UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report Date (Date of earliest event reported) September 3, 1996
ITHACA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-52852 56-1385842
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification NO.)
Highway 268 West, P.O. Box 620, Wilkesboro, NC 28697
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (910) 667-5231
<PAGE>
Item 5. Other Events.
Waiver.
On September 1, the banks (the "Bank Group") party to Ithaca's Credit
Agreement, dated as of December 1, 1992 (the "Credit Agreement"), granted an
additional default waiver through and including October 31, 1996. The Bank Group
also waived payment of three $5.7 million term loan payments due under the
Credit Agreement through and including October 31, 1996. Ithaca is currently out
of compliance with certain financial covenants in the Credit Agreement and does
not anticipate that it would be in compliance with certain of the financial
covenants in the Credit Agreement for the foreseeable future.
Also, as reported earlier, Ithaca has not paid the interest payments due on
December 15, 1995 and June 15, 1996, on its 11.125% Senior Subordinated Notes
due 2002 (the "Notes"). The waiver from Ithaca's banks provides that the failure
to make such interest payments does not constitute a default or event of default
under the Credit Agreement unless and until the indebtedness pursuant to the
Notes shall have become due prior to its stated maturity by reason of such
failure, or any holder of Notes ("Noteholder") (or the Trustee under the Note
Indenture) shall have exercised any remedy under the Note Indenture, or shall
have initiated any legal proceeding, in respect of, or relation to, such
failure. The bank waiver also provides that in order for Ithaca to make all or a
portion of the interest payments due December 15, 1995 and June 15, 1996 under
the Notes, Ithaca must have received a subordinated, unsecured loan for an equal
amount of immediately available funds pursuant to a promissory note in form and
substance reasonably satisfactory to the Agent and the Co-Agent banks under the
Credit Agreement.
Ithaca's Plan of Reorganization.
Summary of Classification and Treatment under the Plan of
Reorganization.
As described below under "- Disclosure Statement" and "- The Solicitation",
Ithaca is soliciting approval for the Plan of Reorganization, dated August 29,
1996 (the "Plan"), under chapter 11 of title 11 of the United States Code
"U.S.C. ss.101 et. seq. (the "Bankruptcy Code"), attached as Exhibit A to the
Disclosure Statement, dated August 29, 1996 (the "Disclosure Statement"). The
effect of confirmation of the Plan will be to cause, among other things, the
following to occur: (i) each $1,000 principal amount of Notes will be exchanged
for 80 shares of reorganized Ithaca common stock, which represents each Note's
proportionate share of 100% of the equity of reorganized Ithaca (subject to
dilution by equity distributed under employee incentive plans or as may be
otherwise authorized pursuant to reorganized Ithaca's charter), and Ithaca's
Certificate of Incorporation and By-laws, each as currently in effect, will be
amended and restated, (ii) the Credit Agreement will be restructured, and (iii)
all outstanding equity interests in Ithaca will be canceled. In addition, should
Ithaca commence a voluntary chapter 11 case, it intends to seek authority from
<PAGE>
the bankruptcy court with jurisdiction over Ithaca's case (the "Bankruptcy
Court") to pay all pre-petition trade and other debt in the ordinary course of
business. Under the Plan, to the extent not previously satisfied, all general
unsecured claims against Ithaca will either be reinstated, paid in full in
accordance with their respective terms or otherwise rendered unimpaired.
Disclosure Statement.
The Disclosure Statement has not been filed with or approved by the
Bankruptcy Court. In the event Ithaca files a petition for relief under chapter
11 of the Bankruptcy Code and seeks confirmation of the Plan, the Disclosure
Statement will be submitted to the Bankruptcy Court for approval.
The Disclosure Statement, the Plan and the other appendices to the
Disclosure Statement, and the related materials delivered together therewith,
copies of which are attached as exhibits to the Disclosure Statement (unless
previously filed with the Securities and Exchange Commission) and incorporated
by reference herein, have been mailed by Ithaca to registered Noteholders, and
to all other impaired creditors known to Ithaca, pursuant to sections 1125(a)
and 1126(b) of the Bankruptcy Code, in connection with the solicitation by
Ithaca of votes to accept or reject, as the case may be, the Plan (and the
transactions contemplated thereby), as described therein.
Ithaca is not currently a debtor (or a debtor-in-possession) in a case
under chapter 11 of the Bankruptcy Code. However, in the event Ithaca receives
properly completed ballots indicating acceptance of the Plan in sufficient
number and amount to meet the voting requirements prescribed by section 1126 of
the Bankruptcy Code, Ithaca intends to file (but has expressly reserved the
right not to file) with the Bankruptcy Court a voluntary petition for
reorganization pursuant to chapter 11 of the Bankruptcy Code and to seek, as
promptly thereafter as is practicable, confirmation by the Bankruptcy Court of
the Plan pursuant to Section 1129 of the Bankruptcy Code.
For the Plan to be confirmed by the Bankruptcy Court as a consensual plan,
the holders of claims in each impaired class who cast votes in favor of the Plan
must (a) hold at least two-thirds in aggregate amount of the claims of the
holders in such class who cast votes with respect to the Plan and (b) comprise
more than one-half in number of the holders in such class who cast votes with
respect to the Plan.
Neither the Securities and Exchange Commission nor any state securities
commission or similar public, governmental or regulatory authority has passed
upon the accuracy or adequacy of the information contained in the disclosure
statement or upon the merits of the plan. Any representation to the contrary is
a criminal offense.
<PAGE>
The Solicitation.
Pursuant to the Disclosure Statement, Ithaca is soliciting votes for the
acceptance or rejection of the Plan from holders of: (i) the Notes and (ii)
claims of the Bank Group, who hold secured claims estimated to be approximately
$101,500,000 as of August 30, 1996 (the month end immediately prior to the
anticipated date of filing of a voluntary Chapter 11 petition with the
Bankruptcy Court), under the Credit Agreement.
Ithaca has negotiated the terms of the Plan with an informal committee of
Noteholders, which recommends that all holders of Notes vote to accept the Plan.
The Company has also negotiated the treatment of the Bank Group's claims as
contained in the Plan with the steering committee formed by the Bank Group.
Ithaca expects the members of the Bank Group to vote in favor of the Plan,
although Ithaca has been informed that such parties may not vote until an
agreement has been reached regarding the New Ithaca Bank Group Documents (as
defined in the Plan). Ithaca believes that such agreement can and will be
completed expeditiously and, therefore, does not believe there will be any
significant delay in obtaining the vote of the members of the Bank Group. In
addition, the sole shareholder of Ithaca, Ithaca Holdings, Inc., also supports
the Plan.
Although the solicitation relates to a voluntary petition for
reorganization of Ithaca under chapter 11 of the Bankruptcy Code, no such filing
has been made or is intended to be made by Ithaca unless and until (i) holders
of claims in each impaired class who cast votes in favor of the Plan (a) hold at
least two-thirds in amount of the claims of the holders in such class who cast
votes with respect to the Plan and (b) comprise more than one-half in number of
the holders in such class who cast votes with respect to the Plan, or (ii)
Ithaca otherwise determines that such filing is necessary to protect Ithaca's
property and/or interests. Ithaca anticipates that by conducting the
solicitation in advance of the commencement of a chapter 11 case, the duration
of the bankruptcy proceeding will be significantly shortened, and the
administration of such proceeding will be simplified and less costly.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
Exhibit No. Description
2.1 Disclosure Statement dated August 29, 1996
(including Plan of Reorganization dated August 29,
1996, attached as Exhibit A thereto)
10.1 Waiver dated as of September 1, 1996, among Ithaca
Holdings, Inc., Ithaca Industries, Inc., Canadian
Imperial and Kleinwort Benson Limited, as
Co-Agents, and Bankers Trust Company, as Agent
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ITHACA INDUSTRIES, INC.
Date: September 3, 1996 By: /s/ Eric N. Hoyle
-----------------------
Eric N. Hoyle
Senior Vice President - Finance
and Administration Chief Financial
and Accounting Officer
EXHIBIT INDEX
Exhibit No. Description
2.1 Disclosure Statement dated August 29, 1996 (including Plan
of Reorganization dated August 29, 1996, attached as Exhibit
A thereto)
10.1 Waiver dated as of September 1, 1996, among Ithaca Holdings,
Inc., Ithaca Industries, Inc., Canadian Imperial and
Kleinwort Benson Limited, as Co-Agents, and Bankers Trust
Company, as Agent
THIS DISCLOSURE STATEMENT HAS NOT BEEN FILED WITH OR APPROVED BY THE BANKRUPTCY
COURT. IN THE EVENT THE COMPANY FILES A PETITION FOR RELIEF UNDER CHAPTER 11 OF
THE BANKRUPTCY CODE AND SEEKS CONFIRMATION OF ITS PLAN OF REORGANIZATION, THIS
DISCLOSURE STATEMENT WILL BE SUBMITTED TO THE BANKRUPTCY COURT FOR APPROVAL.
DEFINED TERMS USED IN THIS COVERING SUMMARY SHALL HAVE THE MEANINGS ASCRIBED TO
THEM IN THE TEXT OF THE DISCLOSURE STATEMENT.
DISCLOSURE STATEMENT, DATED AUGUST 29, 1996
Solicitation of Votes with Respect to
the
Prepackaged Chapter 11 Plan of Reorganization of
ITHACA INDUSTRIES, INC.
from the holders of its outstanding
11 1/8% SENIOR SUBORDINATED NOTES DUE 2002
and from its other
IMPAIRED CREDITORS
- --------------------------------------------------------------------------------
THE VOTING DEADLINE TO ACCEPT OR REJECT
THE PLAN IS 4:00 P.M., NEW YORK CITY TIME,
ON MONDAY, SEPTEMBER 30, 1996, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
HOLDERS OF NOTES AND ALL OTHER IMPAIRED CREDITORS OF THE COMPANY ARE
ENCOURAGED TO READ AND CAREFULLY CONSIDER THE MATTERS DESCRIBED IN THIS
DISCLOSURE STATEMENT (INCLUDING THE MATTERS DESCRIBED UNDER THE HEADING "RISK
FACTORS") PRIOR TO SUBMITTING BALLOTS PURSUANT TO THE SOLICITATION.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
SOLICITATION, THE PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY, AND RECOMMENDS
THAT ALL IMPAIRED CREDITORS SUBMIT BALLOTS ACCEPTING THE PLAN OF REORGANIZATION
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
ALL MEMBERS OF THE INFORMAL COMMITTEE, AND CERTAIN OTHER NOTEHOLDERS, HAVE
ADVISED THE COMPANY THAT THEY INTEND TO VOTE IN FAVOR OF THE PLAN.
IF THE REQUISITE VOTE CONDITION IS SATISFIED, AND THE PLAN IS SUBSEQUENTLY
CONFIRMED BY THE BANKRUPTCY COURT AND THE EFFECTIVE DATE OCCURS, ALL HOLDERS OF
NOTES AND ALL OTHER IMPAIRED CREDITORS AND HOLDERS OF EQUITY INTERESTS
(INCLUDING THOSE WHO DO NOT SUBMIT BALLOTS TO ACCEPT OR REJECT THE PLAN) WILL BE
BOUND BY THE PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY.
(Continued)
<PAGE>
(Front Cover Page Continued)
This Disclosure Statement, the Plan annexed hereto as Exhibit A (and the
other appendices hereto), the accompanying form of Ballot, and the related
materials delivered together herewith are being furnished by the Company to
registered Noteholders, and to all other Impaired Creditors known to the
Company, pursuant to sections 1125(a) and 1126(b) of the Bankruptcy Code, in
connection with the Solicitation by the Company of votes to accept or reject, as
the case may be, its Plan (and the transactions contemplated thereby), as
described herein.
The Company is not currently a debtor (or a debtor-in-possession) in a case
under chapter 11 of the Bankruptcy Code. However, in the event the Company
receives properly completed Ballots indicating acceptance of the Plan in
sufficient number and amount to meet the voting requirements prescribed by
section 1126 of the Bankruptcy Code, the Company intends to file (but hereby
expressly reserves the right not to file) with the Bankruptcy Court a voluntary
petition for reorganization pursuant to chapter 11 of the Bankruptcy Code and to
seek, as promptly thereafter as is practicable, confirmation by the Bankruptcy
Court of the Plan pursuant to Section 1129 of the Bankruptcy Code.
FOR THE PLAN TO BE CONFIRMED BY THE BANKRUPTCY COURT AS A CONSENSUAL PLAN,
THE HOLDERS OF CLAIMS IN EACH IMPAIRED CLASS WHO CAST VOTES IN FAVOR OF THE PLAN
MUST (a) HOLD AT LEAST TWO-THIRDS IN AGGREGATE AMOUNT OF THE CLAIMS OF THE
HOLDERS IN SUCH CLASS WHO CAST VOTES WITH RESPECT TO THE PLAN AND (b) COMPRISE
MORE THAN ONE-HALF IN NUMBER OF THE HOLDERS IN SUCH CLASS WHO CAST VOTES WITH
RESPECT TO THE PLAN.
To the extent that the requisite votes for acceptance of the Plan from each
Class of Impaired Creditors are not received, or if they are received but
subsequently revoked, withdrawn or deemed invalid, in any such case, prior to
the termination of the Solicitation, the Company hereby reserves the absolute
right to use any and all votes which were received (and not subsequently revoked
or withdrawn) pursuant to this Solicitation to seek, on a nonconsensual basis,
confirmation of the Plan (or of any modification thereof that does not
materially and adversely affect the treatment of the claim of any such Impaired
Creditor).
PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, AND RULE 14a-2 THEREUNDER, THE PROXY RULES OF THE SECURITIES EXCHANGE
COMMISSION ADOPTED UNDER THAT SECTION DO NOT APPLY TO THIS SOLICITATION, SINCE
THE NOTES ARE NOT EQUITY SECURITIES REGISTERED OR REQUIRED TO BE REGISTERED
UNDER SECTION 12(g) OF THAT ACT AND ARE NOT REGISTERED OR REQUIRED TO BE
REGISTERED UNDER SECTION 12(b) OF THAT ACT BY REASON OF BEING LISTED FOR TRADING
ON A REGISTERED NATIONAL SECURITIES EXCHANGE.
THE COMPANY IS RELYING ON SECTION 3(a) OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND SECTION 1145 OF THE BANKRUPTCY CODE, TO
EXEMPT FROM REGISTRATION PURSUANT TO THE SECURITIES ACT AND UNDER APPLICABLE
STATE SECURITIES OR "BLUE SKY" LAWS, THE OFFER OF NEW SECURITIES WHICH MAY BE
DEEMED TO BE MADE PURSUANT TO THE SOLICITATION. ACCORDINGLY, THE COMPANY HAS NOT
ENGAGED AND WILL NOT, DIRECTLY OR INDIRECTLY, PAY ANY COMMISSION OR OTHER
REMUNERATION TO ANY BROKER, DEALER, SALESPERSON, AGENT OR ANY OTHER PERSON TO
SOLICIT ANY VOTES TO ACCEPT OR REJECT THE PLAN OR TO EXCHANGE THE NOTES
THEREUNDER.
THE NEW SECURITIES TO BE ISSUED ON THE EFFECTIVE DATE WILL NOT HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") UNDER
THE SECURITIES ACT OR UNDER ANY STATE SECURITIES OR "BLUE SKY" LAW, AND WILL BE
ISSUED IN RELIANCE UPON THE EXEMPTION FROM THE SECURITIES ACT AND EQUIVALENT
STATE LAW REGISTRATION PROVIDED BY SECTION 1145(a)(1) OF THE BANKRUPTCY CODE.
NONE OF THE NEW SECURITIES TO BE ISSUED ON THE EFFECTIVE DATE HAVE BEEN
APPROVED OR DISAPPROVED BY THE COMMISSION OR BY ANY STATE SECURITIES COMMISSION
OR SIMILAR PUBLIC, GOVERNMENTAL, OR REGULATORY AUTHORITY, AND
(Continued)
<PAGE>
(Front Cover Page Continued)
NEITHER THE COMMISSION NOR ANY SUCH AUTHORITY HAS PASSED UPON THE ACCURACY
OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT OR UPON
THE MERITS OF THE PLAN. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Ballots being solicited hereby will not be used by the Company for any
purpose other than to cast, with respect to classes of Claims, votes to accept
or reject the Plan (and any permitted modified version thereof) under chapter 11
of the Bankruptcy Code.
Unless otherwise specified, the statements contained in this Disclosure
Statement are made as of the date hereof, and neither the delivery of this
Disclosure Statement nor any exchange of Notes made pursuant to the Plan will,
under any circumstances, create any implication that the information contained
herein is correct at any time subsequent to the date hereof.
Any statement or other information which is contained in a document
incorporated by reference in this Disclosure Statement (and/or incorporated by
reference in any exhibit hereto) will be deemed to be modified or superseded for
purposes of the Solicitation and the Plan to the extent a statement or other
information contained in this Disclosure Statement (and/or in any Exhibits
hereto) modifies, supersedes or replaces such statement or information. Any such
statements or information modified or superseded will not, except as so modified
or superseded, be deemed to constitute a part of this Disclosure Statement.
Impaired Creditors should not construe the contents of this Disclosure
Statement as providing any legal, business, financial or tax advice. Each such
Creditor should, therefore, consult with his or its own legal, business,
financial and tax advisors as to any such matters concerning the Solicitation,
the Plan and the transactions contemplated thereby.
------------------------------
<PAGE>
TABLE OF CONTENTS
Page
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I. INTRODUCTION AND SUMMARY
A. The Solicitation ................................................... 1
B. Summary of Classification and Treatment
under The Plan of Reorganization ................................. 1
C. Voting and Confirmation Procedures ................................. 4
1. Who May Vote .................................................... 4
2. Voting Instructions ............................................. 4
3. Acceptance or Rejection of the Plan ............................. 5
4. Counting of Ballots and Master Ballots
for Determining Acceptance of the Plan ........................ 5
5. Confirmation Hearing ............................................ 6
II. BACKGROUND AND EVENTS PRECIPITATING THE SOLICITATION .................. 6
A. Overview of the Company and its Business Operations ................ 6
B. Debt Structure of the Company ...................................... 7
1. The Notes ....................................................... 7
2. The Credit Agreement ............................................ 8
C. Certain Affiliate Relationships and Agreements ..................... 9
1. Overview of Affiliate Relationships ............................. 9
2. Agreements Regarding Holdings,
the Company and Bestform ..................................... 10
D. Development and Implementation of Business Plan .................... 10
E. Development of the Plan of Reorganization .......................... 11
1. Restructuring Negotiations With the Bank Group .................. 11
2. Restructuring Negotiations With
the Informal Committee ....................................... 12
3. Treatment of General Unsecured Claims ........................... 13
III. THE PLAN .............................................................. 13
A. General ............................................................ 13
B. Classification of Claims and Interests ............................. 14
C. Treatment of Claims and Interests Under the Plan ................... 14
1. Category 1-- Allowed Administrative Claims ...................... 15
2. Category 2-- Allowed Tax Claims ................................. 15
3. Class 1-- Allowed Priority Claims (Unimpaired) .................. 16
4. Class 2A-- Allowed Bank Group Secured Claims (Impaired) ......... 16
5. Class 2B-- Allowed General Secured Claims (Unimpaired) .......... 19
6. Class 3-- Allowed General Unsecured Claims (Unimpaired) ......... 19
7. Class 4-- Allowed Noteholders' Claims (Impaired) ................ 20
8. Class 5-- Equity Interests (Impaired) ........................... 20
D. Description of Transactions to Be Implemented
in Connection with the Plan ..................................... 20
1. New Ithaca Charter and By Laws .................................. 20
2. Employee Incentive Plan and Arrangements ........................ 21
3. Employment Contracts ............................................ 27
4. Intercompany Compromise and Settlement .......................... 27
5. Registration Rights Agreement ................................... 28
E. Funding for the Plan ............................................... 30
F. Treatment of Disputed Claims ....................................... 30
G. Disputed Payments .................................................. 31
H. Full and Final Satisfaction ........................................ 31
I. Releases ........................................................... 32
J. Injunctions ........................................................ 32
K. Waiver of Contractual Subordination Rights ......................... 33
L. Cram-Down .......................................................... 33
i
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Page
----
M. Unclaimed Distributions ............................................ 33
N. Time and Method of Distributions Under the Plan .................... 33
O. Surrender of Cancelled Instruments ................................. 33
P. Modification of the Plan ........................................... 34
Q. Revocation of the Plan ............................................. 34
R. Retention of Jurisdiction .......................................... 34
S. Executory Contracts ................................................ 35
T. Indemnification Obligations ........................................ 35
U. Post-Confirmation Officers and Directors ........................... 35
V. Conditions Precedent to Effective Date of the Plan ................. 36
IV. ACCEPTANCE AND CONFIRMATION OF THE PLAN ............................... 37
A. Acceptance of the Plan ............................................. 37
B. Confirmation ....................................................... 37
1. Confirmation Hearing ............................................ 37
2. Statutory Requirements for Confirmation of the Plan ............. 37
3. Confirmation Without Acceptance by
All Impaired Classes ......................................... 38
V. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN ................... 39
A. Tax Consequences to the Company .................................... 39
1. Cancellation of Debt Income ..................................... 39
2. Section 382 Limitation .......................................... 40
B. Tax Consequences to the Noteholders ................................ 41
1. Exchange of Notes for New Ithaca Common Stock ................... 41
2. Section 269 ..................................................... 42
C. Tax Consequences to the Bank Group ................................. 42
D. Tax Consequences to Holders of Equity Interests .................... 42
VI. RISK FACTORS .......................................................... 43
A. Leverage ........................................................... 43
B. Dependence on Key Personnel ........................................ 43
C. Importance of Major Customers ...................................... 43
D. Competition ........................................................ 43
E. Risks Inherent in Business Plan .................................... 43
F. Lack of Market for New Ithaca Common Stock ......................... 44
G. Certain Bankruptcy Related Considerations .......................... 44
1. General ......................................................... 44
2. Failure to File Chapter 11 Petition ............................. 44
3. Risk of Failure to Obtain Authority
to Pay Pre-Petition Unsecured Claims
in the Ordinary Course of Business ........................... 44
4. Risk of Non-Confirmation of the Plan ............................ 44
5. Nonconsensual Confirmation ...................................... 44
H. Liquidity; Restriction on Transfer ................................. 45
I. Dividends .......................................................... 45
J. Refinancing of Obligations to Bank Group ........................... 45
VII. EXEMPTIONS FROM SECURITIES ACT REGISTRATION; REGISTRATION RIGHTS ...... 46
A. The Solicitation ................................................... 46
B. Issuance of New Securities Pursuant to the Plan .................... 46
C. Registration Rights ................................................ 47
ii
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Page
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VIII. ALTERNATIVES TO THE PLAN AND CONSEQUENCES OF REJECTION ................ 47
A. Alternative Plans .................................................. 47
B. Chapter 7 Liquidation .............................................. 47
IX. RECOMMENDATION AND CONCLUSION ......................................... 48
LIST OF EXHIBITS
A. Plan of Reorganization, dated August 29, 1996
B. Annual Report on Form 10K for the Fiscal Year Ended February 2, 1996
C. Liquidation Analysis
D. Financial Projections and Pro Forma Balance Sheet
E. Form of Certificate of Incorporation of reorganized Ithaca Industries, Inc.,
a Delaware corporation
F. Form of By-Laws of reorganized Ithaca Industries, Inc.,
a Delaware corporation
G. Form of Intercompany Compromise and Settlement
H. Form of Registration Rights Agreement
I. Form of Employee Incentive Plan
iii
<PAGE>
I.
INTRODUCTION AND SUMMARY
A. The Solicitation
Ithaca Industries, Inc. (the "Company" or "Ithaca"), is hereby soliciting
votes (the "Solicitation") for the acceptance or rejection of the Company's plan
of reorganization dated August 29, 1996 (the "Plan") under chapter 11 of title
11 of the United States Code, 11 U.S.C. ss.ss. 101 et seq. (the "Bankruptcy
Code") from holders of: (i) the Company's 11 1/8% Senior Subordinated Notes due
2002 in the aggregate face amount of $125,000,000 (the "Notes") issued under
that certain Indenture dated as of December 1, 1992 (the "Indenture"), between
the Company and the indenture trustee therein (the "Trustee"), as same may have
been amended, and (ii) Claims of the Bank Group (as defined below), who hold
secured claims estimated to be approximately $101,500,000 as of August 30, 1996
(the month end immediately prior to the anticipated Filing Date), under that
certain Credit Agreement dated as of December 1, 1992 (the "Credit Agreement").
A copy of the Plan (with exhibits) is annexed hereto as Exhibit "A" and should
be reviewed separately. All capitalized terms used herein shall have the
meanings ascribed to them in the Plan unless otherwise noted.
The Company has negotiated the terms of the Plan with an informal committee
of Noteholders, which recommends that all holders of Notes vote to accept the
Plan. The Company has also negotiated the treatment of the Bank Group's Claims
as contained in the Plan with the Bank Group Steering Committee. The Company
expects the members of the Bank Group to vote in favor of the Plan, although the
Company has been informed that such parties may not vote until an agreement has
been reached regarding the New Ithaca Bank Group Documents. The Company believes
that such agreement can and will be completed expeditiously and, therefore, does
not believe there will be any significant delay in obtaining the vote of the
members of the Bank Group. In addition, the sole shareholder of the Company,
Ithaca Holdings, Inc., also supports the Plan.
Although the Solicitation relates to a voluntary petition for
reorganization of the Company under chapter 11 of the Bankruptcy Code, no such
filing has been made or is intended to be made by the Company unless and until
(i) holders of Claims in each impaired Class who cast votes in favor of the Plan
(a) hold at least two-thirds in amount of the Claims of the holders in such
Class who cast votes with respect to the Plan and (b) comprise more than
one-half in number of the holders in such Class who cast votes with respect to
the Plan (together, the "Requisite Vote Condition"), or (ii) the Company
otherwise determines that such filing is necessary to protect the Company's
property and/or interests. The Company anticipates that by conducting the
Solicitation in advance of the commencement of a chapter 11 case, the duration
of the bankruptcy proceeding will be significantly shortened, and the
administration of such proceeding will be simplified and less costly.
B. Summary of Classification and Treatment under The Plan of Reorganization
The effect of Confirmation of the Plan will be to cause, among other
things, the following to occur: (i) each $1,000 principal amount of Notes will
be exchanged for 80 shares of New Ithaca Common Stock, which represents each
Note's proportionate share of 100% of the equity of Reorganized Ithaca (subject
to dilution by equity distributed under the Employee Incentive Plan or as may be
otherwise authorized and issued pursuant to the New Ithaca Charter), and the
Company's Certificate of Incorporation and By-laws, each as currently in effect,
will be amended and restated, (ii) the Credit Agreement will be restructured as
described below, and (iii) all outstanding Equity Interests will be cancelled.
In addition, should the Company commence a voluntary chapter 11 case, it intends
to seek authority from the Bankruptcy Court to pay all pre-petition trade and
other debt in the ordinary course of business. Under the Plan, to the extent not
previously satisfied, all General Unsecured Claims against the Company will
either be reinstated, paid in full in accordance with their respective terms or
otherwise rendered unimpaired.
In general, the Plan (i) divides Claims and Equity Interests that will
exist on the date the Company files its voluntary petition under chapter 11 of
the Bankruptcy Code (the "Filing Date") into six classes, (ii) sets forth the
treatment afforded to each class, and (iii) provides the means by which the
Company will be reorganized under chapter 11 of the Bankruptcy Code.
<PAGE>
The following table sets forth a summary of the treatment of each type of
Claim and Equity Interest under the Plan (a detailed description of the Plan is
set forth later in this Disclosure Statement in Section III entitled "The
Plan").(1)
<TABLE>
<CAPTION>
Type of
Class Claim/Interest Treatment
- ---------- --------------------- --------------------------------------------------
<S> <C> <C>
Not Allowed
Applicable Administrative
Claims ............... To be paid in full, in Cash, in such amounts as
are incurred in the ordinary course of business by
the Company, or in such amounts as are allowed by
the Bankruptcy Court upon (a) the later of the
Effective Date or the date of a Final Order
allowing such Administrative Claim, (b) upon such
other terms as may exist due to the ordinary
course of business of the Company, or (c) as may
be agreed upon between the holders of such
Administrative Claims and the Company.
Not Allowed
Applicable Priority
Tax Claims............ To be paid in full, in Cash, on the later of (a)
the Effective Date, (b) the date upon which there
is a Final Order allowing such Claim as an Allowed
Tax Claim, (c) the date that such Allowed Tax
Claim would have been due if the Reorganization
Case had not been commenced, or (d) upon such
other terms as may be agreed to between the
Company and the holder of any Allowed Tax Claim;
provided, however, that the Company may, at its
option, in lieu of payment in full on the
Effective Date of Allowed Tax Claims, make Cash
payments respecting Allowed Tax Claims, deferred
in accordance with Section 1129(a)(9) of the
Bankruptcy Code. 1 Allowed Other Priority Claims
Unimpaired. To be paid in full, in Cash, upon the
later of the Effective Date, or the date on which
there is a Final Order allowing any such Claim as
an Allowed Priority Claim, or upon such other
terms as may be agreed to between the Company and
any holder of an Allowed Priority Claim.
2A Allowed Bank
Group Secured
Claims ............... Impaired. To receive, on the Effective Date, Pro
Rata distributions of the New Ithaca Secured Notes
pursuant to the New Ithaca Bank Group Documents
which shall contain the terms set forth in Section
4.2.1 of the Plan.
2B Allowed General
Secured .............. Claims Unimpaired. Each holder of an Allowed
General Secured Claim will either be paid in full
on the Effective Date (or the date upon which
there is a Final Order allowing such Claim as an
Allowed Secured Claim), or will otherwise be
rendered unimpaired.
</TABLE>
- ------------
(1) This summary contains only a brief and simplified description of the
classification and treatment of Claims and Equity Interests under the Plan.
It does not describe every provision of the Plan. Accordingly, reference
should be made to the entire Disclosure Statement (including exhibits) and
the Plan for a complete description of the classification and treatment of
Claims and Equity Interests.
2
<PAGE>
<TABLE>
<CAPTION>
Type of
Class Claim/Interest Treatment
- ---------- --------------------- --------------------------------------------------
<S> <C> <C>
3 Allowed General
Unsecured Claims .... Unimpaired. To the extent not satisfied by the
Company in the ordinary course of business prior
to the Effective Date, in full and final
satisfaction of such claim, the legal, equitable,
and contractual rights to which such Allowed
General Unsecured Claim entitles the holder
thereof shall be left unimpaired and, accordingly,
shall be satisfied on the latest of (i) the
Effective Date, (ii) the date a General Unsecured
Claim becomes an Allowed Claim, (iii) the date an
Allowed General Unsecured Claim becomes due and
payable in the ordinary course of business
consistent with the Company's ordinary payment
practices, and (iv) the date on which the Company
and the holder of such Allowed General Unsecured
Claim agree in writing. At the option of the
Company, the treatment provided under the Plan
will result in the payment of any Allowed General
Unsecured Claim in Cash in an amount equal to such
Allowed General Unsecured Claim (which payment
shall include interest, only to the extent to
which the holder thereof may be contractually
entitled, accrued through the date of payment).
4 Allowed
Noteholder Claims ... Impaired. As of the Effective Date, all Notes
shall be cancelled, annulled and extinguished, and
each holder of an Allowed Noteholder Claim shall
receive, in accordance with the terms of the Plan,
its Pro Rata share of 10,000,000 shares of New
Ithaca Common Stock (representing, in the
aggregate, 100% of the outstanding shares of New
Ithaca Common Stock).(2)
5 Equity Interests
in the Company ...... Impaired. On the Effective Date, all Equity
Interests in the Company shall be cancelled,
annulled and extinguished, and holders of Equity
Interests shall not be entitled to receive or
retain any property or interest in property under
the Plan on account of such Equity Interests. In
addition, the Intercompany Compromise and
Settlement will be approved and assumed. (See
Section III.D.4. of this Disclosure Statement).
</TABLE>
- ----------
(2) The percentage of New Ithaca Common Stock to be issued to holders of
Allowed Noteholder Claims is subject to dilution by shares of New Ithaca
Common Stock to be issued in accordance with the Employee Incentive Plan,
and such other shares as may be authorized and issued pursuant to the New
Ithaca Charter.
THIS DISCLOSURE STATEMENT CONTAINS A SUMMARY OF CERTAIN PROVISIONS OF THE
PLAN AND CERTAIN OTHER DOCUMENTS AND CERTAIN FINANCIAL INFORMATION. WHILE THE
COMPANY BELIEVES THAT THESE SUMMARIES ARE FAIR AND ACCURATE AND PROVIDE ADEQUATE
INFORMATION WITH RESPECT TO THE DOCUMENTS SUMMARIZED, SUCH SUMMARIES ARE
QUALIFIED TO THE EXTENT THAT THEY DO NOT SET FORTH THE ENTIRE TEXT OF SUCH
DOCUMENTS. ALTHOUGH THE COMPANY HAS MADE EVERY EFFORT TO BE ACCURATE, EACH
HOLDER OF A CLAIM OR EQUITY INTEREST SHOULD REVIEW THE PLAN AND THE OTHER
EXHIBITS HERETO BEFORE CASTING A BALLOT. IN THE EVENT OF ANY INCONSISTENCY OR
DISCREPANCY BETWEEN A DESCRIPTION IN THIS DISCLOSURE STATEMENT AND THE TERMS AND
PROVISIONS OF THE PLAN OR THE OTHER DOCUMENTS AND FINANCIAL INFORMATION TO BE
INCORPORATED THEREIN BY REFERENCE, THE PLAN SHALL GOVERN FOR ALL PURPOSES.
THE STATEMENTS AND FINANCIAL INFORMATION CONTAINED HEREIN HAVE BEEN MADE AS
3
<PAGE>
OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED. HOLDERS OF CLAIMS AND EQUITY
INTERESTS REVIEWING THIS DISCLOSURE STATEMENT SHOULD NOT INFER AT THE TIME OF
SUCH REVIEW THAT THERE HAVE BEEN NO CHANGES IN THE FACTS SET FORTH HEREIN UNLESS
SO SPECIFIED. WHILE THE COMPANY HAS MADE EVERY EFFORT TO DISCLOSE WHERE CHANGES
IN PRESENT CIRCUMSTANCES COULD REASONABLY BE EXPECTED TO AFFECT MATERIALLY THE
VOTE ON THE PLAN, THIS DISCLOSURE STATEMENT IS QUALIFIED TO THE EXTENT THAT
CERTAIN EVENTS, SUCH AS THOSE MATTERS DISCUSSED IN THE SECTION BELOW ENTITLED
"RISK FACTORS", DO OCCUR.
NO PARTY IS AUTHORIZED TO GIVE ANY INFORMATION WITH RESPECT TO THE PLAN
OTHER THAN THAT CONTAINED IN THIS DISCLOSURE STATEMENT. NO REPRESENTATIONS
CONCERNING THE COMPANY, ITS FUTURE BUSINESS OPERATIONS OR THE VALUE OF ITS
ASSETS HAVE BEEN AUTHORIZED BY THE COMPANY OTHER THAN AS SET FORTH IN THIS
DISCLOSURE STATEMENT. ANY INFORMATION, REPRESENTATIONS OR INDUCEMENTS MADE TO
OBTAIN YOUR ACCEPTANCE OF THE PLAN WHICH ARE INCONSISTENT WITH THE INFORMATION
CONTAINED HEREIN SHOULD NOT BE RELIED UPON IN VOTING ON THE PLAN.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED TO SOLICIT VOTES FOR A PLAN OF
REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE AND MAY NOT BE RELIED
UPON OR USED FOR ANY OTHER PURPOSE.
C. Voting and Confirmation Procedures
This Disclosure Statement (and the exhibits hereto), together with the
accompanying form of ballot, form of master ballot and the related materials
delivered together herewith, are being furnished for purposes of soliciting
votes on the Plan to (i) holders of Notes whose respective names (or the names
of whose nominees) appear as of the Record Date on the security holder lists
maintained by the Trustee pursuant to the Indenture, and (ii) holders of Bank
Group Secured Claims (collectively, with the Noteholders, the "Impaired
Creditors").(3)
All votes to accept or reject the Plan must be cast by using the form of
ballot (the "Ballot") or, in the case of a brokerage firm holding Notes in its
own name on behalf of a beneficial owner, the master ballot (the "Master
Ballot"), enclosed with this Disclosure Statement. No votes other than ones
using such Ballots will be counted except to the extent the Bankruptcy Court
orders otherwise. Consistent with the provisions of Rule 3018 of the Bankruptcy
Rules, the Company has fixed 5:00 p.m. (New York City time) on July 26, 1996
(the "Disclosure Statement Record Date") as the time and date for the
determination of holders of record of Claims who are entitled to (i) receive a
copy of this Disclosure Statement and all of the related materials, and (ii) to
vote to accept or reject the Plan.
1. Who May Vote
Under the Bankruptcy Code, impaired classes of claims or interests are
entitled to vote to accept or reject a plan of reorganization. A class which is
not "impaired" is deemed to have accepted the Plan and need not vote. Under the
Bankruptcy Code, a class is "impaired" unless the legal, equitable and
contractual rights to which the holders of claims or interests in such Class are
entitled are not modified. For purposes of the Plan, holders of Claims in
Classes 2A and 4 are impaired and are entitled to vote on the Plan.
2. Voting Instructions
A Ballot to be used for voting to accept or reject the Plan accompanies
this Disclosure Statement. After carefully reviewing the Plan and this
Disclosure Statement (including the attached exhibits) please indicate your
acceptance or rejection of the Plan on the Ballot and return it in the enclosed
envelope addressed to:
Ithaca Industries, Inc. Plan
c/o Bankruptcy Services, Inc.
70 East 55th Street
6th Floor
New York, New York 10022
- ----------
(3) Ballots are only being provided to holders of Claims in Classes that are
impaired and entitled to vote under the Plan.
4
<PAGE>
BALLOTS MUST BE RECEIVED ON OR BEFORE 4:00 P.M. NEW YORK CITY TIME ON
SEPTEMBER 30, 1996 (THE "VOTING DEADLINE"). ANY BALLOT WHICH IS NOT EXECUTED BY
A DULY AUTHORIZED PERSON SHALL NOT BE COUNTED. THE COMPANY EXPRESSLY RESERVES
THE RIGHT TO EXTEND (IN ITS SOLE DISCRETION AND ON A DAILY BASIS IF NECESSARY),
THE VOTING DEADLINE UNTIL THE REQUISITE VOTE CONDITION HAS BEEN SATISFIED.(4)
ANY BALLOT WHICH IS EXECUTED BY THE HOLDER OF AN ALLOWED CLAIM BUT WHICH DOES
NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL NOT BE COUNTED.
If you have any questions regarding the procedures for voting on the Plan,
please call the Company's voting agent:
Bankruptcy Services, Inc.
70 East 55th Street
6th Floor
New York, New York 10022
(212) 376-8494
Attn: Ms. Laura Campbell
3. Acceptance or Rejection of the Plan
Under the Bankruptcy Code, a voting Class of Claims is deemed to have
accepted the Plan if it is accepted by creditors in such Class who, of those
voting on the Plan, hold at least two-thirds in amount and more than one-half in
number of the Allowed Claims of such Class. A voting Class of Equity Interests
is deemed to have accepted the Plan if it is accepted by holders of Equity
Interests who hold at least two-thirds in amount of the Equity Interests of such
Class that have actually voted on the Plan.
If the Plan is not accepted by all impaired Classes of Allowed Claims, the
Plan may still be confirmed by the Bankruptcy Court pursuant to Section 1129(b)
of the Bankruptcy Code if (i) the Plan has been accepted by at least one
impaired Class of Claims, and (ii) the Bankruptcy Court determines, among other
things, that the Plan "does not discriminate unfairly" and is "fair and
equitable" with respect to each non-accepting impaired Class. If the Plan is not
accepted by all impaired Classes of Allowed Claims, the Company may ask the
Bankruptcy Court to find that the Plan does not discriminate unfairly and is
fair and equitable with respect to each impaired Class that has not accepted the
Plan.
4. Counting of Ballots and Master Ballots for Determining Acceptance of the
Plan
The Company intends to count all Ballots and Master Ballots received prior
to the Voting Deadline for purposes of determining whether each impaired Class
that is entitled to vote has accepted or rejected the Plan. Bankruptcy Rule
3018(b) prescribes the conditions that must be satisfied in order to count the
ballots solicited with respect to a plan of reorganization prior to the
commencement of a chapter 11 case. The rule requires that (i) such chapter 11
plan and a related disclosure statement must be disseminated to substantially
all impaired creditors and impaired equity holders, (ii) the time prescribed for
voting on such a plan must not be unreasonably short, and (iii) the solicitation
must be conducted in compliance with all applicable non-bankruptcy laws, rules,
or regulations or, if there are no such applicable laws, rules, or regulations,
that the disclosure statement for such plan contain "adequate information."
Section 1125 of the Bankruptcy Code defines "adequate information" as
information of a kind and in sufficient detail as far as is reasonably
practicable in light of the nature and history of a company and the condition of
such company's books and records, that would enable a hypothetical reasonable
investor typical of holders of claims or equity interests of the relevant class
to make an informed judgment about the plan of reorganization.
The Company believes that, with respect to the Plan, all the requirements
of Bankruptcy Rule 3018(b) will be satisfied. This Disclosure Statement and the
- -----------
(4) If the Voting Deadline is so extended, the period during which Ballots and
Master Ballots will be accepted will terminate at 4:00 p.m., New York City
time, on such extended date. Except to the extent permitted by the
Bankruptcy Court, Ballots or Master Ballots which are received after the
Voting Deadline (as extended) will not be accepted or used in connection
with the Company's request for confirmation of the Plan (or any permitted
modification thereof).
5
<PAGE>
Plan (a copy of which is annexed hereto as Exhibit A), together with all of the
accompanying materials, are being transmitted to all known Impaired Creditors.
The solicitation period for voting on the Plan is approximately 30 days, which
is approximately the time normally prescribed by the Securities and Exchange
Commission for an exchange offer pursuant to Rule 13e-4 and Regulation 14D, as
the case may be, under the Securities Exchange Act of 1934, as amended. The
Company believes that this Disclosure Statement contains sufficient information
for all impaired holders of Claims to cast an informed vote to accept or reject
the Plan.
5. Confirmation Hearing
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court, after
notice, to hold a Confirmation Hearing. Section 1128(b) of the Bankruptcy Code
provides that any party-in-interest may object to confirmation of the Plan.
Should the Company file a petition for relief under chapter 11 of the
Bankruptcy Code and seek confirmation of the Plan, the Bankruptcy Court will
schedule a Confirmation Hearing. Notice of the Confirmation Hearing will be
provided to all holders of Claims and to all Equity Interests or their
representatives (the "Confirmation Notice"). Objections to confirmation must be
filed with the Bankruptcy Court by the date designated in the Confirmation
Notice and are governed by Bankruptcy Rules 3020(b) and 9014, and Local Rules of
the Bankruptcy Court. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND
FILED IT MAY NOT BE CONSIDERED BY THE BANKRUPTCY COURT.
II.
BACKGROUND AND EVENTS PRECIPITATING THE SOLICITATION
A. Overview of the Company and its Business Operations
Ithaca is a leading designer, marketer and manufacturer of private label
women's and girls' underwear, men's and boys' underwear, hosiery and T-shirt
products. Ithaca manufactures its products at approximately 19 plants in the
southeastern United States, Central America and the Caribbean. A portion of the
Company's goods are sewn by contractors in Asia and Latin America. Some are
assembled by the Company's wholly-owned subsidiary, Ithaca, S.A., a Honduran
corporation, which operates three sewing plants in that country, from components
that are cut in the United States.(5) As of February 2, 1996, the Company had
approximately 9,000 employees, of which approximately 8,500 were engaged in the
manufacturing process, and approximately 500 were engaged in managerial,
administrative or sales and marketing functions.
The Company believes it is the largest manufacturer of private label
underwear and hosiery products in the United States. The Company attributes its
strong market largely to its ability to supply a wide variety of product
offerings at a number of price points, a strong presence in multiple channels of
distribution, an ability to maintain close customer relationships by developing
products and programs that suit individual customer needs, and a low cost and
flexible manufacturing capability.
The Company has four principal product lines: (i) hosiery, (ii) men's and
boys' underwear, (iii) women's and girls' underwear and (iv) T-shirts. In
marketing its products, the Company utilizes the private label names or trade
names of its customers as well as licensed brand names. The Company's products
are sold through a wide range of retail distribution channels and are offered to
the public through more than 10,000 customer outlets, including discount stores,
department stores, specialty stores, drug stores and supermarkets.
The Company was founded in 1948 in Ithaca, New York as a manufacturer of
women's underwear. Since such time, Ithaca has evolved from a specialized
producer of women's underwear for J.C. Penney to become a leading diversified
producer and marketer of undergarments to major retailers throughout the United
States. Over the years, Ithaca expanded its product lines and manufacturing
capacity, adding hosiery in 1968, and men's and boys' underwear in 1972. During
the early 1980's, Ithaca significantly broadened its customer base and further
expanded its product lines by adding T-shirts to its product lines. Ithaca now
sells a full line of white and colored T-shirts.
- -----------
(5) The Company also has one other subsidiary, Robsen Square 1800 Services
Ltd., a Canadian corporation, which is also wholly-owned by the Company.
6
<PAGE>
In 1983, Ithaca's founder sold the business to an investor group led by
Merrill Lynch Capital Partners Merrill Lynch & Co.), Butler Capital Corporation,
and certain members of the Company's senior management. In 1992, Ithaca and its
stockholders completed a transaction whereby Ithaca became (and presently is) a
wholly-owned subsidiary of Ithaca Holdings, Inc. ("Holdings"), a Delaware
corporation. Holdings was formed by affiliates of Merrill Lynch & Co., Inc. and
Butler Capital Corporation to acquire, through an indirect wholly-owned
subsidiary, the net assets of Bestform Foundations, Inc. ("Bestform"), a
manufacturer of women's intimate apparel. On November 17, 1992, Holdings
acquired Bestform, and Holdings and Ithaca Merger, Inc., a wholly-owned
subsidiary of Holdings ("Mergerco"), entered into an agreement and plan of
merger (the "Merger Agreement") pursuant to which, in December 1992, Mergerco
was merged with and into Ithaca (the "Merger") and each outstanding share of
common stock of the Company was converted into one share of common stock of
Holdings, and Ithaca became a wholly-owned subsidiary of Holdings. Pursuant to
the Merger and related transactions, stockholders of the Company at the time of
the Merger acquired approximately 68% of the total number of shares of common
stock of Holdings then outstanding. (For a detailed description of the Company
and its history see the Company's Annual Report on Form 10-K for the Fiscal Year
Ended February 2, 1996, a copy of which is annexed hereto as Exhibit "B").
B. Debt Structure of the Company
The Company's significant pre-petition financing obligations consist of the
Notes issued pursuant to the Indenture, and obligations to the Bank Group
arising under the Credit Agreement.
1. The Notes
Pursuant to the Indenture, $125,000,000 of Notes were issued as follows:
$100,000,000 in principal amount offered through Merrill, Lynch, Pierce, Fenner
& Smith Incorporated, and $25,000,000 in principal amount sold directly by the
Company to certain limited partnership investment funds advised by, and other
affiliates of, Butler Capital Corporation. (See Section II.C. of this Disclosure
Statement entitled "Background and Events Precipitating the Solicitation --
Certain Affiliate Relationships and Agreements"). A portion of the net proceeds
from the sale of the Notes were used to redeem the Company's old senior
subordinated notes aggregating approximately $45.2 million at redemption (the
"Old Senior Subordinated Notes") and old junior subordinated notes aggregating
approximately $31.7 million at redemption (the "Old Junior Subordinated Notes"),
and to pay an approximately $4.4 million prepayment penalty on the Old Junior
Subordinated Notes, of which, at the time of the redemption, approximately $45.4
million were held by the funds advised by, and affiliates of, Butler Capital
Corporation, and approximately $21.5 million were held by Merrill, Lynch
affiliated entities.
As discussed below, the Company was unable to make the December 15, 1995
interest payment due under the Notes and anticipated that it would be unable to
pay the interest due on June 15, 1996, which led to the formation of the
Informal Committee and to the negotiation of the Plan. (See Section II.E.2. of
this Disclosure Statement entitled "Background and Events Precipitating the
Solicitation -- Development of the Plan of Reorganization -- Restructuring
Negotiations with the Informal Committee").
If the Plan obtains the requisite acceptances and is confirmed by the
Bankruptcy Court, holders of Allowed Noteholder Claims will receive New Ithaca
Common Stock in exchange for the Notes (which include accrued and unpaid
interest), and the Notes and the Indenture will be cancelled. Set forth below is
a discussion of certain of the principal terms of the Notes and the Indenture.
The Notes are unsecured obligations of the Company. Interest on the Notes
accrues at the rate of 11 1/8% per annum and is payable on each June 15 and
December 15. The Notes are subordinate and subject in right of payment to the
prior payment in full, in cash or cash equivalents, of all existing and future
senior indebtedness of the Company, as defined in the Indenture, including,
among other things, borrowings from the Bank Group under the Credit Agreement
(collectively, the "Senior Indebtedness"). The Notes are senior subordinated
indebtedness of the Company ranking pari passu with all other future senior
subordinated indebtedness of the Company and senior to all future subordinated
indebtedness of the Company.
7
<PAGE>
2. The Credit Agreement
In connection with the offering of the Notes, on December 1, 1992, the
Credit Agreement was entered into among Holdings, the Company, Canadian Imperial
Bank of Commerce and Kleinwort Benson Limited, as co-agents, and Bankers Trust
Company ("BTC"), as agent, First Union National Bank of North Carolina, Marine
Midland, N.A., The Long-Term Credit Bank of Japan, New York Branch, The First
National Bank of Boston, National City Bank, The Industrial Bank of Japan,
Limited, New York Branch, The Fuji Bank, Limited, and Banque Paribas
(collectively with their successors, assigns and participants, the "Bank
Group"). Pursuant to the Credit Agreement, funds were made available to the
Company in the following components: (i) a term loan facility in the maximum
principal amount of $125,000,000 (the "Term Loan Facility"), and (ii) a
$65,000,000 revolving credit facility (the "Revolving Credit Loan Facility")
pursuant to which funds were made available to the Company in accordance with a
borrowing base formula set forth in the Credit Agreement (and which includes
loans made by BTC in its individual capacity (hereinafter, the "Swingline
Facility") in the maximum principal amount of $5,000,000). The Credit Agreement
replaced Ithaca's then existing credit facility and, among other things, enabled
Ithaca to refund its borrowing under its then existing credit facility.
In mid-1995, the Company was unable to comply with certain financial
covenants contained in the Credit Agreement. The Company was also unable to make
principal repayments due under the Term Loan Facility on January 31, April 30
and July 31, 1996. Since that time, certain of the terms of the Credit Agreement
were modified in connection with waivers of events of default agreed to by the
Company and the Bank Group. Pursuant to the Plan, the Credit Agreement will be
restructured. (See Section II.E.1. of this Disclosure Statement entitled
"Treatment of Claims and Interests Under the Plan - Class 2A -- Allowed Bank
Group Secured Claims").
Pursuant to the Term Loan Facility, the Company obtained a term loan in the
original principal amount of $125,000,000, to be repaid in twenty-four specified
quarterly installments. The Term Loan matures on October 31, 1998. As of August
20, 1996, the outstanding principal balance of the Term Loan Facility was
approximately $77,200,000.
The Revolving Credit Facility also matures on October 31, 1998. Advances
under the Revolving Credit Facility are based on a borrowing base equal to 85%
of eligible accounts receivable and 50% of eligible inventory (each as defined
in the Credit Agreement). If the amount of the borrowing and outstanding letters
of credit under the Revolving Credit Facility exceeds the borrowing base at any
time, the Company is required to reduce borrowing (and, if necessary, cash
collateralize outstanding letters of credit) by the amount of such excess. As of
August 20, 1996, the outstanding principal balance of the Revolving Credit
Facility was approximately $17,000,000 (exclusive of approximately $7,300,000 in
outstanding letters of credit).
Pursuant to the Credit Agreement, the Company may also request that BTC
issue, prior to October 31, 1998, (x) for the Company's account and for the
benefit of any holder of certain indebtedness of the Company or any of its
subsidiaries, irrevocable standby letters of credit ("Standby Letters of
Credit"), including letters of credit respecting obligations incurred in the
ordinary course of business relating to workers compensation, surety bonds, and
other similar statutory obligations, and (y) for the Company's account and for
the benefit of sellers of goods to the Company or any of its subsidiaries, an
irrevocable sight documentary letter of credit ("Trade Letters of Credit",
together with Standby Letters of Credit, collectively, the "Letters of Credit")
in support of commercial transactions of the Company and its subsidiaries. As of
August 20, 1996 there were approximately $7,300,000 in Letters of Credit
outstanding.
The Credit Agreement permits the Company to make optional prepayments, in
whole or in part, under both the Term Loan Facility and the Revolving Credit
Facility, and to cancel all or a part of the undrawn portion of the Revolving
Credit Facility, in each case without premium or penalty. The Credit Agreement
also requires mandatory prepayments of portions of the amount outstanding under
the Term Loan Facility under certain circumstances.
