,238)
Foreign Currency Translation Adjustments 338 -- -- 388
---------- --------- --------- ----------
BALANCE AT JANUARY 1, 1994 228 1,228,164 (12,966) 11,822
Fiscal Year 1994
Net Loss -- -- -- (149,540)
Foreign Currency Translation Adjustments (217) -- -- (217)
---------- --------- --------- ----------
BALANCE AT DECEMBER 31, 1994 11 1,228,164 (12,966) (137,935)
Fiscal Year 1995
Net Loss -- -- -- (17,841)
Deferred Pension Liability -- -- -- (214)
Foreign Currency Translation Adjustments 82 -- -- 82
---------- --------- --------- ----------
BALANCE AT DECEMBER 30, 1995 $ 93 1,228,164 ($ 12,966) ($ 155,908)
========== ========= ========= ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-6
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession - Note 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Fiscal Years
--------------------------------------------
1995 1994 1993
--------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................ ($ 17,841) ($149,540) ($ 95,238)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization ................................... 5,969 7,615 8,156
Amortization of excess purchase price over
net assets acquired .......................................... 1,147 3,191 3,424
Deferred taxes .................................................. (1,811) -- 9,343
Provision for possible losses on accounts receivable ............ 1,254 3,843 5,097
Decrease (increase) in:
Accounts receivable .......................................... 494 11,180 22,748
Inventories .................................................. 11,291 (19,871) 37,284
Prepaid expenses and other current assets .................... (16) 264 (1,609)
Income taxes refundable ...................................... (1,735) 23,182 11,886
Deferred charges and other assets ............................ 1,926 5,126 160
(Decrease) increase in:
Accounts payable, accrued expenses and other
current liabilities ...................................... 6,902 (10,362) 44,934
Income taxes payable ......................................... (1,113) 461 (823)
Deferred credits and other noncurrent liabilities ............ (243) (1,689) 1,387
Changes due to reorganization activities:
Reorganization costs ......................................... 16,575 115,769 45,139
Payment of reorganization costs .............................. (25,792) (28,361) (18,126)
Interest expense not paid .................................... -- -- 13,366
--------- --------- ---------
Total adjustments ........................................ 14,848 110,348 182,366
--------- --------- ---------
Net cash (used in) provided by operating activities ...... (2,993) (39,192) 87,128
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................ (3,977) (5,811) (7,469)
Proceeds from sale of fixed assets .................................. -- 1,193 2,491
Proceeds from sale of Next Day Apparel (net of cash provided of $405) 3,081 -- --
--------- --------- ---------
Net cash used in investing activities ........................... (896) (4,618) (4,978)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ............................................ 3,500 -- 12,888
Repayment of long term debt ......................................... -- (222) (351)
Repayment of pre-petition debt ...................................... -- -- (25,116)
--------- --------- ---------
Net cash provided by (used in) financing activities ............. 3,500 (222) (12,579)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents .................... (389) (44,032) 69,571
Cash and cash equivalents, at beginning of period ....................... 32,713 76,745 7,174
--------- --------- ---------
Cash and cash equivalents, at end of period ............................. $ 32,324 $ 32,713 $ 76,745
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
F-7
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(DEBTOR IN POSSESSION - NOTE 1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ORGANIZATION, RESTATEMENT OF PRIOR FINANCIAL
STATEMENTS AND RELATED EVENTS:
(a) BASIS OF PRESENTATION AND ORGANIZATION -
The consolidated financial statements of The Leslie Fay
Companies, Inc. and subsidiaries (The Leslie Fay Companies, Inc. being sometimes
individually referred to, and together with its subsidiaries collectively
referred to, as the "Company" as the context may require) have been prepared on
the accrual basis of accounting in accordance with generally accepted accounting
principles, which, for certain financial statement accounts, requires the use of
management's estimates. Actual results may differ. The financial statements have
also been prepared applicable to a going concern, which principles, except as
otherwise disclosed, assume that assets will be realized and liabilities will be
discharged in the normal course of business. The Company's fiscal year ends on
the Saturday closest to December 31st. The fiscal years ended December 30, 1995
("1995"), December 31, 1994 ("1994") and January 1, 1994 ("1993") included 52
weeks.
(b) RESTATEMENT OF PRIOR FINANCIAL STATEMENTS AND RELATED EVENTS -
On February 1, 1993, the Company announced that due to accounting
irregularities discovered at that time, the previously reported audited
financial statements for 1991 and the previously reported unaudited financial
statements for the nine months ended October 3, 1992 were incorrect. An
investigation of these irregularities was undertaken by the Audit Committee of
the Board of Directors. On February 25, 1993, BDO Seidman, the Company's then
Independent Certified Public Accountants, withdrew its opinion on the
consolidated financial statements of the Company for 1991. It is the Company's
understanding that the audit opinion was withdrawn as a result of the Company's
disclosure of the accounting irregularities relating to its 1991 consolidated
financial statements referred to above.
As a result of the announcement of accounting irregularities,
investigations of the Company and other persons were begun by the Securities and
Exchange Commission and certain other regulatory authorities. Subsequent to
these developments, the Company and its directors were named as defendants in
numerous stockholder and other party lawsuits. Additionally, the Company
breached certain provisions of its financing agreements in place at that time,
interim amendments were agreed upon, and on March 9, 1993, the Company announced
a new interim 120-day revolving credit facility with its banks. In March 1993,
the Company also announced certain restructuring decisions including the closing
of three divisions and the appointment of new financial management.
On April 5, 1993 ("the Filing Date"), The Leslie Fay
Companies, Inc. ("Leslie Fay") and each of Leslie Fay Licensing Corp.,
Spitalnick Corp. and Hue, Inc., wholly owned subsidiaries of Leslie Fay
(collectively the "Debtors"), filed a voluntary petition under chapter 11 of the
Bankruptcy Code (the "Bankruptcy Code"), as further discussed in Note 2. In
addition, on November 15, 1995, the Company's subsidiaries operating retail
outlets also filed voluntary petitions under the Bankruptcy Code (See Note 2.)
The Debtors are presently operating their businesses as debtors in possession
subject to the jurisdiction and supervision of the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court").
F-8
<PAGE>
In September 1993, the Company announced the revised operating
results for 1992 and a restatement of operating results for certain prior years.
This restatement reflected the reversal of the accounting irregularities in
1990, 1991 and 1992, as well as other adjustments for 1990 through the third
quarter of 1992.
On September 28, 1993, BDO Seidman, the Company's former
Independent Certified Public Accountants, withdrew its opinion on the
consolidated financial statements of the Company for 1990. It is the Company's
understanding that the audit opinion was withdrawn in view of the Company's
reversal of accounting irregularities and other adjustments for that year.
2. REORGANIZATION CASE:
As discussed in Note 1, Leslie Fay and three of its
subsidiaries filed petitions for reorganization under chapter 11 of the
Bankruptcy Code on April 5, 1993. Pursuant to an order of the Bankruptcy Court,
the individual chapter 11 cases were consolidated for procedural purposes only
and are being jointly administered by the Bankruptcy Court. Since the Filing
Date, the Debtors have been operating their businesses as debtors in possession
and intend to propose a plan or plans of reorganization pursuant to the
Bankruptcy Code.
In the chapter 11 cases, substantially all liabilities as of
the Filing Date are subject to compromise under a plan of reorganization to be
voted upon by the Debtors' impaired creditors and stockholders and confirmed by
the Bankruptcy Court. In addition, the Company breached covenants in
substantially all of its debt instruments as a result of the chapter 11 filing
(see Note 6). In order to be conservative, the Company had accrued $13,366,000
in 1993, which is reflected in pre-petition liabilities, for interest on
pre-petition debt accrued during the post-petition period, even though all or a
significant portion of such interest may not be payable or paid as a consequence
of the Bankruptcy Code, which excuses such an obligation under certain
circumstances. For this reason, the Company has made a decision not to accrue
interest on pre-petition debt in 1995 and 1994.
Under the Bankruptcy Code, the Debtors may elect to assume or
reject real estate leases, employment contracts, personal property leases,
service contracts and other unexpired executory pre-petition contracts, subject
to Bankruptcy Court approval. The Company cannot presently determine or
reasonably estimate the ultimate liability which may result from the filing of
claims for any contracts to be rejected in the chapter 11 cases.
As part of the chapter 11 cases, the Debtors have notified all
known claimants for the purpose of identifying all pre-petition claims against
the Debtors. Pursuant to an order of the Bankruptcy Court, all proofs of claim
were required to be filed by December 10, 1993. Excluded from this requirement
to file by the December 10, 1993 bar date, among others, were certain claims by
the Internal Revenue Service ("IRS"), which were required to be filed by March
31, 1995.
On November 15, 1995, Leslie Fay Retail Outlets, Inc.; Leslie
Fay Factory Outlet (Alabama), Inc.; Leslie Fay Factory Outlet (California),
Inc.; Leslie Fay Factory Outlet (Iowa), Inc.; and Leslie Fay Factory Outlet
(Tennessee), Inc., all wholly-owned subsidiaries of Leslie Fay (collectively
referred to as the "Retail Debtors") filed voluntary petitions under chapter 11
of the Bankruptcy Code. The Retail Debtors have notified all known claimants for
the purposes of identifying all pre-petition claims against the Retail Debtors.
Pursuant to an order of the Bankruptcy Court, all proofs of claims were required
to be filed by December 12, 1995. The Retail Debtors operated their businesses
as debtors in possession following the November 15, 1995 filing date while
pursuing an orderly liquidation of their assets under chapter 11 of the
Bankruptcy Code.
F-9
<PAGE>
On October 31, 1995, the Debtors filed a Joint Plan of
Reorganization ("the Plan") pursuant to chapter 11 of the Bankruptcy Code. On
November 15, 1995, the Debtors filed an Amended Joint Plan of Reorganization
(the "Amended Plan") and a Disclosure Statement for the Amended Joint Plan of
Reorganization pursuant to Chapter 11 of the Bankruptcy Code (the "Disclosure
Statement"). A further amended plan will be filed on March 13, 1996. The Amended
Plan provides for, among other things, the separation of the Debtors' estates
and assets into two separate reorganized entities plus, possibly, an entity to
dissolve the remaining obligations of the discontinued corporate operations.
Under the Amended Plan, current stockholders of the Company will not retain or
receive any value for their interest. The Debtors expect to seek Bankruptcy
Court approval of the Disclosure Statement prior to May 31, 1996 and
confirmation of the Amended Plan at the end of the second quarter of 1996.
The principal categories of claims classified as Liabilities
subject to compromise in the consolidated balance sheets at December 30, 1995
and December 31, 1994 are identified below. All amounts may be subject to future
adjustments depending on Bankruptcy Court actions and further developments with
respect to disputed claims or other events.
Liabilities Subject to Compromise December 30, 1995 December 31, 1994
- --------------------------------- ----------------- -----------------
(In thousands)
Trade and expense payable $ 41,697 $ 41,461
Unsecured debt 253,014 253,014
Accrued interest 13,366 13,366
Other claims 29,076 20,474
-------- --------
Total $337,153 $328,315
======== ========
There are approximately 4,300 scheduled liabilities and filed
proofs of claim against the Debtors. The aggregate amount of liabilities
reported by the Debtors and those claims which specified amounts, including IRS
claims, was over $ 1,000,000,000. Included among the claims filed have been
claims of unspecified amounts. Orders and other actions have been approved by
the Bankruptcy Court to remove overstated, duplicate or amended claims. The
remaining disputed or allowed claims total approximately $877,000,000. The
Debtors consider this amount to be highly inflated and a totally unreliable
estimate of their liabilities. The Debtors intend to request the Bankruptcy
Court to approve additional reductions of, or to expunge, additional claims. The
ultimate amount of and settlement terms for such liabilities will be subject to
an approved plan of reorganization and, accordingly, are not presently
determinable. Therefore, no provision has been made for these differences in the
accompanying consolidated financial statements.
In order for the Debtors to reorganize and emerge from chapter
11, a plan of reorganization must comply with certain standards set forth in the
Bankruptcy Code and be confirmed by the Bankruptcy Court. The right to propose a
plan or plans of reorganization is limited to the Debtors and the unsecured
Creditors' Committee until May 31, 1996.
As reflected in the consolidated financial statements, the
Company experienced significant net losses in 1995, 1994 and 1993. During the
chapter 11 cases, the Company has incurred and will continue to incur
substantial reorganization costs. The Company's ability to continue as a going
concern is dependent upon the confirmation of a plan of reorganization by the
Bankruptcy Court, the ability to secure on-going debtor in possession financing
and to maintain compliance with all debt covenants under the debtor in
possession financing, combined with the achievement of profitable operations and
the resolution of the uncertainties of the chapter 11 cases discussed above and
legal proceedings discussed in Note 8.
F-10
<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) BUSINESS -
The Company is principally engaged in the design, manufacture
and sale of women's apparel.
(b) PRINCIPLES OF CONSOLIDATION -
The consolidated financial statements include the accounts of
Leslie Fay and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(c) CASH EQUIVALENTS -
All highly liquid investments with a remaining maturity of
three months or less at the date of acquisition are classified as cash
equivalents.
(d) INVENTORIES -
Inventories are valued at the lower of cost (first-in,
first-out; "FIFO") or market.
(e) PROPERTY, PLANT AND EQUIPMENT -
Land, buildings, fixtures, equipment and leasehold
improvements are recorded at cost. Major replacements or betterments are
capitalized. Maintenance and repairs are charged to earnings as incurred. For
financial statement purposes, depreciation and amortization are computed using
the straight-line method over the estimated useful lives of the assets.
(f) EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED -
The Excess of purchase price over net assets acquired is
amortized on a straight-line basis, primarily over a forty year period. In the
fourth quarter of 1995, 1994 and 1993, the Company recognized a reorganization
charge of $3,181,000, $53,000,000 and $1,642,000, respectively, to write-down a
portion of the excess purchase price over net assets acquired, which the Company
believes will be unrecoverable. The Excess of purchase price over net assets
acquired first arose in connection with the 1984 leveraged buyout of The Leslie
Fay Company and was allocated based upon the applicable division's proportionate
contribution to pretax income. In 1995, the Company determined the Excess
purchase price over net assets acquired of its Hue division was no longer
recoverable based on an offer to purchase the Hue label in the fourth quarter.
In 1994, the significant operating losses experienced in the fourth quarter of
1994 and the projection of continuing operating losses in 1995 indicated the
value of this asset had declined and a writedown was required. In 1993, the
write-off related to the closing of certain previously acquired businesses.
In March 1995, the Financial Accounting Standards Board
("FASB") issued Statements of Financial Accounting Standards ("SFAS") No. 121 -
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." This Statement is effective beginning in 1996 and requires
long-lived assets as well as identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate the carrying amount of the
assets may not be recoverable. The Company continually evaluates, based upon
income and/or cash flow projections and other factors as appropriate, whether
events and circumstances have occurred that indicate that the remaining
estimated useful life of this asset warrants revision or that the remaining
balance of this asset may not be recoverable. The Company does not expect a
material impact on its financial position or results of operations upon
implementation of this Statement in 1996.
F-11
<PAGE>
(g) FOREIGN CURRENCY TRANSLATION -
Balance sheet accounts of the Company's Canadian and European
subsidiaries are translated into U.S. dollars at the current exchange rate.
Their income statement accounts are translated at the average exchange rate for
the period. Translation adjustments are included in stockholders' equity. The
Company's Far East subsidiaries are financed by U.S. dollar advances and all of
their finished goods sales are to the parent. Accordingly, the functional
currency of the Far East subsidiaries is the U.S. dollar, and remeasurement
gains and losses (which were not material) are included in determining net loss
for the period. The effect of exchange rate changes on cash is not significant.
(h) INCOME TAXES -
Leslie Fay and its subsidiaries file a consolidated Federal
income tax return and records their tax expense and liabilities under the
liability method (see Note 7). Under this method, any deferred income taxes
recorded are provided for at currently enacted statutory rates on the
differences in the basis of assets and liabilities for tax and financial
reporting purposes. If recorded, deferred income taxes are classified in the
balance sheet as current or non-current based upon the expected future period in
which such deferred income taxes are anticipated to reverse.
No provision has been made for Federal income taxes on
approximately $24,200,000 of unremitted foreign earnings of subsidiaries as of
December 30, 1995. It appears, however, that such earnings may be repatriated as
a part of a plan of reorganization. If this occurs, the Company's net operating
loss carryover will be reduced to the extent of the repatriation.
(i) NET LOSS PER SHARE OF COMMON STOCK -
Net loss per share of common stock, throughout the periods
presented, is based on the weighted average common shares outstanding and the
common stock equivalents that would arise from the exercise of stock options, if
dilutive. The exercise of outstanding stock options would not result in a
material dilution of net income per share.
(j) PRIOR YEARS' RECLASSIFICATION -
Certain items previously reported in specific captions in the
accompanying financial statements have been reclassified to conform with the
current year's classifications.
F-12
<PAGE>
4. INVENTORIES:
Inventories, net of Assets of divisions held for sale and
disposition (see Note 12), consist of the following:
December 30, 1995 December 31, 1994
----------------- -----------------
(In thousands)
Raw materials $ 42,187 $ 36,712
Work in process 2,669 5,268
Finished goods 56,220 60,497
-------- --------
Total inventories $101,076 $102,477
======== ========
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, net of Assets of divisions held
for sale and disposition (see Note 12), consist of the following:
<TABLE>
<CAPTION>
Estimated Useful
December 30, 1995 December 31, 1994 Lives
----------------- ----------------- ----------------
(In thousands)
<S> <C> <C> <C>
Land and buildings $ 146 $ 177 25 - 40 years
Machinery, equipment and fixtures 20,255 32,579 5 - 10 years
Leasehold improvements 9,534 17,797 Various
Construction in progress 1,997 374 N/A
-------- -------
Property, plant and equipment, at cost 31,932 50,927
Less: Accumulated depreciation and
amortization (17,262) (31,745)
-------- --------
Total property, plant and equipment,
net $ 14,670 $ 19,182
======== =========
</TABLE>
The net carrying value of the building under the capitalized
lease obligation amounted to $ -0- at December 31, 1994. As part of the
settlement with Corporate Property Associates:3 ("CPA:3"), regarding the
Company's manufacturing facility in Pennsylvania, the Company has been relieved
of its capitalized lease obligation effective as of December 31, 1994. This
facility was treated as an operating lease during 1995. In June 1992, the
Company paid a deposit of $7,200,000 to purchase this building in accordance
with the purchase option under the lease. This deposit was included in Deferred
Charges and Other Assets in the Consolidated Balance Sheets, net of a valuation
reserve of $7,200,000 in 1994. (See Note 8(b) for further discussion of this
litigation).
F-13
<PAGE>
6. DEBT:
As a result of the chapter 11 filings (See Notes 1 and 2), all
long-term debt outstanding at April 5, 1993 has been classified as Liabilities
subject to compromise. No principal or interest payments on pre-petition debt
will be made without Bankruptcy Court approval or until a reorganization plan
defining the repayment terms has been confirmed. In addition, the Company
breached covenants in substantially all of its then existing debt instruments as
a result of the accounting irregularities and the chapter 11 filing.
Debt consists of the following:
<TABLE>
<CAPTION>
December 30, 1995 December 31, 1994
----------------- -----------------
(In thousands)
<S> <C> <C>
FNBB Credit Agreement $ -- $ --
DIP Credit Agreement, variable interest
rates, expired May 2, 1995 -- --
Financing Agreement:
Revolver; variable interest
rates, due through December 31, 1994 78,014 78,014
Lines of credit; variable interest rates,
due through December 31, 1994 100,000 100,000
------- -------
Total debt under financing agreement 178,014 178,014
------- -------
Senior debt:
Senior notes; 9.53% interest rate, due
January 15, 2000 50,000 50,000
Senior subordinated notes; 10.54% interest
rate, due January 15, 2002 25,000 25,000
------- -------
Total senior debt 75,000 75,000
------- -------
Total debt 253,014 253,014
Less: Liabilities subject to compromise 253,014 253,014
------- -------
Total long-term debt $ -- $ --
------- -------
</TABLE>
F- 14
<PAGE>
(a) FNBB CREDIT AGREEMENT/DIP CREDIT AGREEMENT-
In connection with the Chapter 11 filing on April 5, 1993, the
Debtors entered into an interim post-petition credit agreement with Citibank
N.A. On April 28, 1993, the Debtors refinanced this agreement when they entered
into a Post-Petition Credit Agreement (the "DIP Credit Agreement") which was to
expire on the earlier of April 26, 1994 or the consummation of a plan of
reorganization.
In April 1994, the Bankruptcy Court signed an order approving
an amendment to the DIP Credit Agreement which extended this facility until
April 26, 1995. This DIP Credit Agreement was further amended to extend the
facility until December 15, 1995. A replacement facility for a new $80,000,000
credit agreement with The First National Bank of Boston ("FNBB") and BankAmerica
Business Credit, Inc. ("BABC"), as Facility Agents and FNBB as Administrative
Agent (the "FNBB Credit Agreement") was approved by the Bankruptcy Court and
became effective on May 2, 1995, and was subsequently extended to expire on June
30, 1996.
The FNBB Credit Agreement provides for post-petition direct
borrowings and the issuance of letters of credit on the Debtors' behalf in an
aggregate amount not exceeding $80,000,000, subject to being permanently reduced
on a dollar-for-dollar basis for any net cash proceeds received from the sale of
assets after March 20, 1995 for which the proceeds in the aggregate exceed
$20,000,000 up to a maximum of $40,000,000 on a cumulative basis. On November
15, 1995, the Facility was amended to reduce the aggregate borrowing limit to
$60,000,000. The following direct borrowing sublimits are subject to being
reduced by fifty percent (50%) of any net cash proceeds received from the sale
of assets: $25,000,000 from May 2, 1995 through July 1, 1995, $30,000,000 from
July 2, 1995 through September 30, 1995, $20,000,000 from October 1, 1995
through October 28, 1995, $5,000,000 from October 29, 1995 through December 31,
1995. Commencing on January 1, 1996 through June 30, 1996 the sublimit is
$15,000,000. The sublimit for letters of credit is $50,000,000. Approximately
$35,132,000 and $46,329,000, respectively, was committed under unexpired letters
of credit as of December 30, 1995 and December 31, 1994. No qualifying asset
sales have been made which would reduce the facility borrowing limits.
The Company incurred $1,876,000, $1,943,000 and $4,575,000,
respectively, in commitment and related fees in connection with the credit
facilities in 1995, 1994 and 1993. These fees were amortized as interest and
financing costs over the terms of the respective agreements. As of December 30,
1995, $506,000 remained in Prepaid expenses and other current assets to be
amortized through June 1996.
Direct borrowings bear interest at prime plus 1.5% (10.0% at
December 30, 1995 and 10.0% at December 31, 1994). During the third quarter of
1995, the Company incurred direct borrowings for a total of ten days, the
highest amount of which was $3,956,000. The FNBB Credit Agreement as amended
contains certain financial and operating covenants related to minimum and
maximum inventory levels, capital expenditures and attainment of minimum
earnings before reorganization, interest, taxation, depreciation and
amortization. As collateral for borrowings under the FNBB Credit Agreement, the
Company has granted to FNBB and BABC a security interest in substantially all
assets of the Company. In addition, the FNBB Credit Agreement contains certain
restrictive covenants including limitations on the incurrence of additional
liens and indebtedness and a prohibition on paying dividends. The Company is
currently in compliance with all covenants contained in the FNBB Credit
Agreement as amended.
F-15
<PAGE>
(b) FINANCING AGREEMENT -
Prior to the Filing Date, the Company had an unsecured
financing agreement dated January 15, 1992 (the "Financing Agreement") with a
group of banks (the "Bank Group"). The Financing Agreement provided for a
$150,000,000 revolving credit facility bearing interest at Libor rate plus
0.50%, a participating bank's certificate of deposit rate plus 0.75% or its
reference rate. The credit facility was due to expire December 31, 1994, with an
option of the Company to extend the termination date to December 31, 1995. The
Financing Agreement also provided separate lines of credit with the individual
members of the Bank Group in the aggregate amount of $100,000,000. The lines of
credit had variable interest rates that defaulted to 6.0% (the rate in effect at
the Filing Date) and also were due to expire on December 31, 1994. In addition,
the Financing Agreement also provided for a facility of up to $100,000,000 in
trade letters of credit. On December 23, 1991, the Company entered into an
interest rate cap agreement to reduce its exposure to interest rate fluctuations
while under the Financing Agreement. The agreement capped the Company's interest
rate exposure at 7.5% on a principal amount of $75,000,000 through December 31,
1994. All debt outstanding under the Financing Agreement is unsecured and will
be settled as part of a reorganization plan. As of January 2, 1994, the Company
ceased accruing interest on pre-petition debt. All or a significant portion of
such interest may not be payable or paid as a consequence of the Bankruptcy
Code, which excuses such an obligation under certain circumstances.
(c) SENIOR DEBT -
On January 4, 1990, the Company issued $50,000,000 of 9.53%
unsecured Senior Notes ("Senior Notes") and $25,000,000 of 10.54% unsecured
Senior Subordinated Notes ("Subordinated Notes"), pursuant to note agreements.
The Senior Notes and Subordinated Notes were payable in annual installments of
$7,142,857 beginning January 1994 and $8,333,333 beginning January 2000,
respectively. The Company defaulted on these notes with its chapter 11 filings
and these notes will be settled as part of a reorganization plan. As of January
2, 1994, the Company ceased accruing interest on pre-petition debt. All or a
significant portion of such interest may not be payable or paid as a consequence
of the Bankruptcy Code, which excuses such an obligation under certain
circumstances.