In addition, the Credit Agreement contains a number of customary covenants
including, among others, those restricting the incurrence of indebtedness
(including indebtedness to related parties), the creation or existence of liens,
the declaration or payment of dividends, the making of certain investments or
other payments, capital expenditures, lease payments, the repurchase or
redemption of debt and equity securities of the Company, certain transactions
8
<PAGE>
with related parties, amendments to certain corporate and other documents,
certain corporate transactions such as sales and purchases of assets, mergers or
consolidations, sale-leaseback transactions and other transactions.
Pursuant to the Credit Agreement, Holdings also agreed to certain
covenants, including, among other things, those restricting the incurrence of
additional indebtedness, the creation or existence of liens on the capital stock
of the Company, certain corporate transactions such as sales and purchases of
assets, mergers, consolidations, acquisitions (with certain exceptions), and
change in the ownership of Ithaca.
Ithaca's obligations under the Credit Agreement are secured by (i) a first
priority perfected pledge of all securities owned by the Company and (ii) a
first priority perfected lien on, and security interest in, substantially all of
the Company's tangible and intangible assets. The terms of the Credit Agreement
have been affected by certain waivers entered into by the Company and the Bank
Group. (See Section II.E.1. of this Disclosure Statement entitled "Background
and Events Precipitating the Solicitation -- Development of the Plan of
Reorganization -- Negotiations with the Bank Group".)
C. Certain Affiliate Relationships and Agreements
1. Overview of Affiliate Relationships
Stephen M. McLean has served as a director of the Company since March 1985,
and as a director of Holdings since January 1992. Mr. McLean was also a Managing
Director of the Investment Banking Division of Merrill Lynch & Co., Inc. from
1987 to 1994. He is also a partner and director of Stonington Partners, Inc., a
private investment firm, a position he has held since 1993. From 1993 to July
1994, he was a Partner of Merrill Lynch Capital Partners, Inc. ("MLCP"), a
private investment firm affiliated with Merrill Lynch & Co., Inc., and a Senior
Vice President of MLCP from 1987 to 1994. MLCP is the indirect general partner
of several limited partnership investment funds, the limited partners of which
are institutional investors, which own shares of common stock of Holdings.
Investments made by such limited partnerships are funded by the partners
thereof. In addition, Merrill Lynch & Co., Inc. co-invests in such investments
in an amount equal to 25% of what such limited partnerships invest.
MLCP is an affiliate of Merrill Lynch Interfunding, Inc., which also owns
shares of common stock of Holdings. These Merrill Lynch affiliated entities
beneficially owned 37.18% of the voting power of Holdings common stock upon the
consummation of the Merger and related transactions. In addition, approximately
$15.6 million in principal amount of Notes are held by Merrill Lynch & Co. on
its own behalf.
In exchange for services rendered as exclusive financial advisor to the
Company in connection with the replacement of the Company's existing
indebtedness and the financing of the Bestform acquisition, the Company paid
MLCP a fee of $1 million. The Company has also agreed to indemnify MLCP against
certain liabilities in connection with the services MLCP agreed to render, or to
contribute to payments MLCP may be required to make in respect thereof.
In addition, Gilbert Butler served as a Director of the Company since 1983,
and as a Director of Holdings since 1992. Mr. Butler resigned from Holdings' and
the Company's boards in November 1995, although two representatives of Butler
Capital Corporation are still members of Holdings' board. Mr. Butler is also the
managing general partner of two limited partnerships that own shares of common
stock of Holdings. These limited partnerships also serve as the respective
general partners of two limited partnership investment funds which own shares of
common stock of Holdings. (Such limited partnerships, together with another
limited partnership, the general partner of which is a partnership of which Mr.
Butler is the managing general partner, are collectively referred to herein as
the "Mezzanine Entities"). General Electric Pension Trust ("GEPT"), which
purchased shares of Company common stock at the same time as did certain of the
Mezzanine Entities and MLCP, is a limited partner of each of such investment
funds. The Mezzanine Entities beneficially owned 31.05% of the voting power of
Holdings common stock upon the consummation of the Merger and related
transactions.(6) In addition, the Butler Noteholders presently hold Notes in the
approximate principal amount of $25 million.
- ----------
(6) Besides the common stock owned by Merrill, Lynch affiliated entities, the
Mezzanine Entities and GEPT, substantially all remaining shares of Holdings
common stock is owned by certain management employees of Holdings, Ithaca
and Bestform.
9
<PAGE>
Merrill Lynch Interfunding, Inc. held 33.63% of the Company's Old Senior
Subordinated Notes and two Mezzanine Entities collectively held 44.25% of the
Old Senior Subordinated Notes. Such holders, together with GEPT, held all of the
Old Senior Subordinated Notes. The aggregate principal amount outstanding under
the Old Senior Subordinated Notes at the time of their repayment was $45.2
million and the Old Senior Subordinated Notes bore interest at the rate of
14.25%. As stated above, a portion of the net proceeds of the offering of the
Notes was used to redeem the Old Senior Subordinated Notes.
Merrill Lynch Interfunding, Inc. held 20% of the Company's Old Junior
Subordinated Notes and three Mezzanine Entities collectively held 80% of the Old
Junior Subordinated Notes. The aggregate principal amount outstanding under the
Old Junior Subordinated Notes at the time of their repayment was $31.7 million
and the Old Junior Subordinated Notes bore interest at the rate of 14.5%. As
also stated above, a portion of the net proceeds of the offering of the Notes
was used to redeem the Old Junior Subordinated Notes and to pay a prepayment
penalty thereon of approximately $4.4 million.
The Certificate of Incorporation of Holdings provides the holders of
Holdings' common stock with cumulative voting rights for the election of
directors, pursuant to which each share of Holdings' common stock carries as
many votes as there are vacancies to be filled, the stockholder being permitted
to distribute the votes for all such shares among the candidates in any way
desired. By reason of these provisions and voting agreements in a certain
stockholders agreement, MLCP and the Mezzanine Entities may use their respective
voting power to assure themselves of representation on Holdings' Board of
Directors and the Company's Board of Directors, and thereby influence the
operations of Ithaca.
2. Agreements Regarding Holdings, the Company and Bestform
Ithaca and Bestform have operated as independent companies; they have
separate credit facilities with different lenders and have different management
teams. The only significant operational arrangement currently in place between
the two companies is a license arrangement which was entered into prior to the
execution of the acquisition agreement. Other intercompany agreements include a
tax sharing agreement between Holdings and Ithaca, and a tax sharing agreement
between Holdings and Bestform. Pursuant to the Intercompany Compromise and
Settlement: (a) the license agreement shall be deemed terminated as of the date
of the Intercompany Compromise and Settlement Agreement, and neither Ithaca nor
Bestform shall have a claim against the other as a result of such termination;
(b) in anticipation of payments required to be made under the tax sharing
agreement between Holdings and Ithaca in respect of Ithaca losses utilized by
the affiliated group of which Holdings is the common parent for the Taxable
Period (as defined in such agreement) that includes the date of cancellation of
the Equity Interests and the exchange of Notes for New Ithaca Common Stock,
Holdings will agree to make estimated quarterly payments to Ithaca, out of
payments of estimated tax received from Bestform, in respect of such losses; (c)
the tax sharing agreement between Holdings and Ithaca will be terminated with
respect to taxable periods of Ithaca ending after the date of the cancellation
of the Equity Interests and the exchange of Notes for New Ithaca Common Stock;
and (d) the tax sharing agreement between Holdings and Bestform will remain in
full force and effect. (See Section III.D.4. of this Disclosure Statement
entitled "The Plan -- Description of Transactions to Be Implemented in
Connection with the Plan -- Intercompany Compromise and Settlement".)
D. Development and Implementation of Business Plan(7)
During fiscal 1996, the Company incurred covenant defaults under the Credit
Agreement. In addition, Ithaca did not make the December 15, 1995 and June 15,
1996 interest payments due on the Notes or scheduled quarterly principal
payments due under the Credit Agreement on January 31, April 30 and July 31,
1996. Gross profits decreased significantly ($28.0 million or 38%) during fiscal
1996 compared to fiscal 1995. All product categories had decreased gross profit
during the year due to lower volume and manufacturing cost increases which were
not offset by price increases. Anticipating that the current weakness in the
U.S. retail environment would persist, with severe pricing pressures likely to
continue or escalate with a corresponding adverse effect on the Company's
profitability, in the third and fourth quarters of fiscal 1996 the Company
- ----------
(7) The information contained in this section has previously been available in
public filings with the Securities and Exchange Commission.
10
<PAGE>
undertook an extensive review of its manufacturing capacity, overhead structure,
product lines and customer base.(8) The Company also analyzed its strategic
plans in connection with the utilization of its plants located in Honduras, as
well as obtaining products from the Far East.
These efforts resulted in the promulgation of a three-year business plan.
The Company has reviewed its business plan with the Bank Group and
representatives of certain Noteholders, and is in the process of implementing
such plan. In general, to enhance its performance and reduce overhead expenses,
the Company consolidated its distribution centers and production capacity to
increase efficiencies, consolidated certain plants to off-shore facilities and
accelerated the process of moving more sewing operations off-shore. As part of
its implementation of its business plan, the Company has terminated certain real
property leases and unprofitable license agreements, and made certain payments
in connection therewith. In addition, the Company reduced the number of styles
and products it had been producing, eliminated unprofitable customers and
product lines, began the process of establishing Far East outsourcing
capability, and closed selected plants.
In connection with its business plan, the Company recorded charges totaling
$51,591,000 ($33,379,000 after related income tax benefits). Such charges
related to (i) the closing and consolidation of certain manufacturing and
distribution facilities, (ii) the write-down of certain equipment associated
with closed facilities, (iii) the write-off and establishment of reserves for
inventory and accounts receivable associated with customers, product lines, and
specific products that the Company elected to discontinue manufacturing and
distributing, (iv) severance and other costs associated with plant closures and
overhead reductions, and (v) the write-off of certain impaired intangible
assets. Although there are risks associated with the business plan (see Section
VI of this Disclosure Statement entitled "Risk Factors"), the Company believes
that its restructured operations will enable it to remain competitive and expand
in areas where it has its greatest strength.
E. Development of the Plan of Reorganization
In furtherance of its restructuring efforts, the Company, together with its
legal and financial advisors, met with representatives of the Bank Group and
with representatives of certain Noteholders in order to discuss the Company's
general business and financial status, and to explore various restructuring
alternatives. To facilitate these discussions, the Bank Group formed a steering
committee (the "Bank Group Steering Committee") and certain Noteholders formed
an informal committee (the "Informal Committee").
During discussions with its creditor constituencies, the Company emphasized
the benefits of a consensual transaction, and the potential harm the
uncertainties of a protracted, contentious restructuring process could cause to
the Company's relationships with its suppliers and customers. The Plan
represents such a transaction pursuant to which: the Credit Agreement will be
restructured; the holders of Noteholder Claims will receive 100% of the equity
of Reorganized Ithaca (subject to dilution by shares of New Ithaca Common Stock
issued in accordance with the Employee Incentive Plan, or such other shares as
may be authorized and issued pursuant to the New Ithaca Charter); the Company's
other creditors will be rendered unimpaired and, if permitted by the Bankruptcy
Court, will continue to be paid in the ordinary course of business; and the
Intercompany Compromise and Settlement will be implemented.
1. Restructuring Negotiations With the Bank Group
In May 1995, in connection with a then contemplated corporate restructuring
of Holdings and its subsidiaries, Ithaca received a commitment from BTC to
provide a new $250,000,000 revolving credit facility to replace both the Credit
Agreement and Bestform's borrowings under Bestform's senior bank facility. In
connection with the contemplated refinancing, Holdings was to have contributed
all of the stock of Bestform Holdings Inc., the parent of Bestform, to Ithaca,
and thereby Bestform was to have become an indirect wholly-owned subsidiary of
- ------------
(8) Ithaca retained the firm of Alvarez & Marsal, Inc. ("A&M") as management
and financial consultants to assist in the restructuring of the Company's
operations and finances. In connection therewith, Peter Cheston, a Managing
Director of A&M, is serving as the Company's Acting Chief Operating
Officer. A&M's fees for services rendered are based on hourly rates set
forth in an engagement letter with the Company. In addition, the Company
reimburses A&M for its reasonable out-of-pocket expenses. All such fees and
expenses are billed to the Company on a monthly basis.
11
<PAGE>
Ithaca. However, in October 1995, Ithaca suspended its efforts to enter into
this new revolving credit facility because it determined that such a facility
could not, at that time, be implemented on terms that were acceptable. As a
result, Bestform did not become a subsidiary of Ithaca, and Bestform continued
to operate as an independent affiliate of Ithaca.
During fiscal 1996, Ithaca was not in compliance with certain financial
covenants in the Credit Agreement. Thereafter, following discussions with the
Bank Group, Ithaca entered into a series of waiver agreements (with the most
recent covering the period from July 1, 1996 to and including August 31, 1996)
respecting these defaults, while continuing to pursue efforts to effect a
restructuring.
In general, the waivers with the Bank Group provide for (i) restricted
availability under the Revolving Credit Facility, (ii) the computation and
payment of interest with respect to a prime-based rate (as opposed to a
LIBOR-based rate), (iii) a cash collateral arrangement pursuant to which, among
other things, the Company agreed to grant a lien to First Union National Bank of
North Carolina ("First Union"), for the benefit of the Bank Group, on all funds
on deposit with First Union (and, with the exception of certain specified
accounts with deposits not to exceed an aggregate of $600,000, agreed to
maintain all deposit and other bank accounts with First Union), (iv) a delay in
principal payments due January 31, April 30 and July 31, 1996 until the end of
the waiver period, (v) a restriction on the payment of interest due under the
Notes on December 15, 1995 and June 15, 1996 (both of which have not been paid),
(vi) the Company's payment of waiver fees to the Bank Group aggregating $375,000
(which were paid), and (vii) additional covenants regarding asset sales,
EBITDA,(9) and capital expenditures. Under the terms of the waiver effective as
of July 1, 1996, the Company had availability of approximately $10.9 million
under the Revolving Credit Facility as of August 20, 1996. The waivers from the
Bank Group provide that the failure to make the scheduled interest payment on
the Notes does not constitute a default or event of default under the Credit
Agreement unless and until the indebtedness pursuant to the Notes shall have
become due prior to its stated maturity by reason of such failure, or any
Noteholder (or trustee under the Indenture) shall have exercised any remedy
under the Indenture, or shall have initiated any legal proceeding, in respect
of, or in relation to, such failure to make the schedule interest payment. As of
the date hereof, no such action has been taken.
The Company's negotiations with the Bank Group Steering Committee have
resulted in the proposed treatment of the Bank Group Secured Claims as set forth
in Section 4.2.1 of the Plan. (See Section III.C.4. of this Disclosure Statement
entitled "The Plan -- Treatment of Claims and Interests Under the Plan -- Class
2A -- Allowed Bank Group Secured Claims".)
2. Restructuring Negotiations With the Informal Committee
Shortly after its formation, representatives of the Informal Committee
requested permission to engage, at the Company's expense, independent legal and
financial advisors to conduct due diligence, and to advise the Informal
Committee with respect to the viability of various financial restructuring
alternatives. In December 1995, the Informal Committee engaged Houlihan Lokey
Howard & Zukin, Inc. ("Houlihan Lokey") to act as its financial advisor at the
expense of the Company. Additionally, the Company agreed to pay fees and
expenses of the Informal Committee and its legal advisors, Stroock & Stroock &
Lavan. During the first quarter of calendar year 1996, representatives of
Houlihan Lokey inspected certain of the Company's properties and facilities, and
conducted due diligence with respect to the Company's business operations and
financial condition. In addition, Stroock & Stroock & Lavan analyzed the
transactions between the Company and its affiliates. (See Section II.C. of this
Disclosure Statement entitled "Background and Events Precipitating the
Solicitation -- Certain Affiliate Relationships and Agreements" for an overview
of transactions between the Company and its affiliates).
Thereafter, the Company and the Informal Committee engaged in negotiations
regarding a long-term restructuring. Ultimately, the parties agreed to the terms
of the restructuring proposed under the Plan pursuant to which the Notes would
be converted into 100% of the equity of Reorganized Ithaca (subject to dilution
for shares of New Ithaca Common Stock issued pursuant to the Employee Incentive
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(9) EBITDA stands for earnings before interest, taxes, depreciation, and
amortization.
12
<PAGE>
Plan, or such other shares as may be authorized and issued pursuant to the New
Ithaca Charter), and the Intercompany Compromise and Settlement would be
effectuated.
Representatives of the Company and its advisors, and the Informal Committee
and its advisors, mutually determined that the proposed restructuring could best
be accomplished pursuant to a pre-petition solicitation of votes to accept or
reject a voluntary plan of reorganization under chapter 11 of the Bankruptcy
Code. On July 19, 1996, the Company's Board of Directors, having unanimously
determined that consummation of the transactions contemplated by the Plan is in
the best interests of the Company, its security holders and its creditors,
authorized the commencement of the Solicitation.
3. Treatment of General Unsecured Claims
Under the Plan, General Unsecured Claims are to be rendered unimpaired. In
order to effectuate this non-impairment, the Company intends to seek authority
from the Bankruptcy Court to continue to satisfy its obligations to unsecured
creditors in the ordinary course of business, including obligations which arise
prior to the filing of the Company's Chapter 11 proceeding. If the Company is
unable to obtain such authority, the Plan may have to be amended to provide
different treatment for the holders of General Unsecured Claims. (See Section II
of this Disclosure Statement entitled "The Plan" for a detailed description of
the treatment of General Unsecured Claims under the Plan). In addition, while
the Company is continuing to review the issue with its creditor constituencies,
the Company presently anticipates requesting that the Bankruptcy Court fix a
deadline for filing of proofs of Claim against the Company, although holders of
non-disputed trade claims, holders of Bank Group Secured Claims and holders of
Notes (and possibly other creditors) will not be required to file proofs of
claim.
III.
THE PLAN
A. General
The following is a summary intended as a brief overview of the Plan and is
qualified in its entirety by reference to the full text of the Plan, a copy of
which is annexed hereto as Exhibit "A". All capitalized terms used in this
section shall have the meanings ascribed to them in the Plan unless otherwise
noted. Holders of Claims and Equity Interests are respectfully referred to the
relevant provisions of the Bankruptcy Code and are encouraged to review the Plan
and this Disclosure Statement with their counsel. In general, a Chapter 11 plan
of reorganization must (i) divide claims and interests into separate categories
and classes, (ii) specify the treatment that each category and class is to
receive under such plan, and (iii) contain other provisions necessary to
implement the reorganization of a debtor.
A chapter 11 plan may specify that the legal, equitable and contractual
rights of the holders of claims or equity interests in certain classes are to
remain unchanged by the reorganization effectuated by the Plan. Such classes are
referred to as "unimpaired" and, because of such favorable treatment, are deemed
to vote to accept the plan. Accordingly, it is not necessary to solicit votes
from holders of claims or equity interests in such "unimpaired" classes. Under
the Company's Plan, the Class of General Secured Claims and the Class of General
Unsecured Claims are unimpaired and, therefore, are deemed to have accepted the
Plan.
If the Requisite Vote Condition is satisfied, the Company intends to
commence (but reserves the absolute right not to commence) a voluntary chapter
11 case. At that time, the Company intends to file with the Bankruptcy Court its
voluntary petition for relief under chapter 11 of the Bankruptcy Code, the Plan
(or any permitted modification thereof), and the Ballots and Master Ballots
received pursuant to the Solicitation. The Company will then request the
Bankruptcy Court to schedule a hearing to consider whether the Plan meets all
the requirements for Confirmation under the Bankruptcy Code. In the event that
any Class or Classes of Claims or Equity Interests reject(s) the Plan, upon the
Company's request, the Bankruptcy Court may nevertheless confirm the Plan if
certain minimum treatment standards are met with respect to such Class or
Classes. (See Section IV.B.3. of this Disclosure Statement entitled "Acceptance
and Confirmation of the Plan--Confirmation--Confirmation Without Acceptance By
All Impaired Classes".)
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<PAGE>
The Company believes that (i) under the Plan, creditors will obtain a
greater recovery from the Company than the recovery which otherwise would be
obtained if the assets of the Company were liquidated under chapter 7 of the
Bankruptcy Code, and (ii) the Plan will enable the Company to continue its
business operations as a viable going concern and enhance the Company's ability
to service its debt obligations and fund its capital expenditures.
B. Classification of Claims and Interests
Section 1122 of the Bankruptcy Code provides that a plan of reorganization
shall classify the claims of a debtor's creditors and interest holders. In
compliance with Section 1122, the Plan divides the holders of Claims and Equity
Interests into two categories and six Classes, and sets forth the treatment
offered to each Class.(10) These Classes take into account the differing nature
and priority of claims against the Company. Section 101(5) of the Bankruptcy
Code defines "claim" as a "right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured" or a
"right to an equitable remedy for breach of performance if such breach gives
rise to a right to payment whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured." A "claim" against a debtor also includes a
claim against property of the debtor, as provided in Section 102(2) of the
Bankruptcy Code. An interest is an equity interest in a debtor.
For the holder of a claim to participate in a reorganization plan and
receive the treatment offered to the class in which it is classified, its claim
must be allowed. Under the Plan, an Allowed Claim is defined as: (a) a Claim
that has been listed by the Company in its Schedules and (i) is not listed as
disputed, contingent or unliquidated, and (ii) is not a Claim as to which a
proof of Claim has been filed; (b) a Claim as to which a timely proof of Claim
has been filed as of the Bar Date and (i) no objection thereto, or application
to equitably subordinate or otherwise limit recovery, has been made on or before
any applicable deadline, or (ii) if an objection thereto, or application to
equitably subordinate or otherwise limit recovery, has been interposed, the
extent to which such Claim (whether in whole or in part) has been allowed by a
Final Order; (c) a Claim arising from the recovery of property under section 550
or 553 of the Bankruptcy Code and allowed in accordance with section 502(h) of
the Bankruptcy Code; or (d) any Claim allowed under the Plan. Under the Plan, an
Allowed Equity Interest is an Equity Interest scheduled by the Company.
C. Treatment of Claims and Interests Under the Plan
The Plan segregates the various Claims against, and the Equity Interests
in, the Company into a category of Allowed Administrative Claims, a category of
Allowed Tax Claims; a Class of Allowed Priority Claims (Class 1); a Class of
Allowed Secured Claims (Class 2), consisting of two subclasses: Allowed Bank
Group Secured Claims (Class 2A), and all other Allowed General Secured Claims
(Class 2B); a Class of Allowed General Unsecured Claims (Class 3); a Class of
Allowed Noteholder Claims (Class 4); and a Class of Equity Interests (Class 5).
Under the Plan, Claims in Classes 1, 2B and 3 are unimpaired, and Claims in
Classes 2A and 4, and Equity Interests in Class 5, are impaired. In the
Company's opinion, the treatment accorded to the impaired Classes of Creditors
represents the best treatment which can be provided to these Claimants under the
circumstances and is superior to the treatment which would be afforded to such
Claimants in the event of a liquidation of the Company. Set forth below is a
summary of the Company's Plan, a copy of which is annexed hereto and to which
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(10) A debtor is required under Section 1122 of the Bankruptcy Code to classify
the claims and interests of its creditors and interest holders into classes
that contain claims and interests that are substantially similar to the
other claims or interests in such class. While the Company believes that it
has classified all Claims and Equity Interests in compliance with the
provisions of Section 1122 of the Bankruptcy Code, it is possible that a
holder of a Claim or interest may challenge the Company's classification of
Claims or Equity Interests and the Bankruptcy Court may find that a
different classification is required for the Plan to be confirmed. In such
event, it is the present intent of the Company, to the extent permitted by
the Bankruptcy Court, to modify the Plan to provide for whatever reasonable
classification might be required by the Bankruptcy Court for Confirmation,
and to use the acceptances received by the Company from any holder of a
Claim pursuant to this solicitation for the purpose of obtaining the
approval of the Class or Classes of which such holder of a Claim is
ultimately deemed to be a member.
14
<PAGE>
reference is made. This summary is qualified in its entirety by the full text of
such document. In the event of an inconsistency between the Plan and the
description contained herein, the terms of the Plan shall govern. The Plan is
complicated and substantial. Time should be allowed for its analysis;
consultation with a legal and/or financial advisor is recommended and should be
considered.
1. Category 1--Allowed Administrative Claims
Administrative Claims include the actual and necessary costs and expenses
incurred during a chapter 11 case. Such expenses may include costs incurred in
the operation of the Company's business after the commencement of its chapter 11
case and the actual reasonable fees and expenses of Professionals retained by
the Company, the Informal Committee or any statutory committee appointed to
serve in the Company's chapter 11 case.
Pursuant to the Plan, all Administrative Claims are to be paid in full, in
Cash, in such amounts as are incurred in the ordinary course of business by the
Company, or in such amounts as such Administrative Claims are allowed by the
Bankruptcy Court upon (a) the later of the Effective Date or the date upon which
there is a Final Order allowing such Administrative Claim, (b) such other terms
as may exist in the ordinary course of the Company's business or (c) as may be
agreed upon between the holders of such Administrative Claims and the Company.
All final applications for Professional Fees for service rendered in connection
with the Reorganization Case and the Plan prior to the Confirmation Date shall
be filed with the Bankruptcy Court within thirty (30) days after the
Confirmation Date. Payments respecting final Professional Fee applications shall
be made from the Professional Fee Reserve within two (2) Business Days following
the Bankruptcy Court's authorization thereof. All professional fees for services
rendered in connection with the Reorganization Case and the Plan after the
Confirmation Date, including those relating to the resolution of Disputed
Claims, shall be paid by Reorganized Ithaca without further Bankruptcy Court
authorization. Notwithstanding anything in the Plan to the contrary, (i) the
reasonable fees and expenses incurred on or after the Filing Date by the counsel
(i.e., Stroock & Stroock & Lavan) and financial advisors (i.e., Houlihan, Lokey)
retained by the Informal Committee, upon agreement with Ithaca, prior to the
Filing Date (together with the reasonable fees and expenses of local counsel
with respect to the Reorganization Case), and (ii) the reasonable fees and
expenses of the Indenture Trustee arising on or after the Filing Date which are
required to be paid by the Company pursuant to the Indenture, shall be paid by
the Company and/or Reorganized Ithaca as Administrative Claims in the ordinary
course of the Company's business (but in no event later than the Effective
Date), without application by or on behalf of any such parties to the Bankruptcy
Court and without notice and a hearing, unless specifically required by the
Bankruptcy Court. If Reorganized Ithaca and either any such professional
retained by the Informal Committee or the Indenture Trustee, as the case may be,
cannot agree on the amount of fees and expenses to be paid to such party, the
amount of any such fees and expenses shall be determined by the Bankruptcy
Court.
2. Category 2-- Allowed Tax Claims
Tax Claims means the Allowed unsecured claims of governmental units
entitled to a priority in right of payment under Section 507(a)(8) of the
Bankruptcy Code. All Allowed Tax Claims are to be paid by the Debtor in full, in
Cash, on the later of (a) the Effective Date, (b) the date on which there is a
Final Order allowing such Claim as a Tax Claim, (c) the date that such Allowed
Tax Claim would have been due if the Reorganization Case had not been commenced,
or (d) upon such other terms as may be agreed to between the Company and the
holder of any Allowed Tax Claim; provided, however, that (i) the Company may, at
its option, in lieu of payment in full of Allowed Tax Claims on the Effective
Date, make Cash payments respecting Allowed Tax Claims, deferred to the extent
permitted by Section 1129(a)(9)(C) of the Bankruptcy Code, and, in such event,
interest shall be paid on the unpaid portion of such Allowed Tax Claim at a rate
to be agreed to by the Company and the appropriate governmental unit or, if they
are unable to agree, as determined by the Bankruptcy Court; and (ii) if such
Allowed Tax Claim is for a tax assessed against property of the estate, such
Claim will not exceed the value of the interest of the estate in such property;
and, in the event an Allowed Tax Claim may also be classified as an Allowed
Secured Claim, the Company may, at its option, elect to treat Allowed Tax Claims
as Secured Claims. Notwithstanding the foregoing, all Allowed Tax Claims that by
their terms become due and payable after the Effective Date shall be paid when
due.
15
<PAGE>
The Company believes that it is current on all taxes that are or will have
become due and payable prior to the Filing Date.
3. Class 1--Allowed Priority Claims (Unimpaired)
Priority Claims include the Allowed Unsecured Claims entitled to priority
in right of payment pursuant to Section 507 of the Bankruptcy Code. Pursuant to
the Plan, all Allowed Priority Claims shall be paid in full, in Cash, upon the
later of the Effective Date, or the date on which there is a Final Order
allowing any such Claim as an Allowed Priority Claim, or upon such other terms
as may be agreed to between the Company and any holder of an Allowed Priority
Claim.
As of the date hereof, the Company does not anticipate that there will be a
significant amount of Allowed Priority Claims on the Effective Date.
4. Class 2A--Allowed Bank Group Secured Claims (Impaired)
On the Effective Date, each holder of an Allowed Bank Group Secured Claim
shall receive, in respect of such Allowed Secured Claim, its Pro Rata share of
the New Ithaca Secured Notes pursuant to the New Ithaca Bank Group Documents
which shall contain the following principal terms:
Borrower: Reorganized Ithaca
Agent: Bankers Trust Company
Co-Agent: Canadian Imperial Bank of Commerce and
Kleinwort Benson Limited
Lenders: Current lender parties to the Credit
Agreement (the "Lenders"), each of which
shall commit to make available its pro rata
portion (as presently calculated under the
Credit Agreement) of the term loan and
revolving credit facility described below.
Term Loan
Principal: $55,000,000 (equals current outstanding
principal of the term loan under the Credit
Agreement minus $22,200,000 "transferred" to
revolving credit commitment as described
below)
Revolving Credit
Commitment: $77,200,000 in the aggregate (inclusive of
(i) outstanding unpaid balance of any
pre-petition revolving credit loans and
post-petition debtor-in-possession financing,
all of which shall be paid or otherwise
satisfied with the proceeds of the revolving
credit commitment, and (ii) and $22,200,000
"transferred" from outstanding term loan).
Commitment will be reduced to (i) $63,000,000
for 30 consecutive days during the period
beginning on each December 1 and ending on
the immediately following January 31 and (ii)
$68,000,000 for 30 consecutive days beginning
on each May 1 and ending on the immediately
following June 30. The revolving credit
commitment will include a $25,000,000 letter
of credit subfacility.(11)
Maturity: August 31, 1999
Commitment Fee: 0.5% of unused revolving credit commitment
per annum.
Other Fees and
Expenses: Customary Agent's fees and letter of credit
fees, and reasonable legal and other expenses
of Agent, Co-Agents and Lenders.
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(11) Unused availability under the letter of credit subfacility may be used for
direct borrowings.
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Non-default
interest rate: Base Rate (as defined in the Credit
Agreement) plus 1.5%
As of each of the dates set forth below,
non-default interest rate will cumulatively
increase by the corresponding percentage, if
for the fiscal year ending on such date,
Ithaca did not (i) achieve EBITDA target set
forth in its revised business plan dated May
7, 1996 (the "Business Plan") and (ii) make
principal payments (other than regularly
scheduled amortization payments) of at least
$5,000,000.
January 31, 1997 0.25%
January 31, 1998 0.50%
January 31, 1999 0.50%
Borrowing Base: Total outstanding revolving credit loans plus
letters of credit will not exceed (i) 85% of
eligible receivables (to be defined in a
manner satisfactory to the Lenders), plus
(ii) 50% of eligible inventory (to be defined
in a manner satisfactory to the Lenders).
Outstanding trade letters of credit will be
added to eligible inventory, so long as the
Lenders' interest in the related inventory is
capable of being perfected to the Lenders'
satisfaction.
Term Loan Scheduled
Amortization: January 31, 1997 $2,000,000
January 31, 1998 $5,000,000
January 31, 1999 $4,000,000
August 31, 1999 $44,000,000
Term Loan Mandatory
Prepayments: Term Loan will be prepaid from:
-- 100% of excess cash flow (to be defined in a
manner satisfactory to the Lenders),
-- 100% of net cash flow and sale proceeds from
discontinued operations in excess of amounts
contemplated in the Business Plan,
-- 100% of net cash proceeds of other
transactions not in the ordinary course of
business, including equity issuances and
asset sales other than those described above,
and
-- 100% of income tax refunds in excess of
amounts contemplated in the Business Plan.
All mandatory prepayments will be applied in
inverse order of maturity.
Accrued interest: Accrued and unpaid default interest on
outstanding loans under the Credit Agreement
to be paid in Cash on Effective Date solely
with respect to the Company's default in
making principal payments due on January 31,
April 30, July 31, 1996 and (if the same
occurs prior to the Filing Date) October 31,
1996, respectively. (Non-default interest
will be paid in Cash on a current basis prior
to and during the Reorganization Case.)
Collateral: Lien on all stock and assets owned by Ithaca
and its subsidiaries (including bank
accounts), plus pledge of Ithaca stock (if
Ithaca stock continues to be wholly-owned by
a holding Company).
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Financial covenants:
Capital expenditures: $6,000,000 maximum per fiscal year. 90% of
the unused amount originally allocated to any
fiscal year may be carried over only to the
next fiscal year.
Consolidated Fixed
Charge Coverage
Ratio: -- Nine months ended October 31, 1996: 0.8x
-- Fiscal quarters (on rolling four-quarter
basis):
4th quarter 1997 0.8x
1st quarter 1998 0.85x
2nd quarter 1998 0.95x
3rd quarter 1998 0.95x
4th quarter 1998
and thereafter 1.0x
-- Definition in Credit Agreement will be
modified to include credit for tax refunds
received during measurement period (but only
to the extent that the amount of such refunds
does not exceed taxes paid during such
period).
Minimum EBITDA
(85% of
Business Plan): -- Nine months ended October 31, 1996:
$14,700,000
-- Fiscal quarters (on rolling four-quarter
basis):
4th quarter 1997 $16,000,000
1st quarter 1998 $16,500,000
2nd quarter 1998 $19,100,000
3rd quarter 1998 $21,300,000
4th quarter 1998 $24,000,000
1st quarter 1999 $26,300,000
2nd quarter 1999 $28,000,000
3rd quarter 1999 $30,200,000
4th quarter 1999
and thereafter $31,500,000
Consolidated Interest
Coverage Ratio (85%
of Business Plan): -- Nine months ended October 31, 1996: 1.3x
-- Fiscal quarters (on rolling four-quarter
basis):
4th quarter 1997 1.3x
1st quarter 1998 1.4x
2nd quarter 1998 1.6x
3rd quarter 1998 1.8x
4th quarter 1998 2.0x
1st quarter 1999 2.2x
2nd quarter 1999 2.4x
3rd quarter 1999 2.7x
4th quarter 1999
and thereafter 2.9x
-- Definition in Credit Agreement will be
modified to refer to "EBITDA" instead of
"EBITA".
Cap on Cash Holdings: $5,000,000 cap (from current waiver) will
remain in effect.
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Other terms: Representations and warranties, conditions
precedent, affirmative and negative
covenants, events of default and other terms
of the New Ithaca Bank Group Documents to be
satisfactory to the Lenders. Without limiting
the foregoing, (i) conditions precedent will
include (a) occurrence of the Effective Date
pursuant to Article VIII of the Plan, (b)
completion of a borrowing base audit (at
Ithaca's expense) by an accounting firm
selected by the Lenders, with results thereof
to be satisfactory to the Lenders, (c)
payment in full in Cash of unpaid reasonable
legal fees and expenses of Agent, Co-Agents
and Bank Group (which fees and expenses shall
be so payable without application to, or
approval by, the Bankruptcy Court) and (d)
continued employment of management reasonably
acceptable to the Lenders, and (ii) the New
Ithaca Bank Group Documents will include
reporting requirements set forth in current
waiver.
As of the date hereof, the Company estimates that the aggregate amount of
Allowed Bank Group Secured Claims will be $104,800,000 on the Effective Date
(taking into account payments that are anticipated to be made during the
Reorganization Case pursuant to the cash collateral arrangements described
below), consisting of all principal outstanding under the Credit Agreement plus
interest accrued thereon through the Filing Date. The Company anticipates that,
on or about the Filing Date, it will enter into cash collateral and (if
applicable) debtor-in-possession financing arrangements with the Bank Group
(which will be submitted for approval to the Bankruptcy Court) pursuant to
which, among other things, (i) the Company will be authorized to continue to use
cash collateral of the Bank Group during the post-petition period, and (ii) the
Company will be required to pay pre-petition and post-petition fees, expenses
and interest to the Bank Group through the Effective Date of the Plan.
5. Class 2B--Allowed General Secured Claims (Unimpaired)
As to each Allowed General Secured Claim, at the Debtor's option, either:
(a) On the later of the Effective Date or the date upon which there is a
Final Order allowing such Claim as an Allowed Secured Claim (i) any default,
other than of the kind specified in Section 365(b)(2) of the Bankruptcy Code,
shall be cured; (ii) the maturity of the Claim shall be reinstated as the
maturity existed before any default; (iii) the holder of the Claim shall be
compensated for any damage incurred as a result of any reasonable reliance by
the holder on any provision that entitled the holder to accelerate maturity of
the Claim; and (iv) the other legal, equitable, or contractual rights to which
the Claim entitles the holder shall not otherwise be altered; provided, however,
that as to any Allowed Secured Claim which is a nonrecourse claim and exceeds
the value of the Collateral securing the Claim, the Collateral may be sold at a
sale at which the holder of such Claim has an opportunity to bid; or
(b) on the Effective Date, or on such other date thereafter as may be
agreed to by the Company and the holder of such Claim, the Company shall
transfer and deliver the Collateral securing such Claim to the holder thereof in
full satisfaction and release of such Claim; or
(c) on the later of Effective Date or the date upon which there is a Final
Order allowing such Claim as an Allowed Secured Claim, the holder of such Claim
shall receive, on account of such Claim, Cash equal to its Allowed Secured
Claim, or such lesser amount to which the holder of such Claim shall agree, in
full satisfaction and release of such Claim.
As of the date hereof, the Company does not believe there will be any
Allowed General Secured Claims on the Effective Date.
6. Class 3--Allowed General Unsecured Claims (Unimpaired)
To the extent not satisfied by the Company in the ordinary course of
business prior to the Effective Date, in full and final satisfaction of such
claim, the legal, equitable, and contractual rights to which an Allowed General
Unsecured Claim entitles the holder thereof shall be left unimpaired and,
accordingly, shall be satisfied on the latest of (a) the Effective Date, (b) the
date a General Unsecured Claim becomes an Allowed Claim, (c) the date an Allowed
General Unsecured Claim becomes due and payable in the ordinary course of the
Company's business consistent with the Company's ordinary payment practices, or
(d) the date on which the Company and the holder of such Allowed General
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Unsecured Claim otherwise agree in writing. At the option of the Debtor, the
treatment provided in the Plan will result in the payment of any Allowed General
Unsecured Claim in Cash in an amount equal to such Allowed General Unsecured
Claim (which payment shall include interest, only to the extent to which the
holder of such a Claim may be contractually entitled, accrued through the date
of payment).
The Company estimates that its accounts payable on the Filing Date will be
approximately $16,000,000 in the aggregate. On the Filing Date, the Company
intends to request Bankruptcy Court authorization to continue to satisfy all
pre-petition General Unsecured Claims in the ordinary course of business. As a
result, the Company does not anticipate making significant payments to holders
of General Unsecured Claims on the Effective Date.
7. Class 4--Allowed Noteholders' Claims (Impaired)
All Notes shall be cancelled, annulled and extinguished as of the Effective
Date and each holder of an Allowed Noteholder Claim shall receive, in accordance
with Section 6.11 of the Plan, its Pro Rata share of 10,000,000 shares of New
Ithaca Common Stock issued pursuant to the New Ithaca Charter. The New Ithaca
Common Stock issued to holders of Allowed Noteholder Claims pursuant to the Plan
will represent, in the aggregate, 100% of the outstanding shares of New Ithaca
Common Stock on the Effective Date; provided, however, that the percentage of
New Ithaca Common Stock issued pursuant to the Plan is subject to dilution by
shares of New Ithaca Common Stock issued in accordance with the Employee
Incentive Plan, and such other shares as may be authorized and issued pursuant
to the New Ithaca Charter.
8. Class 5--Equity Interests (Impaired)
On the Effective Date, all Equity Interests shall be cancelled, annulled
and extinguished, and holders of Equity Interests shall not be entitled to
receive or retain any property or interest in property under the Plan on account
of such Equity Interests. In addition, on the Effective Date, the Intercompany
Compromise and Settlement will be effectuated. (See Section III.D.4. of this
Disclosure Statement entitled "The Plan--Description of Transactions to be
Implemented In Connection with the Plan--Intercompany Compromise and
Settlement").
D. Description of Transactions to Be Implemented in Connection with the Plan
1. New Ithaca Charter and By Laws
Following Confirmation, Reorganized Ithaca will continue to be a Delaware
corporation and shall adopt (i) an Amended and Restated Certificate of
Incorporation, and (ii) Amended and Restated By-Laws, substantially in the forms
annexed hereto as Exhibits "E" and "F", respectively. Under the Amended and
Restated Certificate of Incorporation, Reorganized Ithaca's authorized capital
stock will consist of 30,000,000 shares, 2,500,000 of which will be preferred
stock (the "Preferred Stock") and 27,500,000 of which will be New Ithaca Common
Stock. The shares of Preferred Stock will have such powers, preferences, rights
and qualifications, limitations or restrictions as may be stated and expressed
in any resolutions of the Board of Directors of Reorganized Ithaca. The holders
of New Ithaca Common Stock will be entitled to such dividends as may be declared
from time to time by the Board of Directors of Reorganized Ithaca from funds,
property or stock legally available therefor, and will be entitled, subject to
the prior rights of creditors and of the holders of Preferred Stock to receive
pro rata all assets of the company upon liquidation, dissolution or winding up
of the company. It is anticipated that the Company's post-petition credit
agreement will prohibit the payment of dividends unless and until the
indebtedness thereunder is paid in full and such credit agreement is terminated.
Except as required by law or as otherwise provided in the Amended and
Restated Certificate of Incorporation, the holders of New Ithaca Common Stock
will vote on all matters as a single class and each holder of New Ithaca Common
Stock will be entitled to one vote for each share of New Ithaca Common Stock
that it owns. Holders of New Ithaca Common Stock will not have cumulative voting
rights.
Certain provisions of the Amended and Restated Certificate of Incorporation
and the Amended and Restated By-laws of Reorganized Ithaca summarized below may
20
<PAGE>
be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might consider in its best
interest, including an attempt that might result in the receipt of a premium
over the market price for the shares held by stockholders.
The initial Board of Directors of Reorganized Ithaca will consist of (7)
seven directors one of whom will be Jim D. Waller, Chief Executive Officer of
the Company, one will be designated by the Butler Noteholders and five of whom
will be chosen by nonaffiliated holders of Notes. The designation of the
officers and directors of Reorganized Ithaca, except for Mr. Waller, will be
filed with the Bankruptcy Court on or prior to the date on which the
Confirmation Hearing is scheduled to take place. The term of office of each
director will expire at the first annual meeting of stockholders of the company
next following the company's fiscal year ending January 31, 1998; provided,
however, that the director designated by the Butler Noteholders pursuant to the
Plan will have an initial term of office expiring at the annual meeting of
stockholders of the company next following the company's fiscal year ending
January 30, 1999. Any vacancy in the Board of Directors of Reorganized Ithaca
whether arising from death, resignation, or any cause, may be filled by a
majority of the remaining directors or if only one director remains in office,
then by such director, in either case, though less than a quorum.
With respect to stockholder actions, any action required or permitted to be
taken by stockholders of Reorganized Ithaca must be taken by a duly called
annual or special meeting of stockholders of Reorganized Ithaca and cannot be
taken by written consent without a meeting. A special meeting of stockholders,
unless otherwise proscribed by statute, may be called only by the Board of
Directors or President of Reorganized Ithaca.
The Amended and Restated Certificate of Incorporation and the Amended and
Restated By-Laws will provide for indemnification, to the fullest extent
permitted by the Delaware General Corporation Law, of any person who is or was
made, or threatened to be made, a party to any pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of Reorganized
Ithaca to procure a judgment in its favor, by reason of the fact that such
person, or a person of whom such person is the legal representative, is or was a
director or officer of Reorganized Ithaca, or is or was serving as a director,
officer, manager, member, employee or agent or in any other capacity at the
request of Reorganized Ithaca, for any other corporation, company, partnership,
joint venture, trust, employee benefit plan or other enterprise while serving as
a director or officer of Reorganized Ithaca, against judgments, fines,
penalties, excise taxes, amounts paid in settlement and costs, charges and
expenses (including attorneys' fees and disbursements) actually and reasonably
incurred by such person in connection with such proceeding, if such person acted
in good faith and in a manner such person believed to be in or not opposed to
the best interests of and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his or her conduct was unlawful.
2. Employee Incentive Plan and Arrangements
In January 1988, certain management personnel and other employees
(collectively, "Employee Purchasers") of the Company either acquired Common
Stock of the Company and entered into Common Stock subscription agreements or,
if they had held previously acquired Common Stock, entered into amendments to
their existing Common Stock subscription agreements. Additional shares of Common
Stock have been acquired by Employee Purchasers and additional Common Stock
subscription agreements have been entered into from time to time since January
1988. In connection with the Merger, such agreements now govern Holdings' common
stock rather than Company Common Stock.
In addition, the Company presently (i) maintains a medical benefits plan
(the "Medical Plan") which covers substantially all employees and (ii) sponsors
a defined contribution retirement plan for its employees (the "Retirement
Plan"). The Medical Plan is funded currently by contributions from the Company
and employees based on anticipated claim costs. Company contributions to the
Retirement Plan are based upon a percentage of the employees' contributions.
Both the Medical Plan and the Retirement Plan shall be continued by the Company
after the Effective Date.
Subject to approval by the Post-Reorganization Board, subsequent to the
Effective Date, Reorganized Ithaca shall implement an employee cash
compensation/bonus plan (the "Cash Bonus Plan"). The general terms of the Cash
Bonus Plan, which have been negotiated with the Informal Committee, are as
follows:
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Annual Amount: $1.5 million if revised business plan targets
are achieved.
Incentive Compensation will begin to be
earned upon achievement of 85% of the target
performance level at 85% of the Annual Amount
and will be increased pro rata as actual
performance meets or exceeds the revised
business plan target.
Distribution: Approximately 150 employees as recommended by
management.
In addition, subject to approval by the Post-Reorganization Board,
subsequent to the Effective Date, Reorganized Ithaca shall implement a long-term
employee incentive plan, substantially in the form annexed hereto as Exhibit
"I". The general terms of the long-term employee incentive plan, which have been
negotiated with the Informal Committee, are as follows:
Anticipated Stock Option Grants:
Total Amount of Options Available:
Participants (approximately 32):
Chief Executive Officer ............................... 2.50%
Acting Chief Operating Officer/Alvarez & Marsal ....... 1.00%(12)
New Hires ............................................. 2.50%
Other Senior Management and Key Personnel ............. 2.50%
-----
Total ............................................... 8.50%(13)
Types of Options:
Time Vested Options:
Amount: 50% of total options.
Vesting: One-third of total Time Vested Options
(16.667% of total options) will vest at the
end of each of fiscal 1997, fiscal 1998 and
fiscal 1999.
Upon a change of control of the Company, all
unvested Time Vested Options will fully vest.
Performance Options:
Amount: 50% of total options
Vesting: Upon achievement of certain performance
targets in the Company's revised business
plan for fiscal 1997, fiscal 1998 and fiscal
1999, up to one-third of the total
Performance Options (16.667% of total
options) granted will be eligible for vesting
annually.
Upon the achievement of 85% of the revised
business plan hurdles, 85% of the eligible
16.667% of the original grant will begin to
vest up to 100% upon the achievement of the
revised business plan hurdles. Upon a change
of control of the Company, all unvested
performance options will fully vest.
Upon an employee's voluntary or involuntary
termination all unvested options will
terminate.
Pricing: Options will have a strike price based upon
the fair market value of the New Ithaca
Common Stock as determined by the Board of
Directors of Reorganized Ithaca or by an
independent third party as designated by such
Board.
- --------------
(12) The stock options granted to Alvarez & Marsal will vest immediately upon
their grant and shall not be subject to the time and performance criteria
set forth below.
(13) The stock option component of the long-term employee incentive plan shall
in no event result in a dilution of the amount of New Ithaca Common Stock
to be issued to holders of Allowed Noteholder Claims pursuant to the Plan
of greater than 8.50%.
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Section 6.5 of the Plan provides that, by voting to accept the Plan, all
Noteholders (who, following the effectiveness of the Plan, shall comprise the
shareholders of Reorganized Ithaca) shall be deemed to have ratified and
approved the long-term employee incentive plan. In connection therewith,
following is a more detailed summary of the material features of the long-term
employee incentive plan (which plan, it is anticipated, will be adopted by the
Company's Board of Directors prior to the Effective Date).
Purposes:
The purposes of the long-term employee incentive plan are to promote the
interests of the Company and its stockholders by (a) attracting and retaining
exceptional officers and other key employees and consultants of the Company and
its subsidiaries; (b) motivating such individuals by means of
performance-related incentives to achieve longer-range performance goals; and
(c) enabling such individuals to participate in the long-term growth and
financial success of the Company.
Administration/Eligible Participants:
The long-term employee incentive plan is to be administered by a committee
(the "Incentive Plan Committee") of two or more members of the
Post-Reorganization Board designated by such Board to administer the plan, each
of whom is intended to be a "Non-Employee Director" (within the meaning of Rule
16b-3 promulgated under the Securities Exchange Act of 1934) and an "outside
director" (within the meaning of Code (as defined below) section 162(m)) to the
extent Rule 16b-3 and section 162(m), respectively, are applicable to the
Company; however, the mere fact that a Incentive Plan Committee member shall
fail to qualify as a Non-Employee Director or outside director will not
invalidate any award made by the Incentive Plan Committee which award is
otherwise validly made under the long-term employee incentive plan. During any
period when Rule 16b-3 and Code section 162(m) are not applicable, the Incentive
Plan Committee may be the Post-Reorganization Board or any authorized committee
thereof.
Any officer or other key employee or consultant to the Company or any of
its subsidiaries who is not a member of the Incentive Plan Committee shall be
eligible to be designated a participant under the long-term employee incentive
plan.
As of August 26, 1996, the Company and its subsidiaries had approximately
13 officers, 20 key employees and 1 consultant, each of whom is eligible to be
granted awards by the Incentive Plan Committee under the long-term employee
incentive plan. The Incentive Plan Committee has the sole and complete authority
to determine the participants to whom awards shall be granted under the
long-term employee incentive plan.
Number of Shares Authorized Under the Long-Term Employee Incentive Plan:
The long-term employee incentive plan authorizes the grant of awards to
participants with respect to a maximum of 928,962 shares of the Company's common
stock ("Shares"), which awards may be made in the form of (a) nonqualified stock
options; (b) stock options intended to qualify as incentive stock options under
section 422 of the Code; (c) stock appreciation rights; (d) restricted stock
and/or restricted stock units; (e) performance awards; and (f) other stock based
awards; provided that the maximum number of Shares with respect to which stock
options and stock appreciation rights may be granted to any participant in the
long-term employee incentive plan in any calendar year may not exceed 273,224
and the maximum number of Shares which may be paid to a participant in the
long-term employee incentive plan in connection with the settlement of any
award(s) designated as a "Performance Compensation Award" (as defined below) in
respect of a single performance period shall be 109,290 or, in the event such
Performance Compensation Award is paid in cash, the equivalent cash value
thereof. Any "Performance Compensation Award" that is deferred shall not
(between the date that the award is deferred and the payment date) increase (i)
with respect to an award payable in cash, by a measuring factor for each fiscal
year greater than a reasonable rate of interest set by the Incentive Plan
Committee or (ii) with respect to an award payable in Shares, by an amount
greater than the appreciation of a Share from the date such award is deferred to
the payment date. If, after the effective date of the long-term employee
incentive plan, any Shares covered by an award granted under the long-term
employee incentive plan, or to which such an award relates, are forfeited, or if
an award has expired, terminated or been cancelled for any reason whatsoever
(other than by reason of exercise or vesting, then the Shares covered by such
award shall, to the maximum extent permitted under section 162(m) of the Code,
again be, or shall become, Shares with respect to which awards may be granted
under the long-term employee incentive plan.
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<PAGE>
Terms and Conditions of Awards Under Long-Term Employee Incentive Plan:
Non-qualified and incentive stock options granted under the long-term
employee incentive plan shall be subject to such terms, including exercise price
and conditions and timing of exercise, as may be determined by the Incentive
Plan Committee and specified in the applicable award agreement or thereafter;
provided that stock options that are intended to qualify as incentive stock
options will be subject to terms and conditions that comply with such rules as
may be prescribed by section 422 of the Code. Payment in respect of the exercise
of an option granted under the long-term employee incentive plan may be made in
cash, or its equivalent, or if, and to the extent permitted by the Incentive
Plan Committee, (a) by exchanging Shares owned by the optionee (which are not
the subject of any pledge or other security interest and which have been owned
by such optionee for at least 6 months) or (b) subject to such rules as may be
established by the Incentive Plan Committee, through the delivery of irrevocable
instructions to a broker to sell the Shares being acquired upon exercise of the
option and to deliver promptly to the Company an amount equal to the aggregate
exercise price, or by a combination of the foregoing, provided that the combined
value of all cash and cash equivalents and the fair market value of such Shares
so tendered to the Company as of the date of such tender is at least equal to
the aggregate exercise price of the option.
Stock appreciation rights granted under the long-term employee incentive
plan shall be subject to such terms, including grant price and the conditions
and limitations applicable to exercise thereof, as may be determined by the
Incentive Plan Committee and specified in the applicable award agreement or
thereafter; provided that stock appreciation rights may not be exercisable
earlier than six months after the date of grant. Stock appreciation rights may
be granted in tandem with another award, in addition to another award, or
freestanding and unrelated to another award. A stock appreciation right shall
entitle the participant to receive an amount equal to the excess of the fair
market value of a Share on the date of exercise of the stock appreciation right
over the grant price thereof. The Incentive Plan Committee shall determine
whether a stock appreciation right shall be settled in cash, Shares or a
combination of cash and Shares.
Restricted stock and restricted stock units granted under the long-term
employee incentive plan shall be subject to such terms and conditions including,
without limitation, the duration of the period during which, and the conditions,
if any, under which, the restricted stock and restricted stock units may be
forfeited to the Company, as may be determined by the Incentive Plan Committee
in its sole discretion. Each restricted stock unit shall have a value equal to
the fair market value of a Share. Restricted stock units shall be paid in cash,
Shares other securities or other property, as determined in the sole discretion
of the Incentive Plan Committee, upon the lapse of the restrictions applicable
thereto, or otherwise in accordance with the applicable award agreement.
Dividends paid on any Shares of restricted stock may be paid directly to the
participant, withheld by the Company subject to vesting of the restricted
shares, or may be reinvested in additional Shares of restricted stock or in
additional restricted stock units, as determined by the Incentive Plan Committee
in its sole discretion.
Performance awards granted under the long-term employee incentive plan
shall consist of a right which is (a) denominated in cash or Shares, (b) payable
in amounts, as determined by the Incentive Plan Committee, based upon the
achievement of such performance goals during such performance periods as the
Incentive Plan Committee shall establish, and (c) payable at such time and in
such form as the Incentive Plan Committee shall determine. Subject to the terms
of the long-term employee incentive plan and any applicable award agreement, the
Incentive Plan Committee shall determine the performance goals to be achieved
during any performance period, the length of any performance period, the amount
of any performance award and the amount and kind of any payment or transfer to
be made pursuant to any performance award. Performance awards may be paid in a
lump sum or in installments following the close of the performance period or, in
accordance with procedures established by the Incentive Plan Committee, on a
deferred basis.
In addition to the foregoing types of awards, the Incentive Plan Committee
shall have the authority to grant to Participants an "other stock-based award",
which shall consist of any right which is (a) not a stock option, stock
appreciation right, restricted stock or restricted unit award or performance
award, and (b) an award of Shares or an award denominated or payable in, valued
in whole or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, securities convertible into Shares), as deemed
by the Incentive Plan Committee to be consistent with the purposes of the
long-term employee incentive plan; provided that any such rights must comply, to
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<PAGE>
the extent deemed desirable by the Incentive Plan Committee, with Rule 16b-3 and
applicable law. Subject to the terms of the long-term employee incentive plan
and any applicable award agreement, the Incentive Plan Committee shall determine
the terms and conditions of any such other stock-based award, including the
price, if any, at which securities may be purchased pursuant to any other
stock-based award granted under the long-term employee incentive plan.
In addition, in the sole and complete discretion of the Incentive Plan
Committee, an award, whether made as an other stock-based award or as any other
type of award issuable under the long-term employee incentive plan, may provide
the participant with dividends or dividend equivalents, payable in cash, Shares,
other securities or other property on a current or deferred basis.
In addition to the foregoing, the Incentive Plan Committee shall have the
discretion to designate any award as a "Performance Compensation Award". While
awards in the form of stock options and stock appreciation rights are intended
to qualify as "performance-based compensation" under section 162(m) of the Code
provided that the exercise price or grant price, as the case may be, is
established by the Incentive Plan Committee to be equal to the fair market value
per Share as of the date of grant, this form of award enables the Incentive Plan
Committee to treat certain other awards under the long-term employee incentive
plan as "performance-based compensation" and thus preserve deductibility by the
Company for Federal income tax purposes of such awards which are made to
participants in the long-term employee incentive plan.
Each Performance Compensation Award shall be payable only upon achievement
over a specified performance period of a duration of at least one year of a
pre-established objective performance goal established by the Incentive Plan
Committee for such period. The Incentive Plan Committee may designate one or
more performance criteria for purposes of establishing a performance goal with
respect to Performance Compensation Awards made under the long-term employee
incentive plan. The performance criteria that will be used to establish such
performance goals shall be based on the attainment of specific levels of
performance of the Company (or subsidiary, affiliate, division or operational
unit of the Company) and shall be limited to the following: Return on net
assets, return on shareholders' equity, return on assets, return on capital,
shareholder returns, profit margin, EBITDA, earnings per Share, net earnings,
operating earnings, price per Share and sales or market share.
With regard to a particular performance period, the Incentive Plan
Committee shall have the discretion, subject to the long-term employee incentive
plan's terms, to select the length of the performance period, the type(s) of
Performance Compensation Award(s) to be issued, the performance goals that will
be used to measure performance for the period and the performance formula that
will be used to determine what portion, if any, of the Performance Compensation
Award has been earned for the period. Such discretion shall be exercised by the
Incentive Plan Committee in writing no later than 90 days after the commencement
of the performance period and performance for the period shall be measured and
certified by the Incentive Plan Committee upon the period's close. In
determining entitlement to payment in respect of a Performance Compensation
Award, the Incentive Plan Committee may through use of negative discretion
reduce or eliminate such award, provided such discretion is permitted under
section 162(m) of the Code. The Incentive Plan Committee may not use negative
discretion with respect to any option or stock appreciation right other than an
option or stock appreciation right that is intended to be a Performance
Compensation Award.
Adjustments:
In the event that the Incentive Plan Committee determines that any
corporate transaction or event affects the Shares such that an adjustment is
determined by the Incentive Plan Committee in its discretion to be appropriate
in order to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the long-term employee incentive
plan, then the Incentive Plan Committee shall, in such manner as it may deem
equitable, adjust any or all of (a) the number of Shares or other securities of
the Company (or number and kind of other securities or property) with respect to
which awards may be granted, (b) the number of Shares or other securities of the
Company (or number and kind of other securities or property) subject to
outstanding awards, and (c) the grant or exercise price with respect to any
award or, if deemed appropriate, make provision for a cash payment to the holder
of an outstanding award in consideration for the cancellation of such award;
provided, in each case that no such adjustment shall be authorized to the extent
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such authority would cause an award designated by the Incentive Plan Committee
as a Performance Compensation Award or an option or stock appreciation right
with an exercise price or grant price (as applicable) equal to the fair market
value of a Share to fail to qualify as "performance based compensation" under
section 162(m) of the Code.
Change of Control:
In the event of a Change of Control (as defined in the long-term employee
incentive plan) of the Company, any outstanding awards which are unexerciseable
or otherwise unvested shall automatically be deemed exercisable or otherwise
vested as of immediately prior to the Change of Control.
Transferability:
Each award, and each right under any award, shall be exercisable only by
the Participant during the Participant's lifetime, or, if permissible under
applicable law, by the Participant's guardian or legal representative. No award
may be assigned, alienated, pledged, attached, sold or otherwise transferred or
encumbered by a Participant other than by will or by the laws of descent and
distribution and any such purported assignment, alienation, pledge, attachment,
sale, transfer or encumbrance shall be void and unenforceable against the
Company or any affiliate; provided that the designation of a beneficiary shall
not constitute an assignment, alienation, pledge, attachment, sale, transfer or
encumbrance.
Amendment to Long-Term Employee Incentive Plan:
The Board may amend, alter, suspend, discontinue, or terminate the
long-term employee incentive plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief from section
16(b) of the Exchange Act or Code section 162(m) (provided that the Company is
subject to the requirements of section 16 of the Exchange Act or Code section
162(m), as the case may be, as of the date of such action).
Federal Income Tax Consequences Relating to Stock Options:
The following summary of the Federal income tax consequences of the grant
and exercise of nonqualified and incentive stock options awarded under the
long-term employee incentive plan, and the disposition of Shares purchased
pursuant to the exercise of such stock options, is intended to reflect the
current provisions of the Code and the regulations promulgated thereunder. This
summary is not intended to be a complete statement of applicable law, nor does
it address state and local tax considerations. Each recipient of an award is
urged to consult his or her own tax advisor as to the specific tax consequences
regarding the grant of an award.
No income will be realized by an optionee upon grant of a nonqualified
stock option. Upon exercise of a nonqualified stock option, the optionee will
recognize ordinary compensation income in an amount equal to the excess, if any,
of the fair market value of the underlying stock over the option exercise price
(the "Spread") at the time of exercise. The Spread will be deductible by the
Company for federal income tax purposes subject to the possible limitations on
deductibility under sections 280G and 162(m) of the Code of compensation paid to
executives covered by those sections. The optionee's tax basis in the underlying
shares acquired by exercise of a nonqualified stock option will equal the
exercise price plus the amount taxable as compensation to the optionee. Upon
sale of the shares received by the optionee upon exercise of the nonqualified
stock option, any gain or loss is generally long-term or short-term capital gain
or loss, depending on the holding period. The optionee's holding period for
shares acquired pursuant to the exercise of a nonqualified stock option will
begin on the date of exercise of such option.
Notwithstanding the foregoing, pursuant to applicable rules under section
16(b) of the Exchange Act, the grant of an option (and not its exercise) to a
person who is subject to the reporting and short-swing profit provisions under
section 16 of the Exchange Act (a "Section 16 Person") may begin a six-month
holding period that (absent a written election (pursuant to Code Section 83(b))
filed with the Internal Revenue Service within 30 days after the date of
transfer of Shares of Common Stock to include the Spread in income) defers the
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timing of income recognition until the end of the holding period (the "Deferral
Period"). There will be no Deferral Period if the option grant (a) is approved
in advance by the Company's Board of Directors (or a committee composed solely
of two or more "non-employee directors" as defined under applicable law) or (b)
approved in advance, or subsequently ratified by the Company's shareholders no
later than the next annual meeting of shareholders. Consequently, the taxable
event for the exercise of an option granted the requirements described in
clauses (a) or (b) above will be the date of exercise.
The payment by an optionee of the exercise price, in full or in part, with
previously acquired Shares will not affect the tax treatment of the exercise
described above. No gain or loss generally will be recognized by the optionee
upon the surrender of the previously acquired Shares to the Company, and Shares
received by the optionee, equal in number to the previously surrendered Shares,
will have the same tax basis as the Shares surrendered to the Company and will
have a holding period that includes the holding period of the Shares
surrendered. The value of Shares received by the optionee in excess of the
number of Shares surrendered to the Company will be taxable to the optionee.
Such additional Shares will have a tax basis equal to the fair market value of
such additional Shares as of the date ordinary income is recognized, and will
have a holding period that begins on the date ordinary income is recognized.
The Code generally requires that, for incentive stock option treatment: (i)
Shares acquired through exercise of an incentive stock option cannot be disposed
of before two years from the date of grant and one year from the date of
exercise, and (ii) at all times during the period beginning on the date of grant
of the option and ending on the day three months before the date of exercise,
the optionee was an employee of either the Company or its subsidiaries.
Incentive stock option holders will generally incur no federal income tax
liability at the time of grant or upon exercise of such options. However, the
Spread will be an item of adjustment which may give rise to "alternative minimum
tax" liability at the time of exercise. If the optionee does not dispose of the
Shares before two years from the date of grant and one year from the date of
exercise, the difference between the exercise price and the amount realized upon
disposition of the Shares will constitute long-term capital gain or loss, as the
case may be. Assuming both the holding periods are satisfied, no deduction will
be allowable to the Company for federal income tax purposes in connection with
the grant or exercise of the option or disposition of the Shares. If, within two
years of the date of grant or within one year from the date of exercise, the
holder of Shares acquired through the exercise of an incentive stock option
disposes of such Shares, the optionee will generally realize ordinary taxable
compensation at the time of such disposition equal to the difference between the
exercise price and the lesser of the fair market value of the stock on the date
of initial exercise or the amount realized on the subsequent disposition, and
such amount will generally be deductible by the Company for Federal income tax
purposes, subject to the possible limitations on deductibility under sections
280G and 162(m) of the Code for compensation paid to executives covered by those
sections.
3. Employment Contracts
Subject to approval of the Post-Reorganization Board, Reorganized Ithaca
will enter into a three-year employment contract with Mr. Jim Waller, the
Company's Chief Executive Officer, at an annual base salary of $490,000 (which
is Mr. Waller's present base salary). Subject to approval of the
Post-Reorganization Board, Reorganized Ithaca will also enter into a one-year
employment contract with Alvarez & Marsal pursuant to which Mr. Peter Cheston
will serve as the Company's Acting Chief Operating Officer at a monthly base
salary of $35,000 (subject to downward adjustment upon the mutual agreement of
Mr. Cheston and Reorganized Ithaca if Mr. Cheston devotes less than ninety
percent of his time to the management of Reorganized Ithaca). This employment
contract will be terminable by Reorganized Ithaca upon 30 days notice. Further,
in the discretion of management and the Board of Directors of Reorganized
Ithaca, and based on the circumstances of Mr. Cheston's employment by
Reorganized Ithaca, Mr. Cheston and/or Alvarez & Marsal may also be eligible to
participate in the Cash Bonus Plan.
4. Intercompany Compromise and Settlement
As previously noted, Ithaca and Bestform are each wholly-owned subsidiaries
of Holdings, although both Ithaca and Bestform have operated as independent
companies. (See Section II.C. of this Disclosure Statement entitled "Background
and Events Precipitating the Solicitation--Certain Affiliate Relationships and
Agreements".) Following consummation of the Plan, Ithaca will cease to be a
subsidiary of Holdings. Accordingly, in connection with the Plan, Ithaca,
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Holdings and Bestform will enter into the Intercompany Compromise and
Settlement, substantially in the form annexed hereto as Exhibit "G," which sets
forth the parties resolutions and compromises with respect to various
intercompany matters and agreements.
Pursuant to the Intercompany Compromise and Settlement, both Holdings and
Industries agreed to effect certain corporate resignations specified therein.
Within sixty days following the Effective Date, Holdings shall also take steps
to cause its corporate name to be changed such that it does not include the word
"Ithaca". In addition, the license agreement between Bestform and Ithaca shall
automatically terminate as of the date of the Intercompany Compromise and
Settlement, and the parties agree to act in accordance with the license
agreement in connection with the termination thereof and the termination of all
joint programs between them, except with respect to certain inventory as to
which the parties shall act as provided in the Intercompany Compromise and
Settlement.
Holdings and Ithaca also agreed that, except as otherwise specified, the
joint insurance program in which each is a participant (as defined therein the
"Current Program") will terminate as to all periods from and after the Effective
Date of the Plan, and both Holdings and Ithaca will place into effect separate
new insurance programs to become effective as soon as practicable, but in no
event later than the Effective Date. Notwithstanding the foregoing, the Current
Program will continue to remain in place as to insured losses thereunder
occurring prior to the Effective Date (regardless of whether claims respecting
such losses were filed prior or subsequent to the Effective Date). The parties
also agreed to use their best efforts to administer such claims as set forth in
the Intercompany Compromise and Settlement. The parties further agreed to
substitute or renew on a timely basis all letters of credit which presently
support the Current Program.
In addition, an agreement was reached with respect to a tax sharing
agreement between Holdings and Ithaca (the "Industries Agreement"), under which
Holdings is presently obligated to pay to Ithaca the amount by which the
Federal, state and local income taxes otherwise payable by the consolidated
group of which Holdings is the common parent (the "Group") is reduced as a
result of the Group's utilization of a loss of Ithaca. Pursuant to the
Intercompany Compromise and Settlement, the Industries Agreement shall terminate
with respect to tax years beginning after the Deconsolidation Date (as defined
therein), but shall continue in full force and effect with respect to all
taxable periods beginning before the Deconsolidation Date. Ithaca also will be
entitled to any refunds attributable to the carryback of losses and/or other of
Ithaca's tax attributes arising after the Deconsolidation Date.
Finally, pursuant to the Intercompany Compromise and Settlement, the
parties also reached agreements with respect to (i) the maintenance of the
intercompany account between Holdings and Ithaca pending the Effective Date of
the Plan (and subject to Bankruptcy Court approval for the period subsequent to
the Filing Date),(14) and (ii) a certain equipment lease by and among Sanwa
Business Credit Corporation, Ithaca and Bestform, pursuant to which Ithaca has
leased certain equipment.
5. Registration Rights Agreement
The Company shall enter into a registration rights agreement with certain
Noteholders (the "Registration Rights Agreement") on or as soon as practicable
after the Effective Date of the Plan, substantially in the form annexed as
Exhibit "H" to this Disclosure Statement. The Registration Rights Agreement
requires Reorganized Ithaca to use its reasonable best efforts to (i) file
within ninety (90) days after consummation of the Plan a "shelf" registration
statement (the "Shelf Registration") with respect to all of the shares of New
Ithaca Common Stock issued to the Noteholders pursuant to the Plan (together
with any securities issued or issuable in respect thereof by way of a dividend,
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise, the "Registrable
Securities") and (ii) cause the Shelf Registration to be declared effective as
soon as reasonably practicable after such filing. The Shelf Registration
- -----------
(14) As of June 28, 1996, Ithaca estimates the intercompany account due from
Holdings to Ithaca was approximately $265,400, although it is continuing
discussions with Holdings as to this amount. Pursuant to the Intercompany
Compromise and Settlement, the parties will continue to pay, satisfy and
settle intercompany items in the ordinary course (subject to Bankruptcy
Court approval where applicable), and upon the Effective Date, any balance
due under the intercompany account will be satisfied in full in cash.
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must be kept effective by Reorganized Ithaca until the earlier of the
disposition of all Registrable Securities and three (3) years after the initial
effective date of the Shelf Registration; provided, however, that Reorganized
Ithaca will be permitted to suspend the availability of the Shelf Registration
for up to ninety (90) days during any twelve-month period and, for any period
during which Reorganized Ithaca is not eligible to use Form S-3 for the Shelf
Registration, such additional reasonable periods as are necessary to cause any
post-effective amendments to the Shelf Registration to become effective. The
Shelf Registration may not be used to effect any underwritten offering unless
such an offering relates to a Demand Registration (as defined below).
Reorganized Ithaca will pay certain expenses in connection with registrations
made under the Shelf Registration (which expenses will not include, unless such
registration is a Demand Registration, any fees or expenses of counsel for any
Holder).
Reorganized Ithaca will also effect up to three (3) registrations (the
"Demand Registrations") at the request of the Designated Holders (as defined in
the Registration Rights Agreement) in the event the Shelf Registration is
unavailable or, in the case of an underwritten offering, at the request of the
Approved Underwriter (as defined below); provided, however, that no such Demand
Registration is required to be effected earlier than one-hundred eighty (180)
days after consummation of the Plan or within a period of one-hundred eighty
(180) days after the effective date of any registration statement (other than
the Shelf Registration or a registration statement on Form S-4 or Form S-8 (or
any successor form thereto)) of Reorganized Ithaca, under the Securities Act of
1933, as amended (the "Act"), covering securities of the same class as any
Registrable Securities. Subject to certain conditions, the Butler Noteholders
and The Northwestern Mutual Life Insurance Company ("Northwestern") will each
have the right to request one (1) Demand Registration. Designated Holders owning
at least 20% of the Registrable Securities held by all of the Designated Holders
will have the right to request the remaining one (1) Demand Registration;
provided, however, that Northwestern and the Butler Noteholders shall not be
included as a requesting Holder in determining whether Holders holding at least
20% of the Registrable Securities have requested such Demand Registration unless
such Holder shall have previously exercised or forfeited prior to exercise its
right to request its Demand Registration described in the preceding sentence;
and, provided, further, however, that for each Demand Registration described in
the preceding sentence that shall have been forfeited prior to exercise, the
number of Demand Registrations permitted to be made as described in this
sentence shall be increased by one. Pursuant to the Registration Rights
Agreement, Reorganized Ithaca shall use its best efforts to file a Demand
Registration within sixty (60) days after the period within which requests for
registration may be given to Reorganized Ithaca. Reorganized Ithaca has the
right, in the case of a Demand Registration, to postpone the filing or
effectiveness of, or to withdraw, any registration statement if in good faith
judgment of its Board of Directors, such registration would materially interfere
with any material financing, acquisition, corporate reorganization or merger or
other transaction involving Reorganized Ithaca or any subsidiary thereof;
provided, however, that such postponement or withdrawal will last only for so
long as such material interference would exist, but in no event for more than
one-hundred eighty (180) days.
The Holders initiating a Demand Registration (the "Initiating Holders")
owning a majority of the Registrable Securities owned by the Initiating Holders
to be included in the registration may elect to cause a Demand Registration to
be underwritten, in which case, the lead or managing underwriter (the "Approved
Underwriter") made pursuant to a Demand Registration will be selected by
Reorganized Ithaca and must be reasonably acceptable to the Initiating Holders
owning a majority of the Registrable Securities owned by the Initiating Holders
to be included in the registration. Other Holders will, and Reorganized Ithaca
and other persons holding registration rights in certain circumstances may, be
permitted to participate in a Demand Registration. Notwithstanding the foregoing
sentence, if the Approved Underwriter determines that the aggregate amount of
securities requested to be included in such offering is sufficiently large to
have an adverse effect on the success of such offering, then Reorganized Ithaca
will include in such registration only the aggregate amount of Registrable
Securities that in the opinion of the Approved Underwriter may be sold without
any such effect on the success of such offering (the "Approved Underwriter
Amount"), and (i) if the number of Registrable Securities to be included in such
registration is greater than the Approved Underwriting Amount, then each Holder
will be entitled to have included in such registration Registrable Securities
equal to its pro rata portion of the Approved Underwriter Amount, as based on
the amounts of Registrable Securities sought to be registered by the Holders in
their requests for participation in the requested Demand Registration, and
Reorganized Ithaca and any Person who is not a Holder will not be permitted to
include any securities therein, and (ii) to the extent that the number of
Registrable Securities to be included by the Holders is less than the Approved
Underwriter Amount, securities that Reorganized Ithaca and any Person who is not
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a Holder proposes to register may also be included. Reorganized Ithaca will pay
substantially all expenses in connection with the Demand Registrations
(including certain fees and expenses of a single counsel for all Holders
participating in such registration).
If Reorganized Ithaca proposes to file or files a registration statement
under the Act with respect to an offering by Reorganized Ithaca for its own
account of any class of security (other than a registration statement on Form
S-4 or S-8 (or any successor form thereto)) under the Act, then Reorganized
Ithaca will offer the Holders the opportunity to register the number of
Registrable Securities as each such Holder may request. Subject to certain
conditions, Reorganized Ithaca will use its best efforts to permit the Holders
to include such Registrable Securities in such offering on the same terms and
conditions as the securities of Reorganized Ithaca included therein.
Notwithstanding the foregoing, if such registration involves an underwritten
offering and the managing underwriter or underwriters (the "Company
Underwriter") determines that the total amount of securities requested to be
included in such offering (the "Total Securities") is sufficiently large so as
to have an adverse effect on the success of the distribution of the Total
Securities, then, Reorganized Ithaca will include in such registration, to the
extent of the number of Registrable Securities which Reorganized Ithaca is so
advised can be sold in (or during the time of) such offering without having such
adverse effect, first all New Ithaca Common Stock or securities convertible
into, or exchangeable or exercisable for New Ithaca Common Stock that
Reorganized Ithaca proposed to register for its own account, second, all
securities proposed to be registered by the Holders, pro rata among such
Holders, and third, all other securities proposed to be registered. Reorganized
Ithaca will pay certain expenses attributable to the Holders in connection with
such registrations (which expenses will not include any fees or expenses of
counsel for any Holder).
Reorganized Ithaca will indemnify and hold harmless each Holder, its
directors, officers, partners, employees, advisors and agents, and each Person
who controls (within the meaning of the Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act")) such Holder, to the extent permitted by
law, from and against any and all losses, claims, damages, expenses (including,
without limitation, reasonable costs of investigation and fees, disbursements
and other charges of counsel) or other liabilities resulting from or arising out
of or based upon any untrue, or alleged untrue, statement of a material fact
contained in any registration statement, prospectus or preliminary prospectus or
notification or offering circular (as amended or supplemented if Reorganized
Ithaca has furnished any amendments or supplements thereto) or other disclosure
document, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except insofar as the same are caused by or contained in
any information furnished in writing to Reorganized Ithaca by or on behalf of
such Holder expressly for use therein. Reorganized Ithaca will also indemnify
any underwriters of the Registrable Securities, their officers, directors and
employees, and each Person who controls any such underwriter (within the meaning
of the Act and the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Holders of Registrable Securities.
Each Holder agrees to indemnify and hold harmless Reorganized Ithaca, any
underwriter retained by Reorganized Ithaca and their respective directors,
officers, employees and each Person who controls (within the meaning of the Act
and the Exchange Act) Reorganized Ithaca or such underwriter to the same extent
as the foregoing indemnity from Reorganized Ithaca to the Holders (subject to
the proviso to this sentence and applicable law), but only with respect to any
information furnished in writing by or on behalf of such Holder expressly for
use therein; provided, however, that the liability of any Holder will be limited
to the amount of the net proceeds received by such Holder in the offering giving
rise to such liability.
E. Funding for the Plan
The Cash payments under the Plan will be made from funds generated by the
operation and financing of Ithaca's business (including usage of cash
collateral) and from asset dispositions.
F. Treatment of Disputed Claims
(a) With respect to any Disputed Claims, for the purposes of effectuating
the Disputed Claims provisions of the Plan (i.e., Section 6.12), and the
distributions to holders of Allowed Claims, the Bankruptcy Court, on or prior to
the Effective Date or such date or dates thereafter as the Bankruptcy Court
shall set, may fix or liquidate the amount of such Disputed Claims pursuant to
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Section 502(c) of the Bankruptcy Code, in which event the amounts so fixed or
liquidated shall be deemed the maximum amounts of the Disputed Claims pursuant
to Section 502(c) of the Bankruptcy Code for purposes of distribution under the
Plan.
(b) When a Disputed Claim becomes an Allowed Claim, Reorganized Ithaca
shall distribute to the holder of such Allowed Claim, the property distributable
to such holder as provided in the Plan.
THE COMPANY DOES NOT DISPUTE THE AGGREGATE PRINCIPAL AMOUNT OF, AND THE
AGGREGATE INTEREST ACCRUED THROUGH THE ANTICIPATED FILING DATE ON, THE BANK
GROUP SECURED CLAIMS (CLASS 2A) (PRESENTLY ESTIMATED TO BE APPROXIMATELY
$101,500,000 ON AUGUST 30, 1996, THE MONTH END IMMEDIATELY PRIOR TO THE
ANTICIPATED FILING DATE). THE CLAIMS OF THE BANK GROUP SHALL BE ALLOWED IN AN
AGGREGATE AMOUNT EQUAL TO THE PRINCIPAL OUTSTANDING UNDER THE CREDIT AGREEMENT
PLUS UNPAID INTEREST, FEES AND EXPENSES, IF ANY, ACCRUED THEREON THROUGH THE
EFFECTIVE DATE. THE COMPANY ALSO DOES NOT DISPUTE THE AGGREGATE PRINCIPAL AMOUNT
OF EACH OF, AND THE AGGREGATE INTEREST ACCRUED THROUGH THE FILING DATE ON, THE
CLAIMS EVIDENCED BY THE NOTES (CLASS 4) (PRESENTLY ESTIMATED TO BE APPROXIMATELY
$143,000,000, INCLUDING, WITHOUT LIMITATION, THE CLAIMS OF THE BUTLER
NOTEHOLDERS AS HOLDERS OF NOTES IN THE AGGREGATE PRINCIPAL AMOUNT OF
$25,000,000). THE CLAIMS OF ALL HOLDERS OF NOTES, INCLUDING WITHOUT LIMITATION,
THE BUTLER NOTEHOLDERS AND MERRILL LYNCH AFFILIATED ENTITIES, SHALL BE ALLOWED
IN AN AMOUNT EQUAL TO THE PRINCIPAL OUTSTANDING UNDER THE NOTES, $125,000,000 IN
THE AGGREGATE, PLUS INTEREST ACCRUED THEREON THROUGH THE PETITION DATE. NO
OBJECTIONS SHALL BE ENTERTAINED TO (i) THE ALLOWANCE OF THE ALLOWED BANK GROUP
SECURED CLAIMS, OR THE VALIDITY, PRIORITY, OR ENFORCEABILITY OF THE LIENS
SECURING THE ALLOWED BANK GROUP SECURED CLAIMS, (ii) THE ALLOWANCE OF THE CLAIMS
OF ANY NOTEHOLDER, INCLUDING, BUT NOT LIMITED TO, THE BUTLER NOTEHOLDERS AND THE
MERRILL LYNCH AFFILIATED ENTITIES, IN RESPECT OF NOTES HELD BY SUCH NOTEHOLDERS,
OR (iii) (a) THE DISTRIBUTIONS TO BE MADE TO THE HOLDERS OF THE ALLOWED BANK
GROUP SECURED CLAIMS UNDER THE PLAN, OR (b) THE DISTRIBUTIONS TO BE MADE, FREE
OF ANY CONTRACTUAL, EQUITABLE OR OTHER SUBORDINATION CLAIMS, TO ANY NOTEHOLDERS
(INCLUDING, BUT NOT LIMITED TO, THE BUTLER NOTEHOLDERS AND THE MERRILL LYNCH
AFFILIATED ENTITIES), OF THE SHARES OF NEW ITHACA COMMON STOCK IN ACCORDANCE
WITH THE PLAN.
G. Disputed Payments
In the event of any dispute between and among Claimants and/or the holders
of a Disputed Claim as to the right of any Person to receive or retain any
payment or distribution to be made to such Person under the Plan, Reorganized
Ithaca may, in lieu of making such payment or distribution to such Person, hold
such payment or distribution until the disposition thereof shall be determined
by a Final Order of the Court or other court with appropriate jurisdiction.
H. Full and Final Satisfaction
Except as otherwise expressly provided in Section 1141 of the Bankruptcy
Code or in the Plan, all payments and distributions made pursuant to the Plan
will be in full and final satisfaction, settlement, release and discharge as
against the Company, of any debt of a kind specified in Sections 502(g), 502(h)
or 502(i) of the Bankruptcy Code, and all Claims, liens and interests of any
nature, including, without limitation, any interest accrued or expenses incurred
from and after the Filing Date, whether or not (i) a proof of Claim or interest
based on such debt, obligation or interest is filed or deemed filed under
Section 501 of the Bankruptcy Code; (ii) such Claim or interest is allowed under
Section 502 of the Bankruptcy Code; or (iii) the holder of such Claim or Equity
Interest has accepted the Plan. Therefore, upon the Effective Date, all holders
of Claims against the Company, and holders of interests in the Company, shall be
precluded from asserting against the Company, or against any of its assets or
properties, any other or further claims or interests based upon any act or
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omission, transaction or other activity of any kind or nature that occurred
prior to the Effective Date. The Confirmation Order shall permanently enjoin
such holders of Claims and Equity Interests, and their successors and assigns,
from enforcing or seeking to enforce any such Claims or Equity Interests.
I. Releases
(a) Except as otherwise expressly provided in the Plan or in the
Confirmation Order, on the Effective Date, in consideration for, or as part of
the treatment accorded to, the holders of Claims and Equity Interests under the
Plan, each Creditor Party, Equity Party, the Company and Reorganized Ithaca
shall be deemed to have (i) released all rights, causes of actions and claims,
in law or in equity, whether based on tort, fraud, contract or otherwise, which
they, individually or collectively, theretofore or thereafter possessed or may
possess against any Equity Party, in each case only with respect to the Released
Liabilities of an Equity Party and (ii) forever covenanted with each Equity
Party not to sue, assert any claim against, or otherwise seek recovery from, any
Equity Party, whether based upon tort, fraud, contract or otherwise, in
connection only with any Released Liabilities of an Equity Party.
(b) Except as otherwise expressly provided in the Plan or in the
Confirmation Order, on the Effective Date, in consideration for, or as part of
the treatment accorded to the holders of Claims and Equity Interests under the
Plan, each Creditor Party, Equity Party, the Company and Reorganized Ithaca
shall be deemed to have (i) released all rights, causes of action and claims, in
law or in equity, whether based on tort, fraud, contract or otherwise, which
they, individually or collectively, theretofore or thereafter possessed or may
possess against any Creditor Party, in each case only with respect to Released
Liabilities of a Creditor Party and (ii) forever covenanted with each Creditor
Party not to sue, assert any claim against, or otherwise seek recovery from, any
Creditor Party, whether based upon tort, fraud, contract or otherwise, in
connection only with any Released Liabilities of a Creditor Party.
(c) Without in any manner limiting the generality of the release described
in clauses (a) and (b) above, on the later of the date the Confirmation Order
becomes a Final Order or the Effective Date, the Company, Reorganized Ithaca,
Holdings and Bestform Foundations, Inc. shall be deemed to have unconditionally
and mutually released one another from any and all claims, Liabilities or causes
of action that any of the parties may have asserted, could have asserted, or
could in the future assert, directly or indirectly, against each other;
provided, however, that nothing contained in the Plan shall release any rights,
obligations or covenants which are to be performed pursuant to the Plan or the
Intercompany Compromise and Settlement.
J. Injunctions
(a) Unless otherwise provided in the Plan, all injunctions or stays
provided for in the Reorganization Case pursuant to section 105 or 362 of the
Bankruptcy Code, or otherwise and in effect on the Confirmation Date, shall
remain in full force and effect until the Effective Date.
(b) The Confirmation Order shall provide that the distributions and
transfers of property pursuant to the terms of the Plan are made free and clear
of all Claims (except as otherwise expressly provided in the Plan) and that,
upon confirmation of the Plan (except as otherwise expressly provided in the
Plan), all holders of Claims or Equity Interests shall be permanently enjoined
from and restrained against commencing or continuing any suit, action or
proceeding or asserting against Reorganized Ithaca or its assets or property any
Claim, Equity Interest or cause of action based upon any act or omission,
transaction or other activity of any kind or any kind or nature that occurred
before the Confirmation Date.
(c) The Confirmation Order shall provide that the Company, Reorganized
Ithaca, each Equity Party and each Creditor Party shall be permanently enjoined
from and after the Effective Date from, with respect only to any Released
Liability of any Equity Party, (i) commencing or continuing in any manner any
action or other proceeding of any kind against or affecting any Equity Party,
(ii) enforcing, attaching, collecting or recovering by any manner or means any
judgment, award, decree or order affecting any Equity Party, (iii) creating,
perfecting or enforcing any encumbrance of any kind against or affecting any
Equity Party, (iv) asserting any right of set-off, right of subrogation or
recoupment of any kind against or affecting any obligation due any party by or
from any Equity Party or the property of any Equity Party and (v) commencing or
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continuing in any manner any action or other proceeding of any kind with respect
to the release granted to any Equity Party pursuant to the Plan.
(d) The Confirmation Order shall provide that the Company, Reorganized
Ithaca, each Equity Party and each Creditor Party shall be permanently enjoined
from and after the Effective Date from, with respect to any Released Liability
of any Creditor Party, (i) commencing or continuing in any manner any action or
other proceeding of any kind against or affecting any Creditor Party, (ii)
enforcing, attaching, collecting or recovering by any manner or means any
judgment, award, decree or order affecting any Creditor Party, (iii) creating,
perfecting or enforcing any encumbrance of any kind against or affecting any
Creditor Party, (iv) asserting any right of set-off, right of subrogation or
recoupment of any kind against or affecting any obligation due any party by or
from any Creditor Party or the property of any Creditor Party and (v) commencing
or continuing in any manner any action or other proceeding of any kind with
respect to any matter that is subject to the release granted to any Creditor
Party pursuant to the Plan.
K. Waiver of Contractual Subordination Rights
As of the Effective Date, each holder of an Allowed Claim (a) by virtue of
the acceptance of the Plan by such holder's Class in accordance with Section
1126 of the Bankruptcy Code, (b) by virtue of the acceptance of the Plan by such
holder, (c) by virtue of the acceptance of any distribution under the Plan on
account of such Claim or (d) by virtue of the Confirmation of the Plan, waives,
releases and relinquishes any and all rights, claims or causes of action arising
under or in any way related to any pre-Filing Date subordination agreement or
arrangement, whether arising out of contract or under applicable law, including,
without limitation, Section 510 of the Bankruptcy Code and the provisions of the
Indenture, which subordinate Claims to the payment and distributions of
consideration made or to be made hereunder or otherwise to any other holder of a
Claim against the Company.
L. Cram-Down
In the event any impaired Class shall fail to accept or shall be deemed to
reject the Plan, the Company reserves the right to request that the Bankruptcy
Court confirm the Plan in accordance with the provisions of Section 1129(b) of
the Bankruptcy Code. (See Section IV.B.3. of this Disclosure Statement entitled
"Acceptance and Confirmation of the Plan--Confirmation--Confirmation Without
Acceptance by All Impaired Classes").
M. Unclaimed Distributions
Any Person who fails to claim any Cash or New Ithaca Common Stock within
the later of one year from the Effective Date, or such other date as a Claim
becomes an Allowed Claim, shall forfeit all rights to any distribution under the
Plan. Upon forfeiture, such Cash and/or New Ithaca Common Stock (including
interest thereon) shall be the property of Reorganized Ithaca. Persons who fail
to claim Cash and/or New Ithaca Common Stock forfeit their rights thereto and
shall have no claim whatsoever against the Company or Reorganized Ithaca or any
holder of an Allowed Claim to whom distributions are made.
N. Time and Method of Distributions Under the Plan
Payments and distributions to be made pursuant to the Plan will be made on
the Effective Date or as soon thereafter as is practicable, except as otherwise
provided for in the Plan or as may otherwise be ordered by the Bankruptcy Court.
Cash payments to be made by the Company pursuant to the Plan will, at the
election of the Company, be made by check drawn on a domestic bank or by wire
transfer from a domestic bank.
O. Surrender of Cancelled Instruments
(a) As a condition precedent to receiving any distribution pursuant to the
Plan on account of an Allowed Claim evidenced by the Notes or other instruments
cancelled pursuant to the Plan, the holder of such Claim will tender the
applicable Notes or other instruments evidencing such Claim to the Disbursing
Agent. Any Cash or New Ithaca Common Stock to be distributed pursuant to the
Plan on account of any such Claim will, pending such surrender, be treated as an
undeliverable distribution pursuant to Section 6.9 of the Plan.
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(b) Except as provided in Section 6.11(c) of the Plan, each holder of an
Allowed Claim will tender such Note or other instrument to the Disbursing Agent,
together with a letter of transmittal to be provided to such holders by the
Disbursing Agent, as promptly as practicable following the Effective Date. The
letter of transmittal will include, among other provisions, customary provisions
with respect to the authority of the holder of the Note or other instrument to
act and the authenticity of any signatures required thereon. All surrendered
Notes or other instruments will be marked as cancelled by the Disbursing Agent,
and delivered to Reorganized Ithaca.
(c) In addition to any requirements under the applicable law, any holder of
a Claim evidenced by a Note or other instrument that has been lost, stolen,
mutilated or destroyed will, in lieu of surrendering such Note or other
instrument, deliver to the Disbursing Agent: (i) evidence satisfactory to the
Disbursing Agent of such loss, theft, mutilation or destruction and (ii) such
security or indemnity as may be required by the Disbursing Agent to hold the
Disbursing Agent harmless from any damages, liabilities or costs incurred in
treating such individual as a holder of a claim. Upon compliance with the
foregoing requirements by the holder of a Claim evidenced by a Note or other
instrument such holder will, for all purposes under the Plan, be deemed to have
surrendered a Note or other instrument.
Pursuant to the Plan, on the Effective Date (i) the Notes and Equity
Interests will be cancelled, annulled and extinguished and (ii) the Company's
obligations under the agreements, indentures and certificates of designations,
as the case may be, governing the Notes and Equity Interests will be discharged.
P. Modification of the Plan
The Company reserves the absolute right to amend the Plan (and the exhibits
thereto or hereto) either before or after the Filing Date, subject to the
approval of the Informal Committee, the Official Committee and the Bank Group
Steering Committee. Amendments to the Plan (and the exhibits thereto or hereto)
which do not materially and adversely affect the treatment of Claims and Equity
Interests may be approved by the Bankruptcy Court at a hearing on Confirmation
thereof without the necessity of a resolicitation of votes. In the event a
resolicitation is required, the Company will furnish new Ballots and Master
Ballots to be used to vote to accept or reject the Plan, as amended. After the
Confirmation Date, the Company may remedy any defects or omissions or reconcile
any inconsistencies in the Plan (and the exhibits thereto or hereto) or in the
Confirmation Order in such manner as may be necessary to carry out the purposes
and intent of the Plan so long as the holders of Claims and Equity Interests are
not materially and adversely affected.
Q. Revocation of the Plan
The Company reserves the right to revoke and withdraw the Plan at any time
prior to the Confirmation Date. If the Plan is so revoked or withdrawn, or if,
subject to Section 8.2 of the Plan, the Effective Date does not occur on or
prior to the Termination Date, then the Plan shall be deemed null and void. In
such event, nothing contained herein or in the Plan shall be deemed to
constitute a waiver or release of any Claims or interests by or against the
Company or any other Person, or to prejudice in any manner the rights of the
Company or any Person in any further proceedings involving the Company.
R. Retention of Jurisdiction
From and after the Confirmation Date, the Bankruptcy Court shall retain
such jurisdiction as is legally permissible, including, but not limited to,
jurisdiction for the following purposes:
--To hear and determine any and all objections to the allowance of any
Claims or any controversies as to the classification of any Claims,
provided that only the Company may file objections to Claims;
--To hear and determine any and all applications by Professionals for
compensation and reimbursement of expenses;
--To hear and determine any and all pending applications for the
rejection and disaffirmance of executory contracts and unexpired leases,
and fix and allow any Claims resulting therefrom;
--To liquidate any Disputed Claim;
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--To enforce the provisions of the Plan, including the injunction,
exculpation and releases provided for in the Plan;
--To correct any defect, cure any omission, or reconcile any
inconsistency in the Plan or in the Confirmation Order as may be necessary
to carry out its purpose and the intent of the Plan;
--To determine any Liability to a governmental unit which may be
asserted as a result of the transactions contemplated herein;
--To hear and determine matters concerning state, local, and Federal
taxes in accordance with Sections 346, 505 and 1146 of the Bankruptcy Code;
and
--To determine such other matters as may be provided for in the
Confirmation Order or as may be authorized under the provisions of the
Bankruptcy Code.
S. Executory Contracts
Any unexpired lease or executory contract that has not been expressly
rejected by the Company with the Bankruptcy Court's approval on or prior to the
Confirmation Date shall, as of the Confirmation Date (subject to the occurrence
of the Effective Date), be deemed to have been assumed by the Company unless
there is pending before the Bankruptcy Court on the Confirmation Date a motion
to reject such unexpired lease or executory contract or such executory contract
or unexpired lease is otherwise designated for rejection, provided that (a) such
lease or executory contract is ultimately rejected, and (b) the filing of the
Confirmation Order shall be deemed to be a rejection of all then outstanding
unexercised stock options. In accordance with Section 1123(a)(5)(G) of the
Bankruptcy Code, on the Effective Date, or as soon as practicable thereafter,
the Company shall cure all defaults under any executory contract or unexpired
lease assumed pursuant to the Plan by making a Cash payment in an amount agreed
to between the Company and the Claimant, or as otherwise fixed pursuant to a
Final Order.
T. Indemnification Obligations
Notwithstanding anything to the contrary contained in the Plan, and except
as otherwise provided in the Intercompany Compromise and Settlement, all Persons
holding or asserting Indemnification Claims (whether directly, by subrogation or
otherwise) shall be entitled to obtain recovery on account of such claims solely
from the proceeds of any applicable directors' and officers' insurance policy
maintained by the Company or Reorganized Ithaca, as the case may be, and shall
not, under any circumstances, be entitled to obtain recovery in respect of such
Indemnification Claims from Reorganized Ithaca; provided, however, that (a) the
foregoing limitation on recovery for Indemnification Claims shall not apply in
respect of Ordinary Course Indemnification Claims or Bank Indemnification
Claims, which claims shall be, and hereby are, assumed by Ithaca, or Reorganized
Ithaca, as the case may be, without limitation, and (b) Reorganized Ithaca shall
remain responsible for, and shall pay, in respect of any and all Indemnification
Claims, all retention amounts and coinsurance obligations arising under, or
necessary to maintain, its directors' and officers' insurance policies.15 Ithaca
or Reorganized Ithaca, as the case may be, shall continue and maintain all
presently existing directors' and officers' insurance policies, and all such
policies shall remain in full force and effect following Confirmation. The
Company is not aware of any claims pending or threatened which would give rise
to Indemnification Claims.
U. Post-Confirmation Officers and Directors
Following the Effective Date, the Board of Directors of the Company will
consist of seven directors, one of whom will be Jim D. Waller, the Chief
Executive Officer of the Company, one of whom will be designated by the Butler
Noteholders (which currently hold, in the aggregate, approximately $25 million
- ---------------
15 Pursuant to the Company's directors' and officers' insurance policy, (i)
the Company's maximum retention amount is $300,000 for losses arising from
claims alleging the same wrongful act or related wrongful acts, and (ii)
the Company's coinsurance obligation is equal to 5% of each and every loss
(in excess of the retention amount) up to the liability limit of the
policy.
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in principal amount of Notes), and five of whom will be chosen by nonaffiliated
holders of Notes. The designation of the officers and directors of Reorganized
Ithaca, except for Mr. Waller, shall be filed with the Bankruptcy Court on or
prior to the date on which the Confirmation Hearing is scheduled to take place.
V. Conditions Precedent to Effective Date of the Plan
The occurrence of the Effective Date of the Plan is subject to satisfaction
of each of the following conditions precedent which are set forth in Article
VIII of the Plan:
--The aggregate amount of scheduled (where no superseding proof of
Claim is timely filed) and filed Tax Claims and Priority Claims shall not
exceed $150,000 (exclusive of amounts required to cure defaults in
executory contracts or unexpired leases to be assumed pursuant to the
Plan).
--The aggregate amount of scheduled (where no superseding proof of
Claim is timely filed) and filed General Secured Claims shall not exceed
$150,000.
--The aggregate amount of scheduled (where no superseding proof of
Claim is timely filed) and filed General Unsecured Claims shall not exceed
$20,000,000.
--The Clerk of the Bankruptcy Court shall have entered the
Confirmation Order and the Confirmation Order shall have become a Final
Order (a draft Confirmation Order to be delivered by the Debtor to the
Informal Committee, the Official Committee and the Bank Group Steering
Committee no later than two Business Days prior to the date of the
Confirmation Hearing).
--All other actions and documents necessary to implement the
provisions of the Plan on the Effective Date shall have been, respectively,
effected and executed and delivered.
--The New Ithaca Bank Group Documents shall be in form and substance
reasonably satisfactory to each Lender, the Official Committee and the
Informal Committee.
--A cash collateral (and, if applicable, a debtor-in-possession
financing) order shall have been entered in the Reorganization Case in form
and substance reasonably satisfactory to each Lender, the Official
Committee and the Informal Committee.
--All outstanding obligations of the Company under any
debtor-in-possession financing arrangements shall have been paid in full or
otherwise satisfied, and such arrangements shall have been terminated.
--The Termination Date shall not have passed.
The Company expressly reserves the right to waive, with the consent of the
Informal Committee, the Official Committee and the Bank Group Steering
Committee, in whole or in part, any of the conditions set forth in Section 8.1
of the Plan (except that no such waiver may be made of the last condition set
forth above, if the effect thereof would be to allow the Effective Date to occur
after March 31, 1997). Any such waiver or modification of a condition precedent
set forth in Article VIII of the Plan may be effected at any time, without
notice (except for notice to those parties whose consent is required pursuant to
Section 8.2 of the Plan), without leave or order of the Bankruptcy Court and
without any formal action.
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IV.
ACCEPTANCE AND CONFIRMATION OF THE PLAN
The following is a brief summary of the provisions of the Bankruptcy Code
respecting acceptance and confirmation of a plan of reorganization. Holders of
Claims and Equity Interests are encouraged to review the relevant provisions of
the Bankruptcy Code and/or to consult their own attorneys.
A. Acceptance of the Plan
This Disclosure Statement solicits Ballots for the acceptance of the Plan.
The Bankruptcy Code defines acceptance of a plan of reorganization 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 allowed claims of that class that have
actually voted or are deemed to have voted to accept or reject the plan. The
Bankruptcy Code defines acceptance of a plan of reorganization by a class of
interests as acceptance by at least two-thirds in amount of the allowed
interests of that class that have actually voted or are deemed to have voted to
accept or reject the plan.
If one or more impaired Classes rejects the Plan, the Company may, in its
discretion, nevertheless seek confirmation of the Plan if the Company believes
that it will be able to meet the requirements of Section 1129(b) of the
Bankruptcy Code for Confirmation of the Plan (which are set forth in the
following section of this Disclosure Statement), despite lack of acceptance by
all impaired classes.
B. Confirmation
1. Confirmation Hearing
If the Requisite Vote Condition is satisfied, the Company intends to file
(but expressly reserves the right not to file) a chapter 11 proceeding and
request the Bankruptcy Court to schedule a hearing on Confirmation of the Plan
as soon as practicable.
2. Statutory Requirements for Confirmation of the Plan
At the Confirmation Hearing, the Company will request the Bankruptcy Court
to determine that the Plan satisfies the requirements of Section 1129 of the
Bankruptcy Code. If so, the Bankruptcy Court shall enter an order confirming the
Plan. The applicable requirements of Section 1129 of the Bankruptcy Code are as
follows:
(a) The Plan complies with the applicable provisions of the Bankruptcy
Code.
(b) The Company, as proponent of the Plan, has complied with the
applicable provisions of the Bankruptcy Code.
(c) The Plan has been proposed in good faith and not by any means
forbidden by law.
(d) Any payment made or promised to be made by the Company under the
Plan for services or for costs and expenses in, or in connection with the
Chapter 11 case, or in connection with the Plan and incident to the case,
has been disclosed to the Bankruptcy Court, and any such payment made
before the Confirmation of the Plan is reasonable, or if such payment is to
be fixed after Confirmation of the Plan, such payment is subject to the
approval of the Bankruptcy Court as reasonable.
(e) The Company has disclosed the identity and affiliations of any
individual proposed to serve, after Confirmation of the Plan, as a
director, officer, or voting trustee of the Company, an affiliate of the
Company participating in the Plan with the Company or a successor to the
Company, under the Plan. Moreover, the appointment to, or continuance in,
such office of such individual, is consistent with the interests of holders
of Claims and Equity Interests and with public policy, and the Company has
disclosed the identity of any insider that Reorganized Ithaca will employ
or retain, and the nature of any compensation for such insider.
(f) Best Interests Test. With respect to each Class of impaired Claims
or Equity Interests, either each holder of a Claim or Equity Interest of
such Class has accepted the Plan, or will receive or retain under the Plan
on account of such Claim or Equity Interest, property of a value, as of the
Effective Date of the Plan, that is not less than the amount that such
holder would receive or retain if the Company was liquidated on such date
under Chapter 7 of the Bankruptcy Code.
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In Chapter 7 liquidation cases, unsecured creditors and interest holders of
a debtor are paid from available assets generally in the following order, with
no lower class receiving any payments until all amounts due to senior classes
have been paid fully or payment provided for:
(i) Secured creditors (to the extent of the value of their
collateral);
(ii) Priority creditors;
(iii) Unsecured creditors;
(iv) Debt expressly subordinated by its terms or by order of the
Bankruptcy Court; and
(v) Equity Interest Holders.
Annexed hereto as Exhibit "C" is a liquidation analysis prepared by the
Company. As set forth therein, in light of the foregoing priority, the Company
believes that if its reorganization were converted to a Chapter 7 liquidation,
holders of Noteholder Claims and holders of General Unsecured Claims would
receive no distributions.
(g) Each Class of Claims or Equity Interests has either accepted the Plan
or is not impaired under the Plan.
(h) Except to the extent that the holder of a particular Claim has agreed
to a different treatment of such Claim, the Plan provides that Allowed
Administrative and Priority Claims (other than Allowed Tax Claims) will be paid
in full on the Effective Date and that Allowed Tax Claims will receive on
account of such Claims deferred Cash payments, over a period not exceeding six
years after the date of assessment of such Claim, of a value, as of the
Effective Date, equal to the allowed amount of such Claim.
(i) At least one impaired class of Claims has accepted the Plan, determined
without including any acceptance of the Plan by any insider holding a Claim of
such Class.
(j) Feasibility. Confirmation of the Plan is not likely to be followed by
the liquidation, or the need for further financial reorganization, of the
Company or any successor to the Company under the Plan. Annexed hereto as
Exhibit "D" are projections for approximately three years and a pro forma
balance sheet as of the Effective Date which demonstrate that, given estimated
expenses and income, and taking into account cash reserves, Reorganized Ithaca
will be able to satisfy its obligations under the Plan, as well as ongoing
business obligations. (See Section VI of this Disclosure Statement entitled
"Risk Factors" for a discussion of certain risks associated with the Plan).
(k) All fees of the type described in 28 U.S.C.ss. 1930, including the fees
of the United States Trustee, will be paid as of the Effective Date.