F- 16
<PAGE>
7. INCOME TAXES:
For 1995, 1994 and 1993, the following provisions (benefits)
for income taxes were made:
(In thousands)
1995 1994 1993
---- ---- ----
Current:
Federal $ (37) $ -- $(18,845)
State 100 200 450
Foreign 987 781 794
-------- -------- --------
1,050 981 (17,601)
-------- -------- --------
Deferred:
Federal -- -- 9,343
State -- -- --
Foreign (1,811) -- --
-------- -------- --------
(1,811) -- 9,343
-------- -------- --------
Tax provision (benefit)
for income taxes $ (761) $ 981 $ (8,258)
======== ======== ========
The Company recognized an income tax credit of $1,811,000 in
1995 representing a reduction of foreign income tax liabilities as a result of
negotiated settlements on prior years' estimated taxes. The Company only paid
state, local and foreign taxes in 1995 and 1994. The Federal tax benefit
realized in 1993 resulted from the carryback of 1993 losses to 1990 and 1991.
The difference between the Company's effective income tax rate
and the statutory Federal income tax rate for 1995, 1994 and 1993, respectively,
is as follows:
(In thousands, except percentages)
1995 1994 1993
---- ---- ----
Tax provision (benefit)
for income taxes $ (761) $ 981 $ (8,258)
Loss before provision
(benefit) for income taxes $ (18,602) $ (148,559) $ (103,496)
========= ========== ==========
Effective tax rate 4.1% (0.7)% 8.0%
Net state tax 0.4 0.1 0.2
Net foreign tax (11.4) 1.8 1.0
Intangibles 7.9 12.9 1.2
Deferred tax adjustment 0.0 0.0 0.3
Operating losses not utilized 34.2 20.6 23.8
Other (0.2) 0.3 0.5
--------- ---------- ----------
Federal statutory rate 35.0% 35.0% 35.0%
========= ========== ==========
F-17
<PAGE>
The amounts comprising the temporary differences (the
differences between financial statement carrying values and the tax basis of
assets and liabilities) at the end of the respective years are as follows:
(In thousands)
1995 1994 1993
---- ---- ----
Customer reserves and allowances $ 12,000 $ 10,423 $ 13,063
Restructuring and investigation 37,700 51,564 27,655
Depreciation (300) 4,175 (3,676)
Inventory 16,500 31,945 28,339
Multi-employer pension payments (316) (316) (307)
Workmen's compensation insurance 2,500 1,748 1,553
Capitalized lease -- 2,855 2,643
Vacation pay accrual 1,300 1,600 2,519
Others 4,500 4,590 6,680
--------- --------- ---------
Total temporary differences $ 73,884 $ 108,584 $ 78,469
========= ========= =========
The following is a summary of the estimated deferred income
taxes, i.e., future Federal income tax benefits at currently enacted rates,
which have been reflected in the financial statements as indicated below:
(In thousands, except percentages)
1995 1994 1993
---- ---- ----
Temporary differences $ 73,884 $ 108,584 $ 78,469
Tax rate 35% 35% 35%
--------- --------- ---------
Tax effect of temporary differences 25,859 38,004 27,464
Valuation allowance (25,859) (38,004) (27,464)
--------- --------- ---------
Deferred tax assets recognized $ -- -- --
========= ========= =========
Potential future income tax benefits of $25,859,000, at currently
enacted rates, are available for future utilization in the consolidated
financial statements. The income tax benefits have not been reflected because of
the uncertainty of realizing the benefit of future income tax deductions for
$73,884,000 of temporary differences, set forth above.
At December 30, 1995, there were consolidated net operating losses of
$141,600,000 available as carryovers of which $23,400,000, $58,800,000 and
$59,400,000 will expire in 2009, 2010 and 2011, respectively, to the extent not
utilized. The income tax effect of these losses available for carryover at
currently enacted rates is $49,560,000. The amount of net operating loss
carryover ultimately available for future utilization may be significantly
reduced or restricted as a result of the approval of a plan of reorganization by
the Bankruptcy Court. Consequently, because of both the uncertainty of the
amount of net operating losses available for future use and the uncertainty of
the actual use of such losses, income tax benefit has not been reflected in the
consolidated financial statements. A valuation allowance for this amount has
been established because at this time it is more likely than not that the
deferred tax asset associated with this loss will not be realized.
F-18
<PAGE>
The Company filed claims for tentative refund of Federal
income taxes for the carry back of 1993 and 1992 net operating losses to prior
years in the amounts of $19,312,000 and $13,716,000, respectively. In addition,
the Company filed amended Federal income tax returns for 1989, 1990 and 1991
reflecting the impact of the various adjustments on the Federal taxable income
and related Federal income taxes for these years. In March 1995, the IRS
completed its field examination of the consolidated Federal income tax returns
for 1989, 1990, 1991, 1992 and 1993 and issued a Revenue Agents Report ("RAR")
which proposed minor adjustments to the above tax returns.
The IRS also completed the examination of excise and payroll
tax returns and the employee benefit plans. The excise tax return and employee
benefit plan report were accepted as filed with no changes. The proposed
adjustment to the payroll taxes is nominal for taxable years 1990, 1991 and
1992.
The Company accepted the proposed adjustments to taxable
income by the IRS as reflected in the RAR, as well as proposed adjustments to
payroll taxes. In December 1995, the Joint Committee on Taxation in Washington,
D.C. approved the tentative refunds of income taxes of $33,028,000 and the RAR
which results in an additional net refund of $7,970,000 plus interest of
approximately $2,375,000.
After reflecting the aforementioned adjustments proposed by
the IRS, the Company had the following income taxes refundable as of:
<TABLE>
<CAPTION>
December 30, 1995 December 31, 1994
----------------- -----------------
(In thousands)
<S> <C> <C>
Balance of 1992 claim for tentative refund -- $ 642
Amended Federal returns 1989, 1990 and 1991 $ 7,970 7,970
Interest on refund 2,375 --
------- -----
Total income taxes refundable 110,345 $ 8,612
======= =======
</TABLE>
During 1995, the Company received the balance of the tentative
refund from the 1992 carryback in the amount of $642,000 plus additional
interest of $1,024,000. On February 26, 1996, the Company received $7,970,000
for the refund from the amended tax returns for 1989 through 1991 plus interest
of $2,375,000.
F-19
<PAGE>
8. COMMITMENTS AND CONTINGENCIES:
(a) LEASES -
The Company rents real and personal property under leases
expiring at various dates through 2000. Certain of the leases stipulate payment
of real estate taxes and other occupancy expenses. Total rent expense charged to
operations for the 1995, 1994 and 1993 fiscal years amounted to $13,926,000,
$18,479,000 and $18,561,000, respectively.
Minimum annual rental commitments under operating leases in
effect at December 30, 1995 are summarized as follows:
Fiscal Equipment
Years Real Estate & Other
------ ----------- ---------
(In thousands)
1996 $ 8,091 $ 566
1997 5,856 203
1998 4,710 26
1999 3,394 17
2000 2,137 4
------- -------
Total minimum lease payments $24,188 $ 816
======= =======
Included in the real estate lease obligations above is
$5,839,000 related to Leslie Fay retail store leases. The Company is currently
negotiating with the respective landlords to mitigate these future obligations.
A reserve is included in Accrued expenses and other current liabilities for the
expected settlement amounts.
(b) LEGAL PROCEEDINGS -
As discussed in Notes 1 and 2, on April 5, 1993 and November
15, 1995, the Company and several of its subsidiaries filed voluntary petitions
in the Bankruptcy Court under Chapter 11 of the Bankruptcy Code. All civil
litigation commenced against the Company and those referenced subsidiaries prior
to that date has been stayed under the Bankruptcy Code.
In addition to, and concurrent with, the proceedings in the
Bankruptcy Court, the Company is involved in or settled during 1995 the
following legal proceedings of significance:
The Company was involved in litigation concerning a lease
agreement with CPA:3, as the landlord of the Company's former manufacturing
facility at Route 315, Luzerne County, Pennsylvania (the "315 Lease Agreement").
CPA:3 had also submitted a proof of claim in the Bankruptcy Court in the
approximate amount of $26,000,000. On August 7, 1995, the Bankruptcy Court
approved the Company's settlement of litigation concerning the lease agreement
with CPA:3. Pursuant to the settlement, CPA:3 paid $250,000 to the Company; the
Company released any claims to the title of the Route 315 facility and
surrendered the premises on or about September 30, 1995. Furthermore, CPA:3 has
agreed to limit its allowed unsecured claim against the Company to the amount of
$2,650,000.
F-20
<PAGE>
In November 1992, a class action entitled "Stephen Warshaw and
Phillis Warshaw v. The Leslie Fay Companies, Inc. et al." was instituted in the
United States District Court for the Southern District of New York. In January
1993 and February 1993, the plaintiffs served amended complaints and thereafter
twelve other similar actions were commenced against the Company, certain of its
officers and directors and its then auditors, BDO Seidman. The complaint in
these cases, which purport to be on behalf of all persons who purchased or
acquired stock of the Company during the period from February 4, 1992 to and
including February 1, 1993, allege that, the defendants knew or should have
known material facts relating to the sales and earnings which they failed to
disclose and that if these facts had been disclosed, they would have affected
the price at which the Company's common stock was traded. A pre-trial order has
been entered which has the effect of consolidating all of these actions and, in
accordance therewith, the plaintiffs have served the defendants with a
consolidated class action complaint which, because of the Chapter 11 filing by
the Company, does not name the Company as a defendant. In March 1994, plaintiffs
filed a consolidated and amended class action complaint. This complaint added
certain additional parties as defendants, including Odyssey Partners, L.P.
("Odyssey"), and expanded the purported class period from March 28, 1991 to and
including April 5, 1993. In March 1995, BDO Seidman filed an answer and
cross-claims against certain of the officers and directors of the Company
previously named in this action and filed third-party complaints against
Odyssey, certain current and former division heads of the Company and certain
current and former directors of the Company. These cross-claims and third-party
complaints allege that the Company's senior management and certain of its
directors engaged in fraudulent conduct and negligent misrepresentation. BDO
Seidman seeks contribution from certain of the defendants and each of the
third-party defendants if it is found liable in the class action, as well as
damages. Defendants' and third party defendants' time to answer claims of BDO
Seidman has not yet expired and discovery is ongoing.
In April 1995, an action was commenced in the name and on
behalf of the Debtors against BDO Seidman and certain of its partners in the
Bankruptcy Court alleging that BDO Seidman and such partners recklessly and
negligently breached their duties to the Debtors in connection with failing to
analyze internal controls, auditing their financial statements and providing
unqualified certifications of the financial statements. The damages sought are
unspecified.
In February 1993, the Securities and Exchange Commission
obtained an order directing a private investigation of the Company in connection
with, among other things, the filing by the Company of annual and other reports
that may have contained misstatements, and the purported failure of the Company
to maintain books and records that accurately reflected its financial condition
and operating results. The Company is cooperating in this investigation.
In February 1993, the United States Attorney for the Middle
District of Pennsylvania issued a Grand Jury Subpoena seeking the production of
documents as a result of the Company's announcement of accounting
irregularities.
F-21
<PAGE>
In March 1993, a stockholder derivative action entitled
"Isidore Langer, derivatively on behalf of The Leslie Fay Companies, Inc. v.
John J. Pomerantz et al." was instituted in the Supreme Court of the State of
New York, County of New York, against certain officers and directors of the
Company and its then auditors. This complaint alleges that the defendants knew
or should have known material facts relating to the sales and earnings of the
Company which they failed to disclose. The time to answer, move or otherwise
respond to the complaint has not yet expired. The plaintiff seeks an unspecified
amount of monetary damages, together with interest thereon, and costs and
expenses incurred in the action, including reasonable attorneys' and experts'
fees. The Company cannot presently determine the ultimate outcome of this
litigation and its impact on the financial statements.
The Company is obligated to contribute to the ILGWU National
Retirement Fund (the "Fund"), a multi-employer pension fund, pursuant to its
collective bargaining agreement with the Union of Needletrades, Industrial and
Textile Employees, formerly the International Ladies' Garment Workers' Union
(the "ILGWU"). The Fund has filed a proof of claim with the Bankruptcy Court for
the Company's estimated withdrawal liability representing its allocable share of
unfunded vested benefits under the Multi-Employer Pension Plan Amendments Act
("MPPA") of the Employee Retirement Income Security Act. The Fund's most recent
estimate of the Company's withdrawal liability through plan year 1994 is
approximately $16,000,000. The amount of unfunded vested benefits allocable to
the Company is subject to change on an annual basis and the amount of any
increase or decrease determined at the end of plan year 1995 cannot be
determined at this time. The Company will rely on provisions of MPPA to limit
withdrawal liability of its allocable share of the unfunded vested benefits.
Accordingly, the Company established a reserve for a withdrawal liability in the
amount of $8,500,000 during the fourth quarter of 1994 (included in Liabilities
subject to compromise).
On February 23, 1996, Albert Nipon and American Pop Marketing
Group, Inc. commenced an action against the Company seeking, inter alia, a
declaratory judgment with respect to the use of the Company's "Albert Nipon"
trademark and tradename. The time for the Company to answer or otherwise move
has not yet expired. The Company intends to vigorously defend its trademark
rights with respect to "Albert Nipon."
(c) MANAGEMENT AGREEMENTS -
Under the terms of a management agreement expiring in 1997,
the Company is obligated to make certain payments to a management group. Two of
this original three person management group retired on or before December 31,
1992. The remaining member of this management group has responsibility for the
day-to-day operations of the Company, has a separate employment contract with
the Company (included in the management contracts below) and is a stockholder of
the Company. There was no expense under this agreement for 1995, 1994 and 1993.
The Company has entered into management contracts with several
officers and key employees, which expire over the next two years. These
contracts commit the Company to pay approximately $3,745,000 in 1996 and
$876,000 in 1997.
(d) UNITED STATES CUSTOMS MATTERS -
In August 1993, the United States Customs Service ("Customs")
submitted a proof of claim with the Bankruptcy Court seeking approximately
$102,347,000 in connection with the importation of merchandise between July 1984
and December 31, 1987. Following review and discussions with the Company,
Customs reduced its claim to approximately $411,000. The Company settled this
claim for approximately $402,000. This settlement was approved by the Bankruptcy
Court on August 15, 1995.
F-22
<PAGE>
(e) SETTLEMENT OF LABOR DISPUTE -
On July 8, 1994 the Company and the ILGWU reached a negotiated
Settlement Agreement resolving a six-week labor strike which had commenced at
the end of the expiration of the labor agreement. Pursuant to this Settlement
Agreement, which was approved by the Bankruptcy Court, the Company guaranteed
600 domestic manufacturing jobs at its Pennsylvania Route 315 facility for one
year and the payment of approximately $2,300,00 for severance (accrued in 1993
as part of the restructuring reserve) in connection with the closing of
facilities. Also pursuant to the Settlement Agreement, the Company and the ILGWU
agreed that future domestic employment commitments would be dependent upon a
study by a joint labor-management committee and a study by an outside consultant
appointed by a facilitator, Deloitte & Touche LLP, to determine under what
conditions the Company could profitably produce dresses domestically to
successfully compete in the moderate dress market. Based upon the conclusions of
the Deloitte & Touche study and the finding of the facilitator, the Company
closed its Pennsylvania Route 315 manufacturing facility on or about August 4,
1995. On August 31, 1995, the Company and the ILGWU reached a final Settlement
Agreement regarding the shutdown of the Route 315 facility, the payment of an
additional $2,408,000 of severance pay and the resolution of all claims
involving the 600 guaranteed jobs. This Final Settlement Agreement was approved
by the Bankruptcy Court on September 15, 1995 and all payments were made by
December 1995.
(f) CONCENTRATIONS OF CREDIT RISK -
Financial instruments which potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105, consist primarily of
trade accounts receivable. The Company's customers are not concentrated in any
specific geographic region, but are concentrated in the retail apparel business.
In 1995, four customers accounted for 15%, 14%, 11% and 10% of the Company's net
sales. In 1994, two customers accounted for 15% and 10%, and in 1993, one
customer accounted for 14% of the Company's net sales. The Company has
established an allowance for possible losses based upon factors surrounding the
credit risk of specific customers, historical trends and other information.
9. STOCKHOLDERS' RIGHTS PLAN:
On April 5, 1993, the Board of Directors of the Company
declared a dividend distribution of one right (a "Right") for each outstanding
share of common stock, $1.00 par value (the "Common Stock"), of the Company to
stockholders of record at April 20, 1993. Each Right entitles the registered
holder to purchase from the Company one and one-half shares of Common Stock at a
price of $18.00 per share in cash (the "Purchase Price"), subject to adjustment.
If a third party becomes the beneficial owner of 15% or more of the Common
Stock, each holder of a Right will be entitled to receive upon exercise thereof,
the number of shares of Common Stock as will equal the result obtained by
multiplying the then current Purchase Price by the number of shares of Common
Stock for which such Right was exercisable immediately prior to the occurrence
of such event and dividing that product by 50% of the market price per share of
the Common Stock. If the Company is acquired in a merger or 50% or more of the
Company's assets or earning power is sold, each holder of a Right, will, upon
payment of the Purchase Price, be entitled to buy such number of shares of the
acquiring company as will equal the result obtained by multiplying the then
current Purchase Price by the number of shares of Common Stock for which such
Right was exercisable immediately prior to the occurrence of such event and
dividing that product by 50% of the market price per share of the common stock
of the acquiring company. The Rights are likely to be eliminated upon the
Company's emergence from chapter 11.
F-23
<PAGE>
10. STOCK OPTION PLAN:
The Company has a Stock Option Plan which provides for the
grant of up to an aggregate of 1,000,000 shares of its common stock to its key
employees. In December 1992, the Board of Directors approved an increase in the
aggregate number of shares which could be granted to 1,500,000. This increase is
subject to stockholder approval.
Under the plan, incentive stock options may be granted to
purchase shares of common stock at not less than the fair market value of such
shares at the date of the grant. Additionally, non-qualified options may be
granted to purchase shares of common stock at an amount not less than 98% of the
fair market value of such shares at the date of grant. In general, the options
vest over a four year period and are exercisable no later than five years from
the date of grant.
Information regarding the Company's stock option plan is
summarized below:
<TABLE>
<CAPTION>
Number
of Shares Option Price Per Share
--------- ----------------------
<S> <C> <C>
Outstanding at January 2, 1993 (unaudited) 473,375 $6.25 - $16.69
Granted 143,000 3.31 - 12.50
Exercised or surrendered -- -- - --
Cancelled (167,250) 5.13 - 16.69
--------
Outstanding at January 1, 1994 449,125 3.31 - 16.69
Granted 55,500 0.66 - 3.50
Exercised or surrendered -- -- - --
Cancelled (107,000) 3.31 - 15.63
--------
Outstanding at December 31, 1994 397,625 0.66 - 16.69
Granted 3,000 0.81 - 0.81
Exercised or surrendered -- -- - --
Cancelled (251,750) 0.66 - 16.69
--------
Outstanding at December 30, 1995 148,875 $3.31 - $14.00
========
</TABLE>
Options for 108,125 shares were exercisable at December 30,
1995 at prices ranging from $3.31 to $14.00 per share. The remaining options are
exercisable as follows: 19,625 in 1996, 19,000 in 1997 and 2,125 in 1998. The
Company's emergence from Chapter 11 and the Joint Plan of Reorganization may
significantly impact the value of these options or terminate them.
In October 1995, the FASB issued SFAS No. 123 - "Accounting
for Stock-Based Compensation", which is effective beginning in 1996. Although
the statement encourages entities to adopt the fair value based method of
accounting for employee stock options, the Company intends to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting prescribed by APB Opinion No. 25. "Accounting for Stock Issued to
Employees." Adoption of SFAS No. 123 will require the Company to disclose
additional information relating to the Stock Option Plan and the Company's pro
forma net income and earnings per share, as if the options granted were expensed
at their estimated fair value at the time of grant.
F-24
<PAGE>
11. RETIREMENT PLANS:
(a) DEFINED BENEFIT PLAN -
In January 1992, the Company established a non-contributory
defined benefit pension plan covering certain salaried, hourly and
commission-based employees. Plan benefits are based upon the participants'
salaries and years of service. The plan has been amended to freeze benefit
accruals effective December 31, 1994. Investments are made primarily in U.S.
Government obligations and common stock. The following major assumptions were
used in the actuarial valuations:
1995 1994 1993
---- ---- ----
Discount rate 8.8% 8.8% 7.5%
Long-term rate of return on assets 8.8% 8.8% 6.0%
Average increase in compensation N/A 5.0% 4.0%
Net periodic pension cost was recognized in 1995, 1994 and
1993, respectively, of $341,000, $234,000 and $1,463,000. The components of this
cost are as follows:
1995 1994 1993
---- ---- ----
(In thousands)
Service costs $ -- $ 860 $ 1,412
Interest cost 223 124 121
Actual return on assets 417 64 32
Net curtailment gain -- (507) --
Recognition of partial settlement
of pension obligations 200 -- --
Net amortization and deferral (499) (307) (102)
------- ------- -------
Net periodic pension cost $ 341 $ 234 $ 1,463
======= ======= =======
The following table summarizes the funding status of the plan
at December 30, 1995 and December 31, 1994:
Actuarial present value of benefit obligations 1995 1994
- ---------------------------------------------- ---- ----
Accumulated benefit obligations (In thousands)
Vested $(1,639) $ (926)
Non-vested (196) (178)
------- -------
Total accumulated benefit obligation $(1,835) $(1,104)
======= =======
Projected benefit obligation (1,835) (1,104)
Estimated fair value of assets 1,359 2,114
------- -------
Excess of projected benefit obligation
over plan assets (476) 1,010
Unrecognized prior service costs 262 --
Unrecognized net (gain) loss 313 (570)
Additional minimum liability under SFAS No. 87 (575) --
------- -------
(Accrued) Prepaid Pension Costs $ (476) $ 440
======= =======
F-25
<PAGE>
Under the requirements of SFAS No. 87 - "Employers' Accounting for Pensions", an
additional minimum pension liability representing the excess of accumulated
benefits over plan assets and accrued pension costs, was recognized at December
30, 1995. A corresponding amount was recognized as an intangible asset to the
extent of unrecognized prior service costs with the balance recorded as a
separate reduction of stockholders' equity.
(b) DEFINED CONTRIBUTION PLAN -
The Company also maintains a qualified voluntary contributory
profit sharing plan covering certain salaried, hourly and commission-based
employees. Certain Company matching contributions to the plan are mandatory.
Other contributions to the plan are discretionary. Total contributions to the
plan may not exceed the amount permitted as a deduction pursuant to the Internal
Revenue Code. The contributions charged to operations for 1995, 1994 and 1993
amounted to $531,000, $321,000 and $952,000, respectively.
(c) OTHER -
The Company participates in a multi-employer pension plan.
Such plans were underfunded as of January 1, 1994. The plans provide defined
benefits to unionized employees. Amounts charged to operations for contributions
to the pension funds in 1995, 1994 and 1993 amounted to approximately
$1,295,000, $1,899,000 and $2,792,000. As discussed in Note 8 (b), in the event
that the Company's assets are sold during the Chapter 11 cases, the withdrawal
liability would be triggered. The Company has charged $8,500,000 to
reorganization costs in 1994 and established a reserve within Liabilities
subject to compromise.
The Company does not provide for post-employment or
post-retirement benefits other than the plans described above.
12. ASSETS HELD FOR SALE AND DISPOSITION:
In connection with the Company's ongoing restructuring as part
of the Chapter 11 process, the Company had announced the intention to dispose of
certain of the Company's divisions. As such, the assets and direct liabilities
of these divisions, which include the Leslie Fay retail store division and Next
Day Apparel, Inc. were reflected as Assets of divisions held for sale and
disposition and Direct liabilities of divisions held for sale and disposition in
the accompanying consolidated balance sheets.
F-26
<PAGE>
The components of Assets and Direct liabilities of divisions
held for sale and disposition at December 30, 1995 include:
<TABLE>
<CAPTION>
(In thousands)
Continuing Held
Total Operations For Sale
----- ---------- --------
<S> <C> <C> <C>
Accounts receivable, net $ 55,066 $ 54,943 $ 123
Inventories 101,235 101,076 159
Prepaid expenses and other current assets 4,285 4,283 2
Property, plant and equipment, net 14,670 14,670 --
Deferred charges and other assets 2,446 2,404 42
--------
Total assets of divisions held for sale
and disposition $ 326
--------
Accounts payable $ 30,150 $ 30,150 $ --
Accrued expenses and other
current liabilities 32,453 32,173 280
--------
Total direct liabilities of divisions
held for sale and disposition $ 280
--------
</TABLE>
The components of Assets and Direct liabilities of divisions
held for sale and disposition at December 31, 1994 include:
<TABLE>
<CAPTION>
(In thousands)
Continuing Held
Total Operations For Sale
----- -------------- --------
<S> <C> <C> <C>
Accounts receivable, net $ 61,997 $ 58,923 $ 3,074
Inventories 117,667 102,477 15,190
Prepaid expenses and other current assets 4,784 4,424 360
Property, plant and equipment, net 21,274 19,182 2,092
Deferred charges and other assets 4,644 4,297 347
--------
Total assets of divisions held for
sale and disposition $ 21,063
========
Accounts payable $ 35,110 $ 30,429 4,681
Accrued expenses and
other current liabilities 52,762 51,565 1,197
--------
Total direct liabilities of divisions
held for sale and disposition $ 5,878
========
</TABLE>
In the second quarter of 1995 the Company decided to
discontinue its Nipon Studio label. In the third quarter of 1995 the Company
decided to close its Leslie Fay retail store division and sell its fifty-one
(51%) percent interest in Next Day. The Company received approximately
$3,081,000 (excluding $405,000 of cash remaining with the buyer) in September
1995, and agreed to contribute to the capital of Next Day $2,200,000 of the
principal amount of a subordinated loan outstanding to the Company. In 1995, the
Company recorded a restructuring charge of $10,138,000 for the disposition of
the above mentioned businesses and other facilities.