3. Confirmation Without Acceptance by All Impaired Classes
Section 1129(b) of the Bankruptcy Code allows a Bankruptcy Court to confirm
a plan, even if such plan has not been accepted by all impaired classes entitled
to vote on such plan, provided that such plan has been accepted by at least one
impaired class. If any impaired classes reject or are deemed to have rejected
the Plan, the Company reserves its right to seek the application of the
statutory requirements set forth in Section 1129(b) of the Bankruptcy Code for
Confirmation of the Plan despite lack of acceptance by all impaired classes.
Section 1129(b) of the Bankruptcy Code provides that notwithstanding the
failure of an impaired class to accept a plan of reorganization, the plan shall
be confirmed, on request of the proponent of the plan, in a procedure commonly
known as "cram-down," so long as the plan does not "discriminate unfairly," and
is "fair and equitable" with respect to each class of claims or interests that
is impaired under and has not accepted the plan.
The condition that a plan be "fair and equitable" with respect to a
non-accepting class of secured claims includes the requirements that (a) the
holders of such secured claims retain the liens securing such claims to the
extent of the allowed amount of the claims, whether the property subject to the
liens is retained by the debtor or transferred to another entity under the plan;
and (b) each holder of a secured claim in the class receive deferred cash
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payments totalling at least the allowed amount of such claim with a present
value, as of the effective date of the plan, at least equivalent to the value of
the secured claimant's interest in the debtor's property subject to the liens.
The condition that a plan be "fair and equitable" with respect to a
non-accepting class of unsecured claims includes the requirement that either:
(a) such class receive or retain under the plan property of a value as of the
effective date of the plan equal to the allowed amount of such claim; or (b) if
the class does not receive such amount, no class junior to the non-accepting
class may receive a distribution under the plan.
The condition that a plan be "fair and equitable" with respect to a
non-accepting class of interests includes the requirements that either: (a) the
plan provides that each holder of an interest in such class receive or retain
under the plan, on account of such interest, property of a value, as of the
effective date of the plan, equal to the greatest of (i) the allowed amount of
any fixed liquidation preference to which such holder is entitled; (ii) any
fixed redemption price to which such holder is entitled; or (iii) the value of
such interest, or (b) if the class does not receive such amount, no class of
interests junior to the non-accepting class may receive a distribution under the
plan.
V.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion of certain significant federal income tax
consequences of the Plan under the Internal Revenue Code of 1986, as amended
(the "Code"), has been prepared by Paul, Weiss, Rifkind, Wharton & Garrison,
special tax counsel to the Company. This general description does not discuss
all aspects of federal income taxation that may be relevant to an Impaired
Creditor or to a holder of an Equity Interest, in light of such person's
personal investment circumstances, or to certain types of holders subject to
special treatment under the federal income tax laws (for example, life insurance
companies, banks, dealers in securities, tax-exempt organizations, foreign
corporations and individuals who are not citizens or residents of the United
States) and does not discuss any aspect of state, local or foreign taxation.
This discussion is limited to Impaired Creditors and holders of Equity Interests
who hold such interests as "capital assets" and who will hold New Ithaca Common
Stock and New Ithaca Secured Notes as "capital assets" (generally property held
for investment) within the meaning of section 1221 of the Code. This discussion
is based upon laws, regulations, rulings and decisions now in effect and upon
proposed regulations all of which are subject to change (possibly with
retroactive effect) by legislation, administrative action or judicial decision.
Moreover, substantial uncertainties, resulting from the lack of definitive
judicial or administrative authority and interpretation, apply to various tax
aspects of the transactions discussed herein. EACH IMPAIRED CREDITOR AND HOLDER
OF EQUITY INTERESTS IS URGED TO CONSULT ITS OWN TAX ADVISOR FOR THE TAX
CONSEQUENCES PECULIAR TO IT FROM THE IMPLEMENTATION OF THE PLAN.
A. Tax Consequences to the Company
1. Cancellation of Debt Income
As a result of the anticipated exchange of the Notes for New Ithaca Common
Stock pursuant to the Plan, the amount of the Company's aggregate outstanding
indebtedness will be reduced. In general, for federal income tax purposes, a
debtor will realize cancellation of debt ("COD") income when a creditor accepts
less than full payment in satisfaction of its debt. Under certain provisions of
section 108 of the Code, if a debtor corporation transfers stock to a creditor
in satisfaction of its indebtedness, such corporation shall be treated as having
satisfied the indebtedness with an amount of money equal to the fair market
value of the stock. Absent an exception, the amount of COD income realized must
be included in taxable income. Section 108 of the Code provides in part that
gross income does not include COD income if the discharge occurs in a title 11
case. Instead, the taxpayer applies the amount excluded from gross income to
reduce the following tax attributes in the following order: (1) net operating
losses or net operating loss carryovers, (2) carryovers of the general business
credit, (3) carryovers of the minimum tax credit, (4) net capital losses or
capital loss carryovers, (5) basis of the taxpayer's depreciable and
nondepreciable property, (6) passive activity loss and credit carryovers and (7)
carryovers of foreign tax credit. Attributes (1), (4) and (5) are reduced dollar
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for dollar; other attributes are reduced 331/3 cents for each dollar excluded.
The taxpayer may elect to apply attribute reduction first against depreciable
property. If the taxpayer does not elect to first reduce the basis of
depreciable property and the COD occurs in connection with a title 11 or similar
case (as defined in the Code), the amount by which the basis of the taxpayer's
property is reduced is limited to the excess of the total basis of all of the
property held by the taxpayer immediately after the COD over the total
liabilities of the taxpayer immediately after the COD. Treasury regulations
promulgated under section 1017 of the Code (which provides the operative rules
for reducing the basis of property to reflect the realization of COD income)
provide that a taxpayer's basis in depreciable property is reduced before its
basis in nondepreciable property, including inventory.
The Company expects that it will realize significant COD income upon the
exchange of the Notes for New Ithaca Common Stock pursuant to the Plan. Because
the realization of COD income will occur in a title 11 case, the Company will
not recognize such COD income, but will instead reduce tax attributes. The
Company does not expect to elect to first reduce the basis of its depreciable
property. The Company expects any loss for the period ending on the date of the
realization of COD income to be used to offset taxable income of other members
of the affiliated group of which Holdings is the common parent. However, if the
Company's loss for such period exceeds the taxable income of such other members,
such excess loss will be the first tax attribute reduced as a result of the
Company's realization of COD income. The Company expects to emerge from
bankruptcy with little or no basis in its depreciable assets because it does not
possess any of attributes (1) through (4) above and because the total basis of
all its property immediately after the COD will significantly exceed its total
liabilities immediately after the COD. Accordingly, by reducing tax attributes
the Company will reduce the tax benefits attributable to depreciation that
otherwise would have been claimed in the current year and future years. However,
the Company does expect that, as a result of the limitation on basis reduction
and the ordering rule that requires the reduction of depreciable property before
nondepreciable property, it will emerge from bankruptcy with significant basis
preserved in its inventory.
2. Section 382 Limitation
Section 382 of the Code provides rules governing the use of a corporation's
tax attributes following significant changes in the ownership of a corporation's
stock. Subject to the title 11 exception discussed below, section 382 of the
Code provides that, following an "ownership change" of a corporation with a net
operating loss, a net operating loss carryforward or a net unrealized built-in
loss (a "loss corporation"), the amount of the loss corporation's taxable income
that can be offset by its net operating losses, net operating loss carryforwards
and recognized built-in losses, if any, in any taxable year, cannot exceed an
amount equal to the sum of (x) the product of the value of the loss corporation
immediately before the ownership change (increased, as discussed below, in some
circumstances, by any increase in value resulting from any surrender or
cancellation of creditors' claims) multiplied by the long-term tax-exempt rate
(the "section 382 limitation") plus (y) recognized built-in gains (if any). Any
portion of the section 382 limitation not used in any taxable year can be
carried forward to increase the section 382 limitation in future years. The
Company expects that it will be a loss corporation at the time of the exchanges
anticipated to occur pursuant to the Plan because although it will not have a
net operating loss carryforward, it will have a net unrealized built-in loss (as
discussed below).
An ownership change occurs if there is (x) any change in the respective
ownership of stock of a loss corporation that affects the percentage of stock
held by any five-percent shareholder or (y) an equity structure shift, including
certain reorganizations, and because of such event, the percentage of stock of
the loss corporation owned by any one or more five-percent shareholders is
increased by more than 50 percentage points relative to the lowest percentage of
stock of the loss corporation owned by such five-percent shareholders at any
time during a testing period (which is generally a three-year period). The
Company expects that the exchanges anticipated to occur pursuant to the Plan
will cause an ownership change with respect to the Company.
In general, if a corporation has a net unrealized built-in loss, any such
loss recognized within the five-year period beginning on the date of the
ownership change and ending at the close of the fifth post-ownership change year
is treated as a pre-change loss and, as such, is subject to the section 382
limitation. A net unrealized built-in loss is the amount by which the aggregate
adjusted basis of the assets of a corporation immediately before an ownership
change exceeds the fair market value of those assets. In computing net
unrealized built-in loss, the value of a corporation does not include (x) cash
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or cash items or (y) marketable securities that have not declined or appreciated
substantially in value.
The Company expects that it will have a significant net unrealized built-in
loss immediately prior to the exchanges anticipated to occur pursuant to the
Plan because it holds a significant amount of high-basis, low-value inventory.
Under section 382(l)(5) of the Code, the section 382 limitation does not
apply to an ownership change of a loss corporation if the corporation was under
the jurisdiction of a court in a title 11 or similar case immediately before the
change and those who were shareholders and creditors of the loss corporation
before the ownership change own at least 50 percent of the loss corporation's
stock by value and voting power after the ownership change (the "title 11
exception"). Stock held by a creditor that was converted from indebtedness is
considered in determining whether the 50-percent requirement is satisfied only
if (x) the creditor held (or is treated under regulations issued under section
382(l)(5) as holding) the debt at least 18 months before the case was filed or
(y) the debt arose in the ordinary course of the loss corporation's trade or
business and has been held by the person who has at all times held the
beneficial interest in the claim. If an exchange of debt for stock in a title 11
or similar case does not qualify for the title 11 exception, the value of the
loss corporation for purposes of calculating its section 382 limitation shall
reflect the increase, if any, in value of the loss corporation resulting from
any surrender or cancellation of creditors' claims in the transaction.
The Company expects that the title 11 exception will apply to the exchanges
anticipated to occur pursuant to the Plan and that the section 382 limitation
thus will not apply to limit the Company's use of its net unrealized built-in
loss. Under certain provisions of the alternative minimum tax ("AMT") rules, the
Company may be required to reduce the tax basis of its assets, for AMT purposes,
to their fair market value immediately before the ownership change, thus
reducing or eliminating any net unrealized built-in loss for AMT purposes. The
Company does not expect, however, that application of such provisions will have
a material adverse tax impact.
The Company expects, to the extent possible, to recognize its net
unrealized built-in loss in the short taxable period ending January 31, 1997 by
disposing of its remaining inventory and, thus, to recognize a net loss for such
period. The Company plans to use such loss to offset income for its taxable year
ended January 31, 1995 by filing a refund claim for such taxable year based on a
carryback of the loss for the period ending January 31, 1997. To the extent that
the Company recognizes its net unrealized built-in loss in a taxable year
following the short taxable period ending January 31, 1997 and has a net loss
for such year, the Company will not be able to use such loss to offset income
for its taxable year ended January 31, 1995, but may be able to use such loss by
means of a carryforward.
In addition, assuming that the title 11 exception applies, if the Company
has a second ownership change during the two-year period following the ownership
change that occurs as a result of the exchange of the Notes for New Ithaca
Common Stock pursuant to the Plan, its section 382 limitation will be zero for
any year ending after the second ownership change. In such event, the Company
would lose the benefit of any built-in loss it recognizes following the second
ownership change or of any net operating loss carryforward attributable to
losses recognized after the first ownership change and carried to periods ending
after the second ownership change.
B. Tax Consequences to the Noteholders
1. Exchange of Notes for New Ithaca Common Stock
A Noteholder should recognize gain or loss (and ordinary income, to the
extent, if any, of accrued but unpaid interest) on the exchange of Notes for New
Ithaca Common Stock equal to the difference between (x) the fair market value of
the New Ithaca Common Stock received and (y) the Noteholder's tax basis in the
Notes. The fair market value of the New Ithaca Common Stock received may be
determined by taking the mean between the highest and lowest selling prices on
the valuation date or, if there are no sales on such date, by taking a weighted
average of the means between the highest and lowest sales upon the nearest date
before and the nearest date after the valuation date, within a reasonable
period. A Noteholder's aggregate tax basis in the New Ithaca Common Stock
received should equal the tax basis of the Notes exchanged therefor, decreased
41
<PAGE>
by the amount of loss, if any, recognized on the exchange, and increased by the
amount of gain, if any, recognized on the exchange. The holding period for the
New Ithaca Common Stock received should begin on the day after the exchange.
A Noteholder in whose hands the Notes are market discount bonds will be
required to treat as ordinary interest income any gain recognized upon the
disposition of Notes to the extent of the accrued market discount during the
Noteholder's period of ownership, unless the Noteholder has elected to include
the market discount in income as it accrued. Market discount is defined
generally as the excess, if any, of the stated redemption price at maturity (as
defined in the Code) of a debt obligation over the tax basis of the debt
obligation in the hands of the holder immediately after its acquisition.
2. Section 269
The Internal Revenue Service is authorized, under section 269 of the Code,
to disallow any deduction, credit or other allowance if one or more persons
acquire control of a corporation and the principal purpose for which such
acquisition was made is evasion or avoidance of federal income tax by securing
the benefit of such deduction, credit or other allowance that such person or
persons would not otherwise enjoy. For purposes of section 269 of the Code,
control means the ownership of stock possessing at least 50 percent of the total
combined voting power of all classes entitled to vote or at least 50 percent of
the total value of shares of all classes of stock. Treasury regulations
promulgated under section 269 of the Code provide that, absent strong evidence
to the contrary, a requisite acquisition of control in connection with an
ownership change to which the title 11 exception to the section 382 limitation
(discussed above) applies is considered to be made for the principal purpose of
evasion or avoidance of federal income tax unless the corporation carries on
more than an insignificant amount of an active trade or business during and
subsequent to the title 11 or similar case (as defined in the Code). The
determination is based on all the facts and circumstances. Where the corporation
continues to utilize a significant amount of its business assets or work force,
the requirement of carrying on more than an insignificant amount of an active
trade or business may be met even though all trade or business activities
temporarily cease for a period of time in order to address business exigencies.
Based on all the facts and circumstances, the Company believes that section 269
of the Code will have no application because the Company will carry on more than
an insignificant amount of an active trade or business, within the meaning of
the Treasury regulations described above, during and subsequent to
implementation of the Plan. Nevertheless, there can be no assurance that the
Internal Revenue Service will not assert the application of section 269 of the
Code or that such application, if asserted, would not be sustained.
C. Tax Consequences to the Bank Group
Pursuant to the Plan, the Company expects to amend the Credit Agreement. In
general, the entire amount of gain or loss is recognized for federal income tax
purposes on a sale, exchange or other disposition of property, unless specific
provisions of the Code provide for nonrecognition treatment. Under recently
promulgated Treasury regulations, a significant modification of a debt
instrument, including a modification evidenced by an amendment of the
instrument, is deemed to result in an exchange of the original instrument for a
modified instrument that differs materially either in kind or in extent. Under
such Treasury regulations, a significant modification of a debt instrument
includes, among other things, a change in the annual yield of the instrument by
more than the greater of (a) 25 basis points or (b) five percent of the annual
yield of the unmodified instrument. Such Treasury regulations have not yet been
the subject of extensive administrative or judicial interpretation and the terms
of the amendment of the Credit Agreement remain subject to change. Thus, it is
not clear whether the amendment of the Credit Agreement constitutes a
significant modification resulting in a taxable exchange.
D. Tax Consequences to Holders of Equity Interests
Pursuant to the Plan, all outstanding Equity Interests of the Company will
be cancelled. Section 165 of the Code provides in part that if any security,
defined for this purpose to include stock, that is a capital asset becomes
worthless during the taxable year, the resulting loss is treated as a loss from
the sale or exchange, on the last day of the taxable year, of a capital asset.
Any security in a corporation affiliated with a domestic corporation taxpayer is
not treated as a capital asset. A corporation is affiliated with a domestic
corporation taxpayer if (x) the domestic corporation taxpayer owns directly at
least 80% of the voting power of all classes of the corporation's stock and at
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<PAGE>
least 80% of each class of non-voting stock and (y) more than 90% of the
corporation's gross receipts for all tax years has been from the operation of a
business. The Company expects that a holder of Equity Interests will be entitled
to a worthlessness deduction on the last day of its taxable year that includes
the date of the cancellation of the Equity Interests. Any loss deduction of
Holdings in respect of the worthlessness of the Equity Interests should be
treated as an ordinary loss.
VI.
RISK FACTORS
HOLDERS OF NOTES AND ALL OTHER IMPAIRED CREDITORS SHOULD READ AND CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE 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.
A. Leverage
Although the Plan will eliminate a significant amount of the Company's
debt, Reorganized Ithaca will remain leveraged. The degree to which the Company
is leveraged could have important consequences, including the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, product development, acquisitions, general
corporate purposes or other purposes may be impaired; (ii) a substantial portion
of the Company's cash flow from operations must be dedicated to the payment of
the principal of and interest on its indebtedness; and (iii) the Company's
degree of leverage may make it more vulnerable to economic downturns and may
limit its ability to withstand competitive pressures.
B. Dependence on Key Personnel
The Company is dependent on the continued services of certain senior
executives, including: Jim D. Waller, Chief Executive Officer, President and
Chairman of the Board; Eric N. Hoyle, Chief Financial Officer, Senior Vice
President Finance and Secretary. The Company believes the loss of the services
of one or more of these senior executives could have a material adverse effect
on the Company.
C. Importance of Major Customers
For the fiscal year ended February 2, 1996, J.C. Penney accounted for
nearly 42% of the total net sales of the Company, down from more than 90% of
total net sales for the fiscal year ended January 31, 1980. Wal-Mart accounted
for approximately 11% of the total net sales in fiscal 1996. No other customers
accounted for 10% or more of total net sales for the most recent fiscal year.
Although the Company's reliance on its major customers has generally decreased,
the loss of a material amount of sales to J.C. Penney, or a decline in J.C.
Penney's business, or the loss of one of the Company's other major customers
would have a material adverse effect on Ithaca's results of operations.
D. Competition
The hosiery and underwear business is highly competitive. The Company
believes that suppliers in the hosiery and underwear business compete nationally
primarily on the basis of price, quality and customer service. The Company
competes with other private label manufacturers as well as manufacturers of
branded products. Certain of the Company's competitors have significantly
greater financial resources and market recognition than the Company. Many
regional or local manufacturers also compete with the Company for regional or
local customers. Many of the Company's customers purchase a portion of their
private label program requirements from competitors as well as from Ithaca.
E. Risks Inherent in Business Plan
The Company's business plan is dependent, among other things, on its
ability to increase its foreign sourcing capabilities and to otherwise
manufacture its products at a competitively favorable cost. The success of the
Company's foreign sourcing efforts is dependent, among other things, upon the
absence of political or economic disruptions, quotas, labor disruptions,
43
<PAGE>
embargoes or currency fluctuations that might adversely affect the Company,
particularly in Honduras and other foreign nations where the Company currently
or in the future sources its products. The Company is also engaged in ongoing
efforts to consolidate its hosiery operations and to consolidate certain other
operations in offshore facilities. The Company's business plan is also dependent
upon the efficient operation of new centralized distribution centers, the
success of the Company's efforts to streamline its stock keeping units and
eliminate unprofitable and low-profit lines and products, the success of the
Company's efforts to reduce its selling, general and administrative expenses and
the success of the Company's efforts to efficiently manage its inventory levels.
F. Lack of Market for New Ithaca Common Stock
There is no currently existing market for the New Ithaca Common Stock and
there can be no assurance that an active trading market will develop or as to
the degree of price volatility in any such particular market. Accordingly, no
assurance can be given that a holder of New Ithaca 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 market were to exist, the liquidity of the market for such New
Ithaca Common Stock and the prices at which such securities will trade will
depend upon many factors, including the number of holders, investor expectations
for the Company, and other factors beyond the Company's control.
G. Certain Bankruptcy Related Considerations
1. General
The filing of a bankruptcy petition by or against the Company and the
publicity attendant thereto may adversely affect the business of the Company.
The Company believes that any such adverse effects may worsen during the
pendency of a protracted bankruptcy case.
2. Failure to File Chapter 11 Petition
If the Requisite Vote Condition is satisfied, the Company intends to file
(but reserves the sole and absolute right not to file) a voluntary petition for
reorganization under chapter 11 of the Bankruptcy Code and to seek, as promptly
thereafter as is practicable, confirmation by the Bankruptcy Court of the Plan.
In the event that the Requisite Vote Condition is not satisfied or the Company
otherwise determines not to file a chapter 11 petition, the Company may seek to
accomplish an alternative restructuring of its obligations and obtain consent to
any such restructuring plan by means of another out-of-court solicitation for
acceptance of a Company plan of reorganization, or otherwise. There can be no
assurance that the terms of any such alternative restructuring arrangement or
plan would be similar to or as favorable as those proposed in the Plan.
3. Risk of Failure to Obtain Authority to Pay Pre-Petition Unsecured Claims
in the Ordinary Course of Business
Under the Plan, General Unsecured Claims are unimpaired. In order to
effectuate this treatment, the Company intends to seek authority from the
Bankruptcy Court to continue to satisfy its obligations to unsecured creditors
in the ordinary course of business, including obligations which arise prior to
the filing of the Company's Chapter 11 proceeding. If the Company is unable to
obtain such authority, the Plan may have to be amended to provide different
treatment for the holders of General Unsecured Claims.
4. Risk of Non-Confirmation of the Plan
Although the Company believes that the Plan will satisfy all requirements
necessary for Confirmation by the Bankruptcy Court, there can be no assurance
that the Bankruptcy Court will reach the same conclusion. There can also be no
assurance that modifications of the Plan will not be required for Confirmation
or that such modifications would not necessitate the resolicitation of votes.
5. Nonconsensual Confirmation
In the event any impaired class of claims or equity interests does not
accept a plan of reorganization, a bankruptcy court may nevertheless confirm
such plan of reorganization at the proponent's request if at least one impaired
44
<PAGE>
class has accepted the plan of reorganization (with such acceptance being
determined without including the acceptance of any "insider" in such class) and,
as to each impaired class which has not accepted the plan of reorganization, the
bankruptcy court determines that the plan of reorganization "does not
discriminate unfairly" and is "fair and equitable" with respect to non-accepting
impaired classes. The Company believes that the Plan satisfies those
requirements. In the event that any impaired Class of Claims fails to accept the
Plan in accordance with section 1129(a)(8) of the Bankruptcy Code, the Company
reserves the right to request nonconsensual confirmation of the Plan in
accordance with section 1129(b) of the Bankruptcy Code.
H. Liquidity; Restriction on Transfer
There currently is no established trading market for the Notes and no
dealer or "market maker" has expressed an interest in making a market in and for
the New Ithaca Common Stock. Accordingly, the Company is unable to predict
whether a market for such securities will develop. Due to the fact that
Noteholders may have little, if any, opportunity to liquidate their claims
during the pendency of any chapter 11 case commenced by the Company, the Company
anticipates that if a trading market were established, there may initially be a
large number of holders who wish to sell the New Ithaca Common Stock received
pursuant to the Plan. Furthermore, following the Effective Date, the shares of
New Ithaca Common Stock distributed pursuant to the Plan may be concentrated in
a limited number of large holders. As a result, to the extent any such markets
develop, the trading markets for the New Ithaca Common Stock will most likely be
unstable and illiquid for an indeterminate period of time following the
Effective Date. In addition, holders of the New Ithaca Common Stock who are
deemed to be "underwriters" as defined in subsection 1145(b) of the Bankruptcy
Code, or who are otherwise deemed to be "affiliates" or "control persons" of the
Company within the meaning of the Securities Act, will be unable to freely
transfer or sell their respective securities (which securities will be
"restricted securities" within the meaning of the Securities Act) 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.
I. Dividends
The Company presently intends to retain earnings for working capital and to
fund capital expenditures. Accordingly, there is no present intention to pay
cash dividends on any shares of the New Ithaca Common Stock. Moreover,
notwithstanding the dividend policy described above, the Company anticipates
that the amendments to the Credit Agreement will not modify the existing
prohibition against the payment of cash dividends on the Company's equity
securities until the maturity of the loans made under such facility.
J. Refinancing of Obligations to Bank Group
The Plan contemplates a restructuring of the obligations of the Bank Group
as detailed in Section III.C.4. of this Disclosure Statement entitled "The Plan
- - Treatment of Claims and Interests Under the Plan - Class 2A -- Allowed Bank
Group Secured Claims." Pursuant to the Plan, the Company's restructured
obligations to the Bank Group mature on August 31, 1999 (the "Maturity Date").
The Company contemplates that its outstanding obligations to the Bank Group on
the Maturity Date will be satisfied, in whole or in part, through a refinancing.
The form of refinancing will be based upon economic conditions at the Maturity
Date. However, in the event the Company cannot effectuate such a refinancing
prior to the Maturity Date, there is a risk that the Company may not be able to
satisfy its obligations to holders of Allowed Bank Group Secured Claims under
the Plan. There is also a risk that the Company may not be able to comply with
the financial covenants to be contained in New Ithaca Bank Group Documents.
Furthermore, as part of the restructuring of the Bank Group Secured Claims, the
Plan contemplates that each Lender will make revolving loans to Reorganized
Ithaca in amounts greater than the amounts outstanding as of the anticipated
Filing Date. Accordingly, should any of the Lenders not accept the Plan (which
is not anticipated) there is a risk that, unless other appropriate arrangements
can be implemented, the Company may not be able to effectuate the Plan.
45
<PAGE>
VII.
EXEMPTIONS FROM SECURITIES ACT REGISTRATION; REGISTRATION RIGHTS
A. The Solicitation
Pursuant to Section 14(a) of the Securities Exchange Act of 1934, as
amended, and rule 14a-2 thereunder, the proxy rules of the Securities Exchange
Commission adopted under that section do not apply to this solicitation, since
the Notes are not equity securities registered or required to be registered
under Section 12(g) of that act and are not registered or required to be
registered under Section 12(b) of that act by reason of being listed for trading
on a registered national securities exchange.
The Company is relying on Section 3(a)(9) of the Securities Act and Section
1145 of the Bankruptcy Code to exempt from the registration requirements of such
act (and of any equivalent state securities or "blue sky" Laws) the offer to
exchange securities which may be deemed to be made by the Company pursuant to
the Solicitation.
The Company has no contract, arrangement or understanding relating to,
and will not, directly or indirectly, pay any commission or other remuneration
to any broker, dealer, salesperson, agent or any other person for soliciting
votes to accept or reject the Plan or for soliciting any exchanges of the Notes.
The Company has received assurances that no person will provide any information
to holders of the Notes relating to the Solicitation or the Plan other than to
refer holders of the Notes to the information contained in this Disclosure
Statement and in the Ballots and Master Ballots delivered together herewith. In
addition, neither the Indenture Trustee, nor any broker, dealer, salesperson,
agent or any other person, has been engaged or authorized to express any
statement, opinion, recommendation or judgment with respect to the relative
merits and risks of the Solicitation, the value and terms of the New Ithaca
Common Stock, or the Plan (and the transactions contemplated thereby).
B. Issuance of New Securities Pursuant to the Plan
With respect to New Ithaca Common Stock to be exchanged on the Effective
Date, the Company intends to rely upon the exemption from the registration
requirements of the Securities Act (and of equivalent state securities or "blue
sky" laws) provided by section 1145(a)(1) of the Bankruptcy Code. Generally,
section 1145(a)(1) of the Bankruptcy Code exempts the issuance of securities
from the registration requirements of the Securities Act and equivalent state
securities and "blue sky" laws if the following conditions are satisfied: (i)
the securities are issued by a debtor (or its successor) under a plan of
reorganization; (ii) the recipients of the securities hold a claim against, an
interest in, 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. The Company believes that the exchange of the
New Ithaca Common Stock will satisfy the aforementioned requirements.
The New Ithaca Common Stock may be resold by the holders thereof without
restriction unless, as more fully described below, any such holder is deemed to
be an "underwriter" with respect to such securities, as defined in section
1145(b)(1) the Bankruptcy Code. Generally, Section 1145(b)(1) of the Bankruptcy
Code defines an "underwriter" as any person who (A) purchases a claim against,
or interest in, a bankruptcy case, with a view towards the distribution of any
security to be received in exchange for such claim or interest, (B) offers to
sell securities issued under a bankruptcy plan on behalf of the holders of such
securities, (C) offers to buy securities issued under a bankruptcy plan from
persons receiving such securities, if the offer to buy is made with a view
towards distribution of such securities, or (D) is an issuer as contemplated by
section 2(11) of the Securities Act. Although the definition of the term
"issuer" appears in section 2(4) of the Securities Act, 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 "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 such
term is defined in Rule 405 of Regulation C 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 may be deemed to be a
"control person," particularly if such management position is coupled with the
46
<PAGE>
ownership of a significant percentage of the 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 10% of the securities
of a reorganized debtor may be presumed to be a "control person."
C. Registration Rights
As discussed above, although upon their issuance pursuant to Section
1145(a)(1) of the Bankruptcy Code the shares of New Ithaca Common Stock may
generally be resold by the holders thereof without registration under the
Securities Act (or under equivalent state securities or "blue sky" laws), a
holder may be unable to resell his or its securities if such holder is deemed to
be (i) an "underwriter" within the meaning of section 1145(b)(1) of the
Bankruptcy Code, or (ii) an "affiliate" or "control person" of the Company
within the meaning of the Securities Act. In order to enable holders of New
Ithaca Common Stock to sell their securities without restriction (and to obviate
the need to satisfy the requirements relating to applicable exemptions from
federal and state securities law registration), the Company has agreed to
provide the holders of such New Ithaca Common Stock with certain registration
rights under an agreement to that effect which will be entered into among such
holders and the Company on the Effective Date. (See Section III.D.5. of this
Disclosure Statement entitled "The Plan -- Description of Transactions to be
Implemented In Connection with the Plan -- Registration Rights Agreement").
THE FOREGOING SUMMARY DISCUSSION IS GENERAL IN NATURE AND HAS BEEN INCLUDED
IN THIS DISCLOSURE STATEMENT SOLELY FOR INFORMATIONAL PURPOSES. THE COMPANY
MAKES NO REPRESENTATIONS CONCERNING, AND DOES NOT HEREBY PROVIDE ANY OPINION OR
ADVICE WITH RESPECT TO, THE SECURITIES LAW AND BANKRUPTCY LAW MATTERS DESCRIBED
ABOVE. IN LIGHT OF THE COMPLEX AND SUBJECTIVE INTERPRETIVE NATURE OF WHETHER A
PARTICULAR RECIPIENT OF NEW SECURITIES MAY BE DEEMED TO BE AN "UNDERWRITER"
WITHIN THE MEANING OF SECTION 1145(b)(1) OF THE BANKRUPTCY CODE AND/OR AN
"AFFILIATE" OR "CONTROL PERSON" UNDER APPLICABLE FEDERAL AND STATE SECURITIES
LAWS AND, CONSEQUENTLY, THE UNCERTAINTY CONCERNING THE AVAILABILITY OF
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
EQUIVALENT STATE SECURITIES AND "BLUE SKY" LAWS, THE COMPANY ENCOURAGES
POTENTIAL RECIPIENTS OF NEW ITHACA COMMON STOCK TO CONSIDER CAREFULLY AND
CONSULT WITH HIS OR ITS OWN LEGAL ADVISOR(S) WITH RESPECT TO SUCH (AND ANY
RELATED) MATTERS.
VIII.
ALTERNATIVES TO THE PLAN AND CONSEQUENCES OF REJECTION
Among the possible consequences if this Plan is rejected or if the
Bankruptcy Court refuses to confirm the Plan are the following: (i) an
alternative plan could be proposed or confirmed; or (ii) the case could be
converted to a liquidation case under Chapter 7 of the Bankruptcy Code.
A. Alternative Plans
As aforementioned, with respect to an alternative plan, the Company and its
professional advisors have explored various alternative scenarios and believe
that the Plan enables the holders of Claims to realize the most value. The
Company believes the Plan is the best plan that can be proposed and serves the
best interests of the Company and other parties-in-interest.
B. Chapter 7 Liquidation
For a discussion of a Chapter 7 liquidation, see Section IV.B.2. above
entitled "Acceptance and Confirmation of the Plan -- Confirmation -- Statutory
Requirement for Confirmation of the Plan".
47
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IX.
RECOMMENDATION AND CONCLUSION
The Company and the Informal Committee, and their respective professional
advisors, have analyzed different scenarios and believe that the Plan will
provide for a larger distribution to holders of Claims than would otherwise
result if an alternative restructuring plan were proposed or the assets of the
Company were liquidated. In addition, any alternative other than Confirmation of
the Plan could result in extensive delays and increased administrative expenses
resulting in potentially smaller distributions to the holders of Claims.
Accordingly, the Company and the Informal Committee recommend confirmation of
the Plan and urge all holders of impaired Claims to vote to accept the Plan, and
to evidence such acceptance by returning their Ballots so that they will be
received by no later than the Voting Deadline.
Date: New York, New York
August 29, 1996
ITHACA INDUSTRIES, INC.
By: /s/ Jim D. Waller
-----------------------------
Jim D. Waller,
President and
Chief Executive Officer
PROSKAUER ROSE GOETZ & MENDELSOHN LLP
Counsel to Ithaca Industries, Inc.
By: /s/ Alan B. Hyman
----------------------------------
Alan B. Hyman (AH-6655)
Jeffrey W. Levitan (JL-6155)
Members of the Firm
1585 Broadway
New York, New York 10036
(212) 969-3000
<PAGE>
Exhibit A
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- ----------------------------------
In re: Chapter 11
ITHACA INDUSTRIES, INC., Case No.
Debtor.
- ----------------------------------
DEBTOR'S PREPACKAGED PLAN OF REORGANIZATION UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE
Dated: August 29, 1996
New York, New York
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS .......................................... 1
1.1 "Administrative Claim" ............................... 1
1.2 "Agent" .............................................. 1
1.3 "Allowed" ............................................ 1
1.4 "Ballot" ............................................. 1
1.5 "Bank Group" ......................................... 1
1.6 "Bank Indemnification Claims" ........................ 1
1.7 "Bank Group Secured Claims" .......................... 2
1.8 "Bank Group Steering Committee" ...................... 2
1.9 "Bankruptcy Code" .................................... 2
1.10 "Bankruptcy Court" ................................... 2
1.11 "Bankruptcy Rules" ................................... 2
1.12 "Bar Date" ........................................... 2
1.13 "Business Day" ....................................... 2
1.14 "Business Plan" ...................................... 2
1.15 "Butler Noteholders" ................................. 2
1.16 "Cash" ............................................... 2
1.17 "Cash Collateral Agent" .............................. 2
1.18 "Claim" .............................................. 2
1.19 "Claimant" ........................................... 2
1.20 "Class" .............................................. 2
1.21 "Co-Agents" .......................................... 2
1.22 "Collateral" ......................................... 2
1.23 "Collateral Agent" ................................... 2
1.24 "Common Stock" ....................................... 3
1.25 "Confirmation" ....................................... 3
1.26 "Confirmation Date" .................................. 3
1.27 "Confirmation Hearing" ............................... 3
1.28 "Confirmation Order" ................................. 3
1.29 "Contingent Claim" ................................... 3
1.30 "Credit Agreement" ................................... 3
1.31 "Credit Documents" ................................... 3
1.32 "Creditor Party" ..................................... 3
1.33 "Disbursing Agent" ................................... 3
1.34 "Disclosure Statement" .............................. 3
1.35 "Disputed" ........................................... 3
1.36 "Effective Date" ..................................... 3
1.37 "Employee Incentive Plan" ............................ 4
1.38 "Equity Interest" .................................... 4
1.39 "Equity Party" ....................................... 4
1.40 "Estate" ............................................. 4
1.41 "Filing Date" ........................................ 4
1.42 "Final Order" ........................................ 4
1.43 "General Unsecured Claim" ............................ 4
i
Exhibit A
<PAGE>
Page
----
1.44 "Holdings" ........................................... 4
1.45 "Indemnification Claims" ............................. 4
1.46 "Indenture" .......................................... 4
1.47 "Indenture Trustee" .................................. 4
1.48 "Indenture Trustee Charging Lien" .................... 4
1.49 "Informal Committee" ................................. 5
1.50 "Intercompany Compromise and Settlement" ............. 5
1.51 "Ithaca" or "Debtor" ................................. 5
1.52 "Lenders" ............................................ 5
1.53 "Liabilities" ........................................ 5
1.54 "Lien" ............................................... 5
1.55 "New Ithaca Bank Group Documents" .................... 5
1.56 "New Ithaca Charter" ................................. 5
1.57 "New Ithaca Common Stock" ............................ 5
1.58 "New Ithaca Secured Notes" ........................... 5
1.59 "Noteholder" ......................................... 5
1.60 "Noteholder Claim" ................................... 5
1.61 "Notes" .............................................. 5
1.62 "Official Committee" ................................. 5
1.63 "Ordinary Course Indemnification Claims" ............. 5
1.64 "Person" ............................................. 5
1.65 "Plan" ............................................... 5
1.66 "Post-Reorganization Board" .......................... 6
1.67 "Priority Claim" ..................................... 6
1.68 "Pro Rata" ........................................... 6
1.69 "Professional Fees" .................................. 6
1.70 "Professional Fee Reserve" ........................... 6
1.71 "Professionals" ...................................... 6
1.72 "Record Date" ........................................ 6
1.73 "Registration Rights Agreement" ...................... 6
1.74 "Released Liabilities" ............................... 6
1.75 "Reorganization Case" ................................ 6
1.76 "Reorganized Ithaca" or "Reorganized Debtor" ......... 6
1.77 "Retiree Benefits" ................................... 6
1.78 "Schedules" .......................................... 6
1.79 "Secured Claim" ...................................... 6
1.80 "Tax Claim" .......................................... 7
1.81 "Termination Date" ................................... 7
ARTICLE II CLASSIFICATION OF CLAIMS AND INTERESTS ............... 7
2.1 Criterion of Class ................................... 7
2.2 Allowed Claims and Equity Interests .................. 7
2.3 Allowance of Claims .................................. 7
ARTICLE III PAYMENT OF ALLOWED ADMINISTRATIVE
CLAIMS AND ALLOWED TAX CLAIMS ......................... 7
3.1 Non-Classification .................................... 7
ii
Exhibit A
<PAGE>
Page
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3.2 Administrative Claims ................................. 7
3.3 Tax Claims ............................................ 8
3.4 Professional Fees and Indenture Trustee Fees .......... 8
ARTICLE IV PROVISIONS FOR TREATMENT OF CLAIMS AGAINST AND
EQUITY INTERESTS IN THE DEBTOR ........................ 8
4.1 Class 1 (Priority Claims) ............................. 8
4.2 Class 2 (Secured Claims) .............................. 8
4.3 Class 3 (General Unsecured Claims) .................... 12
4.4 Class 4 (Allowed Noteholder Claims) ................... 12
4.5 Class 5 (Equity Interests) ............................ 12
ARTICLE V IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS
IMPAIRED AND NOT IMPAIRED UNDER THIS PLAN; ACCEPTANCE
OR REJECTION OF THIS PLAN ............................. 12
5.1 Holders of Claims and Equity Interests
Entitled to Vote .................................... 12
5.2 Deemed Acceptance by Unimpaired Classes ............... 13
5.3 Elimination of Classes ................................ 13
5.4 Nonconsensual Confirmation ............................ 13
5.5 Revocation of Plan .................................... 13
ARTICLE VI MEANS OF EXECUTION .................................... 13
6.1 Plan Funding .......................................... 13
6.2 New Ithaca Charter .................................... 13
6.3 Issuance of New Ithaca Common Stock ................... 13
6.4 Intercompany Compromise and Settlement 13
6.5 Employee Incentive Plan ............................... 13
6.6 Voting Powers ......................................... 13
6.7 Post-Reorganization Board ............................. 14
6.8 Disbursement of Funds and Delivery of Securities ...... 14
6.9 Delivery of Distributions ............................. 14
6.10 Distribution Record Date .............................. 14
6.11 Surrender of Cancelled Instruments or Securities ...... 14
6.12 Disputed Claims ....................................... 15
6.13 Disputed Payments ..................................... 15
6.14 Unclaimed Property .................................... 15
6.15 Set-Offs .............................................. 15
6.16 Withholding Taxes ..................................... 15
6.17 Revesting ............................................. 15
6.18 Discharge ............................................. 15
6.19 Waiver of Contractual Subordination Rights ............ 16
6.20 Release By Certain Holders of Certain Persons ......... 16
6.21 Injunctions ........................................... 16
6.22 Exculpation ........................................... 17
6.23 Carrying Out of Terms ................................. 17
6.24 Section 1146 Exemption 17
6.25 Reorganized Debtor's Authority ........................ 18
iii
Exhibit A
<PAGE>
Page
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6.26 Registration Rights ................................... 18
6.27 Full and Final Satisfaction ........................... 18
6.28 Fractional Cents ...................................... 18
6.29 Fractional Distributions; Round Lots .................. 18
6.30 Indenture Trustee Charging Lien ....................... 18
ARTICLE VII EXECUTORY CONTRACTS, INDEMNIFICATION CLAIMS
AND RETIREE BENEFITS .................................. 18
7.1 Executory Contracts and Unexpired Leases .............. 18
7.2 Indemnification and Contribution Obligations .......... 18
7.3 Retiree Benefits ...................................... 19
ARTICLE VIII CONDITIONS PRECEDENT TO EFFECTIVENESS OF THE PLAN ..... 19
8.1 Conditions to Effective Date .......................... 19
8.2 Waiver of Conditions .................................. 19
ARTICLE IX RETENTION OF JURISDICTION . ........................... 19
ARTICLE X MISCELLANEOUS PROVISIONS .............................. 20
10.1 Termination of Committees ............................. 20
10.2 Avoidance and Recovery Actions ........................ 20
10.3 Headings .............................................. 20
10.4 Defects, Omissions and Amendments ..................... 20
10.5 Governing Law ......................................... 21
10.6 Notices ............................................... 21
10.7 Severability .......................................... 21
10.8 Implementation ........................................ 21
10.9 Inconsistency ......................................... 21
iv
Exhibit A
<PAGE>
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- ----------------------------------
In re: Chapter 11
ITHACA INDUSTRIES, INC., Case No.
Debtor.
- ----------------------------------
DEBTOR'S PREPACKAGED PLAN OF REORGANIZATION UNDER
CHAPTER 11 OF THE BANKRUPTCY CODE
Ithaca Industries, Inc. proposes the following Plan:
ARTICLE I
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
herein set forth. Unless otherwise indicated, the singular shall include the
plural. Any term used herein that is not defined herein shall have the meaning
assigned to that term in the Bankruptcy Code. The rules of construction
contained in Section 102 of the Bankruptcy Code shall apply to the construction
of this Plan. Capitalized terms shall at all times refer to the terms as defined
in this Article.
1.1 "Administrative Claim" shall mean a Claim for any cost or expense of
administration of the Reorganization Case, allowed under Section 503(b) of the
Bankruptcy Code that is entitled to priority under Section 507(a)(1) of the
Bankruptcy Code, including, without limitation, (a) any actual and necessary
costs and expenses of preserving the Estate, (b) any actual and necessary costs
and expenses of operating the business of the Debtor, (c) fees and expenses of
Professionals to the extent allowed by Final Order of the Bankruptcy Court under
Sections 330, 331, or 503 of the Bankruptcy Code, and (d) all fees and charges
assessed against the Estate pursuant to 28 U.S.C. ss. 1930.
1.2 "Agent" shall mean Bankers Trust Company, in its capacity as Agent
under the Credit Agreement, and any successor Agent appointed pursuant to the
terms of the Credit Agreement.
1.3 "Allowed" shall mean with reference to any Claim: (a) a Claim that has
been listed by the Debtor in its Schedules and (i) is not listed as disputed,
contingent or unliquidated, and (ii) is not a Claim as to which a proof of Claim
has been filed; (b) a Claim as to which a timely proof of Claim has been filed
as of the Bar Date and (i) no objection thereto, or application to equitably
subordinate or otherwise limit recovery, has been made on or before any
applicable deadline, or (ii) if an objection thereto, or application to
equitably subordinate or otherwise limit recovery, has been interposed, the
extent to which such Claim (whether in whole or in part) has been allowed by a
Final Order; (c) a Claim arising from the recovery of property under section 550
or 553 of the Bankruptcy Code and allowed in accordance with section 502(h) of
the Bankruptcy Code; or (d) any Claim allowed hereunder.
1.4 "Ballot" shall mean the form or forms distributed to each holder of an
impaired Claim on which is to be indicated acceptance or rejection of the Plan.
1.5 "Bank Group" shall mean, collectively, the financial institutions that
are parties to the Credit Agreement consisting of: Bankers Trust Company
(individually and as Agent); Canadian Imperial Bank of Commerce (as Co-Agent);
CIBC, Inc.; Kleinwort Benson Limited (individually and as Co-Agent); First Union
National Bank of North Carolina; Marine Midland Bank, N.A.; The Long Term Credit
Bank of Japan, New York Branch; The First National Bank of Boston; National City
Bank; The Industrial Bank of Japan Limited, New York Branch; The Fuji Bank
Limited; and Banque Paribas and/or their respective successors, assigns and
participants.
1.6 "Bank Indemnification Claims" shall mean Indemnification Claims of the
Agent, the Co-Agents, the Collateral Agent, the Cash Collateral Agent, the
members of the Bank Group and their respective successors and assigns, as
provided in the Credit Documents.
1
Exhibit A
<PAGE>
1.7 "Bank Group Secured Claims" shall mean the Secured Claims arising under
or relating to the Credit Agreement.
1.8 "Bank Group Steering Committee" shall mean the steering committee
composed of the following members of the Bank Group: Canadian Imperial Bank of
Commerce; Kleinwort Benson Limited; Bankers Trust Company; The First National
Bank of Boston; and First Union National Bank of North Carolina.
1.9 "Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978, 11
U.S.C.ss.ss.101 et seq., as in effect on the Filing Date, as the same has been
and may be amended.
1.10 "Bankruptcy Court" shall mean the United States District Court having
jurisdiction over the Reorganization Case and, to the extent of any reference
under 28 U.S.C. ss. 157, the unit of such District Court constituted under 28
U.S.C. ss. 151.
1.11 "Bankruptcy Rules" shall mean the Federal Rules of Bankruptcy
Procedure, effective August 1, 1991 as promulgated under the provisions of 28
U.S.C.ss.2075 as the same has been and may be amended.
1.12 "Bar Date" shall mean the date fixed by order of the Bankruptcy Court
by which all Persons asserting a Claim against the Debtor and who are required
to file a proof of claim on account of such Claim, must have filed such a proof
of claim or be forever barred from asserting a Claim against the Debtor or its
property, and/or sharing in any distribution under the Plan, or such other date
as may have been fixed as the last date for the filing of a proof of claim by
order of the Bankruptcy Court.
1.13 "Business Day" shall mean any day other than a Saturday, Sunday or
legal holiday as such term is defined in Bankruptcy Rule 9006.
1.14 "Business Plan" shall mean Ithaca's revised business plan dated May 7,
1996.
1.15 "Butler Noteholders" shall mean Mezzanine Lending Associates I, L.P.,
Mezzanine Lending Associates II, L.P., Mezzanine Lending Associates, III, L.P.,
Gilbert Butler and Peter Lamm.
1.16 "Cash" shall mean cash, cash equivalents (including personal checks
drawn on a bank insured by the Federal Deposit Insurance Corporation, certified
checks and money orders) and other readily marketable direct obligations of the
United States of America and certificates of deposit issued by banks.
1.17 "Cash Collateral Agent" shall mean First Union National Bank of North
Carolina, in its capacity as Cash Collateral Agent under certain of the Credit
Documents, and any successor Cash Collateral Agent appointed pursuant to the
terms of such Credit Documents.
1.18 "Claim" shall mean a claim against the Debtor or its property as
defined in Section 101(5) of the Bankruptcy Code, which shall include:
(a) a right to payment, whether or not such right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured; or
(b) a right to an equitable remedy for breach of performance if such
breach gives rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, or unsecured.
1.19 "Claimant" shall mean the holder of a Claim.
1.20 "Class" shall mean a class of Claims or Equity Interests as defined in
Article IV of the Plan.
1.21 "Co-Agents" shall mean Canadian Imperial Bank of Commerce and
Kleinwort Benson Limited, in their capacities as Co-Agents under the Credit
Agreement, and any of their successor Co-Agents appointed pursuant to the terms
of the Credit Agreement.
1.22 "Collateral" shall mean any property or interest in property of the
Estate subject to a Lien to secure the payment or performance of a Claim.
1.23 "Collateral Agent" shall mean Bankers Trust Company, in its capacity
as Collateral Agent under certain of the Credit Documents, and any successor
Collateral Agent appointed pursuant to the terms of such Credit Documents.
2
Exhibit A
<PAGE>
1.24 "Common Stock" shall mean the presently authorized $1.00 par value per
share common stock of Ithaca.
1.25 "Confirmation" shall mean the entry, within the meaning of Bankruptcy
Rules 5003 and 9021, of the Confirmation Order by the Bankruptcy Court on its
docket.
1.26 "Confirmation Date" shall mean the date upon which Confirmation
occurs.
1.27 "Confirmation Hearing" shall mean the hearing held by the Bankruptcy
Court to consider confirmation of the Plan in accordance with section 1128 of
the Bankruptcy Code, as such hearing may be adjourned from time to time.
1.28 "Confirmation Order" shall mean the order of the Bankruptcy Court
confirming the Plan pursuant to the provisions of the Bankruptcy Code, which
order shall be in form and substance reasonably satisfactory to the Debtor, the
Official Committee, the Informal Committee and the Bank Group Steering
Committee.
1.29 "Contingent Claim" shall mean any Claim for which a proof of claim has
been filed with the Bankruptcy Court and (a) was not filed in a sum certain, or
a Claim that has not accrued and which is dependent upon a future event that has
not occurred or may never occur, and (b) which Claim has not been Allowed.
1.30 "Credit Agreement" shall mean the Credit Agreement among Ithaca,
Holdings, the lender parties thereto and Canadian Imperial Bank of Commerce,
Kleinwort Benson Limited, as Co-Agents, and Bankers Trust Company, as Agent,
dated as of December 1, 1992, together with related documentation (including the
waivers dated May 25, August 31, October 17, November 9, November 27, December
4, 1995, and January 30, March 31 and July 1, 1996), as amended, modified, or
supplemented.
1.31 "Credit Documents" shall have the meaning provided to such term in the
Credit Agreement.
1.32 "Creditor Party" shall mean, in any capacity, (i) a holder of a Claim
against the Debtor, whether known or unknown, regardless of whether a proof of
claim has been filed or deemed filed on account of such Claim and whether such
proof of Claim is Allowed, (ii) the Informal Committee, (iii) the Official
Committee, (iv) the Indenture Trustee, (v) the Bank Group Steering Committee,
(vi) the Agent, (vii) the Co-Agents, (viii) the Collateral Agent, (ix) the Cash
Collateral Agent, and (x) the Bank Group and each member thereof, together with
each such entity's present and former affiliates and subsidiaries and the
directors, officers, employees, general or limited partners, shareholders,
members, agents, attorneys, advisors or accountants of any thereof and includes,
without limitation, any past, present or future holder of a Note or a Bank Group
Secured Claim.
1.33 "Disbursing Agent" shall mean any entity (which may include
Reorganized Ithaca) designated in the Confirmation Order to make distributions
required under the Plan.
1.34 "Disclosure Statement" shall mean the disclosure statement respecting
the Plan filed by the Debtor in the Reorganization Case and approved by order of
the Bankruptcy Court as containing adequate information in accordance with
Section 1125 of the Bankruptcy Code.
1.35 "Disputed" shall mean, with respect to Claims or Equity Interests, any
such Claim or Equity Interest that has not been Allowed hereunder and
(a) that is listed on the Schedules as unliquidated, disputed or
contingent; or
(b) as to which the Debtor or any other party in interest has
interposed a timely objection or request for estimation, or has sought to
equitably subordinate or otherwise limit recovery in accordance with the
Bankruptcy Code and the Bankruptcy Rules, or which is otherwise disputed by
the Debtor in accordance with applicable law, which objection, request for
estimation, action to limit recovery or dispute has not been withdrawn or
determined by Final Order.
1.36 "Effective Date" shall mean the date (a) which is 11 days after the
Confirmation Date, or if such date is not a Business Day, the next succeeding
Business Day; provided, however, that if, as of such date, all conditions to the
occurrence of the Effective Date set forth in Section 8.1 of the Plan have not
been satisfied (or waived pursuant to Section 8.2 of the Plan), then the first
Business Day after such date on which all such conditions have been satisfied
(or waived pursuant to Section 8.2 of the Plan), and (b) on which no stay of the
Confirmation Order is in effect. The Debtor shall file a notice of the
occurrence of the Effective Date with the Bankruptcy Court.
3
Exhibit A
<PAGE>
1.37 "Employee Incentive Plan" shall mean the plan substantially in the
form annexed as Exhibit "I" to the Disclosure Statement, which plan shall (a)
contain the general terms described in the Disclosure Statement (subject to the
approval of the Post-Reorganization Board), and (b) in no event result in a
dilution of the amount of New Ithaca Common Stock to be issued to holders of
Allowed Noteholder Claims pursuant to the Plan of greater than 8.5%.
1.38 "Equity Interest" shall mean any interest in the Common Stock or other
instrument evidencing an ownership interest in Ithaca, whether or not
transferable, and any warrant, option, right (other than a right to convert) or
similar instrument (i) entitling the holder thereof to purchase, sell or
subscribe for an interest or security in Ithaca or Holdings and (ii) arising
from an agreement or arrangement with, or otherwise relating to, Ithaca,
including, but not limited to, the Common Stock Subscription and Repurchase
Agreement, dated January 22, 1988, by and among, Ithaca Mergco, Inc., Ithaca
Industries, Inc., Nicholas Wehrmann, Edward C. Mohn, and C. Lewis Williams,
among others.
1.39 "Equity Party" shall mean, in any capacity, a direct or indirect
holder of any Equity Interest in the Debtor or in Holdings, each of their
respective present and former affiliates and subsidiaries (including, without
limitation, Bestform Foundations, Inc. and BFI Holdings, Inc.) and the
directors, officers, employees, general or limited partners, shareholders,
agents, attorneys, advisors or accountants of any thereof, including, without
limitation, Merrill Lynch Capital Partners, Merrill Lynch Interfunding, Inc.,
Merrill Lynch & Co., Inc., Merrill Lynch Capital Appreciation Partnership No. 1,
L.P., ML Offshore LBO Partnership No. 1, ML Employees LBO Partnership No. 1,
L.P., Merrill Lynch Capital Corporation, and the Butler Noteholders.
1.40 "Estate" shall mean the estate created in the Reorganization Case
pursuant to Section 541 of the Bankruptcy Code.
1.41 "Filing Date" shall mean the date upon which the Debtor filed its
voluntary Chapter 11 petition with the Bankruptcy Court pursuant to Chapter 11
of the Bankruptcy Code.
1.42 "Final Order" shall mean (a) an order or judgment of the Bankruptcy
Court which has not been reversed, stayed, modified or amended, and 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 reargument or rehearing shall then be pending or (b) if an
appeal, writ of certiorari, reargument or rehearing thereof has been sought,
such order of the Bankruptcy Court 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, 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 filed with
respect to such order shall not cause such order not to be a Final Order.
1.43 "General Unsecured Claim" shall mean any Claim that is not an
Administrative Claim, a Tax Claim, a Priority Claim, a Secured Claim, or a
Noteholder Claim.
1.44 "Holdings" shall mean Ithaca Holdings, Inc., a Delaware Corporation,
the holder of the Common Stock.
1.45 "Indemnification Claims" shall mean all obligations relating to
contribution, indemnification and exculpation by Ithaca and its subsidiaries, as
arise under applicable laws or as provided in any of (a) Ithaca's Restated
Certificate of Incorporation in effect prior to or as of the date hereof, (b)
Ithaca's by-laws in effect prior to or as of the date hereof, (c) any agreement
with Ithaca or (d) the certificates of incorporation, bylaws or similar
documents or agreements of any of Ithaca's subsidiaries as in effect prior to or
as of the date hereof.
1.46 "Indenture" shall mean that certain indenture dated as of December 1,
1992, between Ithaca, as issuer and The Connecticut National Bank, as Trustee,
pursuant to which the Notes were issued, as amended, modified, or supplemented.
1.47 "Indenture Trustee" shall mean the trustee under the Indenture in its
capacity as such.
1.48 "Indenture Trustee Charging Lien" shall mean any lien or other
priority in payment available to the Indenture Trustee pursuant to the Indenture
or applicable law for payment of fees or expenses incurred by such Indenture
Trustee, to the extent not otherwise paid pursuant to the applicable terms of
the Plan.
4
Exhibit A
<PAGE>
1.49 "Informal Committee" shall mean the informal committee in existence as
of the Filing Date (and which has retained Stroock & Stroock & Lavan, as
counsel, and Houlihan Lokey Howard & Zukin, as financial advisors).
1.50 "Intercompany Compromise and Settlement" shall mean the Intercompany
Compromise and Settlement among Ithaca, Holdings, and Bestform Foundations,
Inc., to be substantially in the form annexed to the Disclosure Statement as
Exhibit "G".
1.51 "Ithaca" or "Debtor" shall mean Ithaca Industries, Inc., a Delaware
corporation, and when used in the Plan, shall mean such corporation either (i)
in its pre-Filing Date capacity or (ii) as Debtor and Debtor-in-Possession in
the Reorganization Case, depending on the context of the use thereof.
1.52 "Lenders" shall have the meaning set forth in Section 4.2.1 of this
Plan.
1.53 "Liabilities" shall mean any and all costs, expenses, obligations,
actions, causes of action, suits, controversies, damages, claims, liabilities or
demands of any nature, whether known or unknown, foreseen or unforeseen,
existing or hereinafter arising, liquidated or unliquidated, matured or not
matured, contingent or direct, whether arising at common law, in equity, or
under contract or any statute, based in whole or in part upon any act or
omission or other occurrence taking place on or prior to the Effective Date.
1.54 "Lien" shall have the meaning assigned to such term in Section 101(37)
of the Bankruptcy Code, except that a lien that is voidable in accordance with
Sections 544, 545, 546, 547, 548 and 549 of the Bankruptcy Code shall not
constitute a Lien.
1.55 "New Ithaca Bank Group Documents" shall mean such documents and
agreements to be executed by Reorganized Ithaca and the Bank Group which set
forth the terms and conditions governing the New Ithaca Secured Notes and which
shall be filed with the Bankruptcy Court no later than ten (10) days prior to
the date of the Confirmation Hearing.
1.56 "New Ithaca Charter" shall mean the amended and restated articles of
incorporation and bylaws of Reorganized Ithaca, to be substantially in the forms
annexed to the Disclosure Statement as Exhibits "E" and "F", respectively.
1.57 "New Ithaca Common Stock" shall mean the $1.00 par value common stock
of Reorganized Ithaca issued pursuant to the Plan.
1.58 "New Ithaca Secured Notes" shall mean the secured notes to be issued
by Reorganized Ithaca for distribution to the Bank Group pursuant to Section
4.2.1 of the Plan in accordance with the New Ithaca Bank Group Documents.
1.59 "Noteholder" shall mean any entity that holds a Note at the relevant
time.
1.60 "Noteholder Claim" shall mean any Claim held by a Noteholder relating
to a Note.
1.61 "Notes" shall mean, collectively, the 11-1/8% Senior Subordinated
Notes due 2002 issued by Ithaca, pursuant to the Indenture, in the aggregate
face amount of $125,000,000.
1.62 "Official Committee" shall mean the official committee(s), if any,
appointed in the Reorganization Case pursuant to Section 1102 of the Bankruptcy
Code as the same may be constituted from time to time.
1.63 "Ordinary Course Indemnification Claims" shall mean Indemnification
Claims of Persons who continue to serve, or be employed, as the case may be, as
directors, officers or employees of the Reorganized Debtor following the
Effective Date, arising solely from and/or relating solely to the business
operations of the Debtor or its subsidiaries prior to the Effective Date, which
shall, in no event, include claims based upon fraud or violation of Federal or
state securities laws with respect to securities issued by Ithaca.
1.64 "Person" shall mean any individual, corporation, partnership, joint
venture, trust, estate, unincorporated association, or organization,
governmental entity or political subdivision thereof, or any other entity.
1.65 "Plan" shall mean this Chapter 11 plan of reorganization and any
exhibits hereto and any documents incorporated herein by reference, as same may
from time to time be amended as and to the extent permitted herein or by the
Bankruptcy Code.
5
Exhibit A
<PAGE>
1.66 "Post-Reorganization Board" shall mean the Board of Directors of
Reorganized Ithaca, which shall be established pursuant to Section 6.7 hereof
and which shall function and serve in accordance with the New Ithaca Charter.
1.67 "Priority Claim" shall mean that portion of a Claim, if any, entitled
to priority under Section 507(a) of the Bankruptcy Code, exclusive of Tax Claims
and Administrative Claims.
1.68 "Pro Rata" shall mean the ratio of an Allowed Claim in a particular
Class to the aggregate amount of all Allowed Claims in that Class.
1.69 "Professional Fees" shall mean all allowances of compensation and
reimbursement of expenses allowed to Professionals by the Bankruptcy Court
pursuant to Section 330, 331 or 503(b) of the Bankruptcy Code.
1.70 "Professional Fee Reserve" shall mean the reserve to be established on
or prior to the Effective Date respecting the payment of Professional Fees,
which reserve shall include an estimated aggregate amount for final Professional
Fee applications.
1.71 "Professionals" shall mean those Persons (i) employed pursuant to an
order of the Bankruptcy Court in accordance with Sections 327 or 1103 of the
Bankruptcy Code and to be compensated for services pursuant to Sections 327,
328, 329, 330 and 331 of the Bankruptcy Code, or (ii) for which compensation and
reimbursement has been allowed by the Bankruptcy Court pursuant to Section
503(b)(4) of the Bankruptcy Code.
1.72 "Record Date" shall mean (a) for purposes of voting on the Plan, July
26, 1996, and (b) for pur-poses of any distribution, the Confirmation Date.
1.73 "Registration Rights Agreement" shall have the meaning set forth in
Section 6.26 of this Plan.
1.74 "Released Liabilities" shall mean all Liabilities directly, indirectly
or derivatively arising from or related to (i) the Reorganization Case, (ii) the
Debtor, its subsidiaries or their respective operations, (iii) the Plan or any
act taken pursuant thereto (including, without limitation, the transfer of
assets hereunder), (iv) the issuance, offering or sale of any interest in any
security of the Debtor (and its subsidiaries) or Holdings, (v) disclosure in any
document used in connection with the issuance, offering or sale of any interest
in any such security, (vi) the due diligence undertaken in connection with the
issuance, offering and sale of any interest in such security, (vii) such
holder's acquisition, ownership or disposition of any interest in any such
security, (viii) any act or omission related to service with or for or on behalf
of the Debtor (or its subsidiaries) or Holdings in connection with the assets or
businesses of the Debtor (and its subsidiaries) or Holdings, or (ix) the
negotiation, preparation or formulation of this Plan or any document to be
executed, or filed with the Bankruptcy Court, in connection herewith, including,
but not limited to, the Disclosure Statement.
1.75 "Reorganization Case" shall mean the Debtor's case pursuant to Chapter
11 of the Bankruptcy Code administered in the Bankruptcy Court.
1.76 "Reorganized Ithaca" or "Reorganized Debtor" shall mean Ithaca
Industries, Inc., a Delaware corporation, on and after the Effective Date.
1.77 "Retiree Benefits" shall mean payments to any entity or Person for the
purpose of providing or reimbursing payments for retired employees of the Debtor
and of any other entities as to which the Debtor is obligated to provide retiree
benefits and the eligible spouses and eligible dependents of such retired
employees, for medical, surgical, or hospital care benefits, or in the event of
death of an Ithaca retiree under any plan, fund or program (through the purchase
of insurance or otherwise) maintained or established by the Debtor prior to the
Filing Date, as such plan, fund or program was then in effect or as heretofore
or hereafter amended.
1.78 "Schedules" shall mean the schedules of assets and liabilities and the
statements of financial affairs filed by the Debtor under Section 521 of the
Bankruptcy Code and Bankruptcy Rule 1007, as such schedules and statements have
been or may be supplemented or amended from time to time.
1.79 "Secured Claim" shall mean a Claim secured by a Lien on Collateral, as
determined in accordance with section 506(a) of the Bankruptcy Code.
6
Exhibit A
<PAGE>
1.80 "Tax Claim" shall mean any Claim (or portion thereof) of a
governmental unit entitled to priority under Section 507(a)(8) of the Bankruptcy
Code.
1.81 "Termination Date" shall mean December 31, 1996, unless extended upon
the mutual agreement of the Debtor, the Bank Group Steering Committee, the
Informal Committee, and the Official Committee; provided, however, that such
date shall not in any event be extended beyond March 31, 1997.
ARTICLE II
CLASSIFICATION OF CLAIMS AND INTERESTS
2.1 Criterion of Class. A Claim is in a particular Class only to the extent
that the Claim qualifies within the description of that Class and is in a
different Class to the extent that the remainder of the Claim qualifies within
the description of the different Class.
2.2 Allowed Claims and Equity Interests. All Allowed Claims and all Equity
Interests are divided into the following Classes, which Classes shall be
mutually exclusive:
(a) Class 1 (Priority Claims). Class 1 shall consist of all Allowed
Priority Claims.
(b) Class 2A (Allowed Bank Group Secured Claims). Class 2A shall
consist of all Allowed Bank Group Secured Claims.
(c) Class 2B (General Secured Claims). Class 2B shall consist of all
Allowed Secured Claims, other than Allowed Bank Group Secured Claims.
(d) Class 3 (General Unsecured Claims). Class 3 shall consist of all
Allowed General Unsecured Claims.
(e) Class 4 (Noteholder Claims). Class 4 shall consist of all Allowed
Noteholder Claims.
(f) Class 5 (Equity Interests). Class 5 shall consist of all Equity
Interests.
2.3 Allowance of Claims. The Bank Group Secured Claims shall be, and hereby
are, Allowed in an aggregate amount equal to the principal outstanding under the
Credit Agreement plus unpaid interest, fees and expenses, if any, accrued
through the Effective Date. The Claims of all holders of Notes, including,
without limitation, the Butler Noteholders, shall be Allowed in an amount equal
to the principal outstanding under the Notes (i.e., $125,000,000 in the
aggregate) plus interest accrued thereon through the Filing Date. No objections
shall be entertained to (a) the allowance of the Allowed Bank Group Secured
Claims, or the validity, priority, or enforceability of the Liens securing the
Allowed Bank Group Secured Claims, (b) the allowance of the Claims of any
Noteholder, including, but not limited to, the Butler Noteholders, in respect of
Notes held by such Noteholder or (c)(i) the distributions to be made to holders
of the Allowed Bank Group Secured Claims pursuant to this Plan, or (ii) the
distributions to be made, free of any contractual, equitable or other
subordination claims, to any Noteholders (including, but not limited to, the
Butler Noteholders) of shares of New Ithaca Common Stock in accordance with this
Plan.
ARTICLE III
PAYMENT OF ALLOWED ADMINISTRATIVE CLAIMS
AND ALLOWED TAX CLAIMS
3.1 Non-Classification. As provided in Section 1123(a)(1) of the Bankruptcy
Code, Administrative Claims and Tax Claims against the Debtor are not classified
for the purposes of voting on or receiving distributions under the Plan. Rather,
all such Claims are treated separately as unclassified Claims on the terms set
forth in this Article III.
3.2 Administrative Claims. All Administrative Claims shall be paid by the
Debtor in full, in Cash, in such amounts as are incurred in the ordinary course
of business by the Debtor, or in such amounts as such Administrative Claims are
Allowed by the Bankruptcy Court upon (a) the later of the Effective Date or the
date upon which there is a Final Order allowing such Administrative Claim, (b)
such other terms as may exist in the ordinary course of the Debtor's business or
(c) as may be agreed upon between the holders of such Administrative Claims and
the Debtor.
7
Exhibit A
<PAGE>
3.3 Tax Claims. Allowed Tax Claims shall be paid by the Debtor in full, in
Cash, upon the later of (a) the Effective Date, (b) the date upon which there is
a Final Order allowing such claim as an Allowed Tax Claim, (c) the date that
such Allowed Tax Claim would have been due if the Reorganization Case had not
been commenced, or (d) upon such other terms as may be agreed to between the
Debtor and any holder of an Allowed Tax Claim; provided, however, that (a)(i)
the Debtor may, at its option, in lieu of payment in full of Allowed Tax Claims
on the Effective Date, make Cash payments respecting Allowed Tax Claims,
deferred to the extent permitted by Section 1129(a)(9)(C) of the Bankruptcy Code
and, in such event, interest shall be paid on the unpaid portion of such Allowed
Tax Claim at a rate to be agreed to by the Debtor and the appropriate
governmental unit or, if they are unable to agree, as determined by the
Bankruptcy Court; and (ii) if such Allowed Tax Claims are for a tax assessed
against property of the Estate, such Claims do not exceed the value of the
interest of the Estate in such property, and (b) in the event an Allowed Tax
Claim may also be classified as an Allowed Secured Claim, the Debtor may, at its
option, elect to treat Allowed Tax Claims as Secured Claims. All Allowed Tax
Claims that by their terms become due and payable after the Effective Date shall
be paid when due.
3.4 Professional Fees and Indenture Trustee Fees. All final applications
for Professional Fees for services rendered in connection with the
Reorganization Case and the Plan prior to the Confirmation Date shall be filed
with the Bankruptcy Court within thirty (30) days after the Confirmation Date.
Payments respecting final Professional Fee applications shall be made from the
Professional Fee Reserve within two (2) Business Days following the Bankruptcy
Court's authorization thereof. All professional fees for services rendered in
connection with the Reorganization Case and the Plan after the Confirmation
Date, including those relating to the resolution of Disputed Claims, shall be
paid by the Reorganized Debtor without further Bankruptcy Court authorization.
Notwithstanding anything in this Section 3.4 to the contrary, (i) the reasonable
fees and expenses incurred on or after the Filing Date by the counsel (i.e.,
Stroock & Stroock & Lavan) and financial advisors (i.e., Houlihan, Lokey, Howard
& Zukin) retained by the Informal Committee, upon agreement with Ithaca, prior
to the Filing Date (together with the reasonable fees and expenses of local
counsel with respect to the Reorganization Case), and (ii) the reasonable fees
and expenses of the Indenture Trustee arising on or after the Filing Date which
are required to be paid by the Debtor pursuant to the Indenture, shall be paid
by the Debtor and/or the Reorganized Debtor as Administrative Claims in the
ordinary course of the Debtor's business (but in no event later than the
Effective Date), without application by or on behalf of any such parties to the
Bankruptcy Court, and without notice and a hearing, unless specifically required
by the Bankruptcy Court. If the Reorganized Debtor and either any such
professional retained by the Informal Committee or the Indenture Trustee, as the
case may be, cannot agree on the amount of fees and expenses to be paid to such
party, the amount of any such fees and expenses shall be determined by the
Bankruptcy Court.
ARTICLE IV
PROVISIONS FOR TREATMENT OF CLAIMS AGAINST
AND EQUITY INTERESTS IN THE DEBTOR
4.1 Class 1 (Priority Claims). All Allowed Priority Claims shall be paid in
full, in Cash, upon the later of the Effective Date, or the date on which there
is a Final Order allowing any such Claim as an Allowed Priority Claim, or upon
such other terms as may be agreed to between the Debtor and any holder of an
Allowed Priority Claim.
4.2 Class 2 (Secured Claims).
4.2.1 Class 2A (Allowed Bank Group Secured Claims). On the Effective
Date, each holder of an Allowed Bank Group Secured Claim shall receive, in
respect of such Allowed Secured Claim, its Pro Rata share of the New Ithaca
Secured Notes pursuant to the New Ithaca Bank Group Documents which shall
contain the following principal terms:
Borrower: Reorganized Ithaca
Agent: Bankers Trust Company
Co-Agents: Canadian Imperial Bank of Commerce and Kleinwort
Benson Limited
8
Exhibit A
<PAGE>
Lenders: Current lender parties to the Credit Agreement
(the "Lenders"), each of which shall commit to
make available its pro rata portion (as presently
calculated under the Credit Agreement) of the term
loan and revolving credit facility described
below.
Term Loan
Principal: $55,000,000 (equals current outstanding principal
of the term loan under the Credit Agreement minus
$22,200,000 "transferred" to revolving credit
commitment as described below)
Revolving Credit
Commitment: $77,200,000 in the aggregate (inclusive of (i)
outstanding unpaid balance of any pre-petition
revolving credit loans and post-petition
debtor-in-possession loans, all of which loans
shall be paid or otherwise satisfied with the
proceeds of the revolving credit commitment, and
(ii) $22,200,000 "transferred" from outstanding
term loan). Commitment will be reduced to (i)
$63,000,000 for 30 consecutive days during the
period beginning on each December 1 and ending on
the immediately following January 31 and (ii)
$68,000,000 for 30 consecutive days beginning on
each May 1 and ending on the immediately following
June 30. The revolving credit commitment will
include a $25,000,000 letter of credit
subfacility.
Maturity: August 31, 1999
Commitment Fee: 0.5% of unused revolving credit commitment per
annum
Other Fees and
Expenses: Customary Agent's fees and letter of credit fees,
and reasonable legal and other expenses of Agent,
Co-Agents and Lenders.
Non-default
interest rate: Base Rate (as defined in the Credit Agreement)
plus 1.5%
As of each of the dates set forth below,
non-default interest rate will cumulatively
increase by the corresponding percentage, if for
the fiscal year ending on such date, Ithaca did
not (i) achieve EBITDA target set forth in the
Business Plan and (ii) make principal payments
(other than regularly scheduled amortization
payments) of at least $5,000,000.
January 31, 1997 0.25%
January 31, 1998 0.50%
January 31, 1999 0.50%
Borrowing Base: Total outstanding revolving credit loans plus
letters of credit will not exceed (i) 85% of
eligible receivables (to be defined in a manner
satisfactory to the Lenders), plus (ii) 50% of
eligible inventory (to be defined in a manner
satisfactory to the Lenders). Outstanding trade
letters of credit will be added to eligible
inventory, so long as the lenders' interest in the
related inventory is capable of being perfected to
the lenders' satisfaction.
Term Loan Scheduled
Amortization: January 31, 1997 $2,000,000
January 31, 1998 $5,000,000
January 31, 1999 $4,000,000
August 31, 1999 $44,000,000
9
Exhibit A
<PAGE>
Term Loan Mandatory
Prepayments: Term Loan will be prepaid from:
-- 100% of excess cash flow (to be defined in a
manner satisfactory to the Lenders),
-- 100% of net cash flow and sale proceeds from
discontinued operations in excess of amounts
contemplated in the Business Plan,
-- 100% of net cash proceeds of other
transactions not in the ordinary course of
business, including equity issuances and
asset sales other than those described above,
and
-- 100% of income tax refunds in excess of
amounts contemplated in the Business Plan.
All mandatory prepayments will be applied in
inverse order of maturity.
Accrued interest: Accrued and unpaid default interest on outstanding
loans under the Credit Agreement to be paid in
Cash on Effective Date solely with respect to
Ithaca's default in making principal payments due
on January 31, April 30, July 31, 1996 and (if the
same occurs prior to the Filing Date) October 31,
1996, respectively. (Non-default interest will be
paid in Cash on a current basis prior to and
during the Reorganization Case.)
Collateral: Lien on all stock and assets owned by Ithaca and
its subsidiaries (including bank accounts), plus
pledge of Ithaca stock (if Ithaca stock continues
to be wholly-owned by a holding company).
Financial covenants:
Capital expenditures: $6,000,000 maximum per fiscal year. 90% of the
unused amount originally allocated to any fiscal
year may be carried over only to the next fiscal
year.
Consolidated Fixed
Charge Coverage Ratio: -- Nine months ended October 31, 1996:
0.8x
-- Fiscal quarters (on rolling four-quarter
basis):
4th quarter 1997 0.8x
1st quarter 1998 0.85x
2nd quarter 1998 0.95x
3rd quarter 1998 0.95x
4th quarter 1998
and thereafter 1.0x
-- Definition in Credit Agreement will be
modified to include credit for tax refunds
received during measurement period (but only
to the extent that the amount of such refunds
does not exceed taxes paid during such
period).
10
Exhibit A
<PAGE>
Minimum EBITDA
(85% of Business
Plan): -- Nine months ended October 31, 1996:
$14,700,000
-- Fiscal quarters (on rolling four-quarter
basis):
4th quarter 1997 $16,000,000
1st quarter 1998 $16,500,000
2nd quarter 1998 $19,100,000
3rd quarter 1998 $21,300,000
4th quarter 1998 $24,000,000
1st quarter 1999 $26,300,000
2nd quarter 1999 $28,000,000
3rd quarter 1999 $30,200,000
4th quarter 1999
and thereafter $31,500,000
Consolidated Interest
Coverage Ratio (85% of
Business Plan):
-- Nine months ended October 31, 1996: 1.3x
-- Fiscal quarters (on rolling four-quarter
basis):
4th quarter 1997 1.3x
1st quarter 1998 1.4x
2nd quarter 1998 1.6x
3rd quarter 1998 1.8x
4th quarter 1998 2.0x
1st quarter 1999 2.2x
2nd quarter 1999 2.4x
3rd quarter 1999 2.7x
4th quarter 1999
and thereafter 2.9x
-- Definition in Credit Agreement will be
modified to refer to "EBITDA" instead of
"EBITA".
Cap on Cash Holdings: $5,000,000 cap (from current waiver) will
remain in effect.
Other terms: Representations and warranties, conditions
precedent, affirmative and negative
covenants, events of default and other terms
of the New Ithaca Bank Group Documents to be
satisfactory to the Lenders. Without limiting
the foregoing, (i) conditions precedent will
include (a) occurrence of the Effective Date
pursuant to Article VIII of the Plan, (b)
completion of a borrowing base audit (at
Ithaca's expense) by an accounting firm
selected by the Lenders, with results thereof
to be satisfactory to the Lenders, (c)
payment in full in Cash of unpaid reasonable
legal fees and expenses of Agent, Co-Agents
and Bank Group (which fees and expenses shall
be so payable without application to, or
approval by, the Bankruptcy Court) and (d)
continued employment of management reasonably
acceptable to the Lenders, and (ii) the New
Ithaca Bank Group Documents will include
reporting requirements set forth in current
waiver.
11
Exhibit A
<PAGE>
4.2.2 Class 2B (General Secured Claims). As to each Allowed General
Secured Claim, at the Debtor's option, either:
(a) On the later of the Effective Date or the date upon which there is
a Final Order allowing such Claim as an Allowed Secured Claim (i) any default,
other than of the kind specified in Section 365(b)(2) of the Bankruptcy Code,
shall be cured; (ii) the maturity of the Claim shall be reinstated as the
maturity existed before any default; (iii) the holder of the Claim shall be
compensated for any damage incurred as a result of any reasonable reliance by
the holder on any provision that entitled the holder to accelerate maturity of
the Claim; and (iv) the other legal, equitable, or contractual rights to which
the Claim entitles the holder shall not otherwise be altered; provided, however,
that as to any Allowed Secured Claim which is a nonrecourse claim and exceeds
the value of the Collateral securing the Claim, the Collateral may be sold at a
sale at which the holder of such Claim has an opportunity to bid; or
(b) on the Effective Date, or on such other date thereafter as may be
agreed to by the Debtor and the holder of such Claim, the Debtor shall transfer
and deliver the Collateral securing such Claim to the holder thereof in full
satisfaction and release of such Claim; or
(c) on the later of the Effective Date or the date upon which there is
a Final Order allowing such Claim as an Allowed Secured Claim, the holder of
such Claim shall receive, on account of such Claim, Cash equal to its Allowed
Secured Claim, or such lesser amount to which the holder of such Claim shall
agree, in full satisfaction and release of such Claim.
4.3 Class 3 (General Unsecured Claims). To the extent not satisfied by the
Debtor in the ordinary course of business prior to the Effective Date, in full
and final satisfaction of such claim, the legal, equitable, and contractual
rights to which an Allowed General Unsecured Claim entitles the holder thereof
shall be left unimpaired and, accordingly, shall be satisfied on the latest of
(a) the Effective Date, (b) the date a General Unsecured Claim becomes an
Allowed Claim, (c) the date an Allowed General Unsecured Claim becomes due and
payable in the ordinary course of the Debtor's business consistent with the
Debtor's ordinary payment practices, and (d) the date on which the Debtor and
the holder of such Allowed General Unsecured Claim otherwise agree in writing.
At the option of the Debtor, the treatment provided in this Section 4.3 will
result in the payment of any Allowed General Unsecured Claim, in Cash, in an
amount equal to such Allowed General Unsecured Claim (which payment shall
include interest, only to the extent to which the holder of such a Claim may be
contractually entitled, accrued through the date of payment).
4.4 Class 4 (Allowed Noteholder Claims). All Notes shall be cancelled,
annulled and extinguished as of the Effective Date and each holder of an Allowed
Noteholder Claim shall receive, in accordance with Section 6.11 hereof, its Pro
Rata share of 10,000,000 shares of New Ithaca Common Stock issued pursuant to
the New Ithaca Charter. The New Ithaca Common Stock issued to holders of Allowed
Noteholder Claims pursuant to this Section 4.4 will represent, in the aggregate,
100% of the outstanding shares of New Ithaca Common Stock on the Effective Date;
provided, however, that the percentage of New Ithaca Common Stock issued
pursuant to this Section 4.4 is subject to dilution by shares of New Ithaca
Common Stock issued in accordance with the Employee Incentive Plan, and such
other shares as may be authorized and issued pursuant to the New Ithaca Charter.
4.5 Class 5 (Equity Interests). On the Effective Date, all Equity Interests
shall be cancelled, annulled and extinguished, and holders of Equity Interests
shall not be entitled to receive or retain any property or interest in property
under the Plan on account of such Equity Interests.
ARTICLE V
IDENTIFICATION OF CLASSES OF CLAIMS AND
INTERESTS IMPAIRED AND NOT IMPAIRED UNDER THIS
PLAN; ACCEPTANCE OR REJECTION OF THIS PLAN
5.1 Holders of Claims and Equity Interests Entitled to Vote. Each holder of
an Allowed Claim in an impaired Class of Claims against the Debtor shall be
entitled to vote to accept or reject the Plan. Each of Classes 2A and 4 is
impaired under the Plan, and the holders of Claims in such Classes are entitled
to vote on this Plan.
12
Exhibit A
<PAGE>
5.2 Deemed Acceptance by Unimpaired Classes. Each of Classes 1, 2B and 3 is
unimpaired under the Plan and, pursuant to Section 1126(f) of the Bankruptcy
Code, holders of Claims in such Classes are conclusively presumed to accept this
Plan.
5.3 Elimination of Classes. Any Class of Claims that is not occupied as of
the date of the commencement of the Confirmation Hearing by an Allowed Claim, or
a Claim temporarily allowed under Rule 3018 of the Bankruptcy Rules, shall be
deemed deleted from the Plan for all purposes.
5.4 Nonconsensual Confirmation. If (a) any impaired Class of Claims shall
not accept the Plan by the requisite statutory majorities provided in Sections
1126(c) and (d) of the Bankruptcy Code, or (b) any Class is deemed to have
rejected the Plan pursuant to Section 1126(g) of the Bankruptcy Code, the Debtor
reserves the right to (i) request the Bankruptcy Court to confirm the Plan
pursuant to Section 1129(b) of the Bankruptcy Code or (ii) amend the Plan,
subject to Section 10.4 hereof.
5.5 Revocation of Plan. The Debtor reserves the right to revoke and
withdraw the Plan at any time prior to the Confirmation Date. If the Plan is so
revoked or withdrawn, or if, subject to Section 8.2 of the Plan, the Effective
Date does not occur on or prior to the Termination Date, then the Plan shall be
deemed null and void, and in such event nothing contained herein shall be deemed
to constitute a waiver or release of any Claims or interests by or against the
Debtor or any other Person, or to prejudice in any manner the rights of the
Debtor or any Person in any further proceedings involving the Debtor; provided,
however, that, notwithstanding anything to the contrary contained in this Plan,
if the Effective Date has not occurred on or prior to March 31, 1997, the Plan
shall be deemed automatically revoked and withdrawn.
ARTICLE VI
MEANS OF EXECUTION
In addition to the provisions set forth elsewhere in the Plan regarding the
means of execution, the following shall constitute the means of execution of the
Plan.
6.1 Plan Funding. The funds utilized to make the Cash payments hereunder
have been and will continue to be generated by, among other things, the Debtor's
operation of its businesses, borrowings from, and usage of cash collateral of,
the Bank Group, and asset dispositions.
6.2 New Ithaca Charter. On the Effective Date, the New Ithaca Charter will
become effective. The New Ithaca Charter, together with the provisions of the
Plan, shall provide for, among other things, the authorization and issuance of
New Ithaca Common Stock, and such other provisions that are necessary to
facilitate consummation of the Plan including a provision prohibiting the
issuance of nonvoting equity securities in accordance with Section 1123(a)(6) of
the Bankruptcy Code.
6.3 Issuance of New Ithaca Common Stock. Reorganized Ithaca shall authorize
the issuance, in accordance with the terms of the Plan, of approximately
10,000,000 shares of New Ithaca Common Stock. On the Effective Date, the Debtor
will transmit written instructions regarding the surrender of Notes and the
distribution of shares of New Ithaca Common Stock to those parties entitled to
receive such stock pursuant to this Plan. Reorganized Ithaca will use its
reasonable best efforts to cause the New Ithaca Common Stock to be listed for
trading as provided in the Registration Rights Agreement.
6.4 Intercompany Compromise and Settlement. The Confirmation Order shall
approve, and authorize the assumption by Ithaca or Reorganized Ithaca, as the
case may be, of the Intercompany Compromise and Settlement.
6.5 Employee Incentive Plan. On or prior to the Confirmation Date, the
Employee Incentive Plan shall be adopted by Ithaca and Holdings, and by voting
to accept this Plan, all Noteholders shall be deemed to have ratified and
approved the Employee Incentive Plan. Following the Effective Date, the Employee
Incentive Plan may be amended or modified by the Board of Directors of
Reorganized Ithaca in accordance with the terms thereof and any such amendment
or modification shall not require an amendment of this Plan.
6.6 Voting Powers. The Certificate of Incorporation of Reorganized Ithaca
will provide that the holders of such of the New Ithaca Common Stock as may,
from time to time, be issued and outstanding, may elect, using noncumulative
voting, all directors of Reorganized Ithaca.
13
Exhibit A
<PAGE>
6.7 Post-Reorganization Board. On the Effective Date, the operation of the
Reorganized Debtor shall become the responsibility of the Post-Reorganization
Board, in accordance with applicable law. The initial members of the
Post-Reorganization Board shall consist of the following: (a) Mr. Jim D. Waller,
(b) five (5) members selected by the Informal Committee and (c) one (1) member
selected by the Butler Noteholders. The designation of such board members,
except for Mr. Waller, shall be filed with the Bankruptcy Court on or prior to
the date on which the Confirmation Hearing has been scheduled to take place.
6.8 Disbursement of Funds and Delivery of Securities. Except as otherwise
provided hereunder, all distributions hereunder, shall be made, on the Effective
Date, or as soon as practicable thereafter, to the holder of the Claim on the
Record Date. The holder of a Claim on the Record Date shall be deemed to be the
Person who (a) filed the most recent timely proof of claim relating thereto,
provided no evidence of the transfer of such Claim was filed on or before the
Record Date, or (b) in the event evidence of transfer of a timely filed proof of
claim was filed on or before the Record Date, (i) the transferee named therein
if the transferor named therein does not file a timely objection pursuant to
Bankruptcy Rule 3001(e) or (ii) the Person so designated by a Final Order of
Bankruptcy Court if a timely objection to the evidence of transfer was filed, or
(c) is reflected in the Schedules as the holder of such Claim if no timely proof
of claim related thereto was filed, or (d) in the case of Bank Group Secured
Claims, is the holder of a Bank Group Secured Claim on the Record Date as
indicated on the register maintained by the Agent under the Credit Agreement.
All Cash distributions to Bankers Trust Company, in its capacity as Agent under
the Credit Agreement, or to the members of the Bank Group, shall be by wire
transfer pursuant to instructions to be delivered to the Debtor by Bankers Trust
Company or the members of the Bank Group, as the case may be, on or before the
Effective Date. Except as otherwise provided in the Plan, the Reorganized Debtor
shall make the Cash payments (which shall be by check) and distribution of the
New Ithaca Common Stock to the holders of Allowed Claims to the extent provided
for in the Plan on the Effective Date, or the date upon which there is a Final
Order allowing a Disputed Claim, by first-class mail (or by other equivalent or
superior means as determined by the Debtor). On the Effective Date, the Debtor
shall deposit sufficient Cash in the Professional Fee Reserve. Distributions of
Cash and New Ithaca Common Stock pursuant to the Plan shall be effectuated when
the Debtor receives all applicable documentation requested of holders of Allowed
Claims.
6.9 Delivery of Distributions. Subject to Bankruptcy Rule 9010, all
distributions to any holder of an Allowed Claim shall be made at the address of
such holder as listed in the Schedules filed with the Bankruptcy Court unless
the Reorganized Debtor has been notified in writing of a change of address,
including, without limitation, by the filing of a proof of claim by such holder
that contains an address for such holder different from the address reflected
for such holder in the Schedules. In the event that any distribution to any
holder is returned as undeliverable, the Reorganized Debtor shall use reasonable
efforts to determine the current address of such holder, but no distribution to
such holder shall be made unless and until the Reorganized Debtor has determined
the then current address of such holder, at which time such distribution shall
be made to such holder without interest; provided that such distributions shall
be deemed unclaimed property in accordance with Section 6.14 of the Plan at the
expiration of one year from the Effective Date.
6.10 Distribution Record Date. As of the close of business on the
Confirmation Date, the transfer register for the Notes will be closed, and the
Disbursing Agent, the Indenture Trustee and its agents will have no obligation
to recognize the transfer of any Notes occurring after the close of business on
the Confirmation Date and will be entitled, for purposes of distributions under
the Plan, to recognize and deal only with those holders of record as of the
close of business on the Confirmation Date.
6.11 Surrender of Cancelled Instruments or Securities. (a) As a condition
precedent to receiving any distribution pursuant to the Plan on account of an
Allowed Claim evidenced by the Notes or other instruments cancelled pursuant to
the Plan, the holder of such Claim will tender the applicable Notes or other
instruments evidencing such Claim to the Disbursing Agent. Any Cash or New
Ithaca Common Stock to be distributed pursuant to the Plan on account of any
such Claim will, pending such surrender, be treated as an undeliverable
distribution pursuant to Section 6.9 of the Plan.
(b) Except as provided in Section 6.11(c) hereof, each holder of an Allowed
Claim will tender such Note or other instrument to the Disbursing Agent,
together with a letter of transmittal to be provided to such holders by the
Disbursing Agent, as promptly as practicable following the Effective Date. The
letter of transmittal will include, among other provisions, customary provisions
14
Exhibit A
<PAGE>
with respect to the authority of the holder of the Note or other instrument to
act and the authenticity of any signatures required thereon. All surrendered
Notes or other instruments will be marked as cancelled by the Disbursing Agent,
and delivered to Reorganized Ithaca.
(c) In addition to any requirements under applicable law, any holder of a
Claim evidenced by a Note or other instrument that has been lost, stolen,
mutilated or destroyed will, in lieu of surrendering such Note or other
instrument, deliver to the Disbursing Agent: (i) evidence satisfactory to the
Disbursing Agent of such loss, theft, mutilation or destruction and (ii) such
security or indemnity as may be required by the Disbursing Agent to hold the
Disbursing Agent harmless from any damages, liabilities or costs incurred in
treating such individual as a holder of a Claim. Upon compliance with this
Section 6.11(c) by a holder of a Claim evidenced by a Note or other instrument
such holder will, for all purposes under the Plan, be deemed to have surrendered
a Note or other instrument.
6.12 Disputed Claims. (a) With respect to any Disputed Claims, for the
purposes of effectuating the provisions of this Section 6.12 and the
distributions to holders of Allowed Claims, the Bankruptcy Court, on or prior to
the Effective Date or such date or dates thereafter as the Bankruptcy Court
shall set, may fix or liquidate the amount of such Disputed Claims pursuant to
Section 502(c) of the Bankruptcy Code, in which event the amounts so fixed or
liquidated shall be deemed the maximum amounts of the Disputed Claims pursuant
to Section 502(c) of the Bankruptcy Code for purposes of distribution under the
Plan.
(b) When a Disputed Claim becomes an Allowed Claim, Reorganized Ithaca
shall distribute to the holder of such Allowed Claim, the property distributable
to such holder as provided in this Plan.
6.13 Disputed Payments. In the event of any dispute between and among
Claimants and/or the holders of a Disputed Claim as to the right of any Person
to receive or retain any payment or distribution to be made to such Person under
the Plan, the Reorganized Debtor may, in lieu of making such payment or
distribution to such Person, instead hold such payment or distribution until the
disposition thereof shall be determined by a Final Order of the Bankruptcy Court
or other court with appropriate jurisdiction.
6.14 Unclaimed Property. Any Person who fails to claim any Cash or New
Ithaca Common Stock within one year from the Effective Date or from such other
date as a Claim becomes an Allowed Claim shall forfeit all rights to any
distribution under the Plan. Upon forfeiture, such Cash and/or New Ithaca Common
Stock (including interest thereon) shall be the property of Reorganized Ithaca.
Persons who fail to claim Cash and/or New Ithaca Common Stock forfeit their
rights thereto and shall have no claim whatsoever against the Debtor or
Reorganized Ithaca or any holder of an Allowed Claim to whom distributions are
made.
6.15 Set-Offs. Nothing contained in this Plan shall constitute a waiver or
release by the Debtor of any right of set-off the Debtor may have against any
Person other than the holders of Noteholder Claims or Bank Group Secured Claims.
6.16 Withholding Taxes. Reorganized Ithaca shall be entitled to deduct any
federal, state or local withholding taxes from any payments made with respect to
Allowed Claims, as appropriate.
6.17 Revesting. Except as otherwise provided by the Plan, upon the
Effective Date, title to all properties and assets dealt with by the Plan shall
pass to the Reorganized Debtor free and clear of all Claims, Liens, encumbrances
and interests (except those Claims, Liens, encumbrances and interests created
pursuant to this Plan) of creditors and of equity security holders and the
Confirmation Order shall be a judicial determination of discharge and
extinguishment of all Liabilities and Liens.
6.18 Discharge. Except as otherwise expressly provided in Section 1141 of
the Bankruptcy Code or the Plan, the distributions made pursuant to the Plan
will be in full and final satisfaction, settlement, release and discharge as
against the Debtor, of any and all Claims and Equity Interests of any nature
whatsoever that arose before the Effective Date, including, without limitation,
any interest accrued or expenses incurred thereon from and after the Filing
Date, whether or not (a) a proof of claim or interest based on such debt,
obligation or interest is filed or deemed filed under Section 501 of the
Bankruptcy Code, (b) such Claim or interest is allowed under Section 502 of the
Bankruptcy Code or (c) the holder of such Allowed Claim or interest has accepted
the Plan. Upon the Effective Date, all holders of Claims against the Debtor, and
holders of interests in the Debtor shall be precluded from asserting against the
Debtor, or any of its assets or properties, any other or further Claims or
15
Exhibit A
<PAGE>
interests based upon any act or omission, transaction or other activity of any
kind or nature that occurred prior to the Effective Date, and the Confirmation
Order shall permanently enjoin such holders of Claims and Equity Interests, and
their successors and assigns, from enforcing or seeking to enforce any such
Claims or Equity Interests.
6.19 Waiver of Contractual Subordination Rights. As of the Effective Date,
each holder of an Allowed Claim (a) by virtue of the acceptance of the Plan by
such holder's Class in accordance with Section 1126 of the Bankruptcy Code, (b)
by virtue of the acceptance of the Plan by such holder, (c) by virtue of the
acceptance of any distribution under the Plan on account of such Claim or (d) by
virtue of the confirmation of the Plan, waives, releases and relinquishes any
and all rights, claims or causes of action arising under or in any way related
to any pre-Filing Date subordination agreement, whether arising out of contract
or under applicable law, including, without limitation, Section 510 of the
Bankruptcy Code and the provisions of the Indenture, which subordinates Claims
to the payment and distributions of consideration made or to be made hereunder
or otherwise to any other holder of a Claim against the Debtor.
6.20 Release By Certain Holders of Certain Persons.
(a) Except as otherwise expressly provided herein or in the Confirmation
Order, on the Effective Date, in consideration for, or as part of the treatment
accorded to, the holders of Claims and Equity Interests under the Plan, each
Creditor Party, Equity Party, the Debtor and the Reorganized Debtor shall be
deemed to have (i) released all rights, causes of action and claims, in law or
in equity, whether based on tort, fraud, contract or otherwise, which they,
individually or collectively, theretofore or thereafter possessed or may possess
against any Equity Party, in each case only with respect to the Released
Liabilities of an Equity Party and (ii) forever covenanted with each Equity
Party, not to sue, assert any claim against, or otherwise seek recovery from,
any Equity Party, whether based upon tort, fraud, contract or otherwise, in
connection only with any Released Liabilities of an Equity Party.
(b) Except as otherwise expressly provided herein or in the Confirmation
Order, on the Effective Date, in consideration for, or as part of the treatment
accorded to the holders of Claims and Equity Interests under the Plan, each
Creditor Party, Equity Party, the Debtor and the Reorganized Debtor shall be
deemed to have (i) released all rights, causes of action and claims, in law or
in equity, whether based on tort, fraud, contract or otherwise, which they,
individually or collectively, theretofore or thereafter possessed or may possess
against any Creditor Party, in each case only with respect to Released
Liabilities of a Creditor Party and (ii) forever covenanted with each Creditor
Party not to sue, assert any claim against, or otherwise seek recovery from, any
Creditor Party, whether based upon tort, fraud, contract or otherwise, in
connection only with any Released Liabilities of a Creditor Party.
(c) Without in any manner limiting the generality of the releases granted
pursuant to Section 6.20(a) and (b), on the later of the date the Confirmation
Order becomes a Final Order or the Effective Date, the Debtor, the Reorganized
Debtor, Holdings and Bestform Foundations, Inc. shall be deemed to have
unconditionally and mutually released one another from any and all claims,
Liabilities or causes of action that any of the parties may have asserted, could
have asserted, or could in the future assert, directly or indirectly, against
each other; provided, however, that nothing contained in this paragraph 6.20(c)
shall release any rights, obligations or covenants which are to be performed
pursuant to the Plan or the Intercompany Compromise and Settlement.
6.21 Injunctions. (a) Unless otherwise provided in the Plan, all
injunctions or stays provided for in the Reorganization Case pursuant to section
105 or 362 of the Bankruptcy Code, or otherwise, and in effect on the
Confirmation Date, shall remain in full force and effect until the Effective
Date.
(b) The Confirmation Order shall provide that the distributions and
transfers of property pursuant to the terms of the Plan are made free and clear
of all Claims (except as otherwise expressly provided in the Plan) and that,
upon confirmation of the Plan (except as otherwise expressly provided in the
Plan or the Intercompany Compromise and Settlement), all holders of Claims or
Equity Interests shall be permanently enjoined from and restrained against
commencing or continuing any suit, action or proceeding or asserting against the
Reorganized Debtor or its assets or property any Claim, Equity Interest or cause
of action based upon any act or omission, transaction or other activity of any
kind or nature that occurred before the Confirmation Date.
16
Exhibit A
<PAGE>
(c) The Confirmation Order shall provide that the Debtor, the Reorganized
Debtor, each Equity Party and each Creditor Party shall be permanently enjoined
from and after the Effective Date from, with respect only to any Released
Liability of any Equity Party, (i) commencing or continuing in any manner any
action or other proceeding of any kind against or affecting any Equity Party,
(ii) enforcing, attaching, collecting or recovering by any manner or means any
judgment, award, decree or order affecting any Equity Party, (iii) creating,
perfecting or enforcing any encumbrance of any kind against or affecting any
Equity Party, (iv) asserting any right of setoff, right of subrogation or
recoupment of any kind against or affecting any obligation due any party by or
from any Equity Party or the property of any Equity Party and (v) commencing or
continuing in any manner any action or other proceeding of any kind with respect
to the release granted to any Equity Party pursuant to Section 6.20(a) of this
Plan.
(d) The Confirmation Order shall provide that the Debtor, the Reorganized
Debtor, each Equity Party and each Creditor Party shall be permanently enjoined
from and after the Effective Date from, with respect to any Released Liability
of any Creditor Party, (i) commencing or continuing in any manner any action or
other proceeding of any kind against or affecting any Creditor Party, (ii)
enforcing, attaching, collecting or recovering by any manner or means any
judgment, award, decree or order affecting any Creditor Party, (iii) creating,
perfecting or enforcing any encumbrance of any kind against or affecting any
Creditor Party, (iv) asserting any right of setoff, right of subrogation or
recoupment of any kind against or affecting any obligation due any party by or
from any Creditor Party or the property of any Creditor Party and (v) commencing
or continuing in any manner any action or other proceeding of any kind with
respect to any matter that is subject to the release granted to any Creditor
Party pursuant to Section 6.20(b) of this Plan.
6.22 Exculpation. None of the Debtor, the Reorganized Debtor, the Bank
Group Steering Committee, the Bank Group, the Agent, the Co-Agents, the
Collateral Agent, the Cash Collateral Agent, the Official Committee, the
Informal Committee, the Indenture Trustee, the Equity Parties, nor any of their
respective officers, directors, employees, members, attorneys, accountants,
financial consultants or agents or their respective successors and assigns shall
have or incur any Liability to any holder of a Claim or Equity Interest for any
act or omission in connection with, or arising out of, the negotiation,
preparation or formulation of the Plan, the pursuit of Confirmation of the Plan,
the consummation of the Plan, or other administration of the Plan or property to
be distributed under the Plan, except for willful misconduct or gross
negligence; provided, however, that nothing in the Plan shall, or shall be
deemed to, release the Debtor or Reorganized Debtor from, or exculpate the
Debtor or Reorganized Debtor with respect to, their respective obligations and
covenants arising pursuant to this Plan.
6.23 Carrying Out of Terms. Pursuant to Section 303 of the Delaware General
Corporation Law, all terms of this Plan may be put into effect and carried out,
without further action by the directors or shareholders of Ithaca or Reorganized
Ithaca, who shall be deemed to have unanimously approved the Plan and all
agreements and transactions provided for or contemplated herein.
6.24 Section 1146 Exemption. In accordance with Section 1146(c) of the
Bankruptcy Code, (a) the issuance, transfer or exchange of any security under
the Plan or the making or delivery of any instrument of transfer pursuant to, in
implementation of, or as contemplated by the Plan, including any merger
agreements or agreements of consolidation, deeds, bills of sale or assignments
executed in connection with any of the transactions contemplated under the Plan,
or the revesting, transfer or sale of any real or personal property of the
Debtor pursuant to, in implementation of, or as contemplated by the Plan, (b)
the making, delivery, creation, assignment, amendment or recording of any note
or other obligation for the payment of money or any mortgage, deed of trust or
other security interest under, in furtherance of, or in connection with the
Plan, the issuance, renewal, modification or securing of indebtedness by such
means, and (c) the making, delivery or recording of any deed or other instrument
of transfer under, in furtherance of, or in connection with, the Plan,
including, without limitation, the Confirmation Order, shall not be subject to
any document recording tax, stamp tax, conveyance fee or other similar tax,
mortgage tax, real estate transfer tax, mortgage recording tax or other similar
tax or governmental assessment. Consistent with the foregoing, each recorder of
deeds or similar official for any county, city or governmental unit in which any
instrument hereunder is to be recorded shall, pursuant to the Confirmation
Order, be ordered and directed to accept such instrument, without requiring the
payment of any documentary stamp tax, deed stamps, stamp tax, transfer tax,
intangible tax or similar tax.
17
Exhibit A
<PAGE>
6.25 Reorganized Debtor's Authority. Until the Effective Date, and
thereafter pursuant to Section 9.1 hereof, the Bankruptcy Court shall retain
jurisdiction of the Debtor, its properties and interests in property, and its
operations.
6.26 Registration Rights. Reorganized Ithaca and certain holders of New
Ithaca Common Stock shall enter into a registration rights agreement (the
"Registration Rights Agreement"), substantially in the form annexed as Exhibit
"H" to the Disclosure Statement.
6.27 Full and Final Satisfaction. All payments and all distributions
hereunder shall be in full and final satisfaction, settlement, release and
discharge of all Claims and Equity Interests, except as otherwise provided in
the Plan.
6.28 Fractional Cents. Whenever any payment of a fraction of a cent would
otherwise be called for, the actual payment shall reflect a rounding of such
fraction to the nearest whole cent (rounding down in the case of less than .50
and rounding up in the case of .50 or more).
6.29 Fractional Distributions; Round Lots. Any other provision of this Plan
notwithstanding, no fractional shares of New Ithaca Common Stock shall be issued
or distributed in connection with the Plan. Whenever the issuance of a
fractional share of New Ithaca Common Stock would otherwise be called for, the
actual issuance shall reflect a rounding down of such fraction to the nearest
whole share if the fraction is less than .50, and a rounding up of such fraction
to the nearest whole share if the fraction is .50 or more.
6.30 Indenture Trustee Charging Lien. In full satisfaction of Allowed
Claims secured by an Indenture Trustee Charging Lien, the Indenture Trustee will
receive from Reorganized Ithaca, Cash equal to the amount of such Claim, and the
Indenture Trustee Charging Lien will be released. Distributions to be made to
holders of Allowed Claims pursuant to the Plan will not be reduced on account of
payment of Allowed Claims secured by an Indenture Trustee Charging Lien.