F-27
<PAGE>
For the divisions held for sale, in the years 1995, 1994 and
1993, respectively, net sales amounted to approximately $34,843,000, $88,968,000
and $77,351,000 and operating losses, before allocation of corporate overhead,
amounted to approximately $1,062,000, $2,793,000 and $66,000.
In the fourth quarter of 1994, the Company decided to close
its two foreign sales companies (Leslie Fay Canada, Inc. and Leslie Fay U. K.
Limited). At the end of the third quarter of 1994, the Company recorded the
closing of its THEOmiles Division. Additionally, the Company closed numerous
other facilities. In 1994, the Company recorded a restructuring charge of
$39,753,000 for the disposition of the above mentioned divisions, some outlet
stores and other facilities.
Effective as of 1993 year end, the Company closed its Hue,
Inc. legwear business. In March 1994, the Company licensed the right to sell
casual legwear and sheer hosiery under the HUE label to an independent third
party, and as part of this agreement sold certain inventory and other assets to
the licensee. In August 1993, the Company discontinued the Spitalnick line of
women's apparel. Additionally, the Company closed numerous distribution and
showroom facilities. In 1993, the Company recorded a restructuring charge of
$30,724,000 for the closing of these divisions and facilities.
13. REORGANIZATION COSTS:
Reorganization Costs are comprised of the following:
<TABLE>
<CAPTION>
(In thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Professional fees and other costs $ 7,995 $ 13,229 $ 13,254
Closed facilities and operations 10,138 39,753 30,724
Write-down of excess purchase price 3,181 53,000 1,642
Multi-employer pension plan -- 8,500 --
Employee retention plan -- 3,000 --
Interest income (4,739) (1,713) (481)
--------- --------- ---------
Total reorganization costs $ 16,575 $ 115,769 $ 45,139
========= ========= =========
</TABLE>
14. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
The components of Accrued expenses and other current
liabilities were as follows:
(In thousands)
1995 1994
---- ----
Accrued Reorganization Costs $ 16,162 $ 37,560
Accrued Duty 5,310 505
Other 10,701 13,500
-------- --------
Total $ 32,173 $51,565
======== =======
15. SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash (received) paid for interest and income taxes were as
follows:
(In thousands)
1995 1994 1993
---- ---- ----
Interest $ 2,542 $ 5,381 $ 15,774
Income taxes (218) (22,692) (20,643)
F-28
<PAGE>
16. UNAUDITED QUARTERLY RESULTS:
Unaudited quarterly financial information for 1995 and 1994 is
set forth as follows:
<TABLE>
<CAPTION>
(In thousands, except per share data)
1995 March June September December
- ----------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $ 132,941 $ 93,422 $ 140,290 $ 78,551
Gross profit 27,267 19,912 36,501 15,633
Net (loss) income $ (3,399) $ (12,105) $ 818 $ (3,155)
Net (loss) income per
share of common stock $ (0.18) $ (0.64) $ 0.04 $ (0.17)
1994 March June September December
- ----------------- ---------- ---------- ----------- ----------
Net sales $ 146,241 112,029 $ 171,043 $ 106,020
Gross profit 39,777 26,659 39,050 1,861
Net loss $ (1,444) $ (16,936) $ (17,650) $(113,510)
Net loss per share of
common stock $ (0.08) $ (0.90) $ (0.94) $ (6.05)
</TABLE>
F-29
<PAGE>
SCHEDULE II
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
BALANCE AT COSTS BALANCE AT
BEGINNING OF CHARGED TO END OF
DESCRIPTION PERIOD EXPENSE DEDUCTIONS PERIOD
- ----------------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED
DECEMBER 30, 1995:
Receivables Reserves $27,288 1,254 (5,451) $23,091
Taxation Valuation Allowance 67,404 8,015 -- 75,419
FISCAL YEAR ENDED
DECEMBER 31, 1994:
Receivables Reserves $24,949 3,843 (1,504) $27,288(1)
Taxation Valuation Allowance 36,102 31,302 -- 67,404
FISCAL YEAR ENDED
JANUARY 1, 1994:
Receivables Reserves $28,313 5,097 (8,461) $24,949
Taxation Valuation Allowance 13,097 23,005 -- 36,102
</TABLE>
(1) Includes $620 related to those divisions held for sale and disposition.
See Note 12 to the Consolidated Financial Statements.
F-30
<PAGE>
===============================================================================
EXHIBITS
TO
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995 COMMISSION FILE NO. 1-9196
THE LESLIE FAY COMPANIES, INC.
DELAWARE 13-3197085
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1412 BROADWAY
NEW YORK, NEW YORK 10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 221-4000
===============================================================================
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
THE LESLIE FAY COMPANIES, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1(a) Restated Certificate of Incorporation of the Company. (Exhibit
3.3 to the Company's Registration Statement on Form S-1, File
No. 33-6820 (the "1986 Registration Statement").)
3.1(b) Certificate of Change of Registered Office and of Registered
Agent dated October 10, 1989, amending Restated Certificate of
Incorporation. (Exhibit 19.1 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1990 (the
"June 1990 10-Q").)
3.2 Restated By-Laws of the Company, as amended as of March 6,
1990. (Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 30, 1989, File No. 1-9196.)
3.4 Amended Joint Plan of Reorganization of Debtors pursuant to
Chapter 11 of the United States Bankruptcy Code dated November
15, 1995. (Exhibit 3.4(a) to the Company's Quarterly Report on
Form 10-Q dated September 30, 1995, File No. 1-9196 (the
"September 1995 10-Q").)
4.1(a) Form of Note Agreement dated January 4, 1990 between the
Company and each of The Prudential Insurance Company of
America ("Prudential") and The Northwestern Mutual Life
Insurance Company ("Northwestern"). (Exhibit 4 to the
Company's Current Report on Form 8-K, dated January 4, 1990,
File No. 1-9196.)
4.1(b) Form of Amendment No. 1, dated as of January 5, 1990, to Note
Agreements with Prudential and Northwestern. (Exhibit 19.2 to
the June 1990 10-Q.)
E-1
<PAGE>
THE LESLIE FAY COMPANIES, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1(c) Amendment No. 2 dated as of June 11, 1992 to Note Agreements
with Prudential and Northwestern. (Exhibit 19.8 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 27, 1992, File No. 1-9196 (the "June 1992 10-Q").)
4.1(d) Amendment No. 3 dated as of October 14, 1992 to Note
Agreements with Prudential and Northwestern. (Exhibit 4.1(d)
to the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1993, File No. 1-9196 (the "1992
10-K").)
4.1(e) Amendment No. 4 dated as of December 14, 1992 to Note
Agreements with Prudential and Northwestern. (Exhibit 4.1(e)
to the 1992 10-K.)
4.1(f) Letter Agreement dated as of March 1, 1993 among Northwestern,
Prudential and Chemical Bank, as Agent. (Exhibit 28.7 to the
Company's Current Report on Form 8-K, dated February 25, 1993,
File No. 1-9196 (the "February 25, 1993 8-K").)
4.2 Rights Agreement dated as of April 5, 1993 between the Company
and Chemical Bank, as Rights Agent. (Exhibit 4 to the
Company's Current Report on Form 8-K, dated April 5, 1993,
File No. 1-9196.)
4.3 Post-Petition Credit Agreement dated as of April 28, 1993 (the
"DIP Credit Agreement") among the Company, as Borrower, Leslie
Fay Licensing Corp., Hue, Inc., and Spitalnick Corp., as
Guarantors (the "Guarantors"), the Initial Lenders named
therein, as Initial Lenders (the "Initial Lenders") and
Citibank, N.A., as Agent. (Exhibit 28 to the Company's Current
Report on Form 8-K dated April 28, 1993, File No. 1-9196 (the
"April 28, 1993 8-K").)
4.3(a) Letter Amendment No. 1 dated April 28, 1993 among the Company,
the Guarantors and the Initial Lenders. (Exhibit 28.1 to the
April 28, 1993 8-K.)
E-2
<PAGE>
THE LESLIE FAY COMPANIES, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.3(b) Security Agreement dated April 28, 1993 (the "Security
Agreement") from the Company and the Guarantors to Citibank,
N.A., as Collateral Agent. (Exhibit 28.2 to the April 28, 1993
8-K.)
4.3(c) Trademark Security Agreement dated April 28, 1993 from the
Company and the Guarantors to Citibank, N.A., as Collateral
Agent. (Exhibit 28.3 to the April 28, 1993 8-K.)
4.3(d) Letter Amendment No. 2 to the DIP Credit Agreement and Letter
Amendment No. 1 to the Security Agreement dated May 11, 1993
among the Company, the Guarantors, the Initial Lenders and
Internationale Nederlanden Bank, N.V. (Exhibit 4.3(d) to the
1992 10-K.)
4.3(e) Letter Amendment No. 3 to the DIP Credit Agreement dated
September 20, 1993 among the Company, a Debtor and
Debtor-in-Possession, Leslie Fay Licensing Corp., Hue, Inc.
and Spitalnick Corp., each as a Debtor and
Debtor-in-Possession as Guarantors, and the Lenders parties to
the DIP Credit Agreement. (Exhibit 99.1 to the Company's
Current Report on Form 8-K dated September 28, 1993, File No.
1-9196 (the "September 28, 1993 8-K").)
4.3(f) Amendment No. 4 to the DIP Credit Agreement, Amendment No. 2
to the Security Agreement and Amendment No. 1 to the Trademark
Security Agreement dated April 27, 1994 among the Company, the
Guarantors, the Lenders parties to the DIP Credit Agreement
and Citibank, N.A., as Agent and Collateral Agent. (Exhibit
4.3(f) to the 1992 10-K.)
4.3(g) Amendment No. 5 to the DIP Credit Agreement dated November 14,
1994 among the Company, the Guarantors, the Lender parties to
the DIP Credit Agreement and Citibank, N.A., as Agent and
Collateral Agent. (Exhibit 4.3(g) to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended October 1,
1994, File No. 1-9196 (the "September 1994 10-Q").)
E-3
<PAGE>
THE LESLIE FAY COMPANIES, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
4.3(h) Amendment No. 6 to the DIP Credit Agreement and Waiver dated
January 16, 1995 among the Company, the Guarantors, the Lender
parties to the DIP Credit Agreement and Citibank, N.A., as
Agent and Collateral Agent. (Exhibit 4.3(h) to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994, File No. 1-9196 (the "1994 10-K").)
4.3(i) Amendment No. 7 to the DIP Credit Agreement, Amendment No. 3
to the Security Agreement, Amendment No. 2 to the Trademark
Security Agreement and Waiver dated February 25, 1995 among
the Company, the Guarantors, the Lender parties to the DIP
Credit Agreement and Citibank, N.A., as Agent and Collateral
Agent. (Exhibit 4.3(i) to the 1994 10-K.)
4.4 Post-Petition Credit Agreement dated as of May 2, 1995 among
The Leslie Fay Companies, Inc., as Borrower, Leslie Fay
Licensing Corp., HUE, Inc., and Spitalnick Corp., as
Guarantors, the Lenders named therein and The First National
Bank of Boston and BankAmerica Business Credit, Inc., as
Facility Agents and The First National Bank of Boston as
Administrative Agent. (Exhibit 4.4 to the Company's Quarterly
Report on Form 10-Q dated April 1, 1995, File No. 1-9196 (the
"March 1995 10-Q").)
4.4(a) Security Agreement dated May 2, 1995 from The Leslie Fay
Companies, Inc., Leslie Fay Licensing Corp., HUE, Inc., and
Spitalnick Corp., as Grantors to The First National Bank of
Boston as Administrative Agent. (Exhibit 4.4(a) to the March
1995 10-Q.)
4.4(b) Trademark Security Agreement dated May 2, 1995 from The Leslie
Fay Companies,. Inc., Leslie Fay Licensing Corp., HUE, Inc.,
and Spitalnick Corp., as Grantors to The First National Bank
of Boston as Administrative Agent. (Exhibit 4.4(a) to the
March 1995 10-Q.)
E-4
<PAGE>
THE LESLIE FAY COMPANIES, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
4.4(c) Amendment No. 1 to the FNBB Credit Agreement dated June 30,
1995 among the Company, the Guarantors and the Lenders.
(Exhibit 4.4 to the Company's Quarterly Report on Form 10-Q
dated July 1, 1995, File No. 1-9196 (the "June 1995 10-Q").)
4.4(d) Amendment No. 2 to the FNBB Credit Agreement dated August 31,
1995 among the Company, the Guarantors and the Lenders.
(Exhibit 4.4(d) to the September 1995 10-Q.)
4.4(e)* Amendment No. 3 to the FNBB Credit Agreement dated November
15, 1995 among the Company, the Guarantors and the Lenders.
4.4(f)* Amendment No. 4 to the FNBB Credit Agreement dated December
28, 1995 among the Company, the Guarantors and the Lenders.
4.4(g)* Amendment No. 5 to the FNBB Credit Agreement dated January 28,
1996 among the Company, the Guarantors and the Lenders.
4.4(h)* Amendment No. 6 to the FNBB Credit Agreement dated December
31, 1995 among the Company, the Guarantors and the Lenders.
4.4(i)* Amendment No. 7 to the FNBB Credit Agreement dated April 11,
1996 among the Company, the Guarantors and the Lenders.
10.1(a)+ Partnership and Management Agreement dated as of April 30,
1982 by and among John J. Pomerantz, Walter I. Leiter and Alan
Golub and The Leslie Fay Companies, as amended by the
Assignment and Amendment dated as of June 27, 1984. (Exhibit
10.1 to the 1986 Registration Statement.)
10.1(b)+ Amendment dated as of March 10, 1987 to Partnership and
Management Agreement. (Exhibit 10.1(b) to the Company's
Amendment No. 1 to its Annual Report on Form 10-K for the
fiscal year ended December 27, 1986 (the "1986 10-K"), on Form
8, File No. 1-9196.)
E-5
<PAGE>
THE LESLIE FAY COMPANIES, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
10.2(a)+ Employment Agreement dated as of May 4, 1981 between Leslie
Fay Inc. and John J. Pomerantz, as amended April 30, 1982.
(Exhibit 10.2(a) to the 1986 Registration Statement.)
10.2(a)(i)+ Amendment dated as of March 10, 1987 to Employment Agreement
with John J. Pomerantz. (Exhibit 10.2(a)(i) to the Company's
Amendment No. 1 to the 1986 10-K on Form 8, File No. 1-9196.)
10.2(b)+ Employment Agreement dated as of May 1, 1980 between Leslie
Fay Inc. and Alan Golub, as amended as of March 1, 1981 and
April 30, 1982. (Exhibit 10.2(c) to the 1986 Registration
Statement.)
10.2(b)(i)+ Amendment dated as of March 10, 1987 to Employment Agreement
with Alan Golub. (Exhibit 10.2(b)(i) to the Company's
Amendment No. 1 to the 1986 10-K on Form 8, File No. 1-9196.)
10.2(c)+ Amended and Restated Employment Agreement dated as of June 29,
1994 between the Company and John S. Dubel. (Exhibit 10.2 (n)
to the September 1994 10-Q.)
10.2(d)+ Consulting Agreement dated as of January 1, 1994 between the
Company and Herman Gordon. (Exhibit 10.2 (l) to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 2, 1994, File No. 1-9196 (the "June 1994 10-Q")
10.2(e)+ Employment Agreement dated as of June 29, 1994 between the
Company and John Ward. (Exhibit 10.2 (n) to the September 1994
10-Q.)
10.2(f)+ Agreement dated as of August 1, 1993 between the Company and
Kathryn D. Connors. (Exhibit 10.2(i) to the 1992 10-K.)
10.2(g)+ Agreement dated as of September 2, 1993 between the Company
and Joan Ruby. (Exhibit 10.2(g) to the 1994 10-K.)
E-6
<PAGE>
THE LESLIE FAY COMPANIES, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------
10.2(h)+ Agreement dated as of January 1, 1994 between the Company and
Thomas Sullivan. (Exhibit 10.2(k) to the 1992 10-K.)
10.2(i)+ Agreement dated as of January 14, 1994 between the Company and
James G. Bloise. (Exhibit 10.2(i) to the 1994 10-K.)
10.2(j)+ Agreement dated as of January 1, 1994 between the Company and
Vernon Smith. (Exhibit 10.2(l) to the 1992 10-K.)
10.2(k)+ Employment Agreement dated as of November 9, 1992 between the
Company and Erna Zint, as amended January 1, 1995. (Exhibit
10.2(k) to the 1994 10-K.)
10.2(l)+ Key Employee Severance and Retention Program dated as of June
29, 1994 between the Company and certain key employees.
(Exhibit 10.2(m) to the June 1994 10-Q.)
10.2(m)+ Agreement dated as of January 1, 1994 between the Company and
Warren Wishart, as amended May 1, 1995. (Exhibit 4.4 to the
June 1995 10-Q.)
10.3+ 1986 Stock Option Plan of the Company, as amended as of May
31, 1990. (Exhibit 10.3 to the Company's Annual Report on Form
10-K for the fiscal year ended December 29, 1990, File No.
1-9196 (the "1990 10-K").)
10.4+ The Leslie Fay Companies, Inc. 401(k) Savings Plan, amended
and restated effective as of July 1, 1992.(Exhibit 10.4 to the
1992 10-K.)
10.5+ The Leslie Fay Companies, Inc. Retirement Plan, effective as
of January 1, 1992. (Exhibit 10.5 to the 1992 10-K.)
10.6(a) Lease Agreement dated as of April 30, 1982 between Corporate
Property Associates 3 and The Leslie Fay Company, as amended
as of December 28, 1985, for the plant located at
Wilkes-Barre, Pennsylvania. (Exhibit 10.6(a) to the 1986
Registration Statement.)
E-7
<PAGE>
THE LESLIE FAY COMPANIES, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
10.6(b) Lease Agreement dated as of April 20, 1983 between 1400
Broadway Associates and The Leslie Fay Company for certain
premises located at 1400 Broadway, New York, New York.
(Exhibit 10.6(j) to the 1986 Registration Statement.)
10.6(c) Lease Agreement dated as of April 22, 1983 between 1400
Broadway Associates and The Leslie Fay Company for certain
premises located at 1400 Broadway, New York, New York.
(Exhibit 10.6(k) to the 1986 Registration Statement.)
10.6(d) Lease Agreement dated as of August 18, 1990 between Mericle
Development Corp. and the Company for certain premises located
at the Hanover Industrial Estates, Hanover Township, Luzerne
County, Pennsylvania. (Exhibit 10.5(g) to the 1990 10-K.)
10.6(e) Lease Agreement dated March 29, 1990 between John and Marjorie
Passan and the Company, modified as of December 1, 1990, for
certain premises located at 1 Passan Drive, Borough of Laflin,
Luzerne County, Pennsylvania. (Exhibit 10.5(h) to the 1990
10-K.)
10.6(f) Lease Agreement dated June 16, 1980 between Hartz Mountain
Metropolitan and the Company, modified as of September 12,
1986, May 22, 1989 and March 17, 1992, for certain premises
located at 50-52 Metro Way, Secaucus, New Jersey. (Exhibit
10.6(f) to the 1992 10-K.)
10.6(g) Lease Agreement dated December 13, 1989 between 1412 Broadway
Associates and the Company, modified as of July 31, 1990 and
August 1, 1990, for certain premises located at 1412 Broadway,
New York, New York. (Exhibit 10.6(g) to the 1994 10-K.)
10.6(h)* Lease Agreement dated June 19, 1995 between Hartz Mountain
Associates and the Company for certain premises located at 80
- 90 Enterprise Drive, Secaucus, New Jersey.
E-8
<PAGE>
THE LESLIE FAY COMPANIES, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.7 Amended and Restated License Agreement dated as of May 31,
1991 between Forecast Designs, Inc. and the Company. (Exhibit
19.4 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 29, 1991, File No. 1-9196.)
10.8(a) Financing Agreement dated January 15, 1992 among the Company,
Manufacturers Hanover Trust Company, as Agent and a Bank,
Marine Midland Bank, N.A., as Issuer and a Bank, and Chemical
Bank, The Bank of New York and National Westminster Bank USA.
(Exhibit 10.7 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 28, 1991, File No. 1-9196.)
10.8(b) Waiver dated as of June 2, 1992 to the Financing Agreement
dated as of January 15, 1992 among the Company, the Banks
parties thereto and Chemical Bank, as successor by merger to
Manufacturers Hanover Trust Company, as agent (the "Agent").
(Exhibit 19.7 to the June 1992 10-Q.)
10.8(c) Waiver dated as of October 14, 1992 to the Financing Agreement
dated as of January 15, 1992 among the Company, the Banks
parties thereto and the Agent. (Exhibit 19.9 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
October 3, 1992, File No. 1-9196.)
10.9 Memorandum of Understanding Between the International Ladies'
Garments Workers' Union and the Company dated July 8, 1994.
(Exhibit 10.10 to the June 1994 10-Q.)
10.11 Agreement for Sale and Purchase of Stock of Next Day Apparel,
Inc. dated August 2, 1995 (executed as of September 29, 1995,
between The Leslie Fay Companies, Inc. and West Union Apparel,
Ltd. (Exhibit 10.11 to the September 1995 10-Q.)
E-9
<PAGE>
THE LESLIE FAY COMPANIES, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.12* Compromise and Settlement Agreement dated May 1, 1995 between
the Company, Corporate Property Associates 3 ("CPA:3"), the
Officia Committee of Unsecured Creditors of Leslie Fay, and
National Fire Insurance Company of Pittsburgh.
10.13* Factoring Agreement dated January 23, 1996 between Heller
Financial, Inc. and the Company.
16.1 Letter dated February 25, 1993 from BDO Seidman to the Audit
Committee and Board of Directors of the Company relating to
the withdrawal of its opinion on the 1991 Consolidated
Financial Statements of the Company. (Exhibit 28 to the
February 25, 1993 8-K.)
16.2 Letter dated May 6, 1993 from BDO Seidman to the Securities
and Exchange Commission relating to its concurrence with the
statements made by the Company in the current report
concerning its resignation as the Company's principal
accountant. (Exhibit 16 to the Company's Current Report on
Form 8-K, dated May 6, 1993, File No. 1-9196 (the "May 6, 1993
8-K").)
16.3 Letter dated May 7, 1993 from Arthur Andersen & Co. to the
Securities and Exchange Commission relating to the disclosure
provided in the current report. (Exhibit 16.1 to the May 6,
1993 8-K.)
16.4 Letter dated September 28, 1993 from BDO Seidman to the Audit
Committee and Board of Directors of the Company relating to
the withdrawal of its opinion on the 1990 Consolidated
Financial Statements of the Company. (Exhibit 99 to the
September 28, 1993 8-K.)
E-10
<PAGE>
THE LESLIE FAY COMPANIES, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
21 Subsidiaries of the Company. (Exhibit 21 to the 1994 10-K.)
23* Consent of Arthur Andersen LLP.
- -----------------------
* Filed herewith. All other exhibits are incorporated herein by reference
to the document listed in the parenthetical reference.
+ Management contract or compensation plan or arrangement required to be noted
as provided in Item 14(a)(3).
E-11
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
EXHIBIT D
TO DISCLOSURE STATEMENT
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN ACCORDANCE WITH RULE 202 OF REGULATION S-T, THIS FORM 10-Q IS BEING FILED IN
PAPER FORMAT PURSUANT TO A CONTINUING HARDSHIP EXEMPTION.
===============================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 1996 COMMISSION FILE NO. 1-9196
THE LESLIE FAY COMPANIES, INC.
DELAWARE 13-3197085
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1412 BROADWAY
NEW YORK, NEW YORK 10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 221-4000
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
----- -----
There were 18,771,836 shares of Common Stock outstanding at October 31, 1996.
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
at September 28, 1996 and December 30, 1995................. 3
Consolidated Statements of Operations
for the thirty-nine and thirteen weeks ended
September 28, 1996 and September 30, 1995................. 4
Consolidated Statements of Cash Flows
for the thirty-nine weeks ended
September 28, 1996 and September 30, 1995................. 5
Notes to Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................................... 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................ 18
Item 2. Changes in Securities............................................ 18
Item 3. Defaults Upon Senior Securities.................................. 18
Item 4. Submission of Matters to a Vote of Security Holders.............. 18
Item 5. Other Information................................................ 18
Item 6. Exhibits and Reports on Form 8-K................................. 18
SIGNATURES .............................................................. 19
INDEX TO EXHIBITS ....................................................... 20
-2-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS.