ARTICLE VII
EXECUTORY CONTRACTS, IDEMNIFICATION CLAIMS
AND RETIREE BENEFITS
7.1 Executory Contracts and Unexpired Leases. Any unexpired lease or
executory contract that has not been expressly rejected by the Debtor with the
Bankruptcy Court's approval on or prior to the Confirmation Date shall, as of
the Confirmation Date (subject to the occurrence of the Effective Date), be
deemed to have been assumed by the Debtor unless there is pending before the
Bankruptcy Court on the Confirmation Date a motion to reject such unexpired
lease or executory contract or such executory contract or unexpired lease is
otherwise designated for rejection, provided that (a) such lease or executory
contract is ultimately rejected, and (b) the filing of the Confirmation Order
shall be deemed to be a rejection of all then outstanding unexercised stock
options. In accordance with Section 1123(a)(5)(G) of the Bankruptcy Code, on the
Effective Date, or as soon as practicable thereafter, the Debtor shall cure all
defaults under any executory contract or unexpired lease assumed pursuant to
this Section 7.1 by making a Cash payment in an amount agreed to between the
Debtor and the Claimant, or as otherwise fixed pursuant to a Final Order.
7.2 Indemnification and Contribution Obligations. Notwithstanding anything
to the contrary contained herein, and except as otherwise provided in the
Intercompany Compromise and Settlement, all Persons holding or asserting
Indemnification Claims (whether directly, by subrogation or otherwise) shall be
entitled to obtain recovery on account of such claims solely from the proceeds
of any applicable directors' and officers' insurance policy maintained by the
Debtor or Reorganized Debtor, as the case may be, and shall not, under any
circumstances, be entitled to obtain recovery in respect of such Indemnification
Claims from the Reorganized Debtor; provided, however, that (a) the foregoing
limitation on recovery for Indemnification Claims shall not apply in respect of
Ordinary Course Indemnification Claims or Bank Indemnification Claims, which
claims shall be, and hereby are, assumed by the Debtor, or Reorganized Debtor,
as the case may be, without limitation, and (b) the Reorganized Debtor shall
remain responsible for, and shall pay, in respect of any and all Indemnification
Claims, all retention amounts and coinsurance obligations arising under, or
necessary to maintain, its directors' and officers' insurance policies. The
Debtor or Reorganized Debtor, as the case may be, shall continue and maintain
all presently existing directors' and officers' insurance policies, and all such
policies shall remain in full force and effect following Confirmation.
18
Exhibit A
<PAGE>
7.3 Retiree Benefits. Payment of all Retiree Benefits shall continue,
solely to the extent, and for the period, the Debtor is contractually or legally
obligated to provide such benefits.
ARTICLE VIII
CONDITIONS PRECEDENT TO
EFFECTIVENESS OF THE PLAN
8.1 Conditions to Effective Date. The occurrence of the Effective Date of
this Plan is subject to satisfaction of each of the following conditions
precedent:
(a) The aggregate amount of scheduled (where no superseding proof of
Claim is timely filed) and filed Tax Claims and Priority Claims shall not
exceed $150,000 (exclusive of amounts required to cure defaults in
executory contracts or unexpired leases to be assumed pursuant to the
Plan).
(b) The aggregate amount of scheduled (where no superseding proof of
Claim is timely filed) and filed General Secured Claims shall not exceed
$150,000.
(c) The aggregate amount of scheduled (where no superseding proof of
Claim is timely filed) and filed General Unsecured Claims shall not exceed
$20,000,000.
(d) The Clerk of the Bankruptcy Court shall have entered the
Confirmation Order and the Confirmation Order shall have become a Final
Order (a draft Confirmation Order to be delivered by the Debtor to the
Informal Committee, the Official Committee and the Bank Group Steering
Committee no later than two Business Days prior to the date of the
Confirmation Hearing).
(e) All other actions and documents necessary to implement the
provisions of the Plan on the Effective Date shall have been, respectively,
effected or executed and delivered.
(f) The New Ithaca Bank Group Documents shall be in form and substance
reasonably satisfactory to each Lender, the Official Committee and the
Informal Committee.
(g) A cash collateral (and, if applicable, a debtor-in-possession
financing) order shall have been entered in the Reorganization Case in form
and substance reasonably satisfactory to each Lender, the Official
Committee and the Informal Committee.
(h) All outstanding obligations of the Debtor under any
debtor-in-possession financing arrangements shall have been paid in full or
otherwise satisfied, and such arrangements shall have been terminated.
(i) The Termination Date shall not have passed.
8.2 Waiver of Conditions. The Debtor expressly reserves the right to waive,
with the consent of the Informal Committee, the Official Committee and the Bank
Group Steering Committee, in whole or in part, any of the conditions set forth
in Section 8.1 of the Plan (except that no such waiver may be made of the
condition in Section 8.1(i), if the effect thereof would be to allow the
Effective Date to occur after March 31, 1997). Any such waiver or modification
of a condition precedent in this Article VIII may be effected at any time,
without notice (except for those parties whose consent is required pursuant to
this Section 8.2), without leave or order of the Bankruptcy Court and without
any formal action.
ARTICLE IX
RETENTION OF JURISDICTION
9.1 From and after the Confirmation Date, the Bankruptcy Court shall retain
such jurisdiction as is legally permissible, including, but not limited to, the
following purposes:
(a) To hear and determine any and all objections to the allowance of a
Claim or any controversy as to the classification of Claims, provided that
only the Debtor may file objections to Claims;
(b) To hear and determine any and all applications by Professionals
for compensation and reimbursement of expenses;
19
Exhibit A
<PAGE>
(c) To hear and determine any and all pending applications for the
rejection and disaffirmance of executory contracts and unexpired leases,
and fix and allow any Claims resulting therefrom;
(d) To liquidate any Disputed Claim;
(e) To enforce the provisions of the Plan, including the injunction,
exculpation and releases provided for in this Plan;
(f) To correct any defect, cure any omission, or reconcile any
inconsistency in the Plan or in the Confirmation Order as may be necessary
to carry out its purpose and the intent of the Plan;
(g) To determine any Liability to a governmental unit which may be
asserted as a result of the transactions contemplated herein;
(h) To hear and determine matters concerning state, local, and federal
taxes in accordance with Sections 346, 505 and 1146 of the Bankruptcy Code;
and
(i) To determine such other matters as may be provided for in the
Confirmation Order or as may be authorized under the provisions of the
Bankruptcy Code.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Termination of Committees. Except as otherwise provided in this
Section 10.1, on the Effective Date, the Official Committee, the Informal
Committee and the Bank Group Steering Committee shall cease to exist and their
respective members and employees or agents (including, without limitation,
attorneys, investment bankers, financial advisors, accountants and other
professionals) shall be released and discharged from any further authority,
duties, responsibilities and obligations relating to, arising from or in
connection with the Reorganization Case. The Official Committee, the Informal
Committee and the Bank Group Steering Committee shall continue to exist after
such date (a) solely with respect to (i) all fee applications filed pursuant to
Section 330 of the Bankruptcy Code or Claims for fees and expenses by
professionals employed by the Debtor or agreed to be paid by the Debtor, (ii)
any post-confirmation modifications to the Plan or Confirmation Order, and (iii)
any matters pending as of the Effective Date before the Bankruptcy Court to
which the Official Committee, the Informal Committee or the Bank Group Steering
Committee is party, until such matters are resolved; and (b) in the case of the
Informal Committee, until substantially all of the distributions to be made with
respect to the Noteholder Claims under this Plan have been made, for the purpose
of ensuring that such distributions have been made properly.
10.2 Avoidance and Recovery Actions. Effective as of the Effective Date,
the Debtor waives the right to prosecute, and releases, any avoidance or
recovery actions under Sections 544, 545, 547, 548, 549, 550, 551 and 553 of the
Bankruptcy Code or any other causes of action, or rights to payments of claims,
that belong to or could have been raised by the Debtor or its estate, except for
any such action which may be pending on the Effective Date as to which
Reorganized Ithaca's rights shall not be waived and released and Reorganized
Ithaca shall retain and may prosecute any such actions.
10.3 Headings. Headings are utilized in the Plan are for the convenience of
reference only, and shall not constitute a part of the Plan for any other
purpose.
10.4 Defects, Omissions and Amendments. The Debtor may, with the approval
of the Bankruptcy Court and without notice to holders of Claims and Equity
Interests insofar as it does not materially and adversely affect the interest of
holders of Claims and Equity Interests, correct any defect, omission or
inconsistency in the Plan (and the exhibits thereto or to the Disclosure
Statement) in such manner and to such extent as may be necessary to expedite the
execution of the Plan. The Plan (and the exhibits thereto or to the Disclosure
Statement) may be altered or amended before or after Confirmation as provided in
Section 1127 of the Bankruptcy Code if, in the opinion of the Bankruptcy Court,
the modification does not materially and adversely affect the interests of
holders of Claims and Equity Interests. The Plan (and the exhibits thereto or to
the Disclosure Statement) may be altered or amended before or after the
Confirmation Date in a manner which, in the opinion of the Bankruptcy Court,
20
Exhibit A
<PAGE>
materially and adversely affects holders of Claims and Equity Interests, after a
further hearing and acceptance of the Plan as so altered or amended as provided
in Section 1127 of the Bankruptcy Code. Notwithstanding anything in this Section
10.4 to the contrary, the Debtor shall not make any alteration or amendment to
the Plan (or the exhibits thereto or to the Disclosure Statement) without
obtaining the affirmative consent of the Official Committee, the Informal
Committee and the Bank Group Steering Committee.
10.5 Governing Law. Except to the extent that the Bankruptcy Code or other
federal law is applicable, the rights and obligations arising under the Plan
shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York.
10.6 Notices. All notices, requests or demands for payments provided for in
the Plan shall be in writing and shall be deemed to have been given when
personally delivered by hand or deposited in any general or branch post office
of the United States Postal Service or received by telex or telecopier. Notices,
requests and demands for payments shall be addressed and sent, postage prepaid
or delivered, in the case of notices, requests or demands for payments to:
Ithaca Industries, Inc., Highway 268W, P.O. Box 620, Wilkesboro, N.C. 28697,
Attn: Eric N. Hoyle, with a copy to Proskauer Rose Goetz & Mendelsohn LLP, 1585
Broadway, New York, New York 10036, Attn: Alan B. Hyman, Esq., and or at any
other address designated by Debtor by notice to each holder of an Allowed Claim
or Equity Interest, and, in the case of notices to holders of Allowed Claims and
Equity Interests, at the last known address according to the Debtor's books and
records or at any other address designated by a holder of an Allowed Claim on
its proof of claim or filed with the Bankruptcy Court, provided that any notice
of change of address shall be effective only upon receipt.
10.7 Severability. Should any provision in the Plan be determined to be
unenforceable, such determination shall in no way limit or affect the
enforceability and operative effect of any or all other provisions of the Plan.
10.8 Implementation. The Debtor shall take all steps, and execute all
documents, including appropriate releases, necessary to effectuate the
provisions contained in this Plan.
10.9 Inconsistency. In the event of any inconsistency between the Plan and
the Disclosure Statement, any exhibit to the Plan or Disclosure Statement or any
other instrument or document created or executed pursuant to the Plan, the Plan
shall govern.
Dated: New York, New York
August 29, 1996
ITHACA INDUSTRIES, INC.,
By: /s/ JIM D. WALLER
---------------------------------
Jim D. Waller
President and Chief Executive Officer
PROSKAUER ROSE GOETZ & MENDELSOHN LLP Counsel to Ithaca Industries, Inc.
By: /s/ ALAN B. HYMAN
------------------------------
Alan B. Hyman (AH-6655)
Jeffrey W. Levitan (JL-6155)
Members of the Firm
1585 Broadway
New York, New York 10036
(212) 969-3000
<PAGE>
Exhibit C
ITHACA INDUSTRIES, INC.
LIQUIDATION ANALYSIS
EXHIBIT C
<PAGE>
ITHACA INDUSTRIES, INC.
CHAPTER 11 CASE
I.
INTRODUCTION
The Ithaca Industries, Inc. ("Ithaca") Liquidation Analysis reflects the
estimated cash proceeds, net of liquidation related costs, available to
creditors if the company were to be liquidated through a Chapter 7 proceeding.
The Liquidation Analysis is based on Ithaca's reported balance sheet as of March
29, 1996 and includes a number of estimates and assumptions which, although
developed by and considered reasonable by management, are subject to significant
economic and competitive uncertainties and contingencies beyond the control of
Ithaca and its management. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE
VALUES REFLECTED IN THE LIQUIDATION ANALYSIS WOULD BE REALIZED IF ITHACA WERE,
IN FACT, TO UNDERGO SUCH A LIQUIDATION, AND ACTUAL RESULTS COULD VARY MATERIALLY
FROM THOSE SET FORTH BELOW.
II.
KEY ASSUMPTIONS
1. Basis of Presentation
This Liquidation Analysis reflects Ithaca Industries, Inc.'s unconsolidated
net book values at March 29, 1996, including investments in two wholly owned
subsidiaries, Ithaca, S.A. and Ithaca Canada. The two subsidiaries lease
essentially all operating assets and personnel from Ithaca; and therefore are
assumed to have no separate going concern or liquidation values.
2. March 29, 1996 Balance Sheet Adjustments
In January 1996 the company established various inventory, accounts
receivable and property & equipment reserves in connection with its
restructuring effort. For purposes of the Liquidation Analysis, the balance
sheet account entitled "Assets Held for Disposition" has been eliminated and the
respective assets have been reflected at historical net book values for purposes
of estimating liquidation values. A summary of the respective balance sheet
adjustments is as follows:
(Dollars in Millions)
3/29/96
------------------------------------------------
Reported Reserve Adjusted
NBV Reclass* NBV
-------- -------- ----------
Accts. Rec. $ 50.4 $ .5 $ 50.9
Inventory $ 54.4 $ 25.4 $ 79.8
P.P.E. $ 53.3 $ 6.0 $ 59.3
- -------------
* The reserve reclass reflects the write-up of previously reserved assets
held for disposition.
3. Liquidation Period
The liquidation of the company is assumed to begin on April 1, 1996 under
the direction of a Court appointed Trustee and continue for 12 months, during
which time all the major assets would either be sold or conveyed to the
respective lien holders and the cash proceeds, net of liquidation related costs,
would be distributed to creditors.
1
Exhibit C
<PAGE>
4. Going Concern Sale of the Company
The Liquidation Analysis assumes that while Ithaca's individual business
units are profitable, the company could not be sold as a going concern (either
in its entirety or in part) to a third party due to the significant risk of
losing key private label customer accounts. Management believes that if the
company were forced into a Chapter 7 liquidation, major customers would likely
source their private label products through alternative manufacturers.
Therefore, the Liquidation Analysis was prepared based on the assumption that
the company ceased operations on April 1, 1996 and all existing assets were
subsequently liquidated for the benefit of creditors.
5. Accounts Receivable
The Chapter 7 Trustee would retain accounting staff to process the
liquidation of inventory and collect outstanding accounts receivable. It is
assumed that the net realization of the collection efforts would be hampered by
customers deducting unauthorized sales discounts and credits, and initiating
unauthorized merchandise returns.
6. Inventory
The company's inventory is comprised of finished goods, work-in-process,
and raw materials. The Liquidation Analysis assumes that the company's existing
private label and branded finished goods inventories would be initially marketed
to the company's regular customers, then offered to deep discount retailers. Raw
materials and work-in-process would be "as-is" at heavily discounted prices. The
company licenses certain private label brands through license agreements. The
Liquidation Analysis assumes no value for these license agreements.
7. Property & Equipment
The disposition of all real estate would be completed via a Bankruptcy
Court auction at heavily discounted sale prices. The Liquidation Analysis
assumes that equipment and other personal property is sold at 10% of net book
value.
8. WARN Notice
The Liquidation Analysis assumes that the company would be required to
provide 60 days' advance notice to its employees of plant closings and layoffs
in order to comply with the Worker Adjustment and Retraining Notification Act
("WARN") 29 U.S.C.ss.2101.
9. Liquidation Costs
The Liquidation Analysis assumes the Chapter 7 Trustee would retain certain
financial and operational employees, attorneys, accountants, and
liquidators/auctioneers to assist in the liquidation process. In addition, the
Trustee would provide "Stay-Bonuses" to key employees.
10. Preference and Other Litigation Recovery
The Liquidation Analysis has not considered any possible recovery from
preference or other litigation.
2
Exhibit C
<PAGE>
III.
LIQUIDATION ANALYSIS
Ithaca Industries, Inc.
(Dollars in Millions)
Liquidation Proceeds
Adjusted NBV --------------------
at 3/29/96 Recovery %
---------- -------- --------
Liquidation Proceeds
Cash (A) $ 3.3 $ 6.2 187.9%
Accounts Receivable (B) 50.9 34.3 67.4%
Inventory (C) 79.8 30.6 38.3%
Tax Refund/Deferred Taxes (D) 23.4 20.3 86.8%
Other Current Assets (E) 2.0 0.0 0.0%
Property, Plant & Equip (F) 59.3 19.7 33.2%
Intangible Assets (G) 4.2 -- 0.0%
Other Assets (H) 0.7 .1 14.3%
-------- -------- ------
$ 223.6 $ 111.2 49.7%
======== ======== ======
Distribution of Liquidation Proceeds
Administrative Liquidation Costs:
Accrued Payroll & Benefits (I) $ 12.5 $ 7.6 60.8%
Shutdown Payroll & Benefit Costs (J) 13.0 13.0 100.0%
Professional Fees (K) 3.7 3.7 100.0%
Non-Payroll Costs (L) 3.3 3.3 100.0%
-------- -------- ------
32.5 27.6 84.9%
-------- -------- ------
Priority Claims:
Taxes (M) .5 .5 100.0%
Reclamation (N) 3.0 1.5 50.0%
-------- -------- ------
3.5 2.0 57.1%
-------- -------- ------
Secured Claims: (O)
Banks
Revolver 40.0 40.0 100.0%
Term 77.8 41.4 53.2%
-------- -------- ------
117.8 81.4 69.1%
Other .6 .2 33.3%
-------- ------- ------
118.4 81.6 68.9%
-------- ------- ------
Unsecured Claims*
Sub-Debt 135.6 0.0 0.0%
Trade 15.5 0.0 0.0%
Lease Rejection (Real Estate) 3.0 0.0 0.0%
Other (Contingency) 2.0 0.0 0.0%
-------- -------- ------
156.1 0.0 0.0%
-------- -------- ------
$ 310.5 $ 111.2
======== ========
- ----------
* Excludes estimated Bank Group deficiency claim of $36.4 million.
3
Exhibit C
<PAGE>
Liquidation Analysis Footnotes
(A) Cash
A reconciliation of book and bank cash at March 29, 1996 is as
follows:
Liquidation Proceeds
NBV ------------------------------
3/29/96 Recovery %
--------- ---------- ---------
Reported Book Cash $ 3.3 $ 3.3 100.0%
Outstanding A/P Checks (1) -- 2.9 N/A
-------- --------- ------
Bank Cash $ 3.3 $ 6.2 187.9%
======== ========= ======
(1) The Liquidation Analysis assumes that a Chapter 7 filing would void all
outstanding accounts payable checks, increasing the March 29, 1996 cash balance
and trade accounts payable, accordingly (it is assumed that outstanding payroll
checks of $1.1 million are cleared).
(B) Accounts Receivable
Accounts Receivable are comprised of the following:
Liquidation Proceeds
--------------------------
NBV
3/29/96 Recovery %
---------- ---------- ---------
Trade Accounts Receivable (1) $ 49.5 $ 33.3 67.3%
Due from Ithaca Holdings, Inc. (2) 1.0 1.0 100.0%
Due from Ithaca S.A. (3) .4 -- --
-------- -------- ------
$ 50.9 $ 34.3 67.4%
======== ========= ======
4
Exhibit C
<PAGE>
Liquidation Analysis Footnotes
(1) The Liquidation Analysis assumes that the collection of outstanding
accounts receivable would require up to nine months to be completed, while all
product sales after April 1, 1996 would be made on a cash basis, requiring no
further collection effort. The majority of the receivables are owed to Ithaca by
retailers. Due to the adverse effect that the dissolution of Ithaca would have
on the retailers, it is expected that they would take substantial credits
against Ithaca if it were to liquidate. Therefore, this analysis assumes a
realization of approximately 67% on receivables.
Trade A/R NBV (3/29/96) $ 49.5
Estimated Customer Setoff Adjustments:
-------------------------------------
Advertising (2.0)
Fixtures & Others (.5)
Unauthorized Credits (10.0)
--------
Adjusted Trade A/R NBV 37.0
Liquidation Collection Reserve (10%) (3.7)
--------
Estimated Net Realizable Value $ 33.3
========
(2) The Due from Ithaca Holdings, Inc. receivable balance represents net
intercompany charges between Ithaca and its parent company (Holdings). In
liquidation, this receivable is forecasted to be fully recoverable.
(3) The Due from Ithaca, S.A. receivable balance represents a net
receivable from Ithaca's Honduras subsidiary. As previously noted, this
subsidiary has no assets to liquidate in satisfaction of the debt, therefore the
Liquidation Analysis assumes no recovery.
(C) Inventory
Inventory is comprised of the following:
Liquidation Proceeds
NBV -----------------------------
3/29/96 Recovery %
---------- ---------- ---------
Finished Goods (1) $ 47.8 $ 24.8 51.9%
WIP (2) 19.2 3.3 17.2%
Raw (3) 25.4 2.5 9.8%
-------- -------- ------
92.4 30.6 33.1%
Reserves:
LIFO (4) (10.6) -- --
Other (5) (2.0) -- --
-------- -------- ------
Net Value $ 79.8 $ 30.6 38.3%
======== ======== ======
5
Exhibit C
<PAGE>
Liquidation Analysis Footnotes
(1) The Liquidation Analysis assumes that the company initially offers its
finished goods inventory to existing customers on a close-out basis, recovering
60% of cost. These customers are assumed to accept 60% of the finished goods
inventory. The balance of the inventory is to be liquidated through deep
discount retailers at 40% of cost. The total recovery for finished goods
inventory is forecasted at 52% of cost.
(2) Work-In-Process (WIP) consists of approximately $6 million partially
completed goods located in Honduras and $13 million located in the U.S. The
Honduran goods are assumed to realize no value due to logistical and importation
restrictions for unprocessed materials. The domestic WIP is assumed to be sewn
through and realize a net 25% of cost, after the expenses of completing the
product.
(3) Raw materials are assumed to realize a composite recovery of 10%,
reflecting a mixture of consumption in completing WIP and disposal at historical
liquidation prices.
(4) The LIFO reserve is an accounting entry to adjust the inventory to
"first in" price levels rather than at "last in" price levels. For liquidation
purposes, it is appropriate to base recovery values on the gross inventory value
before the LIFO reserve, therefore, the reserve has been reflected separately.
(5) Other reserves represent a general and ongoing obsolences/shrink
provision established by the company.
(D) Tax Refund/Deferred Taxes
The Income Tax Refund/Deferred Income Taxes are comprised of the following:
Liquidation Proceeds
NBV ------------------------------
3/29/96 Recovery %
---------- ---------- ---------
1996 Tax Refund (1) $ 13.2 $ 12.2 92.4%
Deferred Taxes (2) 10.2 8.1 79.4%
-------- -------- ------
$ 23.4 $ 20.3 86.8%
======== ======== ======
(1) Ithaca is required to pay $1.0 million to settle 1993 and 1994 IRS tax
audit liabilities, resulting in net cash proceeds of $12.2 million.
(2) The deferred tax asset account represents the net impact of book versus
tax-timing differences. In the context of a liquidation, the $10.2 million
deferred tax account coupled with the projected FY 1997 net operating losses,
would result in an estimated income tax cash benefit of $8.1 million (paid by
Ithaca Holdings pursuant to a tax sharing agreement).
6
Exhibit C
<PAGE>
Liquidation Analysis Footnotes
(E) Other Current Assets
Other current assets include prepaid license royalties, insurance, security
deposits, and other. The Liquidation Analysis assumes no recovery on these
assets.
(F) Property, Plant & Equipment
Property, Plant & Equipment is comprised of the following:
Liquidation Proceeds
NBV -------------------------
3/29/96 Recovery %
---------- ---------- --------
P.P. & E.:
Undeveloped Land (1) $ .9 $ .3 33.3%
Land, Bldg. & Impr. (2) 35.8 14.2 39.7%
Leasehold Improvements (3) 1.7 0.0 0.0%
Vehicles (4) .1 0.0 0.0%
Machinery & Equipment (5) 20.2 5.2 25.7%
Const.-In-Progress (6) .6 0.0 16.7%
-------- -------- ------
$ 59.3 $ 19.7 33.2%
======== ======== ======
(1) Undeveloped land represents 63 acres of property located in North
Augusta, SC within the city's industrial zone. The Liquidation Analysis assumes
a value of $.3 million.
(2) Land, Building and Improvements represents 26 properties located in
North Carolina, Arizona and Georgia. The Liquidation Analysis assumes an average
liquidation value of seven dollars per square foot.
(3) Leasehold Improvements consists of buildouts, renovations and repairs
to nine manufacturing and warehouse facilities. The Liquidation Analysis assumes
no value as the leases are assumed to be rejected.
(4) Vehicles represent trucks, trailers, vans and automobiles used at the
various facilities. The vehicles' average age is 10 years. The Liquidation
Analysis assumes a minimal recovery value.
(5) Machinery and equipment represents furniture, office equipment, plant
equipment and fixtures at all leased and owned facilities. The Liquidation
Analysis assumes an average cost recovery of 25%.
(6) Construction-in-progress represents deposits on partially completed
equipment installations. The Liquidation Analysis assumes no liquidation value.
7
Exhibit C
<PAGE>
Liquidation Analysis Footnotes
(G) Intangible Assets
Intangible assets represent unamortized costs which have no liquidation
value.
(H) Other Assets
Other assets are comprised of the following:
Liquidation Proceeds
NBV --------------------------
3/29/96 Recovery %
---------- ---------- ---------
Honduras Rent Deposit (1) $ .5 -- 0.0%
CSV - Life Ins (2) .2 $ .1 50.0%
----- -------- ------
$ .7 $ .1 14.3%
===== ======== ======
(1) Ithaca leases three manufacturing facilities in Honduras, each
requiring a security deposit equal to five months rent. The Liquidation Analysis
assumes the lessor off-sets the deposit against the lease termination claim.
(2) Key man life insurance estimated net cash surrender value.
(I) Accrued Payroll & Benefits
The Liquidation Analysis assumes that all employee related accrued payroll
and benefit costs are paid as follows:
Liquidation Proceeds
NBV ---------------------------
Admin. Claims 3/29/96 Recovery %
------------- ---------- ---------- ---------
Worker's Comp $ 4.9 $ -- 0.0%
Payroll & Taxes 2.8 2.8 100.0%
Medical Benefits* 2.9 2.9 100.0%
Vacation* 1.9 1.9 100.0%
-------- -------- ------
$ 12.5 $ 7.6 60.8%
======== ======== ======
- -----------
* Represents Priority Claims
8
Exhibit C
<PAGE>
Liquidation Analysis Footnotes
(J) Shutdown Payroll & Benefit Costs
Shutdown costs are comprised of the following:
WARN (1) $ 11.0
Liquidation Team (2) 2.0
-----------
$ 13.0
===========
(1) During the 60 day WARN period, it is assumed that the entire workforce
will continue to be paid and that they will complete WIP, prepare inventory for
sale (de-labeling, picking, packing), assist in shipping, and prepare the
facilities for auction sales.
(2) The proposed liquidation team would be comprised of the following:
Estimated
Average Annual Liquidation
Salary per Period Liquidation
Employee Post-WARN Costs
Department Headcount (in thousands) (in months) (in millions)
- ----------- ---------- ------------ ---------- ----------
Production Supervisory 45 $ 30 6 $ .7
Sales 26 35 6 .5
General & Administrative 20 40 6-12 .6
Security 15 35 6 .2
---- ------
Total 106 $ 2.0
==== ======
(K) Professional Fees
The administration and coordination of the Ithaca liquidation would require
a Court appointed Trustee. The duties of the Trustee would be to liquidate the
assets, reconcile/settle claims and distribute proceeds to creditors. The cost
of administering the liquidation is estimated as follows:
Trustee Fees (2% of liquidation proceeds) $ 2.2
Legal Fees 1.0
Other .5
-------
$ 3.7
=======
9
Exhibit C
<PAGE>
Liquidation Analysis Footnotes
(L) Non-Payroll Liquidation Costs
The Liquidation Analysis assumes that related overhead costs would continue
in order to support the departments as follows:
Duration
In Months
--------
Lease Expense (1) 2 $ 0.3
Sales T&E/Other Exps. (2) 6 1.0
G&A Expense (3) 9 2.0
--------
$ 3.3
========
(1) Comprises facility lease payments for 60 days as WIP inventory
production is completed and transferred to owned distribution centers.
Production related costs to dispose of existing inventories are reflected in the
inventory recovery rates.
(2) Represents travel and entertainment and other selling related costs.
(3) Represents estimated corporate G&A costs during the liquidation period.
(M) Taxes
The Liquidation Analysis assumes all priority real estate tax liabilities
for FY 1997 are paid (through the date of the property sales).
(N) Reclamation Claims
The Liquidation Analysis assumes that vendors shipping raw materials to the
company ten days prior to the Chapter 7 filing would receive a reclamation claim
in accordance with section 546 of the Bankruptcy Code. The company currently
receives approximately $1.5 million in raw materials per week. The Liquidation
Analysis assumes that 50% of reclamation claims are filed and paid.
10
Exhibit C
<PAGE>
Liquidation Analysis Footnotes
(O) Secured Creditors
Secured creditors include the following:
(1) Bank Group
Ithaca's Bank Group was granted a first priority security interest in the
following owned assets: (a) cash and accounts receivable, (b) all contracts, (c)
all inventory, (d) property, plant & equipment, and (e) essentially all other
tangible and intangible company assets. Therefore, the Liquidation Analysis
assumes that all liquidation proceeds, after satisfying administrative claims
and certain equipment lessors, is distributed to the Bank Group in partial
satisfaction of their debt.
In addition, the company has approximately $6.4 million in outstanding
letters of credit to guarantee payment of workers' compensation (WC) claims. The
Liquidation Analysis assumes all WC claims are satisfied as administrative
payments in the bankruptcy and the letters of credit are terminated.
(2) Other
Other is comprised primarily of capitalized equipment leases assumed to be
liquidated at 33% of the outstanding NBV or $.2 million.
11
Exhibit C
<PAGE>
Exhibit D
CERTAIN FINANCIAL PROJECTIONS
Set forth below are financial projections which incorporate the estimated
effect of the transactions contemplated by the Plan on the Company's
capitalization, results of operations, balance sheets and cash flow for the
three-year period ending January, 1999. In connection with the Company's
development of the Plan, certain projections of the future financial performance
of the Company's operations were prepared. Significant assumptions underlying
the financial projections are set forth and should be read in conjunction
therewith.
The Company does not, as a matter of course, publish its business plans
and strategies or make projections of its anticipated financial position or
results of operations. Accordingly, the Company does not anticipate that it
will, and disclaims any obligation to, furnish updated business plans or
projections to holders of Claims or Equity Interests after the Effective Date,
or to include such information in documents required to be filed with the
Securities and Exchange Commission or otherwise make such information public.
The industry in which the Company competes is highly competitive and the
Company's earnings may be significantly adversely affected by the actions of its
competitors, either through competitive influx, price pressure, modernization of
facilities or business expansion. Also, many of the products which the Company
produces are subject to changes in fashion demands. In addition, the products of
the Company are sold to companies whose businesses are cyclical in nature and
are subject to changes in general economic conditions which affect market
demand. The projections generally assume that no material change in the
competitive environment which presently exists will occur, and that no
significant changes in the product mix will occur as a result of shifting
consumer demand.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARDS COMPLIANCE WITH THE
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS, THE FINANCIAL ACCOUNTING STANDARDS BOARD, OR THE RULES AND
REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION REGARDING FINANCIAL
FORECASTS. FURTHERMORE, SUCH PROJECTIONS HAVE NOT BEEN EXAMINED, REVIEWED OR
COMPILED BY THE COMPANY'S INDEPENDENT AUDITORS. WHILE PRESENTED WITH NUMERICAL
SPECIFICITY, THESE PROJECTIONS ARE BASED UPON A VARIETY OF ASSUMPTIONS (WHICH
THE COMPANY BELIEVES ARE REASONABLE), AND ARE SUBJECT TO SIGNIFICANT BUSINESS,
ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE
BEYOND THE CONTROL OF THE COMPANY. CONSEQUENTLY, THE INCLUSION OF THE
PROJECTIONS HEREIN SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY (OR
ANY OTHER PERSON) THAT THE PROJECTIONS WILL BE REALIZED, AND ACTUAL RESULTS MAY
VARY MATERIALLY FROM THOSE PRESENTED BELOW. DUE TO THE FACT THAT SUCH
PROJECTIONS ARE SUBJECT TO SIGNIFICANT UNCERTAINTY AND ARE BASED UPON
ASSUMPTIONS WHICH MAY NOT PROVE TO BE CORRECT, NEITHER THE COMPANY NOR ANY OTHER
PERSON ASSUMES ANY RESPONSIBILITY FOR THEIR ACCURACY OR COMPLETENESS.
1
Exhibit D
<PAGE>
Ithaca Industries, Inc.
Comparative Balance Sheet
FY1997
Projected Estimated October
---------- -------------------
August Pre- Post-
Petition Petition
Assets:
Current Assets:
Cash 1.0 2.0 2.0
Accounts Receivable 40.2 45.5 45.5
Inventory 63.0 53.7 53.7
Income Tax Refund Receivable 1.6 3.6 3.6
Other Current Assets 1.5 1.5 1.5
----- ----- -----
107.3 106.3 106.3
Property, Plant & Equipment, Net 50.5 52.5 52.5
Intangible Assets 0.6 0.5 0.5
Deferred Debt Expense 2.9 2.7 0.0
Goodwill 0.0 0.0 0.0
Assets Held for Disposition 3.9 3.3 3.3
Deferred Income Taxes 9.8 7.6 7.6
Other Assets 0.7 0.7 0.7
----- ----- -----
175.7 173.6 170.9
===== ===== =====
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts Payable 15.0 13.4 13.4
Accrued Expenses 15.5 13.2 13.2
Accrued Interest 16.8 19.0 0.0
Reserve for Discontinued Operations 8.4 6.8 6.8
----- ----- -----
55.7 52.4 33.4
Long-Term Debt:
Senior Revolving 17.0 18.6 40.8
Senior Term 77.2 77.2 55.0
Subordinated 124.6 124.6 0.0
Miscellaneous 0.5 0.2 0.2
Deferred Income Tax 0.0 0.0 0.0
----- ----- -----
Total Liabilities 275.0 273.0 129.4
Stockholders' Deficit:
Common Stock 0.0 0.0 0.0
Additional Paid In Capital 9.0 9.0 9.0
Accumulated Deficit (108.3) (108.4) 32.5
----- ----- -----
175.7 173.6 170.9
===== ===== =====
2
Exhibit D
<PAGE>
Ithaca Industries, Inc.
Business Plan
Projected Plan Projected Income
FY1997-FY1999
(Dollars in Millions) FY1997 FY1998 FY1999
------ ------ ------
Net Sales $292.0 $330.0 $374.8
Cost of Sales 249.1 277.0 311.0
Gross Profit 42.9 53.0 63.8
GP% 14.7% 16.1% 17.0%
SSG&A 34.4 33.2 34.6
------ ------ ------
Operating Income $8.5 $ 19.8 $29.2
Debt Forgiveness (137.7) 0.0 0.0
Interest Expense 19.2 11.5 11.8
Interest Income (0.2) (0.2) (0.2)
Other Income (0.5) (0.5) (0.5)
------ ------ ------
Net Income Before Taxes $127.7 $ 9.0 $18.1
Income Tax Expense/(Credit) (1.3) 6.9 10.5
------ ------ ------
Net Income/(Loss) $129.0 $ 2.1 $7.6
====== ====== ======
Operating Income 8.5 19.8 29.2
Depreciation & Amortization 9.0 8.5 7.8
EBITDA $ 17.5 $ 28.3 $37.0
3
Exhibit D
<PAGE>
<TABLE>
<CAPTION>
Ithaca Industries, Inc.
Business Plan
Projected Balance Sheets
FY1997-FY1999
Actual
January January 31, January 31, January 31,
(Dollars in Millions) 1996 1997 1998 1999
------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Current Assets:
Cash $ 10.4 $ 2.0 $ 2.0 $ 2.0
Accounts Receivable 30.6 33.0 35.6 39.9
Inventory 56.1 60.6 65.4 73.3
Income Tax Refund Receivable 13.2 6.9 0.0 0.0
Other Current Assets 1.6 1.6 1.6 1.6
------- ------ ------ ------
111.9 104.1 104.6 116.8
Property, Plant & Equipment, Net 54.3 51.8 51.5 49.7
Intangible Assets 0.9 0.4 0.0 0.0
Deferred Debt Expense 3.7 0.0 0.0 0.0
Goodwill 0.0 0.0 0.0 0.0
Assets Held for Disposition 17.1 1.8 1.3 0.6
Deferred Income Taxes 9.9 0.0 0.0 0.0
Other Assets 0.7 0.7 0.7 0.7
------- ------ ------ ------
$ 198.5 $158.8 $158.1 $167.8
======= ====== ====== ======
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts Payable $ 16.4 $ 13.1 $ 14.2 $ 15.9
Accrued Expenses 13.9 11.0 11.8 13.1
Accrued Interest 9.5 0.0 0.0 0.0
Reserve for Discontinued Operations 12.2 1.9 0.9 0.5
------- ------ ------ ------
52.0 26.0 26.9 29.5
Long-Term Debt:
Senior Revolving 37.0 39.3 40.0 42.5
Senior Term 77.8 58.0 53.0 49.0
Subordinated 124.6 0.0 0.0 0.0
Miscellaneous 0.7 0.1 0.1 0.1
Deferred Income Tax 0.0 0.0 0.6 1.6
------- ------ ------ ------
Total Liabilities 292.1 123.4 120.6 122.7
Stockholders' Deficit:
Common Stock 0.0 0.0 0.0 0.0
Additional Paid In Capital 9.0 9.0 9.0 9.0
Accumulated Earnings/(Deficit) (102.6) 26.4 28.5 36.1
------- ------ ------ ------
$ 198.5 $158.8 $158.1 $167.8
======= ====== ====== ======
</TABLE>
4
Exhibit D
<PAGE>
Ithaca Industries, Inc.
Business Plan
Projected Cash Flow
FY1997-FY1999
(Dollars in Millions) FY1997 FY1998 FY1999
------- ------- -------
EBITDA 17.5 28.3 37.0
Changes in Working Capital - Sources/(Uses):
Receivables (2.4) (2.6) (4.3)
Inventory (4.5) (4.8) (7.9)
Accounts Payable (3.3) 1.1 1.7
Accrued Expenses (2.9) 0.8 1.3
----- ----- -----
(13.1) (5.5) (9.2)
Cash Flow from Investing Activities
Asset Sale Proceeds 0.0 0.0 0.0
Capital Expenditures (6.0) (8.0) (6.0)
----- ----- -----
(6.0) (8.0) (6.0)
Discontinued Operations:
Proceeds 15.3 0.5 0.7
Shut-down costs (4.9) (1.0) (0.4)
Professional Fees (5.4) 0.0 0.0
Income Taxes:
Refunds 18.4 6.9 0.0
Payments (1.0) (6.0) (9.5)
Other Income 141.9 0.7 0.7
----- ----- -----
Net Cash Flow Before Debt Service 162.7 15.9 13.3
Debt Service Payments:
Bank Debt
Principal (19.8) (5.0) (4.0)
Interest (11.6) (11.5) (11.8)
Bondholders' Principal (124.6) 0.0 0.0
Bondholders' Interest (16.8) 0.0 0.0
Capital Leases (P&L) (0.6) (0.1) 0.0
Revolver Borrowings/(Repay) 2.3 0.7 2.5
Net Cash Flow (8.4) 0.0 0.0
Beginning Cash 10.4 2.0 2.0
----- ----- -----
Ending Cash 2.0 2.0 2.0
===== ===== =====
5
Exhibit D
<PAGE>
ASSUMPTIONS UNDERLYING THE PROJECTIONS
1. The projections assume confirmation of the Plan with an Effective Date
of November 29, 1996.
2. Net sales in fiscal 1997 are projected to be significantly below fiscal
1996 because of the discontinuation of unprofitable products and programs as
part of the Company's business plan. Sales of continuing business are projected
to increase approximately 13% in fiscal 1998 over fiscal 1997 and approximately
14% in fiscal 1999 over fiscal 1998 reflecting the addition of new programs and
the growth of current programs.
3. The projections assume that operating margins improve significantly over
the period reflecting improved manufacturing costs, increased product sourcing,
and reduced overheads, primarily from staffing reductions. The improved gross
margins assume the Company's ability to source or manufacture its products at a
competitively favorable cost, including alignment of capacity to sales demand,
further migration to offshore sewing ("807") production, and the development of
an offshore sourcing organization. No fiscal 1997 operating statement impact is
assumed from the disposition of assets and shutdown costs related to the
products that were discontinued and provided for in the 1996 fiscal year
financial statements. Anticipated cash recoveries from such assets are included
in the projections in the fiscal year in which they are expected to be realized.
4. Capital expenditures are projected based on required replacement of
certain production equipment, additional information systems equipment, and the
consolidation and upgrading of hosiery distribution.
5. Interest expense is based on the Credit Agreement as amended by various
waivers prior to the Effective Date of the Plan, and the proposed revised credit
agreement as of and after the Effective Date of the Plan. The projections
include accrued interest on the Notes through August 30, 1996. The projections
provide that all accrued interest is discharged at the Effective Date via the
conversion of the Notes and accrued interest thereon to equity.
6. Income taxes reflect the impact in fiscal 1997 of the fiscal 1996
discontinued operations book reserves becoming deductible for tax in fiscal 1997
when the related assets are actually liquidated and the expenses incurred. As a
result of the debt conversion in fiscal 1997, the Company is projected to lose
future tax deductibility of depreciation for its plant, property, and equipment
held at the time of the conversion.
7. The projections do not include the "fresh start" accounting adjustments
which will be required for public reporting following the confirmation of the
Plan.
8. Other non-financial assumptions that are embodied in the projections
include:
a) The absence of political or economic disruptions, quotas, labor
disruptions, embargoes or currency fluctuations that might adversely affect
the Company, particularly in Honduras and other foreign nations where the
Company currently or in the future sources its products.
b) The Company's ability to pass on to retailers and consumers cost
increases in raw materials.
c) Continued improvement of the Company's information systems.
d) The ability of the Company to have access to adequate capital to
meet its working capital needs and to fund necessary capital expenditures.
6
Exhibit D
<PAGE>
Exhibit E
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of
Ithaca Industries, Inc.
1. Name. The name of the corporation is Ithaca Industries, Inc. (the
"Corporation").
2. Address; Registered Office and Agent. The address of the Corporation's
registered office is 1209 Orange Street, City of Wilmington, County of New
Castle, State of Delaware 19801; and its registered agent at such address is The
Corporation Trust Company.
3. Purpose. The purpose of the Corporation is to engage in, carry on and
conduct any lawful act or activity for which corporations may be organized under
the Delaware General Corporation Law (as amended from time to time, the "DGCL").
4. Number of Shares. The total number of shares of stock that the
Corporation shall have authority to issue is 30,000,000, divided as follows:
2,500,000 shares of Preferred Stock, of the par value of $.01 per share (the
"Preferred Stock"), and 27,500,000 shares of Common Stock, of the par value of
$.01 per share (the "Common Stock").
5. Designation of Classes; Relative Rights, Etc. The designation, relative
rights, preferences and limitations of the shares of each class are as follows:
5.1 Preferred Stock. The shares of Preferred Stock may be issued
from time to time in one or more series of any number of shares, provided that
the aggregate number of shares issued and not canceled of any and all such
series shall not exceed the total number of shares of Preferred Stock
hereinabove authorized, and with such powers, preferences, rights and
qualifications, limitations or restrictions thereof, and such distinctive serial
designations, all as shall hereafter be stated and expressed in the resolution
or resolutions adopted by the Board of Directors of the Corporation (the "Board
of Directors") providing for the issue of such shares of Preferred Stock from
time to time pursuant to authority to do so which is hereby vested in the Board
of Directors. Each series of shares of Preferred Stock (a) may have such voting
rights or powers, full or limited, or, subject to Section 5.3, may be without
voting rights or powers; (b) may be subject to redemption at such time or times
and at such prices; (c) may be entitled to receive dividends (which may be
cumulative or non-cumulative) at such rate or rates, on such conditions and at
such times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or series of stock; (d) may have such
rights upon the voluntary or involuntary liquidation, winding up or dissolution
of, or upon any distribution of the assets of, the Corporation; (e) may be made
convertible into or exchangeable for, shares of any other class or classes or of
any other series of the same or any other class or classes of stock of the
Corporation at such price or prices or at such rates of exchange and with such
adjustments; (f) may be entitled to the benefit of a sinking fund to be applied
to the purchase or redemption of shares of such series in such amount or
amounts; (g) may be entitled to the benefit of conditions and restrictions upon
the creation of indebtedness of the Corporation or any subsidiary, upon the
issue of any additional shares (including additional shares of such series or of
any other series) and upon the payment of dividends or the making of other
distributions on, and the purchase, redemption or other acquisition by the
Corporation or any subsidiary of, any outstanding shares of the Corporation and
(h) may have such other relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof; all as shall be
stated in said resolution or resolutions providing for the issue of such shares
of Preferred Stock. Any of the voting powers, designations, preferences, rights
and qualifications, limitations or restrictions of any such series of Preferred
Stock may be made dependent upon facts ascertainable outside of the resolution
or resolutions adopted by the Board of Directors providing for the issue of such
Preferred Stock pursuant to the authority vested in the Board by this Section
5.1, provided that the manner in which such facts shall operate upon the voting
powers, designations, preferences, rights and qualifications, limitations or
restrictions of such series of Preferred Stock is clearly and expressly set
forth in the resolution or resolutions providing for the issue of such Preferred
Stock. The term "facts" as used in the preceding sentence shall have the meaning
given to it in section 151(a) of the DGCL. Shares of Preferred Stock of any
series that have been redeemed (whether through the operation of a sinking fund
1
Exhibit E
<PAGE>
or otherwise) or that if convertible or exchangeable have been converted into or
exchanged for shares of any other class or classes, shall have the status of
authorized and unissued shares of Preferred Stock undesignated as to series and
may be reissued as a part of the series of which they were originally a part or
as part of a new series of shares of Preferred Stock to be created by resolution
or resolutions of the Board of Directors or as part of any other series of
shares of Preferred Stock, all subject to any conditions or restrictions on
issuance set forth in the resolution or resolutions adopted by the Board of
Directors providing for the issue of any series of shares of Preferred Stock.
5.2 Common Stock. All shares of Common Stock shall be identical and shall
entitle the holders thereof to the following rights and privileges:
5.2.1 Voting Rights. Subject to the provisions of any applicable law
or of the By-laws of the Corporation (the "By-laws"), as from time to time
amended, with respect to the closing of the transfer books or the fixing of a
record date for the determination of stockholders entitled to vote and except
for voting rights granted to holders of Preferred Stock as otherwise provided by
law or by the resolution or resolutions providing for the issue of any series of
shares of Preferred Stock, the holders of outstanding shares of Common Stock
shall exclusively possess voting power for the election of directors and for all
other purposes. Each holder of record of shares of Common Stock shall be
entitled to one vote for each share of Common Stock standing in such holder's
name on the books of the Corporation and the Common Stock shall vote as a single
class on all matters on which the Common Stock is entitled to vote.
5.2.2 Dividends. When and as dividends are declared thereon, whether
payable in cash, property or securities of the Corporation, subject to the prior
rights of the holders of Preferred Stock, if any, the holders of Common Stock
shall be entitled to share in such dividend ratably according to the number of
shares of Common Stock so held.
5.2.3 Liquidation Rights. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
subject to the prior rights of creditors and of the holders of Preferred Stock,
if any, the holders of Common Stock shall be entitled to share, ratably
according to the number of shares of Common Stock held by them, as a single
class, in the remaining assets of the Corporation available for distribution to
its stockholders.
5.3 Restriction on Issuances of Non-Voting Equity Securities. The
Corporation shall not issue any nonvoting equity securities; provided, that this
provision, which is included in this Certificate of Incorporation in compliance
with section 1123(a)(6) of the United States Bankruptcy Code of 1978, as
amended, shall have no force or effect beyond that required by such section
1123(a)(6) and shall be effective only for so long as such section 1123(a)(6) is
in effect and applicable to the Corporation.
5.4 Consideration. Subject to the provisions of this Certificate of
Incorporation and except as otherwise provided by law, the stock of the
Corporation, regardless of class, may be issued for such consideration and for
such corporate purposes as the Board of Directors may from time to time
determine.
5.5 No Pre-Emptive Rights. The holders of shares of Common Stock are not
entitled to any preemptive right to subscribe for, purchase or receive any part
of any new or additional issue of stock of any class, whether now or hereafter
authorized or of bonds, debentures or other securities convertible into or
exchangeable for stock.
6. Compromise, Arrangement or Reorganization. Whenever a compromise or
arrangement is proposed between this Corporation and its creditors or any class
of them and/or between this Corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers appointed
for this Corporation under the provisions of section 291 of the DGCL or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of the DGCL, order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
2
Exhibit E
<PAGE>
stockholders or class of stockholders of this Corporation, as the case may be,
agrees to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all stockholders or class of
stockholders of this Corporation, as the case may be, and also on this
Corporation.
7. Limitation of Liability. No director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, including breaches resulting from
such director's grossly negligent behavior, except for liability (a) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(b) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (c) under section 174 of the DGCL or
(d) for any transaction from which the director derived any improper personal
benefits. If the DGCL is hereafter amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the DGCL, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
8. Indemnification.
8.1 To the extent not prohibited by law, the Corporation shall
indemnify any person who is or was made, or threatened to be made, a party to
any threatened, pending or completed action, suit or proceeding (a
"Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director or
officer of the Corporation, or is or was serving as a director, officer,
manager, member, employee or agent or in any other capacity at the request of
the Corporation, for any other corporation, company, partnership, joint venture,
trust, employee benefit plan or other enterprise (an "Other Entity") while
serving as a director or officer of the Corporation, against judgments, fines,
penalties, excise taxes, amounts paid in settlement and costs, charges and
expenses (including attorneys' fees and disbursements) actually and reasonably
incurred by such person in connection with such Proceeding, if such person acted
in good faith and in a manner such person believed to be in or not opposed to
the best interests of the Corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. To the extent specified by the Board of Directors of the Corporation
at any time and to the extent not prohibited by law, the Corporation may
indemnify any person who is or was made, or threatened to be made, a party to
any threatened, pending or completed Proceeding, whether civil, criminal,
administrative or investigative, including, without limitation, an action by or
in the right of the Corporation to procure a judgment in its favor, by reason of
the fact that such person is or was an employee or agent of the Corporation, or
is or was serving as a director, officer, manager, member, employee or agent or
in any other capacity at the request of the Corporation, for any Other Entity,
against judgment, fines, penalties, excise taxes, amounts paid in settlement and
costs, charges and expenses (including attorneys' fees and disbursements)
actually and reasonably incurred by such person in connection with such
Proceeding, if such person acted in good faith and in a manner such person
believed to be in or not opposed to the best interests of the Corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
8.2 The Corporation shall, from time to time, reimburse or advance
to any director or officer or other person entitled to indemnification hereunder
the funds necessary for payment of expenses, including attorneys' fees and
disbursements, incurred in connection with any Proceeding, in advance of the
final disposition of such Proceeding; provided, however, that, if required by
the DGCL, such expenses incurred by or on behalf of any director or officer or
other person may be paid in advance of the final disposition of a Proceeding
only upon receipt by the Corporation of an undertaking, by or on behalf of such
director or officer (or other person indemnified hereunder), to repay any such
amount so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right of appeal that such director,
officer or other person is not entitled to be indemnified for such expenses.
3
Exhibit E
<PAGE>
8.3 The rights to indemnification and reimbursement or advancement
of expenses provided by, or granted pursuant to, this Section 8 shall not be
deemed exclusive of any other rights to which a person seeking indemnification
or reimbursement or advancement of expenses may have or hereafter be entitled
under any statute, this Amended and Restated Certificate of Incorporation, the
By-laws, any agreement (including any policy of insurance purchased or provided
by the Corporation under which directors, officers, employees and other agents
of the Corporation are covered), any vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office.
8.4 The rights to indemnification and reimbursement or advancement
of expenses provided by, or granted pursuant to, this Section 8 shall continue
as to a person who has ceased to be a director or officer (or other person
indemnified hereunder) and shall inure to the benefit of the executors,
administrators, legatees and distributees of such person.
8.5 The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, member, manager, employee or agent of an Other Entity,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power to indemnify such person against such
liability under the provisions of this Section 8, the By-laws or under section
145 of the DGCL or any other provision of law.
8.6 The provisions of this Section 8 shall be a contract between the
Corporation, on the one hand, and each director and officer who serves in such
capacity at any time while this Section 8 is in effect and any other person
indemnified hereunder, on the other hand, pursuant to which the Corporation and
each such director, officer, or other person intend to be legally bound. No
repeal or modification of this Section 8 shall affect any rights or obligations
with respect to any state of facts then or theretofore existing or thereafter
arising or any proceeding theretofore or thereafter brought or threatened based
in whole or in part upon any such state of facts.
8.7 The rights to indemnification and reimbursement or advancement
of expenses provided by, or granted pursuant to, this Section 8 shall be
enforceable by any person entitled to such indemnification or reimbursement or
advancement of expenses in any court of competent jurisdiction. Neither the
failure of the Corporation (including its Board of Directors, its independent
legal counsel and its stockholders) to have made a determination prior to the
commencement of such action that such indemnification or reimbursement or
advancement of expenses is proper in the circumstances nor an actual
determination by the Corporation (including its Board of Directors, its
independent legal counsel and its stockholders) that such person is not entitled
to such indemnification or reimbursement or advancement of expenses shall
constitute a defense to the action or create a presumption that such person is
not so entitled. Such a person shall also be indemnified for any expenses
incurred in connection with successfully establishing his or her right to such
indemnification or reimbursement or advancement of expenses, in whole or in
part, in any such proceeding.
8.8 Any director or officer of the Corporation serving in any
capacity in (i) another corporation of which a majority of the shares entitled
to vote in the election of its directors is held, directly or indirectly, by the
Corporation or (ii) any employee benefit plan of the Corporation or any
corporation referred to in clause (i) shall be deemed to be doing so at the
request of the Corporation.
8.9 Any person entitled to be indemnified or to reimbursement or
advancement of expenses as a matter of right pursuant to this Section 8 may
elect to have the right to indemnification or reimbursement or advancement of
expenses interpreted on the basis of the applicable law in effect at the time of
the occurrence of the event or events giving rise to the applicable Proceeding,
to the extent permitted by law, or on the basis of the applicable law in effect
at the time such indemnification or reimbursement or advancement of expenses is
sought. Such election shall be made, by a notice in writing to the Corporation,
at the time indemnification or reimbursement or advancement of expenses is
sought; provided, however, that if no such notice is given, the right to
indemnification or reimbursement or advancement of expenses shall be determined
by the law in effect at the time indemnification or reimbursement or advancement
of expenses is sought.
4
Exhibit E
<PAGE>
9. Directors. This Section is inserted for the management of the business
and for the conduct of the affairs of the Corporation and it is expressly
provided that it is intended to be in furtherance of and not in limitation or
exclusion of the powers conferred by applicable law.
9.1 Number, Election, and Terms of Office of Board of Directors. The
business of the Corporation shall be managed by a Board of Directors consisting
of not less than 3 or more than 10 members. The exact number of directors within
the minimum and maximum limitations specified in the preceding sentence shall be
fixed from time to time by resolution adopted by a majority of the entire Board
of Directors then in office, whether or not present at a meeting. Directors may
be elected by written ballot or by voice vote.
9.2 Tenure. Except as set forth in the immediately succeeding
sentence, the term of office of each director shall expire at the first annual
meeting of stockholders of the Corporation next following the Corporation's
fiscal year ending January 31, 1998. The director designated by the Butler
Noteholders (as defined in the Corporation's plan of reorganization dated August
29, 1996, as the same may be amended (the "Plan"), under Chapter 11 of Title 11
of the United States Code) pursuant to the Plan shall have an initial term of
office expiring at the annual meeting of stockholders of the Corporation next
following the Corporation's fiscal year ending January 30, 1999. Notwithstanding
any provisions to the contrary contained herein, each director shall hold office
until his successor is elected and qualified, or until his earlier death,
resignation or removal.
9.3 Newly Created Directorships and Vacancies. Subject to the rights
of the holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall be filled
by a majority vote of the remaining directors then in office although less than
a quorum, or by a sole remaining director, and directors so chosen shall hold
office until their respective successors are duly elected and qualified. When
any director shall give notice of resignation effective at a future date, the
Board of Directors may fill such vacancy to take effect when such resignation
shall become effective.
10. Action by Stockholders. Notwithstanding the provisions of section 228
of the DGCL (or any successor statute), any action required or permitted by the
DGCL to be taken at any annual or special meeting of stockholders of the
Corporation may be taken only at such an annual or special meeting of
stockholders and cannot be taken by written consent without a meeting. At any
annual meeting or special meeting of stockholders of the Corporation, only such
business shall be conducted as shall have been brought before such meeting in
the manner provided by the By-laws.
11. Special Meetings of Stockholders. Special meetings of stockholders for
any purpose may be called at any time by the Board of Directors, the Chairman of
the Board of Directors or by the President of the Corporation. Special meetings
shall be held at such place or places within or without the State of Delaware as
shall from time to time be designated by the Board of Directors and stated in
the notice of such meeting or in the waiver of notice thereof.
12. Adoption, Amendment and/or Repeal of By-Laws. The Board of Directors
may from time to time adopt, amend or repeal the By-laws; provided, however,
that any By-laws adopted or amended by the Board of Directors may be amended or
repealed, and any By-laws may be adopted, by a vote of the stockholders having
at least a majority in voting power of the then issued and outstanding shares of
capital stock of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation, which restates and amends the Corporation's
Certificate of Incorporation, after having been duly adopted, recommended and
approved by the Board of Directors and adopted by the affirmative vote of a
majority of the outstanding shares of Common Stock in accordance with sections
242 and 245 of the DGCL, to be signed by its duly authorized officer this ___
day of __________, 1996.
______________________________________
Name:
Title:
5
Exhibit E
<PAGE>
Exhibit F
AMENDED AND RESTATED BY-LAWS
of
Ithaca Industries, Inc.
(A Delaware Corporation)
------------------------
ARTICLE 1
DEFINITIONS
As used in these By-laws, unless the context otherwise requires, the
term:
1.1 "Assistant Secretary" means an Assistant Secretary of the Corporation.
1.2 "Assistant Treasurer" means an Assistant Treasurer of the Corporation.
1.3 "Audit Committee" means the Audit Committee of the Board.
1.4 "Board" means the Board of Directors of the Corporation.
1.5 "Business Day" means any day which is not a Saturday, a Sunday or a day
on which banks are authorized to close in the City of New York.
1.6 "Butler Noteholders" means the Butler Noteholders (as defined in the
Plan).
1.7 "By-laws" means the by-laws of the Corporation, as amended from time to
time.
1.8 "Certificate of Incorporation" means the amended and restated
certificate of incorporation of the Corporation, as amended, supplemented or
restated from time to time.
1.9 "Chairman" means the Chairman of the Board of Directors of the
Corporation.
1.10 "Chief Financial Officer" means the Chief Financial Officer of the
Corporation.
1.11 "Corporation" means Ithaca Industries, Inc.
1.12 "Directors" means directors of the Corporation.
1.13 "Entire Board" means all directors of the Corporation in office,
whether or not present at a meeting of the Board, but disregarding vacancies.
1.14 "Executive Committee" means the Executive Committee of the Board.
1.15 "General Corporation Law" means the General Corporation Law of the
State of Delaware, as amended from time to time.
1.16 "Office of the Corporation" means the executive office of the
Corporation, anything in Section 131 of the General Corporation Law to the
contrary notwithstanding.
1.17 "Plan" means the Corporation's plan of reorganization dated August 29,
1996, under Chapter 11 of Title 11 of the United States Code.
1.18 "President" means the President of the Corporation.
1.19 "Secretary" means the Secretary of the Corporation.
1.20 "Stockholders" means stockholders of the Corporation.
1.21 "Treasurer" means the Treasurer of the Corporation.
1.22 "Vice President" means a Vice President of the Corporation.
1
Exhibit F
<PAGE>
ARTICLE 2
STOCKHOLDERS
2.1 Place of Meetings. Every meeting of stockholders shall be held at the
office of the Corporation or at such other place within or without the State of
Delaware as shall be specified or fixed in the notice of such meeting or in the
waiver of notice thereof.
2.2 Annual Meeting. A meeting of stockholders shall be held annually for
the election of Directors and the transaction of other business at such hour and
on such business day in each year as may be determined by resolution adopted by
affirmative vote of a majority vote of the Entire Board and designated in the
notice of meeting.
2.3 Deferred Meeting for Election of Directors, Etc. If the annual
meeting of stockholders for the election of Directors and the transaction of
other business is not held on the date designated therefor or at any adjournment
of a meeting convened on such date, the Board by resolution adopted by
affirmative vote of a majority vote of the Entire Board, shall call a meeting of
stockholders for the election of Directors and the transaction of other business
as soon thereafter as convenient.
2.4 Special Meetings. A special meeting of stockholders, unless otherwise
prescribed by statute, may be called at any time by the Board, the Chairman of
the Board or by the President. At any special meeting of stockholders, no
business may be transacted other than (i) such business stated in the notice
thereof given pursuant to Section 2.6 hereof or in any waiver of notice thereof
given pursuant to Section 2.7 hereof (in a form prepared by the Secretary) or
(ii) such business as is related to the purpose or purposes of such meeting and
which is properly brought before the meeting by or at the direction of the
Board.
2.5 Fixing Record Date. For the purpose of (a) determining the
Stockholders entitled (i) to notice of or to vote at any meeting of Stockholders
or any adjournment thereof or (ii) to receive payment of any dividend or other
distribution or allotment of any rights, or to exercise any rights in respect of
any change, conversion or exchange of stock; or (b) any other lawful action, the
Board may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date was adopted by the Board and which
record date shall not be (x) in the case of clause (a)(i) above, more than sixty
nor less than ten days before the date of such meeting and (y) in the case of
clause (a)(ii) or (b) above, more than sixty days prior to such action. If no
such record date is fixed:
2.5.1 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; and
2.5.2 the record date for determining stockholders for any purpose
other than those specified in Section 2.5.1 shall be at the close of
business on the day on which the Board adopts the resolution relating
thereto.
When a determination of Stockholders entitled to notice of or to vote at
any meeting of Stockholders has been made as provided in this Section 2.5, such
determination shall apply to any adjournment thereof unless the Board fixes a
new record date for the adjourned meeting.
2.6 Notice of Meetings of Stockholders. Except as otherwise provided in
Section 2.7 hereof, whenever under the provisions of any statute, the
Certificate of Incorporation or these By-laws, Stockholders are required or
permitted to take any action at a meeting, written notice shall be given stating
the place, date and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. Unless otherwise
provided by any statute, the Certificate of Incorporation or these By-laws, a
copy of the notice of any meeting shall be given, personally or by mail, not
less than ten nor more than sixty days before the date of the meeting, to each
Stockholder entitled to notice of or to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
with postage prepaid, directed to the Stockholder at his or her address as it
appears on the records of the Corporation. An affidavit of the Secretary or an
Assistant Secretary or of the transfer agent of the Corporation that the notice
required by this Section 2.6 has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. When a meeting is adjourned to
2
Exhibit F
<PAGE>
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken, and at the adjourned meeting any business may be transacted that might
have been transacted at the meeting as originally called. If, however, the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each Stockholder of record entitled to vote at the
meeting.
2.7 Waivers of Notice. Whenever the giving of any notice is required by
statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in
writing, signed by the Stockholder or Stockholders entitled to said notice,
whether before or after the event as to which such notice is required, shall be
deemed equivalent to notice. Attendance by a Stockholder at a meeting shall
constitute a waiver of notice of such meeting except when the Stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
2.8 List of Stockholders. The Secretary shall prepare and make, or cause
to be prepared and made, at least ten days before every meeting of Stockholders,
a complete list of the Stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each Stockholder and the number
of shares registered in the name of each Stockholder. Such list shall be open to
the examination of any Stockholder, the Stockholder's agent or attorney, at the
Stockholder's expense, 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 present. The Corporation shall maintain the
list of Stockholders in written form or in another form capable of conversion
into written form within a reasonable time. The stock ledger shall be the only
evidence as to who are the Stockholders entitled to examine the stock ledger,
the list of Stockholders or the books of the Corporation, or to vote in person
or by proxy at any meeting of Stockholders.
2.9 Quorum of Stockholders; Adjournment. Except as otherwise provided by
any statute, the Certificate of Incorporation or these By-laws, the holders of a
majority of all outstanding shares of stock entitled to vote at any meeting of
Stockholders, present in person or represented by proxy, shall constitute a
quorum for the transaction of any business at such meeting. When a quorum is
once present to organize a meeting of Stockholders, it is not broken by the
subsequent withdrawal of any Stockholders. The holders of a majority of the
shares of stock present in person or represented by proxy at any meeting of
Stockholders, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. Shares of its own
stock belonging to the Corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
2.10 Voting; Proxies. Unless otherwise provided in the Certificate of
Incorporation, every Stockholder of record shall be entitled at every meeting of
Stockholders to one vote for each share of capital stock standing in his or her
name on the record of Stockholders determined in accordance with Section 2.5
hereof. If the Certificate of Incorporation provides for more or less than one
vote for any share on any matter, each reference in the By-laws or the General
Corporation Law to a majority or other proportion of stock shall refer to such
majority or other proportion of the votes of such stock. The provisions of
Sections 212 and 217 of the General Corporation Law shall apply in determining
whether any shares of capital stock may be voted and the persons, if any,
entitled to vote such shares; but the Corporation shall be protected in assuming
that the persons in whose names shares of capital stock stand on the stock
ledger of the Corporation are entitled to vote such shares. Holders of
redeemable shares of stock are not entitled to vote after the notice of
redemption is mailed to such holders and a sum sufficient to redeem the stocks
has been deposited with a bank, trust company, or other financial institution
under an irrevocable obligation to pay the holders the redemption price on
surrender of the shares of stock. At any meeting of Stockholders (at which a
quorum was present to organize the meeting), all matters which may be properly
considered at such meeting, except as otherwise provided by statute or by the
Certificate of Incorporation or by these By-laws, shall be decided by a majority
of the votes cast at such meeting by the holders of shares present in person or
represented by proxy and entitled to vote thereon, whether or not a quorum is
3
Exhibit F
<PAGE>
present when the vote is taken. Directors may be elected either by written
ballot or by voice vote. In voting on any other question on which a vote by
ballot is required by law or is demanded by any Stockholder entitled to vote,
the voting shall be by ballot. Each ballot shall be signed by the Stockholder
voting or the Stockholder's proxy and shall state the number of shares voted. On
all other questions, the voting may be by voice vote. Each Stockholder entitled
to vote at a meeting of Stockholders may authorize another person or persons to
act for such Stockholder by proxy. The validity and enforceability of any proxy
shall be determined in accordance with Section 212 of the General Corporation
Law. A Stockholder may revoke any proxy that is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by delivering a proxy in accordance with applicable law bearing a later
date to the Secretary.
2.11 Voting Procedures and Inspectors of Election at Meetings of
Stockholders. The Corporation, in advance of any meeting of Stockholders, shall
appoint one or more inspectors to act at the meeting and make a written report
thereof. The Corporation may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting, the person presiding at the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of 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 (a) ascertain
the number of shares outstanding and the voting power of each, (b) determine the
shares represented at the meeting and the validity of proxies and ballots, (c)
count all votes and ballots, (d) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors, and (e) certify their determination of the number of shares
represented at the meeting and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of their duties. 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 shall be determined by the person presiding at the meeting and
shall be announced at the meeting. No ballot, proxies or votes, or any
revocation thereof or change thereto, shall be accepted by the inspectors after
the closing of the polls unless the Court of Chancery of the State of Delaware
upon application by a Stockholder shall determine otherwise.
2.12 Conduct of Meetings. (a) At each meeting of Stockholders, the
President, or in the absence of the President, the Chairman, or if there is no
Chairman or if there be one and the Chairman is absent, a Vice President, and in
case more than one Vice President shall be present, that Vice President
designated by the Board (or in the absence of any such designation, the most
senior Vice President, based on time served in such office, present), shall act
as chairman of the meeting. The Secretary, or in his or her absence one of the
Assistant Secretaries, shall act as secretary of the meeting. In case none of
the officers above designated to act as chairman or secretary of the meeting,
respectively, shall be present, a chairman or a secretary of the meeting, as the
case may be, shall be chosen by a majority of the votes cast at such meeting by
the holders of shares of capital stock present in person or represented by proxy
and entitled to vote at the meeting.
(b) Only persons who are nominated in accordance with the following
procedures shall be eligible for election as Directors. Nominations of persons
for election to the Board may be made (i) by or at the direction of the Board,
(ii) by any nominating committee or person appointed by the Board or (iii) by
any Stockholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the provisions of the following
paragraph (persons nominated in accordance with (iii) above are referred to
herein as "Stockholder nominees").
In addition to any other applicable requirements, all nominations of
Stockholder nominees must be made by written notice given by or on behalf of a
Stockholder of record of the Corporation (the "Notice of Nomination"). The
Notice of Nomination must be delivered personally to, or mailed to, and received
at the principal executive offices of the Corporation, addressed to the
attention of the Secretary. To be timely, Notice of Nomination must have been
received by the Secretary of the Corporation (a) in the case of an annual
meeting, not less than 60 nor more than 90 days in advance of the first
anniversary of the previous year's annual meeting; provided, however, that in
the event that the date of the annual meeting is changed by more than 30 days
from such anniversary date, the Notice of Nomination to be timely must have been
received by the Secretary of the Corporation no later than the close of business
on the 10th day following the day on which public announcement of the date of
such meeting is first made; and (b) in the case of a special meeting at which
directors are to be elected, not later than the close of business on the fifth
day following such public announcement. For purposes of this section, in the
4
Exhibit F
<PAGE>
case of the first annual meeting following the initial public offering of the
Corporation's Common Stock, the date of the previous annual meeting will be
deemed to be 5/15/96. Each such notice shall set forth: (i) the name and
address, as they appear on the Corporation's books, of the stockholder who
intends to make the nomination and the name(s) and address(es) of the person or
persons to be nominated; (ii) a representation that the stockholder is a holder
of record of shares of the Corporation and the number and class so held and will
be entitled to vote at such meeting and intends to appear in person or by proxy
at the meeting and nominate the person or persons specified in the notice; (iii)
the class and number of shares of the Corporation that are beneficially owned by
the stockholder; (iv) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the stockholder; (v) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a definitive
proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had the nominee been nominated, or intended to be nominated, by the
Board of Directors; and (vi) the consent of each nominee to serve as a director
of the Corporation, if so elected. In addition, the stockholder making such
nomination shall promptly provide any other information reasonably requested by
the Corporation. Notwithstanding anything in these By-laws to the contrary, no
person shall be eligible for election as a director of the Corporation unless
nominated in accordance with the procedures set forth in this Section 2.12(b).
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 the holders of
any series of Preferred Stock to elect directors under specified circumstances.
Except as otherwise required by law, the chairman of any meeting of stockholders
shall have the power and duty (i) to determine whether a nomination was made in
accordance with the requirements set forth in this By-law and (ii) if any
proposed nomination was not made in compliance with this By-law, to declare that
such defective nomination shall be disregarded.
(c) At any annual meeting of Stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting of Stockholders, (i) business must be specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board, (ii) otherwise properly brought before the meeting by or
at the direction of the Board or (iii) otherwise properly brought before the
meeting by a Stockholder in accordance with the terms of the following paragraph
(business brought before the meeting in accordance with (iii) above is referred
to as "Stockholder business").
In addition to any other applicable requirements, all proposals of
Stockholder business must be made by written notice given by or on behalf of a
Stockholder of record of the Corporation (the "Notice of Business"). To be
timely, a stockholder's notice must have been received by the Secretary of the
Corporation not less than 60 nor more than 90 days in advance of the first
anniversary of the previous year's annual meeting; provided, however, that in
the event that the date of the annual meeting is changed by more than 30 days
from such anniversary date, notice by the shareholder to be timely must have
been received no later than the close of business on the 10th day following the
day on which public announcement of the date of such meeting is first made. For
purposes of this section, in the case of the first annual meeting following the
initial public offering of the Corporation's Common Stock, the date of the
previous year's annual meeting shall be deemed to be 5/15/96. Such Notice of
Business shall set forth (i) the name and record address of the Stockholder
proposing such Stockholder business; (ii) a representation that the Stockholder
is a holder of record of shares of the Corporation and the number and class so
held and will be entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting; (iii) the class and number of shares of the
Corporation that are beneficially owned by the Stockholder; (iv) a brief
description of the Stockholder business desired to be brought before the annual
meeting and the reasons for conducting such Stockholder business at the annual
meeting, and; (v) any material interest of the Stockholder in such Stockholder
business. Notwithstanding anything in these By-laws to the contrary, no business
shall be conducted at the annual meeting of Stockholders except in accordance
with the procedures set forth in this Section 2.12(c), provided, however, that
nothing in this Section 2.12(c) shall be deemed to preclude discussion by any
Stockholder of any business properly brought before the annual meeting in
accordance with said procedure. In addition, the shareholder making such
proposal shall promptly provide any other information reasonably requested by
the Corporation. Only such business shall be conducted at any annual meeting of
stockholders as shall have been brought before such meeting in accordance with
5
Exhibit F
<PAGE>
the requirements set forth in this By-law. Notwithstanding the foregoing
provisions of this By-law, a stockholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as amended, 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 any stockholder
to request inclusion of a proposal in the Corporation's proxy statement pursuant
to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Except as otherwise required by law, the chairman of any annual
meeting of stockholders shall have power and duty (i) to determine whether any
business proposed to be brought before the meeting was brought in accordance
with the requirements set forth in this By-law and (ii) if any proposed business
was not brought in compliance with this By-law to declare that such defective
proposal shall be disregarded. For purposes of this By-law and the next
preceding By-law, "public announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, the Associated Press or any 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.
2.13 Order of Business. The order of business at all meetings of
Stockholders shall be as determined by the chairman of the meeting, but the
order of business to be followed at any meeting at which a quorum is present may
be changed by a majority of the votes cast at such meeting by the holders of
shares of capital stock present in person or represented by proxy and entitled
to vote at the meeting.
2.14 Action by Stockholders. Notwithstanding the provisions of section
228 of the General Corporation Law (or any successor statute), any action
required or permitted by the General Corporation Law to be taken at any annual
or special meeting of Stockholders of the Corporation may be taken only at such
an annual or special meeting of Stockholders and cannot be taken by written
consent without a meeting.
ARTICLE 3
DIRECTORS
3.1 General Powers. Except as otherwise provided in the Certificate of
Incorporation, the business and affairs of the Corporation shall be managed by
or under the direction of the Board. The Board may adopt such rules and
regulations, not inconsistent with the Certificate of Incorporation or these
By-laws or applicable laws, as it may deem proper for the conduct of its
meetings and the management of the Corporation. In addition to the powers
expressly conferred by these By-laws, the Board may exercise all powers and
perform all acts that are not required, by these By-laws or the Certificate of
Incorporation or by statute, to be exercised and performed by the Stockholders.
3.2 Number; Qualification; Term of Office. The Board shall consist of not
less than 3 or more than 10 members. Until another number is fixed by Board in
accordance with the next following sentence, the Board shall consist of 7
members. The exact number of Directors within the minimum and maximum
limitations specified in the preceding sentence shall be fixed from time to time
by resolution adopted by a majority of the entire Board then in office, whether
or not present at a meeting. Except as set forth in the immediately succeeding
sentence, the term of office of each director shall expire at the first annual
meeting of stockholders of the Corporation next following the Corporation's
fiscal year ending January 31, 1998. The director designated by the Butler
Noteholders pursuant to the Plan shall have an initial term of office expiring
at the annual meeting of stockholders of the Corporation next following the
Corporation's fiscal year ending January 30, 1999. Notwithstanding any
provisions to the contrary contained herein, each director shall hold office
until his successor is elected and qualified, or until his earlier death,
resignation or removal.
3.3 Election. Directors shall, except as otherwise required by statute or
by the Certificate of Incorporation, be elected by a plurality of the votes cast
at a meeting of stockholders by the holders of shares present in person or
represented by proxy at the meeting and entitled to vote in the election.
3.4 Newly Created Directorships and Vacancies. Unless otherwise provided
in the Certificate of Incorporation, newly created Directorships resulting from
any increase in the authorized number of Directors and vacancies occurring in
the Board for any other reason, may be filled by the affirmative votes of a
majority of the entire Board, although less than a quorum, or by a sole
remaining Director, and Directors so chosen shall hold office for a term
expiring at the next following annual meeting of Stockholders, or, in each case
6
Exhibit F
<PAGE>
until their respective successors are duly elected and qualified, or until the
respective Directors' earlier death, resignation or removal.
3.5 Resignation. Any Director may resign at any time by written notice to
the Corporation. Such resignation shall take effect at the time therein
specified, and, unless otherwise specified in such resignation, the acceptance
of such resignation shall not be necessary to make it effective.
3.6 Removal. Any one or more or all of the Directors may be removed, at
any time, but only for cause by the Stockholders having at least a majority in
voting power of the then issued and outstanding shares of capital stock of the
Corporation.
3.7 Compensation. Each Director, in consideration of his or her service
as such, shall be entitled to receive from the Corporation such amount per annum
or such fees for attendance at Directors' meetings, or both, as the Board may
from time to time determine, together with reimbursement for the reasonable
out-of-pocket expenses, if any, incurred by such Director in connection with the
performance of his or her duties. Each Director who shall serve as a member of
any committee of Directors in consideration of serving as such shall be entitled
to such additional amount per annum or such fees for attendance at committee
meetings, or both, as the Board may from time to time determine, together with
reimbursement for the reasonable out-of-pocket expenses, if any, incurred by
such Director in the performance of his or her duties. Nothing contained in this
Section 3.7 shall preclude any Director from serving the Corporation or its
subsidiaries in any other capacity and receiving proper compensation therefor.
3.8 Times and Places of Meetings. The Board may hold meetings, both
regular and special, either within or without the State of Delaware. The times
and places for holding meetings of the Board may be fixed from time to time by
resolution of the Board or (unless contrary to a resolution of the Board) in the
notice of the meeting.
3.9 Annual Meetings. On the day when and at the place where the annual
meeting of stockholders for the election of Directors is held, and as soon as
practicable thereafter, the Board may hold its annual meeting, without notice of
such meeting, for the purposes of organization, the election of officers and the
transaction of other business. The annual meeting of the Board may be held at
any other time and place specified in a notice given as provided in Section 3.11
hereof for special meetings of the Board or in a waiver of notice thereof.
3.10 Regular Meetings. Regular meetings of the Board may be held without
notice at such times and at such places as shall from time to time be determined
by the Board.
3.11 Special Meetings. Special meetings of the Board may be called by the
Chairman, the President or the Secretary or by any two or more Directors then
serving on at least one day's notice to each Director given by one of the means
specified in Section 3.14 hereof other than by mail, or on at least three days'
notice if given by mail. Special meetings shall be called by the Chairman,
President or Secretary in like manner and on like notice on the written request
of any two or more of the Directors then serving.
3.12 Telephone Meetings. Directors or members of any committee designated
by the Board may participate in a meeting of the Board or of 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
participation in a meeting pursuant to this Section 3.12 shall constitute
presence in person at such meeting.
3.13 Adjourned Meetings. A majority of the Directors present at any
meeting of the Board, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. At least one day's
notice of any adjourned meeting of the Board shall be given to each Director
whether or not present at the time of the adjournment, if such notice shall be
given by one of the means specified in Section 3.14 hereof other than by mail,
or at least three days' notice if by mail. Any business may be transacted at an
adjourned meeting that might have been transacted at the meeting as originally
called.
3.14 Notice Procedure. Subject to Sections 3.11 and 3.15 hereof,
whenever, under the provisions of any statute, the Certificate of Incorporation
or these By-laws, notice is required to be given to any Director, such notice
shall be deemed given effectively if given in person or by telephone, by mail
addressed to such Director at such Director's address as it appears on the
records of the Corporation, with postage thereon prepaid, or by telegram, telex,
telecopy or similar means addressed as aforesaid.
7
Exhibit F
<PAGE>
3.15 Waiver of Notice. Whenever the giving of any notice is required by
statute, the Certificate of Incorporation or these By-laws, a waiver thereof, in
writing, signed by the person or persons entitled to said notice, whether before
or after the event as to which such notice is required, shall be deemed
equivalent to notice. Attendance by a person at a meeting shall constitute a
waiver of notice of such meeting except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Directors or a committee of Directors
need be specified in any written waiver of notice unless so required by statute,
the Certificate of Incorporation or these By-laws.
3.16 Organization. At each meeting of the Board, the Chairman, or in the
absence of the Chairman the President, or in the absence of the President a
chairman chosen by a majority of the Directors present, shall preside. The
Secretary shall act as secretary at each meeting of the Board. In case the
Secretary shall be absent from any meeting of the Board, an Assistant Secretary
shall perform the duties of secretary at such meeting; and in the absence from
any such meeting of the Secretary and all Assistant Secretaries, the person
presiding at the meeting may appoint any person to act as secretary of the
meeting.
3.17 Quorum of Directors. The presence in person of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business at any meeting of the Board, but a majority of a smaller
number may adjourn any such meeting to a later date.
3.18 Action by Majority Vote. Except as otherwise expressly required by
statute, the Certificate of Incorporation or these By-laws, the act of a
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board.
3.19 Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if all Directors or members of such committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE 4
COMMITTEES OF THE BOARD
4.1 Committees. The Board may, by resolution passed by a vote of the
Entire Board, designate one or more committees of the Board, each committee to
consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. If a
member of a committee shall be absent from any meeting, or disqualified from
voting thereat, the remaining member or members present and not disqualified
from voting, whether or not such member or members constitute a quorum, may, by
a unanimous vote, appoint another member of the Board to act at the meeting in
the place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board passed as aforesaid, shall have
and may exercise all the powers and authority of the Board in the management of
the business and affairs of the Corporation, and may authorize the seal of the
Corporation to be impressed on all papers that may require it, but no such
committee shall have the power or authority of the Board in reference to
amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation under section 251 or section 252 of the General Corporation Law,
recommending to the stockholders (a) the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, or (b) a dissolution
of the Corporation or a revocation of a dissolution, or amending the By-laws of
the Corporation; and, unless the resolution designating it expressly so
provides, no such committee shall have the power and authority to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the General Corporation Law.
Unless otherwise specified in the resolution of the Board designating a
committee, at all meetings of such committee a majority of the total number of
members of the committee shall constitute a quorum for the transaction of
business, and the vote of a majority of the members of the committee present at
any meeting at which there is a quorum shall be the act of the committee. Each
8
Exhibit F
<PAGE>
committee shall keep regular minutes of its meetings. Unless the Board otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board conducts
its business pursuant to Article 3 of these By-laws.
4.2 Committee Minutes. The committees shall keep regular minutes of their
proceedings and report the same to the Board.
ARTICLE 5
OFFICERS
5.1 Positions. The officers of the Corporation shall be a President, a
Secretary, a Treasurer or a Chief Financial Officer and such other officers as
the Board may appoint, including a Chairman, one or more Vice Presidents and one
or more Assistant Secretaries and Assistant Treasurers, who shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board. The Board may designate one or more Vice Presidents as Executive Vice
Presidents and may use descriptive words or phrases to designate the standing,
seniority or areas of special competence of the Vice Presidents elected or
appointed by it. Any number of offices may be held by the same person unless the
Certificate of Incorporation or these By-laws otherwise provide.
5.2 Appointment. The officers of the Corporation shall be chosen by the
Board at its annual meeting or at such other time or times as the Board shall
determine.
5.3 Compensation. The compensation of all officers of the Corporation
shall be fixed by the Board. No officer shall be prevented from receiving a
salary or other compensation by reason of the fact that the officer is also a
Director.
5.4 Term of Office. Each officer of the Corporation shall hold office for
the term for which he or she is elected and until such officer's successor is
chosen and qualifies or until such officer's earlier death, resignation or
removal. Any officer may resign at any time upon written notice to the
Corporation. Such resignation shall take effect at the date of receipt of such
notice or at such later time as is therein specified, and, unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it
effective. The resignation of an officer shall be without prejudice to the
contract rights of the Corporation, if any. Any officer elected or appointed by
the Board may be removed at any time, with or without cause, by vote of a
majority of the entire Board. Any vacancy occurring in any office of the
Corporation shall be filled by the Board. The removal of an officer without
cause shall be without prejudice to the officer's contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights.
5.5 Fidelity Bonds. The Corporation may secure the fidelity of any or all
of its officers or agents by bond or otherwise.
5.6 Chairman. The Chairman, if one shall have been appointed, shall
preside at all meetings of the Board and shall exercise such powers and perform
such other duties as shall be determined from time to time by the Board.
5.7 President. The President shall be the Chief Executive Officer of the
Corporation and shall have general supervision over the business of the
Corporation, subject, however, to the control of the Board and of any duly
authorized committee of Directors. The President shall preside at all meetings
of the Stockholders and at all meetings of the Board at which the Chairman (if
there be one) is not present. The President may sign and execute in the name of
the Corporation deeds, mortgages, bonds, contracts and other instruments except
in cases in which the signing and execution thereof shall be expressly delegated
by the Board or by these By-laws to some other officer or agent of the
Corporation or shall be required by statute otherwise to be signed or executed
and, in general, the President shall perform all duties incident to the office
of President of a corporation and such other duties as may from time to time be
assigned to the President by the Board.
5.8 Vice Presidents. At the request of the President, or, in the
President's absence, at the request of the Board, the Vice Presidents shall (in
such order as may be designated by the Board or, in the absence of any such
9
Exhibit F
<PAGE>
designation, in order of seniority based on age) perform all of the duties of
the President and, in so performing, shall have all the powers of, and be
subject to all restrictions upon, the President. Any Vice President may sign and
execute in the name of the Corporation deeds, mortgages, bonds, contracts or
other instruments, except in cases in which the signing and execution thereof
shall be expressly delegated by the Board or by these By-laws to some other
officer or agent of the Corporation, or shall be required by statute otherwise
to be signed or executed, and each Vice President shall perform such other
duties as from time to time may be assigned to such Vice President by the Board
or by the President.
5.9 Secretary. The Secretary shall attend all meetings of the Board and
of the Stockholders and shall record all the proceedings of the meetings of the
Board and of the stockholders in a book to be kept for that purpose, and shall
perform like duties for committees of the Board, when required. The Secretary
shall give, or cause to be given, notice of all special meetings of the Board
and of the stockholders and shall perform such other duties as may be prescribed
by the Board or by the President, under whose supervision the Secretary shall
be. The Secretary shall have custody of the corporate seal of the Corporation,
and the Secretary, or an Assistant Secretary, shall have authority to impress
the same on any instrument requiring it, and when so impressed the seal may be
attested by the signature of the Secretary or by the signature of such Assistant
Secretary. The Board may give general authority to any other officer to impress
the seal of the Corporation and to attest the same by such officer's signature.
The Secretary or an Assistant Secretary may also attest all instruments signed
by the President or any Vice President. The Secretary shall have charge of all
the books, records and papers of the Corporation relating to its organization
and management, shall see that the reports, statements and other documents
required by statute are properly kept and filed and, in general, shall perform
all duties incident to the office of Secretary of a corporation and such other
duties as may from time to time be assigned to the Secretary by the Board or by
the President.
5.10 Treasurer or Chief Financial Officer. The Treasurer or Chief
Financial Officer shall have charge and custody of, and be responsible for, all
funds, securities and notes of the Corporation; receive and give receipts for
moneys due and payable to the Corporation from any sources whatsoever; deposit
all such moneys and valuable effects in the name and to the credit of the
Corporation in such depositaries as may be designated by the Board; against
proper vouchers, cause such funds to be disbursed by checks or drafts on the
authorized depositaries of the Corporation signed in such manner as shall be
determined by the Board and be responsible for the accuracy of the amounts of
all moneys so disbursed; regularly enter or cause to be entered in books or
other records maintained for the purpose full and adequate account of all moneys
received or paid for the account of the Corporation; have the right to require
from time to time reports or statements giving such information as the Treasurer
or Chief Financial Officer may desire with respect to any and all financial
transactions of the Corporation from the officers or agents transacting the
same; render to the President or the Board, whenever the President or the Board
shall require the Treasurer or Chief Financial Officer so to do, an account of
the financial condition of the Corporation and of all financial transactions of
the Corporation; exhibit at all reasonable times the records and books of
account to any of the Directors upon application at the office of the
Corporation where such records and books are kept; disburse the funds of the
Corporation as ordered by the Board; and, in general, perform all duties
incident to the office of Treasurer or Chief Financial Officer of a corporation
and such other duties as may from time to time be assigned to the Treasurer or
Chief Financial Officer by the Board or the President.
5.11 Assistant Secretaries and Assistant Treasurers. Assistant
Secretaries and Assistant Treasurers shall perform such duties as shall be
assigned to them by the Secretary or by the Treasurer or Chief Financial
Officer, respectively, or by the Board or by the President.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
6.1 Execution of Contracts. The Board, except as otherwise provided in
these By-laws, may prospectively or retroactively authorize any officer or
officers, employee or employees or agent or agents, in the name and on behalf of
the Corporation, to enter into any contract or execute and deliver any
instrument, and any such authority may be general or confined to specific
instances, or otherwise limited.
10
Exhibit F
<PAGE>
6.2 Loans. The Board may prospectively or retroactively authorize the
President or any other officer, employee or agent of the Corporation to effect
loans and advances at any time for the Corporation from any bank, trust company
or other institution, or from any firm, corporation or individual, and for such
loans and advances the person so authorized may make, execute and deliver
promissory notes, bonds or other certificates or evidences of indebtedness of
the Corporation, and, when authorized by the Board so to do, may pledge and
hypothecate or transfer any securities or other property of the Corporation as
security for any such loans or advances. Such authority conferred by the Board
may be general or confined to specific instances, or otherwise limited.
6.3 Checks, Drafts, Etc. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all evidences of
indebtedness of the Corporation shall be signed on behalf of the Corporation in
such manner as shall from time to time be determined by resolution of the Board.
6.4 Deposits. The funds of the Corporation not otherwise employed shall
be deposited from time to time to the order of the Corporation with such banks,
trust companies, investment banking firms, financial institutions or other
depositaries as the Board may select or as may be selected by an officer,
employee or agent of the Corporation to whom such power to select may from time
to time be delegated by the Board.
ARTICLE 7
STOCK AND DIVIDENDS
7.1 Certificates Representing Shares. The shares of capital stock of the
Corporation shall be represented by certificates in such form (consistent with
the provisions of Section 158 of the General Corporation Law) as shall be
approved by the Board. Such certificates shall be signed by the Chairman, the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or Chief Financial Officer or an Assistant Treasurer, and may be
impressed with the seal of the Corporation or a facsimile thereof. The
signatures of the officers upon a certificate may be facsimiles, if the
certificate is countersigned by a transfer agent or registrar other than the
Corporation itself or its employee. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon any
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, such certificate may, unless otherwise
ordered by the Board, be issued by the Corporation with the same effect as if
such person were such officer, transfer agent or registrar at the date of issue.
7.2 Transfer of Shares. Transfers of shares of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof or by the holder's duly authorized attorney appointed by a power of
attorney duly executed and filed with the Secretary or a transfer agent of the
Corporation, and on surrender of the certificate or certificates representing
such shares of capital stock properly endorsed for transfer and upon payment of
all necessary transfer taxes. Every certificate exchanged, returned or
surrendered to the Corporation shall be marked "Cancelled," with the date of
cancellation, by the Secretary or an Assistant Secretary or the transfer agent
of the Corporation. A person in whose name shares of capital stock shall stand
on the books of the Corporation shall be deemed the owner thereof to receive
dividends, to vote as such owner and for all other purposes as respects the
Corporation. No transfer of shares of capital stock shall be valid as against
the Corporation, its stockholders and creditors for any purpose, except to
render the transferee liable for the debts of the Corporation to the extent
provided by law, until such transfer shall have been entered on the books of the
Corporation by an entry showing from and to whom transferred.
7.3 Transfer and Registry Agents. The Corporation may from time to time
maintain one or more transfer offices or agents and registry offices or agents
at such place or places as may be determined from time to time by the Board.
7.4 Lost, Destroyed, Stolen and Mutilated Certificates. The holder of any
shares of capital stock of the Corporation shall immediately notify the
Corporation of any loss, destruction, theft or mutilation of the certificate
representing such shares, and the Corporation may issue a new certificate to
replace the certificate alleged to have been lost, destroyed, stolen or
mutilated. The Board may, in its discretion, as a condition to the issue of any
such new certificate, require the owner of the lost, destroyed, stolen or
mutilated certificate, or his or her legal representatives, to make proof
satisfactory to the Board of such loss, destruction, theft or mutilation and to
11
Exhibit F
<PAGE>
advertise such fact in such manner as the Board may require, and to give the
Corporation and its transfer agents and registrars, or such of them as the Board
may require, a bond in such form, in such sums and with such surety or sureties
as the Board may direct, to indemnify the Corporation and its transfer agents
and registrars against any claim that may be made against any of them on account
of the continued existence of any such certificate so alleged to have been lost,
destroyed, stolen or mutilated and against any expense in connection with such
claim.
7.5 Rules and Regulations. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these By-laws or with the
Certificate of Incorporation, concerning the issue, transfer and registration of
certificates representing shares of its capital stock.
7.6 Restriction on Transfer of Stock. A written restriction on the
transfer or registration of transfer of capital stock of the Corporation, if
permitted by Section 202 of the General Corporation Law and noted conspicuously
on the certificate representing such capital stock, may be enforced against the
holder of the restricted capital stock or any successor or transferee of the
holder, including an executor, administrator, trustee, guardian or other
fiduciary entrusted with like responsibility for the person or estate of the
holder. Unless noted conspicuously on the certificate representing such capital
stock, a restriction, even though permitted by Section 202 of the General
Corporation Law, shall be ineffective except against a person with actual
knowledge of the restriction. A restriction on the transfer or registration of
transfer of capital stock of the Corporation may be imposed either by the
Certificate of Incorporation or by an agreement among any number of stockholders
or among such stockholders and the Corporation. No restriction so imposed shall
be binding with respect to capital stock issued prior to the adoption of the
restriction unless the holders of such capital stock are parties to an agreement
or voted in favor of the restriction.
7.7 Dividends, Surplus, Etc. Subject to the provisions of the Certificate
of Incorporation and of law, the Board:
7.7.1 may declare and pay dividends or make other distributions on
the outstanding shares of capital stock in such amounts and at such time
or times as it, in its discretion, shall deem advisable giving due
consideration to the condition of the affairs of the Corporation;
7.7.2 may use and apply, in its discretion, any of the surplus of
the Corporation in purchasing or acquiring any shares of capital stock of
the Corporation, or purchase warrants therefor, in accordance with law,
or any of its bonds, debentures, notes, scrip or other securities or
evidences of indebtedness; and
7.7.3 may set aside from time to time out of such surplus or net
profits such sum or sums as, in its discretion, it may think proper, as a
reserve fund to meet contingencies, or for equalizing dividends or for
the purpose of maintaining or increasing the property or business of the
Corporation, or for any purpose it may think conducive to the best
interests of the Corporation.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnity Undertaking. To the extent not prohibited by law, the
Corporation shall indemnify any person who is or was made, or threatened to be
made, a party to any threatened, pending or completed action, suit or proceeding
(a "Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a Director or
officer of the Corporation, or is or was serving as a director, officer,
employee or agent or in any other capacity at the request of the Corporation for
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise (an "Other Entity") while serving as a Director or officer
of the Corporation, against judgments, fines, penalties, excise taxes, amounts
paid in settlement and costs, charges and expenses (including attorneys' fees
and disbursements) actually and reasonably incurred by such person in connection
with such Proceeding if such person acted in good faith and in a manner such
person believed to be in or not opposed to the best interests of the Corporation
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his or her conduct was unlawful. To the extent specified by the Board
12
Exhibit F
<PAGE>
at any time and to the extent not prohibited by law, the Corporation may
indemnify any person who is or was made, or threatened to be made, a party to
any threatened, pending or completed Proceeding, whether civil, criminal,
administrative or investigative, including, without limitation, an action by or
in the right of the Corporation to procure a judgment in its favor, by reason of
the fact that such person is or was an employee or agent of the Corporation, or
is or was serving as a director, officer, employee or agent or in any other
capacity at the request of the Corporation for any Other Entity, against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees and disbursements) actually and
reasonably incurred by such person in connection with such Proceeding if such
person acted in good faith and in a manner such person believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful.
8.2 Advancement of Expenses. The Corporation shall, from time to time,
reimburse or advance to any Director or officer or other person entitled to
indemnification hereunder the funds necessary for payment of expenses, including
attorneys' fees and disbursements, incurred in connection with any Proceeding,
in advance of the final disposition of such Proceeding; provided, however, that,
if required by the General Corporation Law, such expenses incurred by or on
behalf of any Director or officer or other person may be paid in advance of the
final disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such Director or officer (or other person
indemnified hereunder), to repay any such amount so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right of appeal that such Director, officer or other person is not
entitled to be indemnified for such expenses.
8.3 Rights Not Exclusive. The rights to indemnification and reimbursement
or advancement of expenses provided by, or granted pursuant to, this Article 8
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or reimbursement or advancement of expenses may have or
hereafter be entitled under any statute, the Certificate of Incorporation, these
By-laws, any agreement (including any policy of insurance purchased or provided
by the Corporation under which directors, officers, employees and other agents
of the Corporation are covered), any vote of stockholders or disinterested
Directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office.
8.4 Continuation of Benefits. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 shall continue as to a person who has ceased to be a Director or
officer (or other person indemnified hereunder) and shall inure to the benefit
of the executors, administrators, legatees and distributees of such person.
8.5 Insurance. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of an Other Entity, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of this Article 8, the Certificate of Incorporation or
under section 145 of the General Corporation Law or any other provision of law.
8.6 Binding Effect. The provisions of this Article 8 shall be a contract
between the Corporation, on the one hand, and each Director and officer who
serves in such capacity at any time while this Article 8 is in effect and any
other person entitled to indemnification hereunder, on the other hand, pursuant
to which the Corporation and each such Director, officer or other person intend
to be, and shall be legally bound. No repeal or modification of this Article 8
shall affect any rights or obligations with respect to any state of facts then
or theretofore existing or thereafter arising or any proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
8.7 Procedural Rights. The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Article 8
shall be enforceable by any person entitled to such indemnification or
reimbursement or advancement of expenses in any court of competent jurisdiction.
Neither the failure of the Corporation (including its Board, its independent
legal counsel and its Stockholders) to have made a determination prior to the
commencement of such action that such indemnification or reimbursement or
advancement of expenses is proper in the circumstances nor an actual
determination by the Corporation (including its Board, its independent legal
13
Exhibit F
<PAGE>
counsel and its Stockholders) that such person is not entitled to such
indemnification or reimbursement or advancement of expenses shall constitute a
defense to the action or create a presumption that such person is not so
entitled. Such a person shall also be indemnified for any expenses incurred in
connection with successfully establishing his or her right to such
indemnification or reimbursement or advancement of expenses, in whole or in
part, in any such proceeding.
8.8 Service Deemed at Corporation's Request. Any Director or officer of
the Corporation serving in any capacity in (a) another corporation of which a
majority of the shares entitled to vote in the election of its directors is
held, directly or indirectly, by the Corporation or (b) any employee benefit
plan of the Corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the Corporation.
8.9 Election of Applicable Law. Any person entitled to be indemnified or
to reimbursement or advancement of expenses as a matter of right pursuant to
this Article 8 may elect to have the right to indemnification or reimbursement
or advancement of expenses interpreted on the basis of the applicable law in
effect at the time of the occurrence of the event or events giving rise to the
applicable Proceeding, to the extent permitted by law, or on the basis of the
applicable law in effect at the time such indemnification or reimbursement or
advancement of expenses is sought. Such election shall be made, by a notice in
writing to the Corporation, at the time indemnification or reimbursement or
advancement of expenses is sought; provided, however, that if no such notice is
given, the right to indemnification or reimbursement or advancement of expenses
shall be determined by the law in effect at the time indemnification or
reimbursement or advancement of expenses is sought.
ARTICLE 9
BOOKS AND RECORDS
9.1 Books and Records. There shall be kept at the principal office of the
Corporation correct and complete records and books of account recording the
financial transactions of the Corporation and minutes of the proceedings of the
stockholders, the Board and any committee of the Board. The Corporation shall
keep at its principal office, or at the office of the transfer agent or
registrar of the Corporation, a record containing the names and addresses of all
stockholders, the number and class of shares held by each and the dates when
they respectively became the owners of record thereof.
9.2 Form of Records. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible written
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
9.3 Inspection of Books and Records. Except as otherwise provided by law,
the Board shall determine from time to time whether, and, if allowed, when and
under what conditions and regulations, the accounts, books, minutes and other
records of the Corporation, or any of them, shall be open to the stockholders
for inspection.
ARTICLE 10
SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
ARTICLE 11
FISCAL YEAR
The fiscal year of the Corporation shall end on the Saturday nearest
January 31 of each year, and may be changed by resolution of the Board.
14
Exhibit F
<PAGE>
ARTICLE 12
PROXIES AND CONSENTS
Unless otherwise directed by the Board, the Chairman, the President, any
Vice President, the Secretary or the Treasurer or Chief Financial Officer, or
any one of them, may execute and deliver on behalf of the Corporation proxies
respecting any and all shares or other ownership interests of any Other Entity
owned by the Corporation. Any such officer may appoint such person or persons as
the officer shall deem proper to (a) represent and vote the shares or other
ownership interests so owned by the Corporation at any and all meetings of
holders of shares or other ownership interests of such Other Entity, whether
general or special, and (b) execute and deliver consents respecting such shares
or other ownership interests. Any such officer may also attend any meeting of
the holders of shares or other ownership interests of such Other Entity and
thereat vote or exercise any or all other powers of the Corporation as the
holder of such shares or other ownership interests.
ARTICLE 13
EMERGENCY BY-LAWS
Unless the Certificate of Incorporation provides otherwise, the following
provisions of this Article 13 shall be effective during an emergency, which is
defined as when a quorum of the Corporation's Directors cannot be readily
assembled because of some catastrophic event. During such emergency:
13.1 Notice to Board Members. Any one member of the Board or any one of
the following officers: Chairman, President, any Vice President, Secretary, or
Treasurer or Chief Financial Officer, may call a meeting of the Board. Notice of
such meeting need be given only to those Directors whom it is practicable to
reach, and may be given in any practical manner, including by publication and
radio. Such notice shall be given at least six hours prior to commencement of
the meeting.
13.2 Temporary Directors and Quorum. One or more officers of the
Corporation present at the emergency Board meeting, as is necessary to achieve a
quorum, shall be considered to be Directors for the meeting, and shall so serve
in order of rank, and within the same rank, in order of seniority. In the event
that less than a quorum of the Directors are present (including any officers who
are to serve as Directors for the meeting), those Directors present (including
the officers serving as Directors) shall constitute a quorum.
13.3 Actions Permitted To Be Taken. The Board as constituted in Section
13.2, and after notice as set forth in Section 13.1 may:
13.3.1 prescribe emergency powers to any officer of the Corporation;
13.3.2 delegate to any officer or Director, any of the powers of the
Board;
13.3.3 designate lines of succession of officers and agents, in the
event that any of them are unable to discharge their duties;
13.3.4 relocate the principal place of business, or designate
successive or simultaneous principal places of business; and
13.3.5 take any other convenient, helpful or necessary action to carry
on the business of the Corporation.
ARTICLE 14
AMENDMENTS
The Board may from time to time adopt, amend or repeal the By-laws;
provided, however, that any By-laws adopted or amended by the Board may be
amended or repealed, and any By-laws may be adopted, by a vote of the
Stockholders having at least a majority in voting power of the then issued and
outstanding shares of capital stock of the Corporation.
15
Exhibit F
<PAGE>
Exhibit G
INTERCOMPANY COMPROMISE AND SETTLEMENT
INTERCOMPANY COMPROMISE AND SETTLEMENT, dated August __, 1996 (the
"Agreement"), among Ithaca Holdings, Inc., a Delaware corporation ("Holdings"),
Ithaca Industries, Inc., a Delaware corporation ("Industries"), and Bestform
Foundations, Inc., a Delaware corporation ("Bestform").
W I T N E S S E T H :
WHEREAS, Bestform and Industries are each wholly-owned subsidiaries of
Holdings (in the case of Bestform, indirectly through BFI Holdings, Inc., a
Delaware corporation and a wholly-owned subsidiary of Holdings ("BFI Holdings"),
and, in the case of Industries, directly).
WHEREAS, upon consummation of the proposed Prepackaged Plan of
Reorganization of Industries under Chapter 11 of the Bankruptcy Code (the
"Plan"), Holdings will cease to hold any stock of Industries and Industries
will, therefore, no longer be a subsidiary of Holdings.
WHEREAS, the parties believe it would be desirable to set forth herein
their agreement respecting the resolution of a number of intercompany matters
upon the consummation of the Plan and the manner in which they will cooperate
with each other following such consummation respecting a number of matters,
including tax matters, insurance matters and the termination of the Licensing
Agreement, dated as of November 1, 1991 (as amended, the "License Agreement"),
by and between Bestform and Industries.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Resignations; Name Change.
(a) Holdings shall cause (i) Jim D. Waller to resign from the Board of
Directors of Holdings, BFI Holdings, Bestform and any other corporation
that is a direct or indirect subsidiary of BFI Holdings and to resign as
Chairman of the Board, President and Chief Executive Officer of Holdings
and BFI Holdings, and (ii) William H. McElwee, III to resign as an
Assistant Secretary of Holdings, in each case effective upon the Effective
Date of the Plan (as defined therein).