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor in Possession)
CONSOLIDATED BALANCE SHEETS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 30,
ASSETS 1996 1995
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................................................. $ 3,864 $ 32,324
Accounts receivable-net of allowances for possible losses
of $26,177 and $23,091, respectively ................................... 113,439 54,943
Inventories ................................................................ 103,275 101,076
Prepaid expenses and other current assets .................................. 3,673 4,283
Income taxes refundable .................................................... -- 10,345
Assets of divisions held for sale or disposition ........................... -- 326
--------- ---------
Total Current Assets ................................................... 224,251 203,297
Property, Plant and Equipment, at cost less accumulated
depreciation and amortization of $18,481 and $17,262, respectively...... 14,887 14,670
Excess of Purchase Price over Net Assets Acquired-net of
accumulated amortization of $10,873 and $10,003,
respectively ........................................................... 24,739 25,609
Deferred Charges and Other Assets .............................................. 2,513 2,404
--------- ---------
Total Assets ............................................................... $ 266,390 $ 245,980
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Notes payable .............................................................. $ 14,445 $ --
Accounts payable ........................................................... 27,523 31,851
Accrued expenses and other current liabilities ............................. 26,604 30,472
Income taxes payable ....................................................... 2,756 2,132
Direct liabilities of divisions held for sale or disposition ............... -- 280
--------- ---------
Total Current Liabilities .............................................. 71,328 64,735
Liabilities Subject to Compromise .............................................. 337,119 337,153
--------- ---------
Total Liabilities ...................................................... 408,447 401,888
--------- ---------
Commitments and Contingencies
Stockholders' Deficit:
Common stock, $1 par value; 50,000 shares authorized;
20,000 shares issued and outstanding ................................... 20,000 20,000
Capital in excess of par value ............................................. 49,012 49,012
Excess of accumulated pension obligation over plan assets .................. (313) (214)
Accumulated deficit ........................................................ (197,764) (211,833)
Foreign currency translation adjustment .................................... (26) 93
--------- ---------
Subtotal ............................................................... (129,091) (142,942)
Treasury stock, at cost - 1,228 shares ..................................... (12,966) (12,966)
--------- ---------
Total Stockholders' Deficit ............................................ (142,057) (155,908)
--------- ---------
Total Liabilities and Stockholders Deficit ................................. $ 266,390 $ 245,980
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
- 3 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession - Note 2)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED THIRTEEN WEEKS ENDED
------------------------------- --------------------------------
SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales ........................................... $339,050 $364,216 $134,907 $139,616
Cost of Sales ....................................... 256,320 282,973 101,396 103,789
------------ ------------ ------------ ------------
Gross profit .................................... 82,730 81,243 33,511 35,827
------------ ------------ ------------ ------------
Operating Expenses:
Selling, warehouse, general and
administrative expenses ..................... 61,757 75,567 21,589 24,717
Amortization of intangibles ..................... 870 818 293 328
------------ ------------ ------------ ------------
Total operating expenses ........................ 62,627 76,385 21,882 25,045
------------ ------------ ------------ ------------
Operating income ................................ 20,103 4,858 11,629 10,782
Interest and Financing Costs (excludes contractual
interest of $13,524, $13,524, $4,508 and $4,508,
respectively) ................................... 2,837 2,574 1,305 720
------------ ------------ ------------ ------------
Income before reorganization costs and
taxes ....................................... 17,266 2,284 10,324 10,062
Reorganization Costs ................................ 2,161 17,857 1,881 10,674
------------ ------------ ------------ ------------
Income (Loss) before taxes ...................... 15,105 (15,573) 8,443 (612)
Taxes ............................................... 1,036 (888) 398 (1,430)
------------ ------------ ------------ ------------
Net Income (Loss) ................................... $14,069 ($14,685) $8,045 $818
============ ============ ============ ============
Net Income (Loss) Per Share of Common Stock ..... $0.75 ($0.78) $0.43 $0.04
============ ============ ============ ============
Weighted Average Common Shares Outstanding ...... 18,771,836 18,771,836 18,771,836 18,771,836
============ ============ ============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
-4-
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession - Note 2)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
--------------------------------
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................ $ 14,069 ($14,685)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization ......................... 2,633 4,639
Amortization of excess purchase price over
net assets acquired ............................... 870 818
Provision for possible losses on accounts receivable .. 234 1,261
(Increase) decrease in:
Accounts receivable ............................... (58,608) (42,707)
Inventories ....................................... (2,040) 36,548
Prepaid expenses and other current assets ......... 612 294
Income taxes refundable ........................... 10,345 677
Deferred charges and other assets ................. (67) 1,806
(Decrease) increase in:
Accounts payable, accrued expenses and other
current liabilities ............................. (3,206) (7,350)
Income taxes payable .............................. 624 342
Deferred credits and other noncurrent liabilities.. (116) (335)
Changes due to reorganization activities:
Reorganization costs .............................. 2,479 17,857
Payment of reorganization costs ................... (5,976) (19,543)
-------- --------
Total adjustments ................................. (52,216) (5,693)
-------- --------
Net cash used in operating activities ............. (38,147) (20,378)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ..................................... (4,758) (2,836)
Proceeds from sale of Next Day Apparel (net of cash
provided of $405) ...................................... -- 3,081
-------- --------
Net cash (used in) provided by investing activities (4,758) 245
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ................................. 14,445 --
Proceeds from borrowings of Next Day Apparel ............. -- 3,500
-------- --------
Net cash provided by financing activities ......... 14,445 3,500
-------- --------
Net (decrease) in cash and cash equivalents .................. (28,460) (16,633)
Cash and cash equivalents, at beginning of period ............ 32,324 32,713
-------- --------
Cash and cash equivalents, at end of period .................. $ 3,864 $ 16,080
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these financial statements.
- 5 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The condensed consolidated financial statements included
herein have been prepared by The Leslie Fay Companies, Inc. and subsidiaries
(The Leslie Fay Companies, Inc. being sometimes individually referred to, and
together with its subsidiaries collectively referred to, as the "Company" as the
context may require), pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from this report, as is permitted by such rules and regulations; however, the
Company believes that the disclosures are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the
Fiscal Year ended December 30, 1995 (the "1995 Form 10-K"). Interim taxes were
provided based on the Company's estimated effective tax rate for the year. In
the opinion of management, the information furnished reflects all adjustments,
all of which are of a normal recurring nature, necessary for a fair presentation
of the results for the reported interim periods. Results of operations for
interim periods are not necessarily indicative of results for the full year.
Certain reclassifications have been made to the financial statements for the
thirteen week period ended September 30, 1995 and as of December 30, 1995 to
conform to the current quarterly presentation.
2. REORGANIZATION CASE:
On April 5, 1993 (the "Filing Date"), The Leslie Fay
Companies, Inc. ("Leslie Fay") and each of Leslie Fay Licensing Corp.,
Spitalnick Corp. and Hue, Inc., wholly owned subsidiaries of Leslie Fay
(collectively the "Debtors"), filed a voluntary petition under chapter 11 of the
Bankruptcy Code (the "Bankruptcy Code"). The Debtors are presently operating
their businesses as debtors in possession subject to the jurisdiction and
supervision of the United States Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court").
In addition, on November 15, 1995 (the "Retail Filing Date"),
Leslie Fay Retail Outlets, Inc.; Leslie Fay Factory Outlet (Alabama), Inc.;
Leslie Fay Factory Outlet (California), Inc.; Leslie Fay Factory Outlet (Iowa),
Inc.; and Leslie Fay Factory Outlet (Tennessee), Inc., all wholly-owned
subsidiaries of Leslie Fay (collectively referred to as the "Retail Debtors"),
also filed voluntary petitions under chapter 11 of the Bankruptcy Code. The
Retail Debtors operated their businesses as debtors in possession following the
Retail Filing Date while pursuing an orderly liquidation of all of their assets
under chapter 11 of the Bankruptcy Code.
- 6 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
On October 31, 1995, the Debtors filed a Joint Plan of
Reorganization ("the Plan") pursuant to chapter 11 of the Bankruptcy Code. On
November 15, 1995, the Debtors filed an Amended Joint Plan of Reorganization and
a Disclosure Statement for the Amended Joint Plan of Reorganization pursuant to
chapter 11 of the Bankruptcy Code. On March 13, 1996, the Debtors and the
Creditors' Committee filed a Joint Plan of Reorganization (the "Amended Plan").
No disclosure statement has been filed with respect to the Amended Plan. The
Amended Plan provides for, among other things, the separation of the Debtors'
estates and assets into two separate reorganized businesses plus, possibly, an
entity to resolve the remaining obligations of the discontinued corporate
operations. Under the Amended Plan, current stockholders of the Company will not
retain or receive any value for their interest. The Debtors expect to modify the
Amended Plan and file a disclosure statement with respect thereto by the end of
November 1996, and to seek Bankruptcy Court approval of such disclosure
statement and confirm and consummate the Amended Plan by the end of 1996.
As reflected in the consolidated financial statements in the
1995 Form 10-K, the Company experienced significant net losses in 1995, 1994 and
1993. During the chapter 11 cases, the Company has incurred and will continue to
incur reorganization costs. The Company's ability to continue as a going concern
is dependent upon the confirmation of a plan of reorganization by the Bankruptcy
Court, the ability to secure on-going debtor in possession financing (see Note 4
herein) and to maintain compliance with all debt covenants under the debtor in
possession financing, the achievement of profitable operations and positive cash
flow, the resolution of the uncertainties of the bankruptcy cases and legal
proceedings as discussed in Notes 2 and 8, respectively, of the Notes to
Consolidated Financial Statements in the 1995 Form 10-K, and the ability to
obtain financing for its operations that will enable it to emerge from chapter
11.
The Company recognized reorganization costs aggregating
$2,161,000 and $1,881,000 during the thirty-nine and thirteen week periods ended
September 28, 1996, compared to $17,857,000 and $10,674,000 for the thirty-nine
and thirteen week periods ended September 30, 1995. These costs for the
thirty-nine and thirteen week periods ended September 28, 1996 are comprised of
professional fees and other costs of $3,085,000 and $1,387,000; and division and
facility closing costs of $740,000 and $540,000; offset by interest income of
$379,000 and $46,000 and the reversal of severance and retention costs recorded
in prior years of $1,285,000 and $0, respectively. For the thirty-nine and
thirteen week periods ended September 30, 1995, these costs were comprised of
professional fees and other costs of $7,958,000 and $1,502,000; and division and
facility closing costs of $11,926,000 and $10,473,000; offset by interest income
of $2,027,000 and $1,301,000.
- 7 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
3. INVENTORIES:
Inventories consist of the following:
September 28, December 30,
1996 1995
------------- ------------
(In thousands)
Raw materials .................. $ 36,690 $ 42,187
Work in process ................ 2,058 2,669
Finished goods ................. 64,527 56,220
-------- --------
Total inventories ............ $103,275 $101,076
======== ========
4. DEBT:
On May 2, 1995, a replacement credit facility for a new
$80,000,000 credit agreement with The First National Bank of Boston ("FNBB") and
BankAmerica Business Credit, Inc. ("BABC"), as Facility Agents, and FNBB as
Administrative Agent (the "FNBB Credit Agreement") was approved by the
Bankruptcy Court. This facility replaced the original post-petition credit
agreement (the "DIP Credit Agreement") and was subsequently extended twice and
currently matures on the earlier of (i) December 31, 1996, (ii) the date of
termination of the Commitments (as that term is defined in the FNBB Credit
Agreement) or (iii) the first date on which a reorganization plan for the
Company is substantially consummated.
The FNBB Credit Agreement provides for post-petition direct
borrowings and the issuance of letters of credit on the Debtors' behalf in an
aggregate amount not exceeding $80,000,000, subject to being permanently reduced
on a dollar-for-dollar basis for any net cash proceeds received from the sale of
assets after March 20, 1995 for which the proceeds in the aggregate exceed
$20,000,000 up to a maximum of $40,000,000 on a cumulative basis. On November
15, 1995, the Facility was amended to reduce the aggregate borrowing limit to
$60,000,000, and beginning January 1, 1996, a sublimit for borrowings under the
revolving line of credit was set at $15,000,000 and a sublimit for letters of
credit was set at $50,000,000. A subsequent amendment increased the aggregate
borrowing limit to $70,000,000 from August 30, 1996 to October 18, 1996 and
increased the sublimit under the revolving line of credit to $35,000,000 from
August 28, 1996 through September 21, 1996 and $30,000,000 from September 22,
1996 through October 19, 1996. No qualifying asset sales have been made which
would reduce the facility borrowing limits. The increased borrowing limits were
necessary to support the increased seasonal working capital requirements of the
business.
- 8 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
At September 28, 1996, the Company had borrowed $14,445,000
under the FNBB Credit Agreement, compared to no cash borrowings at December 30,
1995. In addition, approximately $34,536,000 and $38,402,000, respectively, was
committed under unexpired letters of credit (see Note 6 of the Notes to
Consolidated Financial Statements in the 1995 Form 10-K). Direct borrowings bear
interest at prime plus 1.5% (9.75% at September 28, 1996 and 10.0% at December
30, 1995), and the FNBB Credit Agreement requires a fee, payable monthly, on
average outstanding letters of credit at the rate of 2% annually.
The FNBB Credit Agreement contains certain financial and
operating covenants related to minimum and maximum inventory levels, capital
expenditures and attainment of minimum earnings before reorganization, interest,
taxation, depreciation and amortization. As collateral for borrowings under the
FNBB Credit Agreement, the Company has granted to FNBB and BABC a security
interest in substantially all assets of the Company. In addition, the FNBB
Credit Agreement contains certain restrictive covenants, including limitations
on the incurrence of additional liens and indebtedness and a prohibition on
paying dividends. The Company is currently in compliance with all covenants
contained in the FNBB Credit Agreement, as amended or waived.
In addition, Next Day Apparel, Inc., which the Company sold on
September 30, 1995, borrowed $3,500,000 in notes payable from a financial
institution to fund working capital requirements prior to its sale.
Starting with the thirteen week period ended April 2, 1994,
the Company has ceased accruing interest on pre-petition debt in default as a
result of the chapter 11 filings. All or a significant portion of such interest
may not be payable or paid as a consequence of the Bankruptcy Code, which
excuses such an obligation under certain circumstances.
5. COMMITMENTS AND CONTINGENCIES:
As discussed in Note 2, on April 5, 1993 and November 15,
1995, the Company and several of its subsidiaries filed voluntary petitions in
the Bankruptcy Court under chapter 11 of the Bankruptcy Code. All civil
litigation commenced against the Company and those referenced subsidiaries prior
to that date has been stayed under the Bankruptcy Code.
-9-
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
In addition to, and concurrently with, the proceedings in the
Bankruptcy Court, the Company is involved in the following legal proceedings of
significance:
In November 1992, a class action entitled "Stephen Warshaw and
Phillis Warshaw v. The Leslie Fay Companies, Inc. et al." was instituted in the
United States District Court for the Southern District of New York. In January
1993 and February 1993, the plaintiffs served amended complaints and thereafter
twelve other similar actions were commenced against the Company, certain of its
officers and directors and its then auditors, BDO Seidman. The complaints in
these cases, which purport to be on behalf of all persons who purchased or
acquired stock of the Company during the period from February 4, 1992 to and
including February 1, 1993, allege that the defendants knew or should have known
material facts relating to the sales and earnings of the Company which they
failed to disclose and that if these facts had been disclosed, they would have
affected the price at which the Company's common stock was traded. A pre-trial
order has been entered which has the effect of consolidating all of these
actions and, in accordance therewith, the plaintiffs have served the defendants
with a consolidated class action complaint which, because of the chapter 11
filing by the Company, does not name the Company as a defendant. In March 1994,
plaintiffs filed a consolidated and amended class action complaint. This
complaint added certain additional parties as defendants, including Odyssey
Partners, L.P. ("Odyssey"), and expanded the purported class period from March
28, 1991 to and including April 5, 1993. In March 1995, BDO Seidman filed an
answer and cross-claims against certain of the officers and directors of the
Company previously named in this action and filed third-party complaints against
Odyssey, certain current and former division heads of the Company and certain
additional current and former directors of the Company. These cross-claims and
third-party complaints allege that the Company's senior management and certain
of its directors engaged in fraudulent conduct and negligent misrepresentation.
BDO Seidman seeks contribution from certain of the defendants and each of the
third-party defendants if it is found liable in the class action, as well as
damages. Defendants' and third party defendants' have filed answers to BDO
Seidman's claims and discovery is ongoing.
In April 1995, an action was commenced by the Official
Committee of Equity Security Holders of Leslie Fay (the "Equity Committee"),
derivatively, in the name and on behalf of the Debtors, against BDO Seidman and
certain of its partners in the United States District Court for the Southern
District of New York alleging that BDO Seidman and such partners recklessly and
negligently breached their duties to the Debtors in connection with failing to
analyze internal controls, auditing their financial statements and providing
unqualified certifications of the financial statements. The damages sought were
unspecified. Since then, the Equity Committee has been dissolved and its counsel
was permitted to resign as counsel for the plaintiffs in this case. In September
1996, a motion by BDO Seidman to dismiss this case for lack of prosecution, with
prejudice, was granted by the District Court.
- 10 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
In February 1993, the SEC obtained an order directing a
private investigation of the Company in connection with, among other things, the
filing by the Company of annual and other reports that may have contained
misstatements and the purported failure of the Company to maintain books and
records that accurately reflected its financial condition and operating results.
The Company is cooperating in this investigation.
In February 1993, the United States Attorney for the Middle
District of Pennsylvania issued a Grand Jury Subpoena seeking the production of
documents as a result of the Company's announcement of accounting
irregularities. The Company is cooperating in this investigation.
In March 1993, a stockholder derivative action entitled
"Isidore Langer, derivatively on behalf of The Leslie Fay Companies, Inc. v.
John J. Pomerantz et al." was instituted in the Supreme Court of the State of
New York, County of New York, against certain officers and directors of the
Company and its then auditors. This complaint alleges that the defendants knew
or should have known material facts relating to the sales and earnings of the
Company which they failed to disclose. The time to answer, move or otherwise
respond to the complaint has not yet expired. The plaintiff seeks an unspecified
amount of monetary damages, together with interest thereon, and costs and
expenses incurred in the action, including reasonable attorneys' and experts'
fees. The Company cannot presently determine the ultimate outcome of this
litigation or its impact on the financial statements.
The Company is obligated to contribute to the ILGWU National
Retirement Fund (the "Fund"), a multi-employer pension fund, pursuant to its
collective bargaining agreement with the Union of Needletrades, Industrial and
Textile Employees ("UNITE"), formerly the International Ladies' Garment Workers'
Union (the 'ILGWU"). The Fund has filed a proof of claim with the Bankruptcy
Court for the Company's estimated withdrawal liability representing its
allocable share of unfunded vested benefits under the Multi-Employer Pension
Plan Amendments Act ("MPPA") of the Employee Retirement Income Security Act. The
Fund's most recent estimate of the Company's withdrawal liability through plan
year 1995 is approximately $14,876,000. The amount of unfunded vested benefits
allocable to the Company is subject to change on an annual basis and any
increase or decrease at the end of the plan year 1996 cannot be determined at
this time. The Company will rely on provisions of MPPA to limit withdrawal
liability of its allocable share of the unfunded vested benefits. The Company
has established a reserve for a withdrawal liability in the amount of $8,500,000
(included in Liabilities subject to compromise).
On February 23, 1996, Albert Nipon and American Pop Marketing
Group, Inc. commenced an action against the Company seeking, among other things,
a declaratory judgment with respect to the use of the Company's "Albert Nipon"
trademark and tradename. The Company has filed a response to this action and
intends to vigorously defend its trademark rights with respect to "Albert Nipon.
Discovery is ongoing.
- 11 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
----------------------------------------------
(A) RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED SEPTEMBER 28, 1996 AS COMPARED TO
THIRTEEN WEEKS ENDED SEPTEMBER 30, 1995
The Company recorded net sales of $134,907,000 for the third
quarter of 1996, compared with $139,616,000 for the third quarter of 1995, a net
decrease of $4,709,000, or 3.4%. Contributing to this decrease were the
Company's decisions in the second half of 1995 to close its Leslie Fay Retail
Store division, discontinue certain other labels and redirect the Company's
selling efforts away from unprofitable customers. The aggregate impact of the
above closings and divestitures accounted for a decline in net sales of
approximately $9,894,000. The Company also opened 23 retail stores in 1995 and
11 stores in 1996 under the Kasper for ASL name and organized a separate entity
to market Kasper suits in Europe in 1995. These Kasper retail stores accounted
for $3,793,000 of additional net sales in 1996. On a comparable basis, after
excluding the effect of the above mentioned closings and new businesses, the
remaining businesses had a net sales increase of $1,392,000, or 1.1%, in the
third quarter of 1996 as compared to the third quarter of 1995. This increase is
the result of growth in new product lines in the Company's Sassco Fashions
division offset by a decline in the Company's Dress and Sportswear divisions
reflecting the strategies which were begun in 1995 to reduce the Company's
off-price and close-out businesses and focus on improving gross margins to or
offset the lost sales volume.
Gross profit for the third quarter of 1996 was 24.8% of net
sales compared with 25.7% in the third quarter of 1995 (a decrease of
$2,316,000). Discontinued divisions accounted for a decrease of $2,659,000 in
gross profit, while the new Kasper retail stores and the Kasper operation in
Europe accounted for $1,399,000 of increased gross profit. The remaining decline
was primarily due to increased markdowns in the Sassco Fashions division to sell
overstocked inventory. These markdowns were partially offset by the Company's
decisions to change its business strategy for its Dress and Sportswear divisions
to focus on higher margin business, close its domestic production facility,
control production levels and discontinue low margin labels. In addition, the
Company lowered its production costs by shifting its manufacturing to third
party contractors, both domestic and overseas, following the closure of the
Company's owned manufacturing facility in August 1995. This facility had
significantly higher labor costs than the costs of outside contractors. Improved
control of production levels also reduced the markdowns related to close-out
merchandise. These factors accounted for a net decrease of $1,056,000 in gross
profit.
- 12 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
Selling, warehouse, general and administrative expenses for the third
quarter of 1996 decreased to 16.0% of net sales compared with 17.7% for the
third quarter of 1995. In response to the substantial reduction in net sales,
the Company undertook an overhead reduction program which substantially reduced
payroll, rent and occupancy expenses in the third quarter of 1996 compared with
the similar period in 1995.
Amortization of intangibles consists primarily of the
amortization of the excess purchase price over net assets acquired and relates
principally to the leveraged buyout of The Leslie Fay Company on June 28, 1984.
The monthly amortization expense in the third quarter of 1996 was reduced as a
result of a $3,181,000 write-down during the fourth quarter of 1995 associated
with the Company's Hue trademark.
Interest and financing costs increased to $1,305,000 for the
third quarter of 1996 compared to $720,000 for the third quarter of 1995. The
increase is a result of 1) increased direct borrowings under the FNBB Credit
Agreement in 1996 for 58 days in the thirteen weeks ended September 28, 1996,
with a maximum borrowing of $28,672,000 to support higher inventory and accounts
receivable balances versus direct borrowings under the DIP Credit Agreement for
a total of ten days during the thirteen weeks ended September 30, 1995, with a
maximum borrowing of $3,956,000; and 2) the fee for financing the accounts
receivable of the Company's Sassco Fashions division, under an agreement begun
in February 1996, which accounted for $394,000 in the third quarter.
While operating as a debtor in possession, the Company
recognized reorganization costs of approximately $1,881,000 and $10,674,000
during the third quarters of 1996 and 1995, respectively, which are comprised of
professional fees and other costs of $1,387,000 and $1,502,000 and division and
facility closing costs of $540,000 and $10,473,000, offset by interest income of
$46,000 and $1,301,000. The decrease in professional fees was related to
discontinuing the use of certain consultants as the Company began executing its
restructuring plan. The decrease in division and facility closing costs related
primarily to costs to close unprofitable divisions and a foreign buying office
in the third quarter of 1995, compared to an accrual of $903,000 in 1996 for
losses to sell aged inventory at a division the Company is marketing to
potential buyers.
The provision for state and foreign income taxes is $398,000
and $(1,430,000) for the third quarter of 1996 and 1995, respectively. In the
third quarter of 1995, the Company recognized an income tax credit of $1,811,000
representing a reduction in estimated foreign tax liabilities as a result of
negotiated settlements of prior year's taxes. There is no federal income tax
provision currently recognizable due to existing net operating loss
carryforwards and no federal income tax benefit currently recognizable.
- 13 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1996 AS COMPARED TO
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 1995
The Company recorded net sales of $339,050,000 for the
thirty-nine weeks ended September 28, 1996, compared with $364,216,000 for the
thirty-nine weeks ended September 30, 1995, a net decrease of $25,166,000, or
6.9%. Contributing to this decrease were the Company's decisions in the second
half of 1995 to close its Leslie Fay Retail Store division, discontinue certain
labels and redirect the Company's selling efforts away from unprofitable
customers. The aggregate impact of the above closings and divestitures accounted
for a decline in net sales of approximately $38,060,000. The Company also opened
23 retail stores in 1995 and 11 stores in 1996 under the Kasper for ASL name and
organized a separate entity to market Kasper suits in Europe in 1995. These
entities accounted for $12,039,000 of additional net sales in 1996. On a
comparable basis, after excluding the effect of the above mentioned closings and
new businesses, the remaining businesses had a net sales increase of $855,000,
or 0.3% for the thirty-nine weeks ended September 28, 1996 as compared to the
thirty-nine weeks ended September 30, 1995. This increase reflects the growth of
new product lines in the Company's Sassco Fashions division and is offset by the
Company's strategies, which were begun in 1995 and focused on the Company's
Dress and Sportswear divisions, to reduce the Company's off-price and close-out
businesses and improve gross margins to offset the lost sales volume.
Gross profit for the thirty-nine weeks ended September 28,
1996 was 24.4% of net sales compared with 22.3% in the thirty-nine weeks ended
September 30, 1995 (an increase of $1,487,000). Discontinued divisions accounted
for an $8,910,000 decrease in gross profit, while the new Kasper retail stores
and the Kasper operation in Europe accounted for $4,727,000 of increased gross
profit. The remaining increase in gross profit resulted from the Company's
decision to change its business strategy for its Dress and Sportswear divisions
to focus on higher margin business, close its domestic production facility,
focus on controlling production levels and discontinue low margin labels. In
addition, the Company lowered its production costs by shifting its manufacturing
to third party contractors, both domestic and overseas, following the closure of
the Company's owned manufacturing facility in August 1995. This facility had
significantly higher labor costs than the costs of outside contractors. Improved
control of production levels also reduced the markdowns related to close-out
merchandise. These factors accounted for an increase of $5,670,000 in gross
profit
Selling, warehouse, general and administrative expenses for
thirty-nine weeks ended September 28, 1996 decreased to 18.2% of net sales
compared with 20.7% for the thirty-nine weeks ended September 30, 1995. In
response to the substantial reduction in net sales, the Company undertook an
overhead reduction program which substantially reduced payroll, rent and
occupancy expenses in the thirty-nine weeks ended September 28, 1996, compared
with the similar period in 1995.
- 14 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
Amortization of intangibles consists primarily of the
amortization of the excess purchase price over net assets acquired and relates
principally to the leveraged buyout of The Leslie Fay Company on June 28, 1984.
The monthly amortization expense in the thirty-nine weeks ended September 28,
1996 was reduced as a result of a $3,181,000 write-down during the fourth
quarter of 1995 associated with the Company's Hue trademark. The monthly
amortization expense in the first quarter of 1995 was reduced to properly adjust
accumulated amortization through 1994. The net effect of these changes increased
amortization expense for the thirty-nine weeks ended September 28, 1996.
Interest and financing costs decreased to $2,837,000 for the
thirty-nine weeks ended September 28, 1996, compared to $2,574,000 for the
thirty-nine weeks ended September 30, 1995. The increase is due to 1) a fee of
$895,000 for financing the accounts receivable of the Company's Sassco Fashions
division under an agreement begun in February 1996; and 2) higher interest costs
incurred on the direct borrowings under the FNBB Credit Agreement in 1996 for 65
days to support higher inventory and accounts receivable balances in the
thirty-nine weeks ended September 28, 1996, with a maximum borrowing of
$28,672,000 versus direct borrowings under the DIP Credit Agreement for a total
of ten days during the thirty-nine weeks ended September 30, 1995, with a
maximum borrowing of $3,956,000. Offsetting these increases were reduced
financing fees related to the FNBB Credit Agreement.
While operating as a debtor in possession, the Company
recognized reorganization costs of approximately $2,161,000 and $17,857,000
during the thirty-nine weeks ended September 28, 1996 and September 30, 1995,
respectively, which are comprised of professional fees and other costs of
$3,085,000 and $7,958,000 and division and facility closing costs of $740,000
and 11,926,000, offset by interest income of $379,000 and $2,027,000 and the
reversal of severance and retention costs recorded in prior years of $1,285,000
in 1996. The decrease in professional fees was related to discontinuing the use
of certain consultants as the Company began executing its restructuring plan.
The decrease in division and facility closing costs related primarily to costs
to close unprofitable divisions and a foreign buying office in 1995, compared to
$903,000 accrued in 1996 for losses to sell aged inventory at a division the
Company is marketing to potential buyers.
The provision for state and foreign income taxes is $1,036,000
and $(888,000) for the thirty-nine weeks ended September 28, 1996 and September
30, 1995, respectively. In the third quarter of 1995, the Company recognized an
income tax credit of $1,811,000 representing a reduction in estimated foreign
tax liabilities as a result of negotiated settlements on prior year's taxes.
There is no federal income tax provision currently recognizable due to existing
net operating loss carryforwards and no federal income tax benefit currently
recognizable.
- 15 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
(B) LIQUIDITY AND CAPITAL RESOURCES
At September 28, 1996, there were $14,445,000 cash borrowings
outstanding under the FNBB Credit Agreement, and cash and cash equivalents
amounted to $3,864,000. The Company's working capital increased $14,361,000, to
$152,923,000 at September 28, 1996 from 1995 year end. The primary changes in
the components of working capital were a reduction in cash and cash equivalents
of $28,460,000, an increase in accounts receivable of $58,608,000, an increase
in inventories of $2,040,000, a decrease in income taxes refundable of
$10,345,000, and a decline in accounts payable and accrued expenses of
$3,206,000. The decrease in cash and cash equivalents resulted primarily from
the financing of the higher accounts receivable. The increase in accounts
receivable is related to higher sales in the third quarter of 1996, as compared
to the fourth quarter of 1995 and the seasonal nature of cash collections. In
addition, inventory levels at Sassco Fashions did not decline substantially
during this period due to delayed sales, early receipt of finished goods
produced overseas to reduce the risk of missed shipping dates and higher piece
goods inventory for planned production for the Fall 1996 season which has been
delayed.
On May 2, 1995, the FNBB Credit Agreement for a new
$80,000,000 credit agreement with FNBB and BABC, as Facility Agents, and FNBB as
Administrative Agent was approved by the Bankruptcy Court. This facility
replaced the original DIP Credit Agreement and was subsequently extended twice
and currently matures on the earlier of (i) December 31, 1996, (ii) the date of
termination of the Commitments (as that term is defined in the FNBB Credit
Agreement) or (iii) the first date on which a reorganization plan for the
Company is substantially consummated.
The FNBB Credit Agreement provides for post-petition direct
borrowings and the issuance of letters of credit on the Debtors' behalf in an
aggregate amount not exceeding $80,000,000, subject to being permanently reduced
on a dollar-for-dollar basis for any net cash proceeds received from the sale of
assets after March 20, 1995 for which the proceeds in the aggregate exceed
$20,000,000 up to a maximum of $40,000,000 on a cumulative basis. On November
15, 1995, the Facility was amended to reduce the aggregate borrowing limit to
$60,000,000, and beginning January 1, 1996, a sublimit for borrowings under the
revolving line of credit was set at $15,000,000 and a sublimit for letters of
credit was set at $50,000,000. A subsequent amendment increased the aggregate
borrowing limit to $70,000,000 from August 30, 1996 to October 18, 1996, and
increased the sublimit under the revolving line of credit to $35,000,000 from
August 28, 1996 through September 21, 1996 and $30,000,000 from September 22,
1996 through October 19, 1996. No qualifying asset sales have been made which
would reduce the facility borrowing limits. The increased borrowing limits were
necessary to support the increased seasonal working capital requirements of the
business.
- 16 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
The Company is forecasting increased markdowns in the fourth
quarter of 1996 to sell overstocked inventory. These additional markdowns may
require the Company to request an amendment to its financial covenants related
to minimum earnings levels in the fourth quarter. The Company is negotiating
such an amendment to its financial covenants with its lenders. This amendment is
subject to Bankruptcy Court approval.
The filing under chapter 11 protects the Company from its
pre-petition creditors while a plan of reorganization is being negotiated. Until
a plan of reorganization under chapter 11 is confirmed by the Bankruptcy Court
and consummated, payments on pre-petition debt will not be made (except as
approved by the Bankruptcy Court) and all existing unexpired contracts and
leases will be reviewed to determine whether, subject to Bankruptcy Court
approval, they should be assumed or rejected.
Capital spending was $4,758,000 for the thirty-nine weeks
ended September 28, 1996 and is expected to be approximately $7,966,000 in 1996,
primarily for the transition costs related to the sale or spin off of the Sassco
Fashions division (including a move into a larger distribution center), the
consolidation of the Leslie Fay facilities, and improved management information
systems. The Company believes that its financing arrangements and anticipated
level of internally generated funds will be sufficient to finance its capital
spending during 1996. Other than capital spending, no other long-term
investments or financing activities are anticipated while the Company remains in
chapter 11.
A number of statements contained herein are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 that involve risks and uncertainties that could cause actual results to
differ materially from those expressed or implied in the applicable statements.
These risks and uncertainties include, but are not limited to, the uncertainty
of potential manufacturing difficulties, the dependence on key personnel, the
possible impact of competitive products and pricing, the Company's continued
ability to finance its operations, general economic conditions, pending legal
proceedings, the ability of the Company to propose a plan of reorganization that
will be satisfactory to creditors and confirmed by the Bankruptcy Court and the
achievement and maintenance of profitable operations and positive cash flow.
The Company's ability to continue as a going concern is
dependent upon the confirmation of a plan of reorganization by the Bankruptcy
Court, the ability to secure on-going debtor in possession financing and to
maintain compliance with all debt covenants under the financing, the achievement
of profitable operations and positive cash flow, the resolution of uncertainties
in the chapter 11 cases and legal proceedings as discussed in Notes 2 and 5,
respectively, of the Notes to Consolidated Financial Statements contained
herein, and Notes 2 and 8, respectively, of the Notes to Consolidated Financial
Statements contained in the 1995 Form 10-K, and the ability to obtain financing
for its operations that will enable it to emerge from chapter 11. Management
believes the continued availability of financing facilities, together with the
Company's available cash and expected cash flows from operations should enable
it to fund expected needs for working capital and capital spending for the
foreseeable future.
- 17 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- --------------------------
The Company has previously reported the proceedings under
chapter 11 of the Bankruptcy Code and other pending legal proceedings in the
1995 Form 10-K. (See Item 3. "Legal Proceedings" of the 1995 Form 10-K). For
information concerning such legal proceedings at the end of the third quarter of
1996, reference is made to Note 5 of the Notes to Consolidated Financial
Statements contained herein.
No legal proceedings were terminated during the third quarter
of 1996 other than ordinary routine litigation incidental to the business of the
Company and the dismissal of the action brought by the Official Committee of
Equity Security Holders of Leslie Fay, in the name and behalf of the Debtor,
against BDO Seidman. (See Note 5 of the Notes to the Consolidated Financial
Statements contained herein.)
ITEM 2. CHANGES IN SECURITIES.
- -------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- -----------------------------------------
As previously reported, the filing by the Company and certain
subsidiaries, on April 5, 1993, of a voluntary petition for protection under
chapter 11 of the Bankruptcy Code constituted a default under the terms of its
unsecured financing agreement with a group of banks and under its unsecured
Senior Notes and unsecured Senior Subordinated Notes. See Note 2 of the Notes to
Consolidated Financial Statements contained herein and Note 6 of the Notes to
Consolidated Financial Statements contained in the 1995 Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -------------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION.
- ---------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
Exhibits are set forth on the "Index to
Exhibits" on page 20 hereof.
b) Reports on Form 8-K
Since the end of the second quarter of fiscal
1996, the Company has not filed any Current
Reports on Form 8-K.
- 18 -
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 11, 1996 The Leslie Fay Companies, Inc.
------------------------------
(Company)
By: /s/ Warren T. Wishart
---------------------------------
Warren T. Wishart
Senior Vice President,
Chief Financial Officer and
Treasurer
-19-
<PAGE>
EXHIBIT E
TO DISCLOSURE STATEMENT
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
EXHIBIT E TO DISCLOSURE STATEMENT
Officers and Directors of Debtors as of November 15, 1996
1. THE LESLIE FAY COMPANIES, INC.
------------------------------
OFFICERS:
John J. Pomerantz Chairman of the Board, Chief Executive
Officer
John Ward Senior Vice President
Cate Bandel Senior Vice President
Warren Wishart Senior Vice President-Finance
Joan Ruby Vice President and General Counsel and
Secretary
Vernon K. Smith Vice President Taxes
Richard Wolf Controller
DIRECTORS:
Ralph Destino Peter May
John S. Dubel John J. Pomerantz
Steven M. Friedman Laura H. Pomerantz
Alan Golub Peter May
Herman Gordon Faye Wattleton
Ira J. Hechler
2. HUE, INC.
---------
OFFICERS:
John J. Pomerantz Chairman of the Board
Joan Ruby Assistant Secretary
Vernon K. Smith Vice President Taxes
Richard Wolf Controller
DIRECTORS:
John J. Pomerantz
<PAGE>
3. SPITALNICK CORP.
----------------
OFFICERS:
John J. Pomerantz Chairman of the Board
Joan Ruby Assistant Secretary
Vernon K. Smith Vice President Taxes
Richard Wolf Controller
DIRECTORS:
John J. Pomerantz
4. LESLIE FAY LICENSING CORP.
--------------------------
OFFICERS:
John J. Pomerantz Chairman of the Board
Joan Ruby Assistant Secretary
Vernon K. Smith Vice President Taxes
Richard Wolf Controller
DIRECTORS:
John J. Pomerantz
5. LESLIE FAY RETAIL OUTLETS, INC.
-------------------------------
OFFICERS:
John J. Pomerantz Chairman of the Board
Joan Ruby Assistant Secretary
Vernon K. Smith Vice President Taxes
DIRECTORS:
John J. Pomerantz
<PAGE>
6. LESLIE FAY FACTORY OUTLET (ALABAMA), INC.
-----------------------------------------
Officers:
John J. Pomerantz Chairman of the Board
Joan Ruby Assistant Secretary
Vernon K. Smith Vice President Taxes
DIRECTORS:
John J. Pomerantz
7. LESLIE FAY FACTORY OUTLET (CALIFORNIA), INC.
--------------------------------------------
OFFICERS:
John J. Pomerantz Chairman of the Board
Joan Ruby Assistant Secretary
Vernon K. Smith Vice President Taxes
DIRECTORS:
John J. Pomerantz
8. LESLIE FAY FACTORY OUTLET (IOWA), INC.
--------------------------------------
OFFICERS:
John J. Pomerantz Chairman of the Board
Joan Ruby Assistant Secretary
Vernon K. Smith Vice President Taxes
DIRECTORS:
John J. Pomerantz
<PAGE>
9. LESLIE FAY FACTORY OUTLET (TENNESSEE), INC.
-------------------------------------------
OFFICERS:
John J. Pomerantz Chairman of the Board
Joan Ruby Assistant Secretary
Vernon K. Smith Vice President Taxes
DIRECTORS:
John J. Pomerantz
<PAGE>
THE LESLIE FAY COMPANIES, INC. AND SUBSIDIARIES
(Debtor In Possession)
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
4.4 (l) Amendment No. 12 dated August 16, 1996 to the Post-Petition
Credit Agreement dated May 2, 1995 among The Leslie Fay
Companies, Inc., Leslie Fay Licensing Corp., Hue, Inc., and
Spitalnick Corp., as Guarantors, the Lenders named therein and
The First National Bank of Boston ("FNBB") and BankAmerica
Business Credit, Inc. ("BABC"), as Facility Agents, and FNBB
as Administrative Agent (the "FNBB Credit Agreement").
4.4 (m) Amendment No. 13 dated August 28, 1996 to the FNBB Credit
Agreement.
4.4 (n) Amendment No. 14 dated August 28, 1996 to the FNBB Credit
Agreement.
-20-
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------X
In re :
Chapter 11 Case No.
THE LESLIE FAY COMPANIES, : 93 B 41724 et seq. (TLB)
INC., et al., Jointly Administered
:
Debtors.
:
------------------------------X
SUPPLEMENTAL DISCLOSURE STATEMENT FOR SECOND AMENDED
AND RESTATED JOINT PLAN OF REORGANIZATION FOR DEBTORS
PURSUANT TO CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
PROPOSED BY DEBTORS AND CREDITORS' COMMITTEE
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors and Attorneys for the Official
Debtors in Possession Committee of Unsecured Creditors
767 Fifth Avenue of The Leslie Fay Companies, Inc.
New York, New York 10153 51 West 52nd Street
(212) 310-8000 New York, New York 10019
(212) 403-1000
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
A. INTRODUCTION
The Leslie Fay Companies, Inc., Hue, Inc., Spitalnick Corp.,
Leslie Fay Licensing Corp., Leslie Fay Retail Outlets, Inc., Leslie Fay
Factory Outlet (Alabama), Inc., Leslie Fay Factory Outlet (California),
Inc., Leslie Fay Factory Outlet (Iowa), Inc. and Leslie Fay Factory
Outlet (Tennessee), Inc. submit this Supplemental Disclosure Statement,
dated February 3, 1997, in connection with the solicitation of
acceptances for the Second Amended and Restated Joint Plan of
Reorganization for Debtors Pursuant to Chapter 11 of the United States
Bankruptcy Code, dated February 3, 1997 (the "Amended Plan"). A
Modification of Amended Joint Plan of Reorganization for Debtors
Pursuant to Chapter 11 of the United States Bankruptcy Code, dated
February 3, 1997 (the "Modification"), a copy of which is annexed
hereto as Exhibit "1", sets forth the modifications to the Amended
Joint Plan of Reorganization for Debtors Pursuant to Chapter 11 of the
United States Bankruptcy Code, dated December 5, 1996 (the "Plan"), a
copy of which is annexed as Exhibit "A" to the Disclosure Statement
that was mailed to all Creditors on or about December 13, 1996. Unless
otherwise defined herein, capitalized terms used herein shall have the
same meanings ascribed to them in the Amended Plan, the Modification or
the Disclosure Statement. By order, dated February 4, 1997 (the
"Supplemental Disclosure Order"), a copy of which is annexed hereto as
Exhibit "2", the Supplemental Disclosure Statement was approved by the
Bankruptcy Court in accordance with section 1125 of the Bankruptcy
Code.
This Supplemental Disclosure Statement is intended to (i)
advise all Creditors of the substance and purpose of the amendments to
the Plan and (ii) to inform all Creditors in Class 3 (Bank Claims),
Class 4 (Senior Note Claims), Class 5 (Senior Subordinated Note Claims)
and Class 6 (General Unsecured Claims) who voted either to accept or
reject the Plan of their opportunity to change such votes or, if such
Creditors did not previously vote on the Plan, to inform them of their
opportunity to vote to accept or reject the Amended Plan. THIS
SUPPLEMENTAL DISCLOSURE STATEMENT SHOULD BE READ IN ITS ENTIRETY AND IN
CONJUNCTION WITH THE MODIFICATION, THE PLAN AND THE DISCLOSURE
STATEMENT PREVIOUSLY MAILED TO YOU.
The statements contained in this Supplemental Disclosure
Statement are made as of the date hereof unless otherwise specified
herein, and the delivery of this Supplemental Disclosure Statement does
not imply that there has been no change in the information set forth
herein since such date. This Supplemental Disclosure Statement has been
prepared by the Debtors in consultation with the Creditors' Committee.
Except to the extent described herein, the information set forth in the
Disclosure Statement remains accurate as of the date of the Disclosure
Statement, including the financial projections, valuations and
liquidation analysis.(1) HOLDERS OF CLAIMS ENTITLED TO VOTE (CLASS 3
(BANK CLAIMS), CLASS 4 (SENIOR NOTE CLAIMS), CLASS 5 (SENIOR
SUBORDINATED NOTE CLAIMS) AND CLASS 6 (GENERAL UNSECURED CLAIMS))
SHOULD READ THIS SUPPLEMENTAL DISCLOSURE STATEMENT CAREFULLY, IN ITS
ENTIRETY AND, WHERE POSSIBLE, CONSULT WITH COUNSEL, PRIOR TO CHANGING
ANY VOTE PREVIOUSLY CAST IN RESPECT OF THE PLAN OR VOTING ON THE
AMENDED PLAN FOR THE FIRST TIME.
B. DESCRIPTION OF AMENDMENTS TO THE PLAN
Shortly after the Debtors and the Creditors' Committee
commenced solicitation of acceptances of the Plan, The First National
Bank of Boston ("FNBB"), New Sassco's proposed agent for the New Sassco
Credit Agreement, indicated that its proposed commitment to provide the
New Sassco Credit Agreement would be conditioned upon, among other
things, a requirement that New Sassco have greater liquidity than
contemplated by the projections included in the Disclosure Statement.
In the course of negotiating with FNBB and The CIT Group, Reorganized
Leslie Fay's post-Effective Date lender, the Debtors
-------------------
1. Please note, however, that on the Interest Costs (net) table for New
Sassco set forth on page 75 of the Disclosure Statement, "Senior
Subordinated" should read "Senior Notes." In addition, Section V.H.1.
and V.H.2. (page 52) should be clarified. Under the Reorganized Leslie
Fay Certificate of Incorporation, Reorganized Leslie Fay will be
authorized to issue in excess of Three Million Four Hundred Thousand
(3,400,000) shares of Reorganized Leslie Fay Common Stock. Likewise,
under the New Sassco Certificate of Incorporation, New Sassco will be
authorized to issue in excess of Six Million Eight Hundred Thousand
(6,800,000) shares of New Sassco Common Stock. Under the terms of the
Amended Plan, Three Million Four Hundred Thousand (3,400,000) shares of
Reorganized Leslie Fay Common Stock and Six Million Eight Hundred
Thousand (6,800,000) shares of New Sassco Common Stock will be issued
by Reorganized Leslie Fay and New Sassco, respectively, on and as of
the Effective Date.
1
<PAGE>
and the Creditors' Committee proposed to defer a portion of the
contribution of Eight Million Dollars ($8,000,000) in Cash on the
Effective Date to Reorganized Leslie Fay in order to provide New Sassco
with such additional liquidity required by FNBB. The Debtors and the
Creditors' Committee have determined to amend the plan as described
below while they complete the negotiations of the New Sassco Credit
Agreement.
o On the Effective Date, Reorganized Leslie Fay will sell the
Special Sassco Assets to New Sassco for Eight Million Dollars
($8,000,000), plus an additional sum of Cash equal to the Consummation
Cash Shortfall currently estimated at approximately Twenty-Five Million
Dollars ($25,000,000) as set forth in the Plan. Originally, these
amounts were to be funded by a combination of Cash on hand plus
borrowings by New Sassco. The Plan is being modified to provide that
Eight Million Dollars ($8,000,000) of this Cash will be replaced by New
Sassco's issuance of two unsecured, short-term promissory notes (the
"New Sassco Intercompany Notes"), one payable to the Plan Administrator
(solely as agent for the Deferred Professionals (as defined below)) and
one payable to Reorganized Leslie Fay, each in the amount of Four
Million Dollars ($4,000,000). As a consequence, Reorganized Leslie Fay
will transfer to Reorganized Leslie Fay Operating Company Four Million
Dollars ($4,000,000) in Cash (instead of Eight Million Dollars
($8,000,000) in Cash) and all of its right, title and interest in and
to the New Sassco Intercompany Note for Four Million Dollars
($4,000,000). See Modification at Paragraphs 1, 2, 10; Plan at Section
1.40, 3.2(a), 3.2(g); Disclosure Statement at V.G.1.
o With respect to the Administrative Expense Claims (the
"Professional Claims") held by professionals (the "Deferred
Professionals") retained by the Debtors, the Creditors' Committee and
the Equity Committee, the Debtors shall pay in Cash to the Deferred
Professionals (pro rata based upon their respective Allowed
Professional Claims) only the aggregate amount of unpaid Allowed
Professional Claims as of the later of the Effective Date or the date
on which such claims become Allowed Claims (estimated at $8.9 million),
minus Four Million Dollars ($4,000,000). The Four Million Dollars
($4,000,000) unpaid balance (the "Unpaid Balance") of the Allowed
Professional Claims shall be deferred and payable (pro rata based upon
the respective Allowed Professional Claims held by the Deferred
Professionals) by the Plan Administrator from proceeds of the New
Sassco Intercompany Note issued to the Plan Administrator for the
benefit of the Deferred Professionals. None of the Debtors, Reorganized
Leslie Fay, Reorganized Leslie Fay Operating Company, Reorganized
Leslie Fay Licensing Company or New Castleberry shall have any
liability whatsoever on account of the Unpaid Balance, including
without limitation, any liability for the failure by New Sassco to make
payment in full under the New Sassco Intercompany Note. See
Modification at Paragraphs 2, 11; Plan at Section 6.1; Disclosure
Statement at V.D.1.
o The interest and principal amounts of each of the New
Sassco Intercompany Notes, which will bear interest at the prevailing
market rate, shall be due and payable on April 30, 1997. The form of
the New Sassco Intercompany Notes will be set forth in the Plan
Supplement. See Modification at Paragraph 4.
o The New Sassco Credit Agreement will require that, during
certain months, New Sassco maintain a borrowing base of collateral in
excess of outstanding loans (including letters of credit) of either
Five Million Dollars ($5,000,000) or Ten Million Dollars ($10,000,000),
depending upon the month in which the measurement occurs.
o Interest shall be payable on the New Sassco
Notes in Cash semiannually in arrears, commencing with the
first such interest payment on September 30, 1997. See
Modification at Paragraph 6.
This Supplemental Disclosure Statement summarizes the terms
of the Amended Plan, which summary is qualified in its entirety by
reference to the full text of the Amended Plan, and if any
inconsistency exists between the terms and provisions of the Amended
Plan and this Supplemental Disclosure Statement, the terms and
provisions of the Amended Plan are controlling. If you wish a copy of
the Amended Plan, please call Mr. John Caliolo, c/o The Leslie Fay
Companies, Inc., at (212) 221-4276.
The Proponents believe that prompt confirmation and
implementation of the Amended Plan is in the best interests of the
Debtors, all Creditors and Equity Interest holders and the Debtors'
chapter 11 estates. Moreover, the Proponents believe that, upon
consummation of the Amended Plan, Reorganized Leslie Fay and New
Sassco, taken together, will be able to provide a substantial long-term
return on Creditors' Claims.
2
<PAGE>
C. RE-SOLICITATION OF VOTES
Accompanying this Supplemental Disclosure Statement is a
ballot for either (i) changing your vote(s) on the Plan or (ii) casting
your vote(s) on the Amended Plan if you did not previously vote on the
Plan and a pre-addressed envelope for the return of the ballot. AS
DISCUSSED FULLY IN THE DISCLOSURE STATEMENT, BALLOTS FOR ACCEPTANCE OR
REJECTION OF THE PLAN ARE BEING PROVIDED ONLY TO HOLDERS OF CLAIMS IN
CLASS 3 (BANK CLAIMS), CLASS 4 (SENIOR NOTE CLAIMS), CLASS 5 (SENIOR
SUBORDINATED NOTE CLAIMS) AND CLASS 6 (GENERAL UNSECURED CLAIMS),
BECAUSE THEY ARE THE ONLY HOLDERS OF CLAIMS THAT MAY VOTE TO ACCEPT OR
REJECT THE PLAN.
ONLY THOSE CREDITORS IN CLASS 3 (BANK CLAIMS), CLASS 4
(SENIOR NOTE CLAIMS), CLASS 5 (SENIOR SUBORDINATED NOTE CLAIMS) OR
CLASS 6 (GENERAL UNSECURED CLAIMS) WHO WISH TO CHANGE THEIR PRIOR VOTES
ON THE PLAN OR WHO WISH TO VOTE FOR THE FIRST TIME, NEED TO VOTE USING
THE ENCLOSED BALLOT. PURSUANT TO THE SUPPLEMENTAL DISCLOSURE ORDER, ALL
VOTES CAST TO EITHER ACCEPT OR REJECT THE ORIGINAL PLAN WILL BE DEEMED
TO BE VOTES CAST TO EITHER ACCEPT OR REJECT THE AMENDED PLAN, UNLESS A
NEW BALLOT CHANGING THE VOTE IS TIMELY RETURNED TO THE LESLIE FAY
COMPANIES, INC. IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH BELOW AND
ON THE BALLOTS. A TIMELY RECEIVED NEW BALLOT WILL SUPERSEDE ANY
PREVIOUSLY RECEIVED BALLOTS. After carefully reviewing this
Supplemental Disclosure Statement, if you decide to change your
previously cast vote in respect of the Plan or to vote for the first
time in respect of the Amended Plan, please indicate your vote and,
where relevant, your election of distribution, on the enclosed Ballot
and return it in the envelope provided. Voting procedures and
requirements are explained in greater detail on the Ballot and the
instructions of the reverse side of the Ballot. IF YOU DECIDE TO CHANGE
YOUR VOTE OR VOTE FOR THE FIRST TIME, PLEASE RETURN YOUR BALLOT TO:
BY MAIL: LESLIE FAY PLAN BALLOTS
POST OFFICE BOX 1436
NEW YORK, NEW YORK 10018-1436
ATTN: JOHN J. CALIOLO
BY HAND DELIVERY: LESLIE FAY PLAN BALLOTS
1412 BROADWAY, 2ND FLOOR
NEW YORK, NEW YORK 10018-5281
IN ORDER TO BE COUNTED, BALLOTS MUST BE RECEIVED BY 5:00 P.M. (EASTERN
STANDARD TIME) ON FEBRUARY 14, 1997. ANY EXECUTED BALLOTS WHICH ARE
TIMELY RECEIVED BUT WHICH DO NOT INDICATE EITHER AN ACCEPTANCE OR
REJECTION OF THE AMENDED PLAN SHALL BE DEEMED TO CONSTITUTE AN
ACCEPTANCE OF THE AMENDED PLAN. IF YOU MUST RETURN YOUR BALLOT TO YOUR
BANK OR BROKER, OR THE AGENT OF EITHER, YOU MUST RETURN YOUR BALLOT TO
THEM IN SUFFICIENT TIME FOR THEM TO PROCESS IT AND RETURN IT TO LESLIE
FAY PLAN BALLOTS BY THE VOTING DEADLINE. IF YOU ARE THE HOLDER OF A
CLAIM IN CLASS 3 (BANK CLAIMS), CLASS 4 (SENIOR NOTE CLAIMS), CLASS 5
(SENIOR SUBORDINATED NOTE CLAIMS) OR CLASS 6 (GENERAL UNSECURED CLAIMS)
AND HAVE ANY QUESTIONS CONCERNING VOTING PROCEDURES, OR DID NOT RECEIVE
A BALLOT, RECEIVED A DAMAGED OR ILLEGIBLE BALLOT, OR LOST YOUR BALLOT;
OR IF YOU ARE A PARTY IN INTEREST AND HAVE ANY QUESTIONS CONCERNING THE
SUPPLEMENTAL DISCLOSURE STATEMENT, THE AMENDED PLAN OR THE VOTING
PROCEDURES IN RESPECT THEREOF, PLEASE CONTACT MR. JOHN J. CALIOLO, C/O
THE LESLIE FAY COMPANIES, INC., AT (212) 221-4276.
Additional copies of this Supplemental Disclosure Statement
are available upon written request to:
Mr. John J. Caliolo
The Leslie Fay Companies, Inc.
1412 Broadway, 2nd Floor
New York, New York 10018-5281
3
<PAGE>
APPROVAL OF THIS SUPPLEMENTAL DISCLOSURE STATEMENT DOES NOT,
HOWEVER, CONSTITUTE A DETERMINATION BY THE BANKRUPTCY COURT AS TO THE
FAIRNESS OR MERITS OF THE PLAN. No solicitation of votes may be made
except pursuant to the Supplemental Disclosure Statement, the
Disclosure Statement and section 1125 of the Bankruptcy Code. In the
event any Creditor wishes to change its vote or vote for the first time
on the Amended Plan, such Creditor should not rely on any information
relating to the Debtors and their businesses, other than that contained
in this Supplemental Disclosure Statement, the Disclosure Statement,
the Amended Plan and all exhibits thereto, and the Modification.
D. CONFIRMATION HEARING
Section 1128(a) of the Bankruptcy Code requires the
Bankruptcy Court, after notice, to hold a hearing on confirmation of a
plan. By order of the Bankruptcy Court, the Confirmation Hearing has
been scheduled for February 19, 1997, at 2:00 p.m., Eastern Standard
Time, in Room 723 of the United States Bankruptcy Court, Alexander
Hamilton Custom House, One Bowling Green, New York, New York 10004. The
Confirmation Hearing may be adjourned from time to time by the
Bankruptcy Court without further notice except for an announcement made
at the Confirmation Hearing or any adjournment thereof.
Section 1128(b) of the Bankruptcy Code provides that any
party in interest may object to confirmation of a plan. Any objection
to confirmation of the Amended Plan must be in writing, conform to the
Federal Rules of Bankruptcy Procedure and the Local Rules of the
Bankruptcy Court, set forth the name of the objectant, the nature and
amount of Claims or Equity Interests held or asserted by the objectant
against each of the Debtors' estates or property, the basis for the
objection and the specific grounds therefor, and be filed with the
Bankruptcy Court, with two (2) copies delivered directly to chambers,
together with proof of service thereof, and served upon (i) Weil,
Gotshal & Manges LLP, Attorneys for the Debtors, 767 Fifth Avenue, New
York, New York 10153, Attention: Alan B. Miller, Esq.; (ii) Wachtell,
Lipton, Rosen & Katz, Attorneys for the Official Committee of Unsecured
Creditors, 51 West 52nd Street, New York, New York 10019, Attention:
Chaim J. Fortgang, Esq.; (iii) Bingham, Dana & Gould, Attorneys for the
Debtors' Post-Petition Date Lenders, 150 Federal Street, Boston,
Massachusetts 02110, Attention: Robert A.J. Barry, Jr., Esq.; and (iv)
The United States Trustee for the Southern District of New York, 80
Broad Street, New York, New York 10004, Attention: Diana Adams, Esq.,
so as to be received no later than 5:00 P.M., Eastern Standard Time, on
February 13, 1997. Any party who filed an objection to the Plan shall
not be required to file an objection to the Amended Plan if the grounds
for objection are the same.
Objections to confirmation of the Plan are governed by
Federal Rule of Bankruptcy Procedure 9014. UNLESS AN OBJECTION TO
CONFIRMATION IS TIMELY SERVED AND FILED, IT MAY NOT BE CONSIDERED BY
THE BANKRUPTCY COURT.
4
<PAGE>
CONCLUSION
The Debtors believe that the Amended Plan is in the best
interests of all Creditors and Equity Interest Holders and urge the
holders of impaired Claims in Classes 3, 4, 5 and 6, to the extent such
holders have not previously voted in support of the Plan, to vote to
accept the Amended Plan and to evidence such acceptance by returning
their ballots so that they will be actually received on or before 5:00
p.m., Eastern Standard Time, on February 14, 1997.
Dated: New York, New York
February 3, 1997
Respectfully submitted,
THE LESLIE FAY COMPANIES, INC.
By: /s/ John J. Pomerantz
--------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY LICENSING CORP.
By: /s/ John J. Pomerantz
--------------------------
Name: John J. Pomerantz
Title: Chairman
HUE, INC.
By: /s/ John J. Pomerantz
--------------------------
Name: John J. Pomerantz
Title: Chairman
SPITALNICK CORP.
By: /s/ John J. Pomerantz
--------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY RETAIL OUTLETS, INC.
By: /s/ John J. Pomerantz
--------------------------
Name: John J. Pomerantz
Title: Chairman
5
<PAGE>
LESLIE FAY FACTORY OUTLET
(ALABAMA), INC.
By: /s/ John J. Pomerantz
--------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(CALIFORNIA), INC.
By: /s/ John J. Pomerantz
--------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(IOWA), INC.
By: /s/ John J. Pomerantz
--------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(TENNESSEE), INC.
By: /s/ John J. Pomerantz
--------------------------
Name: John J. Pomerantz
Title: Chairman
/s/ Alan B. Miller /s/ Chaim J. Fortgang
--------------------------- -----------------------------------
ALAN B. MILLER (AM 2817) CHAIM J. FORTGANG (CF 0895)
A Member of the Firm A Member of the Firm
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors and Attorneys for the Official
Debtors in Possession Committee of Unsecured Creditors
767 Fifth Avenue of The Leslie Fay Companies, Inc.
New York, New York 10153 51 West 52nd Street
(212) 310-8000 New York, New York 10019
(212) 403-1000
6
<PAGE>
EXHIBIT 1
TO SUPPLEMENTAL DISCLOSURE STATEMENT
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------X
In re :
Chapter 11 Case No.
THE LESLIE FAY COMPANIES, INC., : 93 B 41724 et seq. (TLB)
et al., (Jointly Administered)
:
Debtors.
----------------------------------X
MODIFICATION OF AMENDED JOINT PLAN OF REORGANIZATION FOR
DEBTORS PURSUANT TO CHAPTER 11 OF THE UNITED STATES
BANKRUPTCY CODE PROPOSED BY DEBTORS AND CREDITORS' COMMITTEE
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors Attorneys for the Official
in Possession Committee of Unsecured Creditors
767 Fifth Avenue of The Leslie Fay Companies, Inc.
New York, New York 10153 51 West 52nd Street
(212) 310-8000 New York, New York 10019
(212) 403-1000
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
The Leslie Fay Companies, Inc., Hue, Inc., Spitalnick
Corp., Leslie Fay Licensing Corp., Leslie Fay Retail Outlets,
Inc., Leslie Fay Factory Outlet (Alabama), Inc., Leslie Fay
Factory Outlet (California), Inc., Leslie Fay Factory Outlet
(Iowa), Inc., Leslie Fay Factory Outlet (Tennessee), Inc. and
The Official Committee of Unsecured Creditors of The Leslie Fay
Companies, Inc. hereby modify and amend the Amended Joint Plan
of Reorganization for Debtors Pursuant to Chapter 11 of the
United States Bankruptcy Code Proposed by Debtors and
Creditors' Committee, dated December 5, 1996 (the "Plan"),(1) as
follows:
1. Section 1.40 of the Plan, entitled "Consummation
Cash Shortfall Amount", shall be amended (a) by deleting
"Twenty-Two Million Dollars ($22,000,000)" in the first and
second lines of the printed version of the Plan and
substituting in its entirety "Twenty-Five Million Dollars
($25,000,000)" and (b) in the seventh line of the printed
version of the Plan, by adding thereto after the words
"Effective Date", the following: "(subject to the second
proviso in Section 6.1 hereof)."
2. A new Section 1.47 entitled "Deferred
Professionals", shall be added to the Plan, which shall read as
follows:
"Deferred Professionals. As defined in Section 6.1
hereof."
3. Sections 1.47 through 1.94 of the Plan shall be
renumbered, consecutively, Sections 1.48 through 1.95 of the
Plan.
4. Section 1.83 of the Plan, entitled "New
Castleberry," shall be amended by adding thereto after the
words "Effective Date", the following:
", unless otherwise sold beforehand."
5. A new Section 1.96 entitled "New Sassco
Intercompany Note", shall be added to the Plan, which shall
read as follows:
"New Sassco Intercompany Note. Collectively, the
unsecured promissory note issued by New Sassco on the
Effective Date in favor of the Plan Administrator (solely
as agent for the Deferred Professionals), and the
unsecured promissory note issued by New Sassco on the
Effective Date in favor of Reorganized Leslie Fay, each in
the original principal amount of Four Million Dollars
($4,000,000), bearing interest at the prevailing market
rate, which interest and principal amounts shall be due
and payable on April 30, 1997. The New Sassco
Intercompany Note shall be substantially in the form set
forth in the Plan Supplement."
6. Sections 1.95 through 1.189 of the Plan shall be
renumbered, consecutively, Sections 1.97 through 1.191 of the
Plan.
7. Section 1.98 of the Plan, entitled "New Sassco
Notes", shall be amended by adding thereto, after the words
"Plan Supplement", the following:
"Interest shall be payable on such Notes semiannually in
arrears in Cash; provided, however, that the first such
interest payment shall be due and payable on September 30,
1997."
__________________
1. Unless otherwise defined herein, all capitalized terms used
herein shall have the same meanings ascribed to them in the
Plan.
1
<PAGE>
8. The first two lines of the printed version of
Section 1.108 of the Plan, entitled "Plan", shall be amended
and restated in its entirety to read as follows:
"This Second Amended and Restated Joint Plan of
Reorganization for Debtors Pursuant to Chapter 11 of the
United States Bankruptcy Code Proposed by Debtors and
Creditors' Committee, ***".
9. The seventh line of the printed version of
Section 1.112 of the Plan, entitled "Plan Supplement", shall be
amended by adding thereto, after the words "New Sassco
Indenture," the following:
",New Sassco Intercompany Note,"
10. Section 3.2(a) of the Plan, entitled "Effective
Date Transactions", should be amended and restated in its
entirety to read as follows:
"(a) Reorganized Leslie Fay will sell, without
recourse, the Special Sassco Assets to New Sassco (or a
Subsidiary thereof) for (i) an amount of Cash equal to the
sum of the Consummation Cash Shortfall Amount plus Four
Million Dollars ($4,000,000) and (ii) the issuance by New
Sassco to the Plan Administrator (solely as agent for the
Deferred Professionals) and Reorganized Leslie Fay of the
two New Sassco Intercompany Notes, each in the principal
amount of Four Million Dollars ($4,000,000);"
11. Section 3.2(g) of the Plan, entitled "Effective
Date Transactions", shall be amended by deleting "Eight Million
Dollars ($8,000,000)" in the fifth line of the printed version
of the Plan and substituting in its entirety "Four Million
Dollars ($4,000,000)" and by adding thereto after the words "in
Cash", the following:
", all of its right, title and interest in and to the New
Sassco Intercompany Note issued to it"
12. Section 6.1 of the Plan entitled "Administrative
Expense Claims", shall be amended by adding thereto, at the end
of the printed version of the Plan, after the words "relating
thereto", the following:
"; provided, further, that with respect to Administrative
Expense Claims (collectively, "Professional Claims") held
by professionals (the "Deferred Professionals") retained
by the Debtors, the Creditors' Committee and the Equity
Committee, (i) the Debtors shall pay in Cash to the
Deferred Professionals (pro rata based upon the respective
Allowed Professional Claims held by them) only the
aggregate amount of (a) unpaid Allowed Professional Claims
as of the later of the Effective Date or the date upon
which such Professional Claims become Allowed
Administrative Expense Claims minus (b) Four Million
Dollars ($4,000,000), (ii) the unpaid balance (the "Unpaid
Balance") of the Professional Claims shall be deferred by
the Deferred Professionals and payable (pro rata based
upon the respective Allowed Professional Claims held by
them) by the Plan Administrator from proceeds received on
or in respect of the New Sassco Intercompany Note issued
to it and (iii) none of the Debtors, Reorganized Leslie
Fay, Reorganized Leslie Fay Operating Company, Reorganized
Leslie Fay Licensing Company or New Castleberry shall have
any liability whatsoever on account of the Unpaid Balance,
including without limitation any liability based upon the
failure by New Sassco to make payment in full in respect
of the New Sassco Intercompany Note issued to the Plan
Administrator."
13. Section 36.1 entitled "Establishment of
Disbursement Account", shall be amended by deleting "Eight
Million Dollars ($8,000,000)" in the fifth and sixth lines of
the printed version of the Plan and substituting in its
entirety "Four Million Dollars ($4,000,000)"
2
<PAGE>
14. Except as expressly set forth herein, the
provisions of the Plan shall remain in full force and effect in
the form filed with the Court on December 6, 1996.
Dated: New York, New York
February 3, 1997
Respectfully submitted,
THE LESLIE FAY COMPANIES, INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY LICENSING CORP.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
HUE, INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
SPITALNICK CORP.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY RETAIL OUTLETS, INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
3
<PAGE>
LESLIE FAY FACTORY OUTLET
(ALABAMA), INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(CALIFORNIA), INC.
-----------------------------
By: /s/ John J. Pomerantz
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(IOWA), INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(TENNESSEE), INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
/s/ Alan B. Miller /s/ Chaim J. Fortgang
-------------------------- ------------------------------
ALAN B. MILLER (AM 2817) CHAIM J. FORTGANG (CF 0895)
A Member of the Firm A Member of the Firm
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors and Attorneys for the Official
Debtors in Possession Committee of Unsecured Creditors
767 Fifth Avenue of The Leslie Fay Companies, Inc.
New York, New York 10153 51 West 52nd Street
(212) 310-8000 New York, New York 10019
(212) 403-1000
4
<PAGE>
EXHIBIT 2
TO SUPPLEMENTAL DISCLOSURE STATEMENT
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------X
In re :
Chapter 11 Case No.
THE LESLIE FAY COMPANIES, : 93 B 41724 et seq. (TLB)
INC., et al., Jointly Administered
:
Debtors.
:
--------------------------------X
ORDER (A) APPROVING SUPPLEMENTAL DISCLOSURE STATEMENT, (B)
ESTABLISHING PROCEDURES FOR SOLICITATION AND TABULATION
OF VOTES TO ACCEPT OR REJECT SECOND AMENDED AND RESTATED
JOINT PLAN OF REORGANIZATION AND (C) APPROVING NOTICE AND
PUBLICATION PROCEDURES FOR CONFIRMATION OF THE PLAN OF
REORGANIZATION
Upon the motion, dated February 3, 1997 (the "Motion")1 of
The Leslie Fay Companies, Inc. ("Leslie Fay"), Spitalnick Corp., Hue,
Inc., Leslie Fay Licensing Corp., Leslie Fay Retail Outlets, Inc.,
Leslie Fay Factory Outlet (Alabama), Inc., Leslie Fay Factory Outlet
(California), Inc., Leslie Fay Factory Outlet (Iowa), Inc., and Leslie
Fay Factory Outlet (Tennessee), Inc., as debtors and debtors in
possession (collectively, the "Debtors"), for an order approving (A)
the adequacy of the information contained in that certain Supplemental
Disclosure Statement for Second Amended and Restated Joint Plan of
Reorganization for Debtors Pursuant to Chapter 11 of the United States
Bankruptcy Code, dated February 3, 1997 (the "Supplemental Disclosure
Statement"), a copy of which is annexed hereto as Exhibit "A"; (B)
establishing procedures for solicitation and tabulation of votes to
accept or reject the Amended Plan; and (C) approving notice and
publication procedures for confirmation of the Amended Plan; and the
Debtors and the Creditors' Committee having filed the Plan
Modification, dated February 3, 1997, a copy of which is annexed hereto
as Exhibit "B"; and it appearing that Creditors in Class 3 (Bank
Claims), Class 4 (Senior Note Claims), Class 5 (Senior Subordinated
Note claims) or Class 6 (General Unsecured Claims) who voted on the
Amended Plan should be given an opportunity to change such votes or, if
such Creditors did not previously vote on the Amended Plan, should be
given the opportunity to vote to accept or reject the Second Amended
Plan; and after due deliberation and sufficient cause appearing
therefor, it is
ORDERED that the Motion be, and it hereby is, granted
in all respects; and it is further
ORDERED that, in accordance with section 1125 of the
Bankruptcy Code and Bankruptcy Rule 3017(b), the Supplemental
Disclosure Statement (and all exhibits and schedules thereto), as the
same may be amended and modified from time to time to incorporate any
modifications that the Debtors and the Creditors' Committee determine
to be appropriate and which do not materially change the Supplemental
Disclosure Statement or materially affect any rights of a party in
interest, be, and it hereby is, approved as containing "adequate
information" within the meaning of section 1125(a) of the Bankruptcy
Code; and it is further
--------------
1. Unless otherwise defined herein, capitalized terms used herein shall
have the same meanings ascribed to them in the Motion.
<PAGE>
ORDERED that an adjourned hearing to consider confirmation of
the Second Amended Plan (the "Confirmation Hearing") shall be held
before the Honorable Tina L. Brozman, United States Bankruptcy Judge,
in Room 723 of the United States Bankruptcy Court, Alexander Hamilton
Custom House, One Bowling Green, New York, New York on February 19,
1997, at 2:00 p.m., or as soon thereafter as counsel may be heard; and
it is further
ORDERED that the Confirmation Hearing may be adjourned from
time to time by the Court without prior notice to holders of claims,
holders of equity interests or parties in interest other than the
announcement of the adjourned hearing date at the Confirmation Hearing;
and it is further
ORDERED that the forms of ballot for re-solicitation of
acceptance or rejection the Second Amended Plan (collectively, the "New
Ballots," and individually, a "New Ballot") and balloting instructions,
substantially in the form annexed hereto as Exhibit "C", be, and each
of them hereby is, approved in all respects pursuant to Bankruptcy Rule
3018(c) as conforming with Official Form No. 14; and it is further
ORDERED that, pursuant to section 1127(d) of the Bankruptcy
Code, all votes cast to either accept or reject the Amended Plan will
be deemed to be votes cast to either accept or reject the Second
Amended Plan, including an election by holders of Class 6 (General
Unsecured Claims) to be treated as holders of Class 7 (Convenience
Claims) unless a New Ballot changing the vote with respect to the
Amended Plan is timely returned to the Balloting Agent; and it further
ORDERED that, in order to be counted as a vote to accept or
reject the Second Amended Plan, a New Ballot must be properly executed,
completed and delivered to the Balloting Agent by (i) mail at Leslie
Fay Plan Ballots, P.O. Box 1436, New York, New York 10018-1436, Attn:
John J. Caliolo, or (ii) overnight courier or personal delivery at
Leslie Fay Plan Ballots, 1412 Broadway, New York, New York 10018-5281,
Attn: John J. Caliolo, so that it is actually received by the Balloting
Agent no later than 5:00 p.m., Eastern Standard Time, on February 14,
1997 (the "Voting Deadline"); and it is further
ORDERED that (i) any executed New Ballot which does not
indicate an acceptance or rejection of the Second Amended Plan shall be
counted as an acceptance of the Second Amended Plan, (ii)
notwithstanding the provisions of Bankruptcy Rule 3018(a), in the event
that a holder of a Claim casts more than one New Ballot prior to the
Voting Deadline with respect to a single Claim, the last New Ballot
received by the Balloting Agent prior to the Voting Deadline shall
supersede any prior New Ballots, (iii) any New Ballot that partially
rejects and partially accepts the Second Amended Plan will not be
counted, and (iv) any vote indicated on a New Ballot on which the
convenience claim election is made will not be counted for purposes of
accepting or rejecting the Second Amended Plan; and it is further
ORDERED that objections, if any, to confirmation of the
Second Amended Plan must be in writing, state the name and address of
the objecting party and the nature of the claim or interest of such
party, state with particularity the basis and nature of each objection
or proposed modification to the Second Amended Plan and be filed,
together with proof of service, with the Court (with two (2) copies
delivered to Chambers) and served upon (a) Weil, Gotshal & Manges LLP,
Attorneys for the Debtors, 767 Fifth Avenue, New York, New York 10153,
Attn: Alan B. Miller, Esq., (b) Wachtell, Lipton, Rosen & Katz,
Attorneys for Creditors' Committee, 51 West 52nd Street, New York, New
York 10019, Attn: Chaim J. Fortgang, Esq., (c) Bingham, Dana & Gould,
Attorneys for the DIP Lenders, 150 Federal Street, Boston,
Massachusetts 02110-1726, Attn: Robert A.J. Barry, Jr., Esq. and (d)
the Office of the United States Trustee, 80 Broad Street, 3rd Floor,
New York, New York 10004, Attn: Diana Adams, Esq., so as to be received
no later than 5:00 p.m., Eastern Standard Time, on February 13, 1997
(the "Objection Deadline"); and it is further
ORDERED that any objections, responses or comments to
confirmation of the Second Amended Plan that are not timely filed and
served as set forth in the foregoing decretal paragraph shall be deemed
waived; and it is further
ORDERED that the Debtors be, and they hereby are, authorized
to mail, or cause to be mailed, by first-class mail, no later than
February 5, 1997, the Supplemental Disclosure Statement, together with
all exhibits thereto,
2
<PAGE>
including the Plan Modification, which have been filed with the Court
prior to the date of the mailing of same, to the following persons or
entities, unless such person or entity shall receive a Re-Solicitation
Package (as defined below), as hereinafter defined, pursuant to this
Order: (i) all persons or entities that have filed proofs of claim on
or before the Record Date, other than any person or entity that has
filed with the Court a notice (or notices) of transfer of claim under
Bankruptcy Rule 3001(e) on or before the Record Date reflecting the
transfer of all of such holder's Claims; (ii) all persons or entities
listed in the Schedules as Creditors and all amendments thereto through
the Record Date, other than any person or entity that has filed with
the Court a notice (or notices) of transfer of claim under Bankruptcy
Rule 3001(e) on or before the Record Date reflecting the transfer of
all of such holder's Claims; (iii) all other known holders of Claims
against the Debtors, if any, as of the Record Date; (iv) all persons or
entities that have acquired a Claim pursuant to a notice of the
transfer of a claim under Bankruptcy Rule 3001(e) filed with the Court
on or before the Record Date; (v) all parties in interest that have
filed a notice pursuant to Bankruptcy Rule 2002 in the Debtors' chapter
11 cases on or before the Record Date; (vi) the Office of the United
States Trustee; (vii) the Securities and Exchange Commission; (viii)
the District Director of the Internal Revenue Service for the Southern
District of New York; and (ix) any other party as may be entitled to
notice in accordance with Bankruptcy Rule 2002; and it is further
ORDERED that the Debtors be, and they hereby are, not
required to mail the Supplemental Disclosure Statement to any known
Equity Interest holders of the Debtors as of the Record Date; and it is
further
ORDERED that the Debtors be, and they hereby are, authorized
to mail, or cause to be mailed, by first-class mail, no later than
February 5, 1997, to the holders of record on the Record Date of all
Claims that are entitled to vote to accept or reject the Second Amended
Plan, (a) the Supplemental Disclosure Statement and all exhibits and
attachments thereto, including, without limitation, the Plan
Modification and (b) an appropriate form of New Ballot and a New Ballot
return envelope (collectively, the "Re-Solicitation Package");
provided, however, that Re-Solicitation Packages for (i) holders of
Claims against, or interests in, any Debtor placed within a class under
the Second Amended Plan that is deemed to accept or reject the Plan
under sections 1126(f) or 1126(g) of the Bankruptcy Code, and (ii)
holders of Claims that have been objected to by the Debtors, shall not
include a New Ballot and a New Ballot return envelope; and it is
further
ORDERED that the Debtors be, and they hereby are, directed to
cause a notice substantially in the form annexed hereto as Exhibit "D",
as amended, to be published no less than eight (8) days prior to the
date of the Confirmation Hearing in Women's Wear Daily and The Wall
Street Journal (National Edition); and it is further
ORDERED that the provision for notice in accordance with the
procedures set forth in this Order shall be deemed good and sufficient
notice of the Confirmation Hearing, the time fixed for filing
objections to the Second Amended Plan and the time within which holders
of Claims may vote to accept or reject the Second Amended Plan and
elect alternative distributions with respect thereto; and it is further
ORDERED that the Debtors are not required to mail Re-
Solicitation Packages to any individual or entity at an address from
which the Solicitation Package was returned by the United States Postal
Service as undeliverable, unless the Debtors were provided with an
accurate address by such individual or entity prior to January 31,
1997; and it is further
ORDERED that the Debtors be, and they hereby are, authorized
and empowered to take such steps and perform such acts as may be
necessary to implement and effectuate this Order; and it is further
ORDERED that the foregoing constitutes the findings of fact
and conclusions of law of the Court pursuant to Federal Rule of Civil
Procedure 52, as made applicable herein by Bankruptcy Rule 7052; and it
further
3
<PAGE>
ORDERED that the requirement of Local Bankruptcy Rule
9013-1(b) requiring the filing of a memorandum of law in support of the
Motion is hereby waived.
Dated: New York, New York
February 4, 1997
/s/ Tina L. Brozman
------------------------------
United States Bankruptcy Judge
CONSENTED TO:
/s/ Chaim J. Fortgang
---------------------------
CHAIM J. FORTGANG (CF 0895)
A Member of the Firm
WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for the Official
Committee of Unsecured Creditors
of The Leslie Fay Companies, Inc.
51 West 52nd Street
New York, New York 10019
(212) 403-1000
Exhibits To Order Approving Disclosure Statement
and Establishing Procedures for Solicitation
and Tabulation of Votes:
Exhibit A Supplemental Disclosure Statement [Intentionally
Omitted]
Exhibit B Plan Modification [Intentionally Omitted]
Exhibit C Proposed Form of New Ballots [Intentionally
Omitted]
Exhibit D Notice of Hearing to Consider Confirmation of
Second Amended and Restated Plan of
Reorganization and Solicitation of Votes to
Accept or Reject Plan of Reorganization and Elect
Distributions with Respect Thereto [Intentionally
Omitted]
4
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------X
In re :
Chapter 11 Case No.
THE LESLIE FAY COMPANIES, : 93 B 41724 et seq. (TLB)
INC., et al., Jointly Administered
:
Debtors.
:
-----------------------------------X
SECOND SUPPLEMENTAL DISCLOSURE STATEMENT FOR
THIRD AMENDED AND RESTATED JOINT PLAN OF
REORGANIZATION FOR DEBTORS PURSUANT TO
CHAPTER 11 OF THE UNITED STATES BANKRUPTCY
CODE PROPOSED BY DEBTORS AND CREDITORS' COMMITTEE
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors and Attorneys for the Official
Debtors in Possession Committee of Unsecured Creditors
767 Fifth Avenue of The Leslie Fay Companies, Inc.
New York, New York 10153 51 West 52nd Street
(212) 310-8000 New York, New York 10019
(212) 403-1000
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
A. INTRODUCTION
The Leslie Fay Companies, Inc., Hue, Inc., Spitalnick Corp.,
Leslie Fay Licensing Corp., Leslie Fay Retail Outlets, Inc., Leslie Fay
Factory Outlet (Alabama), Inc., Leslie Fay Factory Outlet (California),
Inc., Leslie Fay Factory Outlet (Iowa), Inc. and Leslie Fay Factory
Outlet (Tennessee), Inc. submit this Second Supplemental Disclosure
Statement, dated February 28, 1997, in connection with the solicitation
of acceptances for the Third Amended and Restated Joint Plan of
Reorganization for Debtors Pursuant to Chapter 11 of the United States
Bankruptcy Code, dated February 28, 1997 (the "Third Amended Plan"). A
Modification of Second Amended Joint Plan of Reorganization for Debtors
Pursuant to Chapter 11 of the United States Bankruptcy Code, dated
February 28, 1997 (the "Second Modification"), a copy of which is
annexed hereto as Exhibit "1", sets forth the modifications to the
Second Amended and Restated Joint Plan of Reorganization for Debtors
Pursuant to Chapter 11 of the United States Bankruptcy Code, dated
February 3, 1997 (the "Second Amended Plan"). The Debtors have
previously filed and mailed to all Creditors (i) the Disclosure
Statement, dated December 5, 1996, in connection with the Amended Joint
Plan of Reorganization for the Debtors Pursuant to Chapter 11 of the
United States Bankruptcy Code, dated December 5, 1996 (the "First
Amended Plan") and (ii) the Supplemental Disclosure Statement, dated
February 3, 1997 (the "First Supplemental Disclosure Statement"), in
connection with the Second Amended and Restated Joint Plan of
Reorganization for Debtors Pursuant to Chapter 11 of the United Stated
Bankruptcy Code, dated February 3, 1997 (the "Second Amended Plan"). As
Exhibit 1 to the First Supplemental Disclosure Statement, the Debtors
prepared a Modification of Amended Joint Plan of Reorganization for
Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code,
dated February 3, 1997 (the "First Modification"), which set forth
modifications to the First Amended Plan. Unless otherwise defined
herein, capitalized terms used herein shall have the same meanings
ascribed to them in the Second Amended Plan, as modified by the Second
Modification, the First Supplemental Disclosure Statement and the
Disclosure Statement. By order, dated March 3, 1997 (the "Second
Supplemental Disclosure Order"), a copy of which is annexed hereto as
Exhibit "2", the Second Supplemental Disclosure Statement was approved
by the Bankruptcy Court in accordance with section 1125 of the
Bankruptcy Code.
This Second Supplemental Disclosure Statement is intended to
(i) advise all Creditors of the substance and purpose of the amendments
to the Second Amended Plan and (ii) to inform all Creditors in Class 3
(Bank Claims), Class 4 (Senior Note Claims), Class 5 (Senior
Subordinated Note Claims) and Class 6 (General Unsecured Claims) who
voted either to accept or reject the First Amended Plan and/or the
Second Amended Plan of their opportunity to change such votes or, if
such Creditors did not previously vote on the First Amended and/or the
Second Amended Plan, to inform them of their opportunity to vote to
accept or reject the Third Amended Plan. THIS SECOND SUPPLEMENTAL
DISCLOSURE STATEMENT SHOULD BE READ IN ITS ENTIRETY AND IN CONJUNCTION
WITH THE SECOND MODIFICATION, THE FIRST MODIFICATION, THE FIRST
SUPPLEMENTAL DISCLOSURE STATEMENT AND THE DISCLOSURE STATEMENT
PREVIOUSLY MAILED TO YOU.
The statements contained in this Second Supplemental
Disclosure Statement are made as of the date hereof unless otherwise
specified herein, and the delivery of this Second Supplemental
Disclosure Statement does not imply that there has been no change in
the information set forth herein since such date. This Second
Supplemental Disclosure Statement has been prepared by the Debtors in
consultation with the Creditors' Committee. Except to the extent
described herein, the information set forth in the First Supplemental
Disclosure Statement and the Disclosure Statement remains accurate as
of the date of the Disclosure Statement, including the financial
projections, valuations and liquidation analysis. HOLDERS OF CLAIMS
ENTITLED TO VOTE (CLASS 3 (BANK CLAIMS), CLASS 4 (SENIOR NOTE CLAIMS),
CLASS 5 (SENIOR SUBORDINATED NOTE CLAIMS) AND CLASS 6 (GENERAL
UNSECURED CLAIMS)) SHOULD READ THIS SECOND SUPPLEMENTAL DISCLOSURE
STATEMENT CAREFULLY, IN ITS ENTIRETY AND, WHERE POSSIBLE, CONSULT WITH
COUNSEL, PRIOR TO CHANGING ANY VOTE PREVIOUSLY CAST IN RESPECT OF THE
FIRST AMENDED PLAN AND/OR THE SECOND AMENDED PLAN, AND BEFORE VOTING ON
THE THIRD AMENDED PLAN FOR THE FIRST TIME.
B. DESCRIPTION OF AMENDMENTS TO THE PLAN
Prior to the Effective Date, the Leslie Fay Dress Division,
the Leslie Fay Sportswear Division and Licensing (collectively, the
"Leslie Fay Divisions") and Sassco are owned by the same corporate
entity, Leslie Fay. The Third Amended Plan provides for the
restructuring of the Leslie Fay Divisions and the transfer of Sassco to
Leslie Fay's creditors.
1
<PAGE>
The terms of the First Amended Plan and Second Amended Plan
took into account Reorganized Leslie Fay's working capital requirements
projected as of December 31, 1996. As a consequence of the delay of the
Effective Date, a mechanism is needed to account for changes in working
capital of Sassco and the Leslie Fay Divisions projected as of December
31, 1996.
Accordingly, the Second Amended Plan is being amended to
provide that, to the extent any increase in Reorganized Leslie Fay's
net assets for the period through the Effective Date exceeds the net
operating profit of the Leslie Fay Divisions for the period through the
Effective Date (or any decrease in such net assets is less than such
Divisions' net operating loss), Reorganized Leslie Fay will pay the
difference to New Sassco no later than forty-five (45) days after the
Effective Date. This would reflect that Reorganized Leslie Fay's net
working capital was higher than it would have been had such capital
been derived exclusively from the Leslie Fay Divisions' earnings, and
therefore the change in Leslie Fay's net working capital effectively
reduced the Sassco assets.
Conversely, to the extent any increase in Reorganized Leslie
Fay's net assets for the period through the Effective Date is less than
the net operating profit of the Leslie Fay Divisions for the period
through the Effective Date (or any decrease in such net assets is more
than such Divisions' net operating loss), New Sassco will pay the
difference to Reorganized Leslie Fay no later than forty-five (45) days
after the Effective Date. This would reflect that Reorganized Leslie
Fay's working capital was lower than it would have been had it been
derived exclusively from the Leslie Fay Divisions' earnings, and
therefore the change in Leslie Fay's net working capital effectively
increased the Sassco assets.
Thus, the changes effected by the Second Modification are
intended to maintain the same balance between the assets of New Sassco
and Reorganized Leslie Fay as was projected in the Disclosure
Statement. Therefore, because both Reorganized Leslie Fay and New
Sassco will be owned by the same Creditors in the same proportion on
the Effective Date, the adjustment of assets contemplated by the Second
Amended Plan should not adversely affect the Creditors' economic
interests in the combined shareholdings of Reorganized Leslie Fay and
New Sassco as of the Effective Date.
This Second Supplemental Disclosure Statement summarizes the
pertinent terms of the Third Amended Plan, which summary is qualified
in its entirety by reference to the full text of the Third Amended
Plan, and if any inconsistency exists between the terms and provisions
of the Third Amended Plan and this Second Supplemental Disclosure
Statement, the terms and provisions of the Third Amended Plan are
controlling. If you wish a copy of the Third Amended Plan, please call
Mr. John Caliolo, c/o The Leslie Fay Companies, Inc., at (212)
221-4276.
The Proponents believe that prompt confirmation and
implementation of the Third Amended Plan is in the best interests of
the Debtors, all Creditors and Equity Interest holders and the Debtors'
chapter 11 estates. Moreover, the Proponents believe that, upon
consummation of the Third Amended Plan, Reorganized Leslie Fay and New
Sassco, taken together, will be able to provide a substantial long-term
return on Creditors' Claims.
C. RE-SOLICITATION OF VOTES
Accompanying this Second Supplemental Disclosure Statement is
a ballot for either (i) changing your vote(s) on the First Amended Plan
and/or the Second Amended Plan, as the case may be, or (ii) casting
your vote(s) on the Third Amended Plan if you did not previously vote
on the First Amended Plan or the Second Amended Plan. AS DISCUSSED
FULLY IN THE DISCLOSURE STATEMENT AND THE FIRST SUPPLEMENTAL DISCLOSURE
STATEMENT, BALLOTS FOR ACCEPTANCE OR REJECTION OF THE PLAN ARE BEING
PROVIDED ONLY TO HOLDERS OF CLAIMS IN CLASS 3 (BANK CLAIMS), CLASS 4
(SENIOR NOTE CLAIMS), CLASS 5 (SENIOR SUBORDINATED NOTE CLAIMS) AND
CLASS 6 (GENERAL UNSECURED CLAIMS), BECAUSE THEY ARE THE ONLY HOLDERS
OF CLAIMS THAT MAY VOTE TO ACCEPT OR REJECT THE PLAN.
ONLY THOSE CREDITORS IN CLASS 3 (BANK CLAIMS), CLASS 4
(SENIOR NOTE CLAIMS), CLASS 5 (SENIOR SUBORDINATED NOTE CLAIMS) OR
CLASS 6 (GENERAL UNSECURED CLAIMS) WHO WISH TO CHANGE THEIR PRIOR VOTES
ON THE FIRST AMENDED PLAN AND/OR THE SECOND AMENDED PLAN OR WHO WISH TO
VOTE FOR THE FIRST TIME, NEED TO VOTE USING THE ENCLOSED BALLOT.
PURSUANT TO THE SECOND SUPPLEMENTAL DISCLOSURE ORDER, ALL VOTES CAST TO
EITHER ACCEPT OR REJECT THE
2
<PAGE>
FIRST AMENDED PLAN OR THE SECOND AMENDED PLAN WILL BE DEEMED TO BE
VOTES CAST TO EITHER ACCEPT OR REJECT THE THIRD AMENDED PLAN, UNLESS A
NEW BALLOT CHANGING THE VOTE IS TIMELY RETURNED TO THE LESLIE FAY
COMPANIES, INC. IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH BELOW AND
ON THE BALLOTS. A TIMELY RECEIVED NEW BALLOT WILL SUPERSEDE ANY
PREVIOUSLY RECEIVED BALLOTS. After carefully reviewing this Second
Supplemental Disclosure Statement, if you decide to change your
previously cast vote in respect of the First Amended Plan and/or the
Second Amended Plan, or to vote for the first time in respect of the
Third Amended Plan, please indicate your vote and, where relevant, your
election of distribution, on the enclosed Ballot and return it in the
envelope provided. Voting procedures and requirements are explained in
greater detail on the Ballot and the instructions of the reverse side
of the Ballot. IF YOU DECIDE TO CHANGE YOUR VOTE OR VOTE FOR THE FIRST
TIME, PLEASE RETURN YOUR BALLOT TO:
BY MAIL: LESLIE FAY PLAN BALLOTS
POST OFFICE BOX 1436
NEW YORK, NEW YORK 10018-1436
ATTN: JOHN J. CALIOLO
BY HAND DELIVERY:
LESLIE FAY PLAN BALLOTS
1412 BROADWAY, 2ND FLOOR
NEW YORK, NEW YORK 10018-5281
IN ORDER TO BE COUNTED, BALLOTS MUST BE RECEIVED BY 5:00 P.M. (EASTERN
STANDARD TIME) ON MARCH 14, 1997. ANY EXECUTED BALLOTS WHICH ARE TIMELY
RECEIVED BUT WHICH DO NOT INDICATE EITHER AN ACCEPTANCE OR REJECTION OF
THE THIRD AMENDED PLAN SHALL BE DEEMED TO CONSTITUTE AN ACCEPTANCE OF
THE THIRD AMENDED PLAN. IF YOU MUST RETURN YOUR BALLOT TO YOUR BANK OR
BROKER, OR THE AGENT OF EITHER, YOU MUST RETURN YOUR BALLOT TO THEM IN
SUFFICIENT TIME FOR THEM TO PROCESS IT AND RETURN IT TO LESLIE FAY PLAN
BALLOTS BY THE VOTING DEADLINE. IF YOU ARE THE HOLDER OF A CLAIM IN
CLASS 3 (BANK CLAIMS), CLASS 4 (SENIOR NOTE CLAIMS), CLASS 5 (SENIOR
SUBORDINATED NOTE CLAIMS) OR CLASS 6 (GENERAL UNSECURED CLAIMS) AND
HAVE ANY QUESTIONS CONCERNING VOTING PROCEDURES, OR DID NOT RECEIVE A
BALLOT, RECEIVED A DAMAGED OR ILLEGIBLE BALLOT, OR LOST YOUR BALLOT; OR
IF YOU ARE A PARTY IN INTEREST AND HAVE ANY QUESTIONS CONCERNING THE
SECOND SUPPLEMENTAL DISCLOSURE STATEMENT, THE THIRD AMENDED PLAN OR THE
VOTING PROCEDURES IN RESPECT THEREOF, PLEASE CONTACT MR. JOHN J.
CALIOLO, C/O THE LESLIE FAY COMPANIES, INC., AT (212) 221-4276.
Additional copies of this Second Supplemental Disclosure
Statement are available upon written request to:
Mr. John J. Caliolo
The Leslie Fay Companies, Inc.
1412 Broadway, 2nd Floor
New York, New York 10018-5281
APPROVAL OF THIS SECOND SUPPLEMENTAL DISCLOSURE STATEMENT
DOES NOT, HOWEVER, CONSTITUTE A DETERMINATION BY THE BANKRUPTCY COURT
AS TO THE FAIRNESS OR MERITS OF THE THIRD AMENDED PLAN. No solicitation
of votes may be made except pursuant to the Second Supplemental
Disclosure Statement, the First Supplemental Disclosure Statement, the
Disclosure Statement and section 1125 of the Bankruptcy Code. In the
event any Creditor wishes to change its vote or vote, such Creditor
should not rely on any information relating to the Debtors and their
businesses, other than that contained in this Second Supplemental
Disclosure Statement, the First Supplemental Disclosure Statement, the
Disclosure Statement, the Third Amended Plan and all exhibits thereto,
and the Second Modification.
3
<PAGE>
D. CONFIRMATION HEARING
On February 25, 1997, the Confirmation Hearing commenced in
connection with the Second Amended Plan with the intent of confirming
the Second Amended Plan (which will be superseded by the Third Amended
Plan), subject to the voting results in connection with the Third
Amended Plan. By order of the Bankruptcy Court, the Confirmation
Hearing has been scheduled for March 18, 1997, at 2:00 p.m., Eastern
Standard Time, in Room 723 of the United States Bankruptcy Court,
Alexander Hamilton Custom House, One Bowling Green, New York, New York
10004. The Confirmation Hearing may be adjourned from time to time by
the Bankruptcy Court without further notice except for an announcement
made at the Confirmation Hearing or any adjournment thereof.
Section 1128(b) of the Bankruptcy Code provides that any
party in interest may object to confirmation of a plan. Any objection
to confirmation of the Third Amended Plan incorporating only those
solely to the modifications described in the Second Modification must
be in writing, conform to the Federal Rules of Bankruptcy Procedure and
the Local Rules of the Bankruptcy Court, set forth the name of the
objectant, the nature and amount of Claims or Equity Interests held or
asserted by the objectant against each of the Debtors' estates or
property, the basis for the objection and the specific grounds
therefor, and be filed with the Bankruptcy Court, with two (2) copies
delivered directly to chambers, together with proof of service thereof,
and served upon (i) Weil, Gotshal & Manges LLP, Attorneys for the
Debtors, 767 Fifth Avenue, New York, New York 10153, Attention: Alan B.
Miller, Esq.; (ii) Wachtell, Lipton, Rosen & Katz, Attorneys for the
Official Committee of Unsecured Creditors, 51 West 52nd Street, New
York, New York 10019, Attention: Chaim J. Fortgang, Esq.; (iii)
Bingham, Dana & Gould, Attorneys for the Debtors' Post- Petition Date
Lenders, 150 Federal Street, Boston, Massachusetts 02110, Attention:
Robert A.J. Barry, Jr., Esq.; and (iv) The United States Trustee for
the Southern District of New York, 80 Broad Street, New York, New York
10004, Attention: Diana Adams, Esq., so as to be received no later than
5:00 P.M., Eastern Standard Time, on March 14, 1997. All other prior
objections to either the First Amended Plan and/or the Second Amended
Plan are being addressed at the Confirmation Hearing.
Objections to confirmation of the Third Amended Plan are
governed by Federal Rule of Bankruptcy Procedure 9014. UNLESS AN
OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED, IT MAY NOT BE
CONSIDERED BY THE BANKRUPTCY COURT.
4
<PAGE>
CONCLUSION
The Debtors believe that the Third Amended Plan is in the
best interests of all Creditors and Equity Interest Holders and urge
the holders of impaired Claims in Classes 3, 4, 5 and 6, to the extent
such holders have not previously voted in support of the First Amended
Plan and/or the Second Amended Plan, to vote to accept the Third
Amended Plan and to evidence such acceptance by returning their ballots
so that they will be actually received on or before 5:00 p.m., Eastern
Standard Time, on March 14, 1997.
Dated: New York, New York
February 28, 1997
Respectfully submitted,
THE LESLIE FAY COMPANIES, INC.
By: /s/ John J. Pomerantz
------------------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY LICENSING CORP.
By: /s/ John J. Pomerantz
------------------------------------
Name: John J. Pomerantz
Title: Chairman
HUE, INC.
By: /s/ John J. Pomerantz
------------------------------------
Name: John J. Pomerantz
Title: Chairman
SPITALNICK CORP.
By: /s/ John J. Pomerantz
------------------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY RETAIL OUTLETS, INC.
By: /s/ John J. Pomerantz
------------------------------------
Name: John J. Pomerantz
Title: Chairman
5
<PAGE>
LESLIE FAY FACTORY OUTLET
(ALABAMA), INC.
By: /s/ John J. Pomerantz
------------------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(CALIFORNIA), INC.
By: /s/ John J. Pomerantz
------------------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(IOWA), INC.
By: /s/ John J. Pomerantz
------------------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(TENNESSEE), INC.
By: /s/ John J. Pomerantz
------------------------------------
Name: John J. Pomerantz
Title: Chairman
/s/ Alan B. Miller /s/ Chaim J. Fortgang
------------------------ ---------------------------
ALAN B. MILLER (AM 2817) CHAIM J. FORTGANG (CF 0895)
A Member of the Firm A Member of the Firm
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors and Attorneys for the Official
Debtors in Possession Committee of Unsecured Creditors
767 Fifth Avenue of The Leslie Fay Companies, Inc.
New York, New York 10153 51 West 52nd Street
(212) 310-8000 New York, New York 10019
(212) 403-1000
6
<PAGE>
EXHIBIT 1
TO SECOND SUPPLEMENTAL DISCLOSURE STATEMENT
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------X
In re :
Chapter 11 Case No.
THE LESLIE FAY COMPANIES, INC., : 93 B 41724 et seq. (TLB)
et al., (Jointly Administered)
:
Debtors.
-----------------------------------X
MODIFICATION OF SECOND AMENDED AND RESTATED JOINT PLAN OF
REORGANIZATION FOR DEBTORS PURSUANT TO CHAPTER 11 OF THE UNITED
STATES BANKRUPTCY CODE PROPOSED BY DEBTORS AND CREDITORS' COMMITTEE
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors Attorneys for the Official
in Possession Committee of Unsecured Creditors
767 Fifth Avenue of The Leslie Fay Companies, Inc.
New York, New York 10153 51 West 52nd Street
(212) 310-8000 New York, New York 10019
(212) 403-1000
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
The Leslie Fay Companies, Inc., Hue, Inc., Spitalnick Corp.,
Leslie Fay Licensing Corp., Leslie Fay Retail Outlets, Inc., Leslie Fay
Factory Outlet (Alabama), Inc., Leslie Fay Factory Outlet (California),
Inc., Leslie Fay Factory Outlet (Iowa), Inc., Leslie Fay Factory Outlet
(Tennessee), Inc. and The Official Committee of Unsecured Creditors of
The Leslie Fay Companies, Inc. hereby modify and amend the Second
Amended and Restated Joint Plan of Reorganization for Debtors Pursuant
to Chapter 11 of the United States Bankruptcy Code Proposed by Debtors
and Creditors' Committee, dated February 3, 1997 (the "Second Amended
Plan"),(1) as follows:
1. Section 1.40 of the Second Amended Plan, entitled
"Consummation Cash Shortfall Amount", shall be amended by deleting
"Twenty-Five Million Dollars ($25,000,000)" in the first and second
lines of the Second Amended Plan and substituting in its entirety "Six
Million Four Hundred Forty-Five Thousand Dollars ($6,445,000)".
2. A new Section 1.127, entitled "Reorganized Leslie Fay
Earnings Adjustment", shall be added to the Second Amended Plan, which
shall read as follows:
"Reorganized Leslie Fay Earnings Adjustment. An amount
which may be positive or negative equal to (i) the 1997 net
operating profit or net operating loss of the Leslie Fay
Dress Division, the Leslie Fay Sportswear Division and
Licensing through the Effective Date minus (ii) One Million
Seven Hundred Thousand Dollars ($1,700,000)."
3. Sections 1.127 through 1.33 of the Second Amended Plan
shall be renumbered, consecutively, Sections 1.28 through 1.34 of the
Second Amended Plan.
4. A new Section 1.135, entitled "Reorganized Leslie Fay Net
Asset Amount", shall be added to the Second Amended Plan, which shall
read as follows:
"Reorganized Leslie Fay Net Asset Amount. An amount
equal to the excess of total assets (including, without
limitation, the outstanding principal amounts of the New
Sassco Intercompany Note payable to Reorganized Leslie Fay)
over total liabilities of Reorganized Leslie Fay as recorded
on Reorganized Leslie Fay's books as of the Effective Date,
before any application of "fresh start" or "purchase
accounting" adjustments."
5. Sections 1.135 through 1.191 of the Second Amended Plan
shall be renumbered, consecutively, Sections 1.136 through 1.192 of the
Second Amended Plan.
6. Section 1.161 of the Second Amended Plan, entitled "Sassco
Assets", shall be amended by adding thereto, after the word
"Liabilities", the following:
", including the Working Capital Adjustment Amount."
7. A new Section 1.93, entitled "Working Capital Adjustment
Amount", shall be added to the Second Amended Plan, which shall read as
follows:
------------------
(1) Unless otherwise defined herein, all capitalized terms used herein
shall have the same meanings ascribed to them in the Second Amended
Plan.
1
<PAGE>
"Working Capital Adjustment Amount. An amount, which may
be positive or negative, equal to (a) the Reorganized Leslie
Fay Net Asset Amount minus (b) the sum of (i) Forty Nine
Million Three Hundred Thousand Dollars ($49,300,000) and (ii)
the Reorganized Leslie Fay Earnings Adjustment."
8. A new Section 3.3, entitled "Post-Effective Date
Adjustment", shall be added to the Second Amended Plan, which shall
read as follows:
"Post-Effective Date Adjustment. Within forty-five (45)
days after the Effective Date, Reorganized Leslie Fay and New
Sassco shall determine the Working Capital Adjustment Amount,
which amount shall be paid, within three (3) Business Days
after such determination, by (i) Reorganized Leslie Fay to
New Sassco, if the Working Capital Adjustment Amount is
positive or (ii) New Sassco to Reorganized Leslie Fay if the
Working Capital Adjustment Amount is negative. In the event
Reorganized Leslie Fay and New Sassco are unable to agree
upon the Working Capital Adjustment Amount, CIBC Wood Gundy
(or such other mutually agreeable disinterested third party)
shall resolve the dispute, and such decision shall be final
and binding on both parties."
9. Section 39.1 of the Second Amended Plan, entitled
"Directors", shall be amended by deleting "4.6" in the fourth line of
the Second Amended Plan, and substituting in its entirety "4.5".
2
<PAGE>
10. Except as expressly set forth herein, the provisions of
the Second Amended Plan shall remain in full force and effect in the
form filed with the Court on February 3, 1997.
Dated: New York, New York
February 28, 1997
Respectfully submitted,
THE LESLIE FAY COMPANIES, INC.
By: /s/ John J. Pomerantz
--------------------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY LICENSING CORP.
By: /s/ John J. Pomerantz
--------------------------------------
Name: John J. Pomerantz
Title: Chairman
HUE, INC.
By: /s/ John J. Pomerantz
--------------------------------------
Name: John J. Pomerantz
Title: Chairman
SPITALNICK CORP.
By: /s/ John J. Pomerantz
--------------------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY RETAIL OUTLETS, INC.
By: /s/ John J. Pomerantz
--------------------------------------
Name: John J. Pomerantz
Title: Chairman
3
<PAGE>
LESLIE FAY FACTORY OUTLET
(ALABAMA), INC.
By: /s/ John J. Pomerantz
--------------------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(CALIFORNIA), INC.
By: /s/ John J. Pomerantz
--------------------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(IOWA), INC.
By: /s/ John J. Pomerantz
--------------------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(TENNESSEE), INC.
By: /s/ John J. Pomerantz
--------------------------------------
Name: John J. Pomerantz
Title: Chairman
/s/ Alan B. Miller /s/ Chaim J. Fortgang
------------------------ ---------------------------
ALAN B. MILLER (AM 2817) CHAIM J. FORTGANG (CF 0895)
A Member of the Firm A Member of the Firm
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors and Attorneys for the Official
Debtors in Possession Committee of Unsecured Creditors
767 Fifth Avenue of The Leslie Fay Companies, Inc.
New York, New York 10153 51 West 52nd Street
(212) 310-8000 New York, New York 10019
(212) 403-1000
4
<PAGE>
EXHIBIT 2
TO SECOND SUPPLEMENTAL DISCLOSURE STATEMENT
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------X
In re :
Chapter 11 Case No.
THE LESLIE FAY COMPANIES, : 93 B 41724 et seq. (TLB)
INC., et al., Jointly Administered
:
Debtors.
:
--------------------------------X
ORDER (A) APPROVING SECOND SUPPLEMENTAL DISCLOSURE STATEMENT,
(B) ESTABLISHING PROCEDURES FOR SOLICITATION AND TABULATION
OF VOTES TO ACCEPT OR REJECT THIRD AMENDED AND RESTATED
JOINT PLAN OF REORGANIZATION AND (C) APPROVING
NOTICE PROCEDURES FOR CONFIRMATION OF
THE PLAN OF REORGANIZATION
Upon the motion, dated February 28, 1997 (the
"Motion")(1) of The Leslie Fay Companies, Inc. ("Leslie Fay"),
Spitalnick Corp., Hue, Inc., Leslie Fay Licensing Corp., Leslie
Fay Retail Outlets, Inc., Leslie Fay Factory Outlet (Alabama),
Inc., Leslie Fay Factory Outlet (California), Inc., Leslie Fay
Factory Outlet (Iowa), Inc., and Leslie Fay Factory Outlet
(Tennessee), Inc., as debtors and debtors in possession
(collectively, the "Debtors"), for an order (A) approving the
adequacy of the information contained in that certain Second
Supplemental Disclosure Statement for Third Amended and
Restated Joint Plan of Reorganization for Debtors Pursuant to
Chapter 11 of the United States Bankruptcy Code, dated February
28, 1997 (the "Second Supplemental Disclosure Statement"), a
copy of which is annexed hereto as Exhibit "A"; (B)
establishing procedures for solicitation and tabulation of
votes to accept or reject the Third Amended Plan; and (C)
approving notice procedures for confirmation of the Third
Amended Plan; and the Debtors and the Creditors' Committee
having filed the Second Plan Modification, dated February 28,
1997, a copy of which is annexed hereto as Exhibit "B"; and it
appearing that Creditors in Class 3 (Bank Claims), Class 4
(Senior Note Claims), Class 5 (Senior Subordinated Note claims)
or Class 6 (General Unsecured Claims) who voted on the First
Amended Plan and/or Second Amended Plan should be given an
opportunity to change such votes or, if such Creditors did not
previously vote on the First Amended Plan and the Second
Amended Plan, should be given the opportunity to vote to accept
or reject the Third Amended Plan; and after due deliberation
and sufficient cause appearing therefor, it is
ORDERED that the Motion be, and it hereby is, granted
in all respects; and it is further
ORDERED that, in accordance with section 1125 of the
Bankruptcy Code and Bankruptcy Rule 3017(b), the Second
Supplemental Disclosure Statement (and all exhibits and
schedules thereto), as the same may be modified to incorporate
modifications that do not materially change the Second
Supplemental Disclosure Statement or materially affect any
rights of a party in interest, be, and it hereby is, approved
as containing "adequate information" within the meaning of
section 1125(a) of the Bankruptcy Code; and it is further
____________________
1. Unless otherwise defined herein, capitalized terms used
herein shall have the same meanings ascribed to them in the
Motion.
<PAGE>
ORDERED that an adjourned hearing to consider
confirmation of the Third Amended Plan (the "Confirmation
Hearing") incorporating only those modifications set forth in
the Second Plan Modification shall be held before the Honorable
Tina L. Brozman, Chief United States Bankruptcy Judge, in Room
723 of the United States Bankruptcy Court, Alexander Hamilton
Custom House, One Bowling Green, New York, New York on March
18, 1997, at 2:00 p.m., or as soon thereafter as counsel may be
heard; and it is further
ORDERED that the Confirmation Hearing may be
adjourned from time to time by the Court without prior notice
to holders of claims, holders of equity interests or parties in
interest other than the announcement of the adjourned hearing
date at the Confirmation Hearing; and it is further
ORDERED that the forms of ballot for re-solicitation
of acceptance or rejection the Third Amended Plan
(collectively, the "New Ballots," and individually, a "New
Ballot") and balloting instructions, substantially in the form
annexed hereto as Exhibit "C", be, and each of them hereby is,
approved in all respects pursuant to Bankruptcy Rule 3018(c) as
conforming with Official Form No. 14; and it is further
ORDERED that, pursuant to section 1127(d) of the
Bankruptcy Code, all votes cast to either accept or reject the
First Amended Plan or the Second Amended Plan will be deemed to
be votes cast to either accept or reject the Third Amended
Plan, including an election by holders of Class 6 (General
Unsecured Claims) to be treated as holders of Class 7
(Convenience Claims), unless a New Ballot changing the vote
with respect to the First Amended Plan or the Second Amended
Plan is timely returned to the Balloting Agent; and it further
ORDERED that, in order to be counted as a vote to
accept or reject the Third Amended Plan, a New Ballot must be
properly executed, completed and delivered to the Balloting
Agent by (i) mail at Leslie Fay Plan Ballots, P.O. Box 1436,
New York, New York 10018-1436, Attn: John J. Caliolo, or (ii)
overnight courier or personal delivery at Leslie Fay Plan
Ballots, 1412 Broadway, New York, New York 10018-5281, Attn:
John J. Caliolo, so that it is actually received by the
Balloting Agent no later than 5:00 p.m., Eastern Standard Time,
on March 14, 1997 (the "Voting Deadline"); and it is further
ORDERED that (i) any executed New Ballot which does
not indicate an acceptance or rejection of the Third Amended
Plan shall be counted as an acceptance of the Third Amended
Plan, (ii) notwithstanding the provisions of Bankruptcy Rule
3018(a), in the event that a holder of a Claim casts more than
one New Ballot prior to the Voting Deadline with respect to a
single Claim, the last New Ballot received by the Balloting
Agent prior to the Voting Deadline shall supersede any prior
New Ballots, (iii) any New Ballot that partially rejects and
partially accepts the Third Amended Plan will not be counted,
and (iv) any vote indicated on a New Ballot on which the
convenience claim election is made will not be counted for
purposes of accepting or rejecting the Third Amended Plan; and
it is further
ORDERED that objections, if any, to confirmation of
the Third Amended Plan relating solely to the modifications set
forth in the Second Plan Modification must be in writing, state
the name and address of the objecting party and the nature of
the claim or interest of such party, state with particularity
the basis and nature of each objection to the proposed
modification to the Second Amended Plan and be filed, together
with proof of service, with the Court (with two (2) copies
delivered to Chambers) and served upon (a) Weil, Gotshal &
Manges LLP, Attorneys for the Debtors, 767 Fifth Avenue, New
York, New York 10153, Attn: Alan B. Miller, Esq., (b)
Wachtell, Lipton, Rosen & Katz, Attorneys for Creditors'
Committee, 51 West 52nd Street, New York, New York 10019, Attn:
Chaim J. Fortgang, Esq., (c) Bingham, Dana & Gould, Attorneys
for the DIP Lenders, 150 Federal Street, Boston, Massachusetts
02110-1726, Attn: Robert A.J. Barry, Jr., Esq. and (d) the
Office of the United States Trustee, 80 Broad Street, 3rd
Floor, New York, New York 10004, Attn: Diana Adams, Esq., so
as to be received no later than 5:00 p.m., Eastern Standard
Time, on March 14, 1997 (the "Objection Deadline"); and it is
further
ORDERED that any objection or response to
confirmation of the Third Amended Plan that (i) addresses
matters other than those addressed in the Second Plan
Modification or (ii) is not timely filed and served as set
forth in the foregoing decretal paragraph will not be
considered by the Court; and it is further
2
<PAGE>
ORDERED that the Debtors be, and they hereby are,
authorized to mail, or cause to be mailed, by first-class mail,
no later than March 4, 1997, the Second Supplemental Disclosure
Statement, together with all exhibits thereto, including the
Second Plan Modification, in the form filed with the Court
prior to the date of the mailing, to the following persons or
entities, unless such person or entity receives a Re-
Solicitation Package (as defined below) pursuant to this Order:
(i) all persons or entities that have filed proofs of claim on
or before the Record Date, other than any person or entity that
has filed with the Court a notice (or notices) of transfer of
claim under Bankruptcy Rule 3001(e) on or before the Record
Date reflecting the transfer of all of such holder's Claims;
(ii) all persons or entities listed in the Schedules as
Creditors and all amendments thereto through the Record Date,
other than any person or entity that has filed with the Court a
notice (or notices) of transfer of claim under Bankruptcy Rule
3001(e) on or before the Record Date reflecting the transfer of
all of such holder's Claims; (iii) all other known holders of
Claims against the Debtors, if any, as of the Record Date; (iv)
all persons or entities that have acquired a Claim pursuant to
a notice of the transfer of a claim under Bankruptcy Rule
3001(e) filed with the Court on or before the Record Date; (v)
all parties in interest that have filed a notice pursuant to
Bankruptcy Rule 2002 in the Debtors' chapter 11 cases on or
before the Record Date; (vi) the Office of the United States
Trustee; (vii) the Securities and Exchange Commission; (viii)
the District Director of the Internal Revenue Service for the
Southern District of New York; and (ix) any other party as may
be entitled to notice in accordance with Bankruptcy Rule 2002;
and it is further
ORDERED that the Debtors be, and they hereby are, not
required to mail the Second Supplemental Disclosure Statement
to any known Equity Interest holders of the Debtors as of the
Record Date; and it is further
ORDERED that the Debtors be, and they hereby are,
authorized to mail, or cause to be mailed, by first-class mail,
no later than March 4, 1997, to the holders of record on the
Record Date of all Claims that are entitled to vote to accept
or reject the Third Amended Plan, (a) the Second Supplemental
Disclosure Statement and all exhibits and attachments thereto,
including, without limitation, the Second Plan Modification and
(b) a New Ballot (collectively, the "Re-Solicitation Package");
provided, however, that Re-Solicitation Packages for (i)
holders of Claims against, or interests in, any Debtor placed
within a class under the Third Amended Plan that is deemed to
accept or reject the Plan under sections 1126(f) or 1126(g) of
the Bankruptcy Code, and (ii) holders of Claims that have been
objected to by the Debtors, shall not include a New Ballot; and
it is further
ORDERED that the provision for notice in accordance
with the procedures set forth in this Order shall be deemed
good and sufficient notice of the Confirmation Hearing, the
time fixed for filing objections to the Third Amended Plan and
the time within which holders of Claims may vote to accept or
reject the Third Amended Plan and elect alternative
distributions with respect thereto; and it is further
ORDERED that the Debtors are not required to mail Re-
Solicitation Packages to any individual or entity at an address
from which the First Solicitation Package and/or the Second
Solicitation Package was returned by the United States Postal
Service as undeliverable, unless the Debtors were provided with
an accurate address by such individual or entity prior to
February 25, 1997; and it is further
ORDERED that the Debtors be, and they hereby are,
authorized and empowered to take such steps and perform such
acts as may be necessary to implement and effectuate this
Order; and it is further
ORDERED that the foregoing constitutes the findings
of fact and conclusions of law of the Court pursuant to Federal
Rule of Civil Procedure 52, as made applicable herein by
Bankruptcy Rule 7052; and it further
3
<PAGE>
ORDERED that the requirement of Local Bankruptcy Rule
9013-1(b) requiring the filing of a memorandum of law in
support of the Motion is hereby waived.
Dated: New York, New York
March 3, 1997
/s/ Tina L. Brozman
------------------------------
United States Bankruptcy Judge
CONSENTED TO:
/s/ Chaim J. Fortgang
--------------------------
CHAIM J. FORTGANG (CF 0895)
A Member of the Firm
WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for the Official
Committee of Unsecured Creditors
of The Leslie Fay Companies, Inc.
51 West 52nd Street
New York, New York 10019
(212) 403-1000
Exhibits To Order Approving Second Supplemental Disclosure
Statement and Establishing Procedures for
Solicitation and Tabulation of Votes:
Exhibit A Second Supplemental Disclosure Statement
[Intentionally Omitted]
Exhibit B Second Plan Modification [Intentionally Omitted]
Exhibit C Proposed Form of New Ballots [Intentionally
Omitted]
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------X
In re :
Chapter 11 Case No.
THE LESLIE FAY COMPANIES, INC.,: 93 B 41724 et seq. (TLB)
et al., (Jointly Administered)
:
Debtors.
-------------------------------X
MODIFICATION OF THIRD AMENDED AND RESTATED JOINT PLAN
OF REORGANIZATION FOR DEBTORS PURSUANT TO CHAPTER 11
OF THE UNITED STATES BANKRUPTCY CODE PROPOSED
BY DEBTORS AND CREDITORS' COMMITTEE
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors Attorneys for the Official
in Possession Committee of Unsecured Creditors
767 Fifth Avenue of The Leslie Fay Companies, Inc.
New York, New York 10153 51 West 52nd Street
(212) 310-8000 New York, New York 10019
(212) 403-1000
<PAGE>
The Leslie Fay Companies, Inc., Hue, Inc., Spitalnick Corp.,
Leslie Fay Licensing Corp., Leslie Fay Retail Outlets, Inc., Leslie Fay
Factory Outlet (Alabama), Inc., Leslie Fay Factory Outlet (California),
Inc., Leslie Fay Factory Outlet (Iowa), Inc., Leslie Fay Factory Outlet
(Tennessee), Inc. and The Official Committee of Unsecured Creditors of
The Leslie Fay Companies, Inc. hereby modify and amend the Third
Amended and Restated Joint Plan of Reorganization for Debtors Pursuant
to Chapter 11 of the United States Bankruptcy Code Proposed by Debtors
and Creditors' Committee, dated February 28, 1997 (the "Third Amended
Plan"),(1) as follows:
1. A new Section 1.49, entitled "Derivative Action
Board", shall be added to the Third Amended Plan, which shall read as
follows:
"Derivative Action Board. The three Persons or Entities
appointed prior to the Effective Date by the Bankruptcy Court
upon nomination by the Creditors' Committee (or any
replacements thereafter selected by such Persons or
Entities), who shall determine by a majority vote whether to
prosecute, compromise and settle or discontinue the
Derivative Action."
2. Section 1.49 through 1.194 shall be renumbered,
consecutively, Sections 1.50 through 1.195 of the Third Amended
Plan.
3. Section 27.1 of the Third Amended Plan, entitled
"Prosecution of Claims", shall be amended by deleting the period at the
conclusion of the first sentence thereof and adding in lieu thereof the
following:
"; provided, however, that, notwithstanding the foregoing, the
Plan Administrator, as representative of all holders of Allowed
Claims in Classes 3 through 6 (inclusive), shall, if directed by
the Derivative Action Board, prosecute the Derivative Action, and
the Plan Administrator may discontinue or compromise and settle
the Derivative Action, with any necessary approval of the court in
which such action is pending, and with approval of, or within
parameters established by, the Derivative Action Board."
4. A new Section 33.4, entitled "Dissolution of
Derivative Action Board," shall be added to the Third Amended Plan,
which shall read as follows:
"Dissolution of Derivative Action Board. Upon termination of
the Derivative Action by judgment, settlement or otherwise, the
Derivative Action Board shall be dissolved and the members
thereof shall be released and discharged from their respective
fiduciary obligations."
5. Section 37.6 of the Third Amended Plan, entitled "Limited
Release of Directors, Officers and Employees", shall be amended by (a)
adding a comma after the word "negligence" in the eighth line of the
Third Amended Plan and deleting the word "or" immediately thereafter
and (b) adding, after the word "amended", in the eleventh line of the
Third Amended Plan, the following:
", or (v) relating to such person's breach of fiduciary duty,
other than those claims against which such directors, officers and
employees were protected by the provisions of (a) Article VII of
the Restated By-Laws of The Leslie Fay Companies, Inc., adopted as
of August 1, 1986 and amended as of December 17, 1986 and
--------------------
(1) Unless otherwise defined herein, all capitalized terms used herein
shall have the same meanings ascribed to them in the Third Amended
Plan.
1
<PAGE>
March 6, 1990, (b) Article Eighth of the Restated Certificate of
Incorporation of The Leslie Fay Companies, Inc., filed August 1, 1986
and (c) applicable law."
6. Section 37.7 of the Third Amended Plan, entitled
"Exculpation", shall be amended by (a) inserting in the third line
thereof ", the Derivative Action Board" following the words "Creditors'
Committee"; and (b) inserting in the seventh line thereof immediately
after the word "Plan" the following;
"or, in the case of the Derivative Action Board, in connection
with the prosecution, compromise and settlement or discontinuance
of the Derivative Action."
2
<PAGE>
7. Except as expressly set forth herein, the provisions
of the Third Amended Plan shall remain in full force and effect in the
form filed with the Court on March 3, 1997.
Dated: New York, New York
April 4, 1997
Respectfully submitted,
THE LESLIE FAY COMPANIES, INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY LICENSING CORP.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
HUE, INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
SPITALNICK CORP.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
3
<PAGE>
LESLIE FAY RETAIL OUTLETS, INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(ALABAMA), INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(CALIFORNIA), INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(IOWA), INC.
By: /s/ John J. Pomerantz
-----------------------------
Name: John J. Pomerantz
Title: Chairman
LESLIE FAY FACTORY OUTLET
(TENNESSEE), INC.
By: /s/ John J. Pomerantz
-------------------------------
Name: John J. Pomerantz
Title: Chairman
4
<PAGE>
/s/ Alan B. Miller /s/ Richard G. Mason
------------------------- -----------------------------------
ALAN B. MILLER (AM 2817) Richard G. Mason (RGM 0698)
A Member of the Firm A Member of the Firm
WEIL, GOTSHAL & MANGES LLP WACHTELL, LIPTON, ROSEN & KATZ
Attorneys for Debtors and Attorneys for the Official
Debtors in Possession Committee of Unsecured Creditors
767 Fifth Avenue of The Leslie Fay Companies, Inc.
New York, New York 10153 51 West 52nd Street
(212) 310-8000 New York, New York 10019
(212) 403-1000
5