(b) Industries and Holdings hereby acknowledge that Eric N. Hoyle has
previously been terminated as Chief Financial Officer, Vice President,
Secretary and Treasurer of Holdings and Vice President, Secretary and
Treasurer of BFI Holdings and that Peter Johnson has replaced Eric Hoyle in
each such position.
(c) Holdings shall cause Stephen M. McLean and Richard Redden to
resign from the Board of Directors of Industries effective upon the
Effective Date.
(d) Within 60 days of the Effective Date, the Board of Directors of
Holdings shall present to the stockholders of Holdings an amendment of the
certificate of incorporation of Holdings, the effect of which will be to
change the corporate name of Holdings to a name that does not include the
word "Ithaca." Holdings shall use its best efforts to obtain approval of
such change of name and shall promptly effect the same following and
contingent upon such approval.
2. Corporate Documents and Cooperation. Industries hereby agrees to turn
over to Holdings, any and all of Holdings' corporate documents in
Industries' possession; provided, however, that Industries may retain
copies of such documents that are necessary for the operation of its
business. The parties further agree to cooperate with each other in order
to effectuate the intent and purposes of this Agreement.
3. License Agreement.
(a) Bestform and Industries hereby agree that the License Agreement
shall automatically terminate on the date hereof and that neither party
shall have a claim against the other as a result thereof. Bestform and
Industries hereby agree to act in accordance with the License Agreement in
respect of such termination and the termination of all joint production
programs, except as set forth in Section 3(b).
1
Exhibit G
<PAGE>
(b) Within thirty days of the date hereof, Industries shall complete
and deliver to Bestform an accurate schedule of Industries' inventory of
finished goods related to the joint production programs described in
section 3(a) and current raw materials designated for use in the production
thereof (collectively "Program Inventory") as of the date hereof.
Industries shall deliver on a date to be mutually agreed upon (which date
shall not be later than sixty days after the date hereof) f.o.b.
Industries' plant, the Program Inventory to Bestform and Bestform shall pay
for the same at an amount therefor equal to Industries' cost therefor using
Industries normal method of valuing its inventory for financial statement
purposes. The schedule of Program Inventory shall set forth such cost.
Notwithstanding the foregoing, (i) Bestform shall not purchase
work-in-process but Industries may complete work-in-process on hand as of
the date hereof and Bestform will purchase the first quality finished goods
so produced and (ii) Bestform shall not be obligated to purchase raw
materials on hand as of the date hereof in excess of reasonable quantities.
Bestform shall pay for all Program Inventory purchased hereunder within 30
days of delivery.
4. Insurance Matters.
(a) Holdings and each of its direct and indirect subsidiaries,
including Bestform and Industries, currently participate in a joint
insurance program which is administered by Marsh & McLennan (the "Current
Program"). Each of Holdings and Industries will place into effect separate
new insurance programs which will become effective as soon as practicable
but in no event later than upon the Effective Date and the Current Program
will terminate as to all periods from and after the Effective Date upon the
Effective Date.
(b) Notwithstanding Section 4(a), the parties acknowledge that the
Current Program will continue to remain in place as to insured losses
occurring prior to the Effective Date, both as to claims that were made
prior to the Effective Date and claims that may be filed after the
Effective Date. The parties will use their best efforts to address all such
claims in the following manner: Holdings or its designee will be
responsible for all matters relating to and claims arising under the
Current Program that relate to Holdings, BFI Holdings, Bestform or the
other subsidiaries of BFI Holdings ("Bestform Matters"). Industries or its
designee will be responsible for all matters relating to and claims arising
under the Current Program that relate to Industries or its subsidiaries
("Industries Matters"). Without limiting the generality of the foregoing,
claim payments relating to Bestform Matters will be paid by Holdings, BFI
Holdings, Bestform or the other subsidiaries of BFI Holdings and claim
payments relating to Industries Matters will be paid by Industries or its
subsidiaries. In the event that Holdings, BFI Holdings, Bestform or any of
the other subsidiaries of BFI Holdings receives any monies on account of an
Industries Matter, Bestform shall promptly pay, or shall cause BFI Holdings
or any the subsidiaries of BFI Holdings to promptly pay such amount to
Industries, and in the event that Industries or its subsidiaries receives
any monies on account of a Bestform Matter such party shall promptly pay
such amount to Bestform. The parties shall use their best efforts to cause
the insurer to cooperate with them and to act in a manner consistent with
the foregoing; provided, however, that Industries shall indemnify Holdings,
BFI Holdings, Bestform and the other subsidiaries of BFI Holdings for any
liability incurred by them under or in connection with the Current Program
that relates to Industries Matters and Holdings and Bestform shall
indemnify Industries and its subsidiaries for any liability incurred by
them under or in connection with the Current Program that relates to
Bestform Matters.
(c) Each party agrees that it will substitute or renew on a timely
basis all letters of credit currently supporting the Current Program.
Industries and Holdings will seek from time to time to reduce the aggregate
amount of such letters of credit and on each occasion when there is any
change (whether increase or decrease) in the amount of letters of credit
that the insurers require to support the Current Program, Holdings and
Industries will use their best efforts to cause the insurers to allocate
the proportion of the aggregate letters of credit between, on the one hand,
Holdings, BFI Holdings, Bestform and the other subsidiaries of BFI Holdings
and, on the other hand, Industries and its subsidiaries. Holdings and
Industries further agree that each shall be responsible for causing their
respective pro rata amount of the letters of credit to be timely posted.
2
Exhibit G
<PAGE>
5. Intercompany Tax Payments. Under the Tax Sharing Agreement (the
"Industries Agreement"), dated as of November 17, 1992, by and between
Holdings and Industries, Holdings is obligated to pay to Industries the
amount by which the federal, state and local income taxes otherwise payable
by the consolidated group of which Holdings is the common parent (the
"Group") is reduced as the result of the Group's utilization of a loss of
Industries (such payment, the "Loss Payment"). Under the Industries
Agreement, a Loss Payment is made no later than the fifth day prior to the
due date, without extension, of the Group's consolidated federal income tax
return or any relevant combined state or local income tax return (each, a
"Loss Payment Date").
(a) Each of Holdings and Industries hereby agrees and acknowledges
that the Industries Agreement (i) shall terminate with respect to taxable
years of Industries beginning after the date (the "Deconsolidation Date")
on which Industries ceases to be a member of the Group and (ii) shall
continue in full force and effect with respect to Taxable Periods (as
defined in the Industries Agreement) beginning before the Deconsolidation
Date (including, without limitation, respecting adjustments upon audit or
amended returns). The parties hereto expect that the loss of Industries for
the taxable year of Industries ending on the Deconsolidation Date (such
year, the "Final Taxable Year") will be fully utilized by the Group in the
taxable year of the Group that includes the Deconsolidation Date.
Notwithstanding anything in this Agreement or the Industries Agreement to
the contrary, (x) Industries shall be entitled to any and all refunds or
reductions of taxes attributable to Industries' losses or other attributes
of Industries (whether by way of actual payment, offset or other reduction
in tax liability) arising in taxable years of Industries (or any affiliated
group of which Industries is a member) ending after the Deconsolidation
Date, (y) in the event that any such refund is payable to Holdings or the
Group, Holdings shall pay to Industries an amount equal to such refund
(including any interest thereon) within five (5) business days after such
refund is received by Holdings or the Group and (z) Holdings and the Group
shall cooperate with, and use their best efforts to assist, Industries in
connection with its efforts to file for and receive any such refund.
(b) Holdings hereby agrees that on the date on which quarterly
payments of estimated federal taxes are due for the third quarter of the
current taxable year of the Group, it will make a payment to Industries
equal to the amount that would constitute the Loss Payment if such Loss
Payment were calculated on the basis of the net operating loss of
Industries for the entire Final Taxable Year and the taxable income of the
Group for the period with respect to which such estimated tax payments are
or would be payable.
(c) Holdings hereby agrees that on the date on which quarterly
payments of estimated federal taxes are due for the fourth quarter of the
current taxable year of the Group, it will make a payment to Industries
computed in accordance with the principle of Section 4(b) as applied to
such fourth quarter, to the extent the amount so computed exceeds the
amount paid with respect to the third quarter. If the amount paid with
respect to the third quarter exceeds the amount calculated for the fourth
quarter under this Section 4(c) (determined as if no payment had been made
under Section 4(b)), then Industries shall repay the amount of such excess
on the due date of the fourth quarter estimated taxes.
(d) The provisions of Paragraph 2(c) of the Industries Agreement shall
thereafter apply to the extent that the Loss Payment as calculated
thereunder exceeds the amounts calculated with respect to the third and
fourth quarters of the Group pursuant to Sections 4(b) and 4(c) hereof. If
the quarterly payments so calculated are greater than the amount of the
Loss Payment as finally determined in accordance with Paragraph 2(c) of the
Industries Agreement, then Industries shall repay the amount of such excess
on the date of filing of the relevant tax return of the Group for the
current taxable year of the Group.
(e) Notwithstanding any other provision hereof, any amount paid by
Holdings pursuant to Sections 4(b) and 4(c) hereof shall be reduced such
that the amount so paid is equal to the discounted present value of the
amount calculated under such subparagraphs, discounted at the prime rate as
set forth in The Wall Street Journal on the date of payment minus 0.5%,
from the Loss Payment Date with respect to the relevant tax return of the
Group for the current taxable year to the date on which such payment is
made. Such discounting shall not be taken into account for purposes of any
other calculation under this Section 4.
6. Other Intercompany Payments. As of June 28, 1996, the intercompany
account between Holdings and Industries was $ due from Holdings to
Industries. The intercompany account between Industries and Holdings is
being cleared in the ordinary course of business. From the date hereof
3
Exhibit G
<PAGE>
through the date the Plan is filed, the parties hereto will maintain such
intercompany accounts in a manner consistent with past practice. Upon
Industries' chapter 11 filing, the parties shall continue to maintain the
intercompany account until the Effective Date, subject to the approval of
the Bankruptcy Court that is presiding over Industries' chapter 11 case.
Subject to the above, the parties will continue to pay, satisfy and settle
intercompany items in the ordinary course to the extent such items have
heretofore been settled in the ordinary course (e.g. insurance payments
and/or premiums, tax refund payments) and upon the Effective Date, any
balance due under the intercompany account shall be satisfied in full in
cash.
7. Sanwa Lease. Industries entered into a Lease Agreement, dated August 30,
1995, with Sanwa Business Credit Corporation ("Sanwa") pursuant to which
Industries has leased certain equipment. Industries acknowledges that
Bestform has co-signed such lease and certain equipment schedules issued
thereunder and that such leasing arrangements were entirely for the benefit
of Industries and not Bestform. Industries agrees to use its best efforts
to refinance such lease arrangements without recourse to Bestform or to
renegotiate such lease, such that Bestform shall solely be a guarantor of
Industries' obligations thereunder and Sanwa shall grant Bestform
subrogation rights to the extent of any payments made by Bestform to Sanwa.
Industries agrees to make such requests to Sanwa in writing at least once a
year. Industries further agrees to indemnify Bestform for all losses, costs
and expenses that may hereafter arise, including reasonable attorney's
fees, by reason of Bestform having any liability under such lease or
equipment schedule. In the event of any default in such obligations,
Bestform shall be subrogated to all of the rights of Sanwa or its assignee
under such lease and equipment schedule.
8. AT&T Long Distance. Industries agrees to permit Holdings and Bestform to
withdraw from or terminate the AT&T long distance service that is currently
being provided to them. Industries has advised Holdings and Bestform that
it has been advised by AT&T that it can withdraw from or terminate such
service without any penalty, premium or other condition.
9. Notice. All notices, requests, demands and other communications
hereunder shall be made in writing and shall be deemed to have been given
if (a) delivered by hand, upon such delivery, (b) sent by facsimile, upon
the receipt of a confirmation thereof, (c) sent by a reputable overnight
courier service, on the day after deposit therewith, or (c) mailed first
class, registered mail, return receipt requested, postage and registry fees
prepaid, on the third day after deposit with the United States Postal
Service, to the other party at the address set forth below.
(a) To Holdings:
Ithaca Holdings, Inc.
c/o Bestform Foundations, Inc.
38-01 47th Avenue
Long Island City, NY 11101
Facsimile: 718-786-5935
Attention: Chief Financial Officer
(b) To Industries:
Ithaca Industries, Inc.
Highway 268 West
P.O. Box 620
Wilkesboro, NC 28697
Facsimile: 910-667-2979
Attention: Chief Financial Officer
(c) To Bestform:
Bestform Foundations, Inc.
38-01 47th Avenue
Long Island City, NY 11101
Facsimile: 718-786-5935
Attention: Chief Financial Officer
4
Exhibit G
<PAGE>
Any address may be changed by notice given to the other parties as
aforesaid, by the party whose address for notice is to be changed;
provided, however, that any such notice of change of address shall be
effective only upon receipt.
10. Interpretation. This Agreement shall be interpreted and construed
in accordance with the laws of the State of New York. The captions of
sections of this Agreement have been inserted as a matter of
convenience only and shall not control or affect the meaning or
construction of any of the terms or provisions hereof.
11. Entire Agreement. The parties hereto agree that all understandings
and agreements heretofore made between them with respect to the
subject matter hereof are merged in this Agreement, which alone fully
and completely expresses their agreement with respect to the subject
matter hereof. There are no promises, agreements, conditions,
understandings, warranties, or representations, oral or written,
express or implied, among the parties hereto with respect to the
subject matter hereof, other than as set forth in this Agreement. All
prior agreements among the parties with respect to the subject matter
hereof are superseded by this Agreement, which integrates all
promises, agreements, conditions, and understandings among the parties
with respect thereto.
12. Modification or Amendment. No modification or amendment of this
Agreement shall be binding unless agreed to in writing and executed by
each of the parties.
13. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of
which shall constitute one agreement. The signature of any party to a
counterpart shall be deemed to be a signature to, and may be appended
to, any other counterpart.
14. Binding Effect. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective
successors, assigns and legal representatives. This Agreement is
intended for the sole benefit of the parties hereto and is not being
entered into for the benefit of any person not a party hereto.
IN WITNESS WHEREOF, Holdings, Industries and Bestform have caused this
Agreement to be duly executed and delivered as of the date first above written.
ITHACA HOLDINGS, INC.
By: ______________________
Name: Peter L. Johnson
Title: Chief Financial Officer
ITHACA INDUSTRIES, INC.
By: ______________________
Name: Eric N. Hoyle
Title: Chief Financial Officer
BESTFORM FOUNDATIONS, INC.
By: ______________________
Name: Peter L. Johnson
Title: Chief Financial Officer
5
<PAGE>
Exhibit H
================================================================================
REGISTRATION RIGHTS AGREEMENT
among
ITHACA INDUSTRIES, INC.
and
THE STOCKHOLDERS PARTY HERETO
-----------------------------------
Dated as of _________, 1996
----------------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions ......................................................... 1
2. Securities Subject to this Agreement ................................ 2
(a) Registrable Securities ...................................... 2
(b) Holders of Registrable Securities ........................... 2
3. Demand Registration; Shelf Registration ............................. 2
(a) Request for Demand Registration ............................. 2
(b) Effective Demand Registration ............................... 3
(c) Expenses .................................................... 3
(d) Underwriting Procedures ..................................... 3
(e) Selection of Underwriters ................................... 4
(f) Limitations on Demand Registrations ......................... 4
(g) Shelf Registration .......................................... 4
4. Piggy-Back Registration ............................................. 5
(a) Piggy-Back Rights ........................................... 5
(b) Priority of Registrations ................................... 5
(c) Expenses .................................................... 5
(d) Conditions and Limitations on Piggyback Registrations ....... 5
5. Holdback Agreements ................................................. 6
(a) Restrictions on Public Sale by Holders ...................... 6
(b) Restrictions on Public Sale by the Company .................. 6
6. Registration Procedures ............................................. 6
(a) Obligations of the Company .................................. 6
(b) Seller Information .......................................... 8
(c) Notice to Discontinue ....................................... 8
7. Registration Expenses ............................................... 9
8. Indemnification; Contribution ....................................... 9
(a) Indemnification by the Company .............................. 9
(b) Indemnification by Holders .................................. 10
(c) Conduct of Indemnification Proceedings ...................... 10
(d) Contribution ................................................ 10
9. Registration and Trading of Common Stock;
Listing; Rule 144; Other Exemptions .............................. 11
(a) Registration and Trading of Common Stock 11
(b) Rule 144; Other Exemptions .................................. 11
10. Certain Limitations on Registration Rights .......................... 11
11. Miscellaneous ....................................................... 11
(a) Recapitalizations, Exchanges, etc. .......................... 11
(b) No Inconsistent Agreements; Other Registration Rights ....... 11
(c) Remedies .................................................... 11
(d) Amendments and Waivers ...................................... 12
(e) Notices ..................................................... 12
(f) Successors and Assigns ...................................... 12
(g) Counterparts ................................................ 12
(h) Headings .................................................... 12
(i) Governing Law ............................................... 13
(j) Jurisdiction ................................................ 13
(k) Severability ................................................ 13
(l) Rules of Construction ....................................... 13
(m) Entire Agreement ............................................ 13
(n) Further Assurances .......................................... 13
i
Exhibit H
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of ________, 1996, between ITHACA
INDUSTRIES, INC., a Delaware corporation (the "Company") and the stockholders
who have executed this Agreement.
This Agreement is made in connection with the filing of the Plan (as
defined below).
The parties hereby agree as follows:
1. Definitions. As used in this Agreement, and unless the context requires
a different meaning, the following terms have the meanings indicated:
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated hereunder.
"Approved Underwriter" has the meaning assigned such term in Section 3(e).
"Approved Underwriter Amount" has the meaning assigned such term in Section
3(d).
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
or executive order to close.
"Butler Noteholders" has the meaning assigned such term in the Plan.
"Common Stock" means the Common Stock, $0.01 par value, of the Company, or
any other capital stock of the Company into which such stock is reclassified or
reconstituted.
"Company Underwriter" has the meaning assigned such term in Section 4(a).
"Demand Registration" has the meaning assigned such term in Section
3(a)(i).
"Designated Holder" means the stockholders who are parties to this
Agreement and any of their respective transferees to whom Registrable Securities
have been transferred other than the transferee to whom such securities have
been transferred pursuant to a registration statement under the Act or Rule 144
under the Act; provided, that such transferee agrees in writing to be bound by
the terms of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC thereunder.
"Holder" has the meaning assigned such term in Section 2(b).
"Indemnified Party" has the meaning assigned such term in Section 8(c).
"Indemnifying Party" has the meaning assigned such term in Section 8(c).
"Initiating Holders" has the meaning assigned to such term in Section
3(a)(i).
"Inspector" has the meaning assigned such term in Section 6(a)(x).
"NASD" has the meaning assigned such term in Section 6(a)(xvi).
"NASDAQ" has the meaning assigned to such term in Section 6(a)(xviii).
"Northwestern" means The Northwestern Mutual Life Insurance Company.
"Person" means any individual, firm, corporation, company, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
any such entity.
1
Exhibit H
<PAGE>
"Plan" means the Company's plan of reorganization dated August 29, 1996, as
the same may be amended, under Chapter 11 of Title 11 of the United States Code.
"Registrable Securities" means, subject to Section 2(a), each of the
following: (a) shares of Common Stock issued to the stockholders party hereto
upon consummation of the Plan and (b) securities issued or issuable in respect
of shares of Common Stock issued, issuable or held pursuant to clause (a) above
by way of a dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise.
"Registration Expenses" has the meaning assigned such term in Section 7.
"SEC" means the Securities and Exchange Commission.
"Shelf Registration" has the meaning assigned to such term in Section 3(g).
"Total Securities" has the meaning assigned such term in Section 4(a).
"Underwriters" has the meaning assigned such term in Section 6(d).
"Valid Business Reason" has the meaning assigned such term in Section 3(f).
2. Securities Subject to this Agreement.
(a) Registrable Securities. For the purposes of this Agreement,
Registrable Securities will cease to be Registrable Securities when (i) a
registration statement covering such Registrable Securities has been declared
effective under the Act by the SEC and such Registrable Securities have been
disposed of pursuant to such effective registration statement or (ii) the entire
amount of Registrable Securities proposed to be sold in a single sale, in the
opinion of counsel satisfactory to the Company, may be distributed to the public
in such single sale pursuant to Rule 144 in compliance with the requirements of
paragraphs (c), (e), (f) and (g) of Rule 144 (notwithstanding the provisions of
paragraph (k) of such Rule) (or any successor provision then in effect) under
the Act.
(b) Holders of Registrable Securities. A Person is deemed to be a
holder of Registrable Securities (a "Holder") whenever such Person (i) is a
party to this Agreement (or a permitted transferee thereof who has agreed in
writing to be bound by the terms of this Agreement) and (ii) owns Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons with respect to the same Registrable
Securities, the Company may act upon the basis of the instructions, notice or
election received from the registered owner of such Registrable Securities.
3. Demand Registration; Shelf Registration.
(a) Request for Demand Registration.
(i) Subject to Section 3(f) below, the Holders may, in accordance
with Section 3(a)(ii), request in writing the registration of Registrable
Securities under the Act (each such registration under this Section 3(a) that
satisfies the requirements set forth in Section 3(b) shall be referred to herein
as a "Demand Registration" and the Holder or Holders requesting such Demand
Registration in accordance with the provisions of Section 3(a)(ii) shall be
referred to herein as the "Initiating Holders"). Notwithstanding the foregoing,
in no event shall the Company be required to effect more than three Demand
Registrations. Each request for a Demand Registration by the Initiating Holders
in respect thereof shall specify the amount of the Registrable Securities
proposed to be sold, the intended method of disposition thereof and the
jurisdictions in which registration is desired. Upon a request for a Demand
Registration, the Company shall promptly take such steps as are necessary or
appropriate to prepare for the registration of the Registrable Securities to be
registered. Within fifteen (15) days after the receipt of such request, the
Company shall give written notice thereof to all other Designated Holders and
include in such registration all Registrable Securities held by a Designated
Holder from whom the Company has received a written request for inclusion
therein at least ten (10) days prior to the filing of the registration
2
Exhibit H
<PAGE>
statement; provided, however, that the Designated Holders shall not be precluded
from participating in such Demand Registration unless at least twenty (20) days
have elapsed since their receipt of such notice from the Company. Subject to
Section 3(d), the Company shall be entitled to include in any registration
statement and offering made pursuant to a Demand Registration, authorized but
unissued shares of Common Stock, shares of Common Stock held by the Company as
treasury shares or shares of Common Stock held by Stockholders other than the
Holders; provided, however, that such inclusion shall be permitted only to the
extent that it is pursuant to and subject to the terms of the underwriting
agreement or arrangements, if any, entered into by the Initiating Holders
exercising the Demand Registration rights.
(ii) Demand Registrations may be requested by the Holders as follows:
(A) one (1) Demand Registration may be requested in writing
by each of Northwestern and the Butler Noteholders; provided, however, that
either of such Holders shall forfeit its right to request such Demand
Registration pursuant to this paragraph (A) at such time as such Holder owns
less than 50% of the Registrable Securities owned of record by such Holder as of
the date hereof;
(B) one (1) Demand Registration may be requested in writing
by Designated Holders holding at least 20% of the Registrable Securities held by
all of the Designated Holders; provided, however, that Northwestern and the
Butler Noteholders shall not be permitted to join in any request pursuant to
this subparagraph (ii)(B) of this Section 3(a) unless such Holder shall have
previously exercised or forfeited prior to exercise its right to request a
Demand Registration pursuant to clause (A) of this Section 3(a)(ii); and,
provided, further, however, that for each Demand Registration under Section
3(a)(ii)(A) that shall have been forfeited prior to exercise, the number of
Demand Registrations permitted under this Section 3(a)(ii)(B) shall be increased
by one; and
(C) the Company shall cooperate with the Designated Holders
in order to facilitate communications among such Persons solely for the purpose
of obtaining the consent of sufficient Designated Holders to request a Demand
Registration pursuant to Section 3(a)(ii)(B), including, without limitation, by
providing a list of shareholders of the Company with their respective ownership
of Registrable Securities and contact information, which shall be used solely
for purposes of this Agreement.
(b) Effective Demand Registration. A registration requested pursuant to
Section 3(a) hereof shall not count as one of the demands to which the
Designated Holders are entitled thereunder unless such registration statement is
declared effective and remains effective for at least ninety (90) days following
the first day of effectiveness of such registration statement after, and
resulting from, the request therefor.
(c) Expenses. In any registration initiated as a Demand Registration, the
Company shall pay all Registration Expenses in connection therewith, whether or
not such requested Demand Registration becomes effective.
(d) Underwriting Procedures. If the Initiating Holders holding a majority
of the Registrable Securities held by all Initiating Holders to which the
requested Demand Registration relates so elect, the offering of such Registrable
Securities pursuant to such requested Demand Registration shall be in the form
of a firm commitment underwritten offering and the managing underwriter or
underwriters selected for such offering shall be the Approved Underwriter
selected in accordance with Section 3(e). In such event, the Initiating Holders
and the Company shall use their respective reasonable efforts to include all
Registrable Securities (including those securities requested by the Company to
be included in such registration) requested by the Holders or the Company to be
included in such registration. Notwithstanding the foregoing sentence, if the
Approved Underwriter advises the Company in writing that, in its opinion, the
aggregate amount of such Registrable Securities requested to be included in such
offering (including those securities requested by the Company to be included in
such registration) is sufficiently large to have an adverse effect on the
success of such offering, then the Company shall include in such registration
only the aggregate amount of Registrable Securities that in the opinion of the
Approved Underwriter may be sold without any such effect on the success of such
offering (the "Approved Underwriter Amount"), and (i) if the number of
Registrable Securities to be included in such registration is greater than the
Approved Underwriting Amount, then each Designated Holder shall be entitled to
3
Exhibit H
<PAGE>
have included in such registration Registrable Securities equal to its pro rata
portion of the Approved Underwriter Amount, as based on the amounts of
Registrable Securities sought to be registered by the Designated Holders in
their requests for participation in the requested Demand Registration, and the
Company and any Person who is not a Designated Holder shall not include any
securities therein, and (ii) to the extent that the number of Registrable
Securities to be included by the Designated Holders is less than the Approved
Underwriter Amount, securities that the Company and any Person who is not a
Designated Holder proposes to register may also be included.
If, as a result of the proration provision of this Section 3(d), any
Designated Holder shall not be entitled to include all Registrable Securities in
a registration that such Designated Holder has requested to be included, such
Designated Holder may elect to withdraw its request to include Registrable
Securities in such registration or may reduce the number requested to be
included; provided, however, that (i) such request must be made in writing prior
to the earlier of the execution of the underwriting agreement or the execution
of the custody agreement with respect to such registration and (ii) such
withdrawal or reduction shall be irrevocable.
(e) Selection of Underwriters. If any requested Demand Registration is in
the form of an underwritten offering, the Company shall (i) select and obtain an
investment banking firm of national reputation to act as the managing
underwriter of the offering (the "Approved Underwriter"); provided, that such
underwriter shall be reasonably satisfactory to the Initiating Holders holding a
majority of the Registrable Securities held by all Initiating Holders to be
included in the requested Demand Registration, and (ii) be willing to enter into
an underwriting agreement with the Approved Underwriter in customary form
reasonably satisfactory to the Company with all desiring Designated Holders
(subject to the pro-ration provisions of Section 3(d)).
(f) Limitations on Demand Registrations. The Demand Registration rights
granted to the Holders in Section 3(a) are subject to each of the following
limitations: (i) the Company shall not be required to cause a Demand
Registration pursuant to Section 3(a) to be declared effective within a period
of one-hundred eighty (180) days following the date the Plan is consummated or
within a period of one-hundred eighty (180) days after the effective date of any
registration statement (other than the Shelf Registration or a registration
statement on Form S-4 or Form S-8 or any successor form) of the Company under
the Act covering securities of the same class as any Registrable Securities and
(ii) if the Board of Directors of the Company, in its good faith judgment,
determines that any registration of Registrable Securities should not be made or
continued because it would materially interfere with any material financing,
acquisition, corporate reorganization or merger or other transaction involving
the Company or any of its subsidiaries (a "Valid Business Reason"), the Company
may postpone filing or effecting a registration statement relating to a Demand
Registration, or withdraw the same, until such Valid Business Reason no longer
exists, but in no event for more than one-hundred eighty (180) days after the
date of postponement or withdrawal, as the case may be; provided, however, that
the Company may not postpone or withdraw a filing under this Section 3(f)(ii)
more than once in any twelve-month period.
Upon receipt of any notice from the Company that the Company has
determined to withdraw any registration statement pursuant to clause (ii) above,
such Holder will discontinue its disposition of Registrable Securities pursuant
to such registration statement and, if so directed by the Company, will deliver
to the Company (at the Company's expenses) all copies, other than permanent file
copies, then in such Holder's possession, of the prospectus covering such
Registrable Securities that was in effect at the time of receipt of such notice.
If the Company shall give any notice of postponement or withdrawal of a
registration statement, the Company shall, at such time as the Valid Business
Reason that caused such postponement or withdrawal no longer exists (but in no
event later than one-hundred eighty (180) days after the date of the
postponement), use its best efforts to effect promptly the registration under
the Act of the Registrable Securities covered by the postponed or withdrawn
registration statement in accordance with this Section 3 (unless a majority of
the Initiating Holders delivering the Demand Registration request shall have
withdrawn such request, in which case the Company shall not be considered to
have effected an effective registration for the purposes of this Agreement), and
such registration shall not be postponed or withdrawn pursuant to clause (ii)
above.
(g) Shelf Registration.
(i) The Company shall use its reasonable best efforts to file
within ninety (90) days after consummation of the Plan a "shelf" registration
statement with respect to the Registrable Securities on Form S-3, if such form
is available to the Company, or on Form S-1, otherwise, pursuant to Rule 415
4
Exhibit H
<PAGE>
under the Securities Act (the "Shelf Registration"). The Company shall use its
reasonable best efforts to have the Shelf Registration declared effective as
soon as reasonably practicable after such filing.
(ii) Unless a registration effected under the Shelf Registration
is a Demand Registration, such registration shall not be in the form of an
underwritten offering. The Company shall pay the Registration Expenses in
connection with such registration in accordance with Section 7.
4. Piggy-Back Registration.
(a) Piggy-Back Rights. If the Company proposes to file or files a
registration statement under the Act with respect to an offering by the Company
for its own account of any class of security (other than a registration
statement on Form S-4 or S-8 (or any successor form thereto)) under the Act,
then the Company shall give written notice of such proposed filing or filing to
each of the Holders, which notice shall be delivered no later than the date on
which such filing is made and shall describe in detail the proposed registration
and distribution and offer such Holders the opportunity to register the number
of Registrable Securities as each such Holder may request. The Company shall use
its best efforts to permit the Holders who have requested to participate in the
registration for such offering within fifteen (15) days of the delivery of
notice provided for in the preceding sentence to include such Registrable
Securities in such offering on the same terms and conditions as the securities
of the Company included therein. Notwithstanding the foregoing, if such
registration involves an underwritten offering and the managing underwriters or
underwriters (the "Company Underwriter") shall advise the Holders of Registrable
Securities in writing that, in its opinion, the total amount of securities
requested to be included in such offering (the "Total Securities") is
sufficiently large so as to have an adverse effect on the success of the
distribution of the Total Securities, then the Company shall include in such
registration, to the extent of the number of Registrable Securities which the
Company is so advised can be sold in (or during the time of) such offering
without having such adverse effect, first, all Common Stock or securities
convertible into, or exchangeable or exercisable for, Common Stock that the
Company proposed to register for its own account, second, all securities
proposed to be registered by the Designated Holders, pro rata among such
Designated Holders, and third, all other securities proposed to be registered.
(b) Priority of Registrations. Subject to the provisions of Section 3(f),
if the Company proposes to register securities pursuant to Section 4(a) hereof
on the same day that the Designated Holders request a registration pursuant to
Section 3(a) hereof, then the Demand Registration requested pursuant to Section
3(a) hereof shall be given priority.
(c) Expenses. The Company shall bear all Registration Expenses in
connection with any registration pursuant to this Section 4 in accordance with
Section 7.
(d) Conditions and Limitations on Piggyback Registrations. If, at any
time after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to all Holders of record of
Registrable Securities and, without prejudice, however, to the rights of Holders
under Section 3, (i) in the case of a determination not to register, shall be
relieved of its obligation to register the Registrable Securities in connection
with such abandoned registration and (ii) in the case of a determination to
delay the registration of its securities, shall be permitted to delay the
registration of such Registrable Securities for the same period as the delay in
registering such other securities.
Any Holder shall have the right to withdraw its request for inclusion of
its Registrable Securities in any registration statement pursuant to this
Section 4 by giving written notice to the Company of its request to withdraw;
provided, however, that (i) such request must be made in writing prior to the
earlier of the execution of the underwriting agreement or the execution of the
custody agreement with respect to such registration and (ii) such withdrawal
shall be irrevocable and, after making such withdrawal, a Holder shall no longer
have any right to include Registrable Securities in the registration as to which
such withdrawal was made.
5
Exhibit H
<PAGE>
5. Holdback Agreements.
(a) Restrictions on Public Sale by Holders. Each Holder agrees not to
effect any public sale or distribution of any Registrable Securities being
registered or of any securities convertible into or exchangeable or exercisable
for such Registrable Securities, including a sale pursuant to Rule 144 under the
Act, during such reasonable period of not less than ninety (90) days and not
more than one-hundred eighty (180) days (which period, in any case, shall not
exceed the applicable period under Section 5(b)) commencing on the effective
date of such Demand Registration or piggy-back registration or other
underwritten offering (except as part of such registration), as may be requested
by the Approved Underwriter or the Company Underwriter, in the case of an
underwritten public offering. Each Holder also agrees that, during such
reasonable period of duration (of at least ninety (90) days but not more than
one hundred eighty (180) days (which period, in any case, shall not exceed the
applicable period under Section 5(b)) specified by the Company and an
underwriter of Common Stock in connection with any underwritten public offering
by the Company, commencing on the effective date of a registration statement of
the Company filed under the Act relating to such offering, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period (except Registrable Securities
included in such registration).
(b) Restrictions on Public Sale by the Company. The Company agrees not to
effect any public sale or distribution of any of its securities for its own
account (except pursuant to registrations on Form S-4 or S-8 (or any successor
form thereto) under the Act) during such reasonable period of at least ninety
(90) days and not more than one-hundred eighty (180) days commencing on the
effective date of any registration statement (other than the Shelf Registration)
in which the Holders are participating, as may be requested by the Approved
Underwriter or the Company Underwriter (except for securities being sold by the
Company for its own account under such registration statement).
6. Registration Procedures.
(a) Obligations of the Company. Whenever registration of Registrable
Securities is required pursuant to Section 3 or 4 of this Agreement, the Company
shall use its best efforts to effect the registration and sale of such
Registrable Securities in accordance with the intended method of distribution
thereof as quickly as practicable, and in connection with any such request, the
Company shall, as expeditiously as possible:
(i) file any necessary post-effective amendments to the Shelf
Registration (including, without limitation, any post-effective amendment
necessary to include a form of prospectus reasonably requested by any Approved
Underwriter or Company Underwriter) and use its reasonable best efforts to have
such amendment to the Shelf Registration declared effective as soon as
reasonably practicable after such filing (in any event not later than sixty (60)
days thereafter) and, subject to Sections 3(f) and 6(a)(iv), shall use its
reasonable best efforts to keep the Shelf Registration as so amended
continuously effective;
(ii) in the event the Shelf Registration is unavailable for any
offering contemplated by this Agreement, as determined by the Company and its
counsel, or as otherwise requested by an Approved Underwriter, subject to
Section 3(f), (A) prepare and file with the SEC (in any event not later than
sixty (60) Business Days after receipt of a request to file a registration
statement with respect to Registrable Securities) a registration statement on
any form on which registration is requested for which the Company then
qualifies, which counsel for the Company shall deem appropriate and pursuant to
which such offering may be made in accordance with the intended method of
distribution thereof (except that the registration statement shall contain such
of the information now required to be included in a registration statement on
Form S-1 as is reasonably requested for marketing purposes by the Approved
Underwriter or the Company Underwriter), and (B) use its best efforts to cause
any such Demand Registration to become effective as soon as reasonably
practicable after such filing (in any event not later than sixty (60) days
thereafter);
(iii) notify each seller of Registrable Securities pursuant to
any registration statement of any stop order issued or threatened by the SEC and
take all reasonable action required to prevent the entry of such stop order or
to remove it if entered;
6
Exhibit H
<PAGE>
(iv) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the registration form utilized by the Company or by the
instructions applicable to such registration form or by the Act or the rules and
regulations promulgated thereunder, until the earlier of (A) such time as all of
such Registrable Securities and other securities have been disposed of in
accordance with the intended methods of disposition or otherwise by the sellers
thereof set forth in such registration statement and (B) in the case of the
Shelf Registration, three (3) years, and, in the case of a registration
statement other than the Shelf Registration, subject to Section 3(f)(ii),
one-hundred eighty (180) days, in any case, after the initial effective date of
such registration statement; provided, however, that the Company shall be
permitted by written notice to the Designated Holders to suspend the
availability of the Shelf Registration for (A) up to ninety (90) days during any
twelve-month period and (B) during any period in which the Company is not
eligible to use Form S-3 for the Shelf Registration, for such additional periods
as shall be necessary to cause any post-effective amendments to the Shelf
Registration to become effective; provided, further, however, that the
three-year period shall be extended by one (1) additional day for each day that
the availability of the Shelf Registration is suspended pursuant to the
preceding proviso;
(v) as soon as reasonably possible, furnish to each seller of
Registrable Securities, prior to filing a registration statement or any
supplement or amendment thereto, copies of such registration statement,
supplement or amendment as it is proposed to be filed, and thereafter such
number of copies of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto), the prospectus included
in such registration statement (including each preliminary prospectus) and such
other documents as each such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such seller;
(vi) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller of Registrable Securities may request, and to
continue such qualification in effect in each such jurisdiction for as long as
is permissible pursuant to the laws of such jurisdiction, or for as long as any
such seller requests or until all of such Registrable Securities are sold,
whichever is shortest, and do any and all other acts and things which may be
reasonably necessary or advisable to enable any such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller; provided, however, that the Company shall not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 6(a)(vi), (B) subject itself to
taxation in any such jurisdiction or (C) consent to general service of process
in any such jurisdiction;
(vii) use its reasonable best efforts to obtain all other
approvals, covenants, exemptions or authorizations from such governmental
agencies or authorities as may be necessary to enable the sellers of such
Registrable Securities to consummate the disposition of such Registrable
Securities;
(viii) notify each seller of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under the Act,
upon discovery that, or upon the happening of any event as a result of which,
the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, and the Company shall
promptly prepare a supplement or amendment to such prospectus so that, after
delivery of such supplement or amendment to the purchasers of such Registrable
Securities, such prospectus, as so amended or supplemented, shall not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made;
(ix) enter into and perform customary agreements and take such
other actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities;
(x) make available for inspection by any seller of Registrable
Securities, any managing underwriter participating in any disposition pursuant
to such registration statement, and any attorney, accountant or other agent
retained by any managing underwriter (each, an "Inspector" and, collectively,
the "Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company and any subsidiaries thereof as may be
in existence at such time as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's and any
subsidiaries' officers, directors and employees, and the independent public
7
Exhibit H
<PAGE>
accountants of the Company, to supply all information reasonably requested by
any such Inspector in connection with such registration statement;
(xi) obtain a "cold comfort" letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by "cold comfort" letters, as the managing
underwriter may reasonably request;
(xii) furnish, at the request of any seller of Registrable
Securities on the date such securities are delivered to the underwriters for
sale pursuant to such registration or, if such securities are not being sold
through underwriters, on the date the registration statement with respect to
such securities becomes effective, an opinion, dated such date, of counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the seller making such request, covering such legal
matters with respect to the registration in respect of which such opinion is
being given as such seller may reasonably request and as are customarily
included in such opinions;
(xiii) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable but no later than fifteen
(15) months after the effective date of the registration statement, an earnings
statement covering a period of twelve (12) months beginning after the effective
date of the registration statement, in a manner which satisfies the provisions
of Section 11(a) of the Act;
(xiv) keep each seller of Registrable Securities advised as to
the initiation and progress of any registration under Section 3 or 4 hereunder;
(xv) provide officers' certificates and other customary closing
documents;
(xvi) cooperate with each seller of Registrable Securities and
each underwriter participating in the disposition of such Registrable Securities
and underwriters' counsel in connection with any filings required to be made
with the National Association of Securities Dealers, Inc. (the "NASD");
(xvii) provide appropriate officers as are requested by an
Approved Underwriter or a Company Underwriter to participate in a "road show" or
similar marketing effort being conducted by such underwriter with respect to an
underwritten Demand Registration or piggy-back registration including
Registrable Securities;
(xviii) use its reasonable best efforts to cause all such
Registrable Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed and, if no such securities are
so listed, to be listed on the NASD automated quotation system ("NASDAQ") and,
if listed on the NASD automated quotation system, use its reasonable best
efforts to (A) secure designation of all such Registrable Securities as a NASDAQ
"national market system security" within the meaning of Rule llAa2-1 under the
Exchange Act and (B) cause such Registrable Securities to be listed on the
Nasdaq Stock Market's National Market or, failing that, to secure NASDAQ
authorization for such Registrable Securities and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register as such with respect to such Registrable Securities with the NASD; and
(xix) use its best efforts to take all other steps necessary to
effect the registration of the Registrable Securities contemplated hereby.
(b) Seller Information. The Company may require as a condition precedent
of the Company's obligations under this Section 6 that each seller of
Registrable Securities as to which any registration is being effected furnish to
the Company such information regarding such seller and the distribution of such
securities as the Company may from time to time reasonably request in writing.
(c) Notice to Discontinue. Each Holder agrees that, upon receipt of any
notice from the Company of the suspension of the availability of the Shelf
8
Exhibit H
<PAGE>
Registration under Section 6(a)(iv) or the happening of any event of the kind
described in Section 6(a)(viii), such Holder shall forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until (as applicable) the end of such
suspension period or such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 6(a)(viii) and, if so directed by the
Company in the case of an event described in Section 6(a)(viii), such Holder
shall deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Securities which is current at the time of receipt of
such notice. If the Company shall give any such notice, the Company shall extend
the period during which such registration statement shall be maintained
effective pursuant to this Agreement (including, without limitation, the period
referred to in Section 6(a)(iv)) by the number of days during the period (as
applicable) of suspension of availability under Section 6(a)(iv) or from and
including the date of the giving of such notice pursuant to Section 6(a)(viii)
to and including the date when the Holder shall have received the copies of the
supplemented or amended prospectus contemplated by and meeting the requirements
of Section 6(a)(viii).
7. Registration Expenses. The Company shall pay all of its expenses (other
than underwriting discounts and commissions) arising from or incident to the
performance of, or compliance with, this Agreement, including, without
limitation, (a) SEC, stock exchange and NASD registration and filing fees, (b)
all fees and expenses incurred in complying with securities or blue sky laws
(including, without limitation, reasonable fees, charges and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), (c) all printing, messenger and customary delivery expenses, (d)
the fees, charges and disbursements of counsel to the Company and of its
independent public accountants and any other accounting and legal fees, charges
and expenses incurred by the Company (including, without limitation, any
expenses arising from any special audits required in connection with any
registration) and (e) the reasonable fees, charges and expenses of any special
experts retained by the Company in connection with any registration pursuant to
the terms of this Agreement, regardless of whether the registration statement
filed in connection with such registration is declared effective. The Company
shall also pay the reasonable fees, charges and disbursements of a single
counsel to all of the Designated Holders participating in any requested Demand
Registration or Shelf Registration solely as such fees, charges and
disbursements relate to the review of (i) the "Selling Shareholders" or "Plan of
Distribution" section of any registration statement under which such
registration is being effected or (ii) any other documents to be executed by
such Designated Holders in connection with such registration. All of the
expenses described in this Section 7 are referred to in this Agreement as
"Registration Expenses." Notwithstanding the foregoing provisions of this
Section 7, in connection with any registration hereunder, each Holder of
Registrable Securities being registered shall pay all underwriting discounts and
commissions, all expenses of counsel (except as set forth in the preceding
sentence) and experts retained by such Holder, and any capital gains, income or
transfer taxes, if any, attributable to the sale of such Registrable Securities,
pro rata with respect to payments of discounts and commissions in accordance
with the number of shares sold in the offering.
8. Indemnification; Contribution.
(a) Indemnification by the Company. In the event of any proposed
registration of securities of the Company pursuant to Section 3 or 4, the
Company agrees to indemnify and hold harmless each Holder, its directors,
officers, partners, employees, advisors and agents, and each Person who controls
(within the meaning of the Act or the Exchange Act) such Holder, to the extent
permitted by law, from and against any and all losses, claims, damages, expenses
(including, without limitation, reasonable costs of investigation and fees,
disbursements and other charges of counsel) or other liabilities resulting from
or arising out of or based upon any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, prospectus or preliminary
prospectus or notification or offering circular (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) or any
document incorporated by reference in any of the foregoing or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
insofar as the same are caused by or contained in any information furnished in
writing to the Company by or on behalf of such Holder expressly for use therein.
The Company shall also indemnify any underwriters of the Registrable Securities,
their officers, directors and employees, and each Person who controls any such
underwriter (within the meaning of the Act and the Exchange Act) to the same
extent as provided above with respect to the indemnification of the Holders of
Registrable Securities.
9
Exhibit H
<PAGE>
(b) Indemnification by Holders. In connection with any proposed
registration in which a Holder is participating pursuant to Section 3 or 4
hereof, each such Holder shall furnish to the Company in writing such
information with respect to such Holder as the Company may reasonably request or
as may be required by law for use in connection with any registration statement
or prospectus to be used in connection with such registration and each Holder
agrees to indemnify and hold harmless the Company, any underwriter retained by
the Company and their respective directors, officers, employees and each Person
who controls (within the meaning of the Act and the Exchange Act) the Company or
such underwriter to the same extent as the foregoing indemnity from the Company
to the Holders (subject to the proviso to this sentence and applicable law), but
only with respect to any such information furnished in writing by or on behalf
of such Holder expressly for use therein; provided, however, that the liability
of any Holder under this Section 8(b) shall be limited to the amount of the net
proceeds received by such Holder in the offering giving rise to such liability.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder (the "Indemnified Party") agrees to give prompt
written notice to the indemnifying party (the "Indemnifying Party") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; provided, that, the failure so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party hereunder. If notice of commencement
of any such action is given to the Indemnifying Party as above provided, the
Indemnifying Party shall be entitled to participate in and, to the extent it may
wish, jointly with any other Indemnifying Party similarly notified, to assume
the defense of such action at its own expense, with counsel chosen by it and
reasonably satisfactory to such Indemnified Party. The Indemnified Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the Indemnified Party unless
(i) the Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party
fails to assume the defense of such action with counsel satisfactory to the
Indemnified Party in its reasonable judgment, or (iii) the named parties to any
such action (including any impleaded parties) have been advised by such counsel
that representation of such Indemnified Party and the Indemnifying Party by the
same counsel would be inappropriate under applicable standards of professional
conduct; provided, however, that the Indemnifying Party shall only have to pay
the fees and expenses of one firm of counsel for all Indemnified Parties in each
jurisdiction. In either of such cases the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of such Indemnified Party.
No Indemnifying Party shall be liable for any settlement entered into without
its written consent, which consent shall not be unreasonably withheld. No
Indemnifying Party shall, without the written consent of the Indemnified Party,
effect the settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
Indemnified Party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (A) includes an unconditional
release of the Indemnified Party from all liability arising out of such action
or claim and (B) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any Indemnified Party. The
rights accorded to any Indemnified Party hereunder shall be in addition to any
rights that such Indemnified Party may have at common law, by separate agreement
or otherwise.
(d) Contribution. If the indemnification provided for in Section 8(a)
from the Indemnifying Party is unavailable to an Indemnified Party in respect of
any losses, claims, damages, expenses or other liabilities referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages, expenses or other liabilities in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions which resulted in
such losses, claims, damages, expenses or other liabilities, as well as any
other relevant equitable considerations. The relative faults of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, was made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the Indemnifying Party's and
Indemnified Party's relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable by a
party as a result of the losses, claims, damages, expenses or other liabilities
10
Exhibit H
<PAGE>
referred to above shall be deemed to include, subject to the limitations set
forth in Sections 8(a), 8(b) and 8(c), any legal or other fees, charges or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution pursuant to this Section
8(d).
9. Registration and Trading of Common Stock; Listing; Rule 144; Other
Exemptions.
(a) Registration and Trading of Common Stock. The Company shall use its
reasonable best efforts to cause the Common Stock to be registered under the
Exchange Act and to be eligible to trade on the NASDAQ. The Company shall use
its reasonable best efforts to arrange for at least two market makers to
register as such with respect to the Common Stock with the NASD.
(b) Rule 144; Other Exemptions. The Company covenants that it shall file
any reports required to be filed by it under the Exchange Act and the rules and
regulations adopted by the SEC thereunder, and that it shall take such further
action as each Holder may reasonably request (including, but not limited to,
providing any information necessary to comply with Rules 144 and 144A (if
available with respect to resales of the Registrable Securities) under the Act),
all to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Act within the limitation
of the exemptions provided by (i) Rule 144 or Rule 144A (if available with
respect to resales of the Registrable Securities) under the Act, as such rules
may be amended from time to time, or (ii) any other rules or regulations now
existing or hereafter adopted by the SEC.
10. Certain Limitations on Registration Rights. In the case of a
registration under Section 4 if the Company has determined to enter into an
underwriting agreement in connection therewith, no person may participate in
such registration unless such person (a) agrees to sell such person's securities
on the basis provided therein and (b) completes and executes all questionnaires,
powers of attorney, indemnities, lock-up agreements, underwriting agreements and
other documents required under the terms of such underwriting agreements.
11. Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The provisions of this Agreement
shall apply, to the full extent set forth herein with respect to the Registrable
Securities, to any and all shares of capital stock of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for or in
substitution of, the Registrable Securities and shall be appropriately adjusted
for any stock dividends, splits, reverse splits, combinations, recapitalizations
and the like occurring after the date hereof.
(b) No Inconsistent Agreements; Other Registration Rights. The Company
shall not enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement other than
any lock-up agreement with the underwriters in connection with an underwritten
offering pursuant to which the Company agrees, for a period not in excess of one
hundred eighty (180) days, not to register for sale, and not to sell or
otherwise dispose of, Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock.
(c) Remedies. The Holders, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, shall be entitled to
specific performance of their rights under this Agreement. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Agreement and hereby
agrees to waive in any action for specific performance the defense that a remedy
at law would be adequate.
11
Exhibit H
<PAGE>
(d) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions of such section may not be
given unless the Company has obtained the prior written consent of the
Designated Holders holding at least a majority of the Registrable Securities
held by all of the Designated Holders.
(e) Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(i) if to the Company:
Ithaca Industries, Inc.
Highway 268 West
P.O. Box 620
Wilkesboro, North Carolina 28697
Attention: Chief Executive Officer
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: (212) 757-3990
Attention: Carl L. Reisner, Esq.
(ii) if to Holders:
at the address set forth in the Company's records.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of the parties hereto; provided,
however, that the registration rights of the Holders and the other obligations
of the Company contained in this Agreement shall, with respect to any
Registrable Security, be automatically transferred from a Holder to any
subsequent holder of such Registrable Security (including any pledgee).
Notwithstanding any transfer of such rights, all of the obligations of the
Company hereunder shall survive any such transfer and shall continue to inure to
the benefit of all transferees. In the case of transfers of Registrable
Securities made by Northwestern or the Butler Noteholders (or their successors
to the rights and limitations described in this sentence), if such Person shall
notify the Company that such Person is assigning the rights and such transferee
is assuming the limitations specific to such Person as are set forth in Section
3(a)(ii), then such rights and limitations shall be so assigned and assumed and
the transferee shall hold and be subject to the same in lieu of the transferor;
provided, however, that for purposes of the determination of whether such rights
and limitations are to be given effect under this Agreement at any time, the
ownership by such transferee of Registrable Securities shall be measured against
the initial ownership on the date hereof of Registrable Securities of the
initial Holder whose rights and limitations are being assigned to and assumed by
such transferee.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
12
Exhibit H
<PAGE>
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such State.
(j) Jurisdiction. Each party to this Agreement hereby irrevocably agrees
that any legal action or proceeding arising out of or relating to this Agreement
or any agreements or transactions contemplated hereby may be brought in the
courts of the State of New York or of the United States of America for the
Southern District of New York and hereby expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and expressly
waives any claim of improper venue and any claim that such courts are an
inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 10(e), such service to
become effective 10 days after such mailing.
(k) Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, it being intended that all
of the rights and privileges of the Holders shall be enforceable to the fullest
extent permitted by law.
(l) Rules of Construction. Unless the context otherwise requires, "or" is
not exclusive, and references to sections or subsections refer to sections or
subsections of this Agreement.
(m) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings in respect of the subject matter contained herein,
other than those set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
(n) Further Assurances. Each of the parties shall execute such documents
and perform such further acts as may be reasonably required or desirable to
carry out or to perform the provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
ITHACA INDUSTRIES, INC.
By
--------------------------------
Name:
Title:
THE STOCKHOLDERS:
-----------------------------------
13
Exhibit H
<PAGE>
Exhibit I
ITHACA INDUSTRIES, INC.
1996 Long-Term Stock Incentive Plan
SECTION 1. Purpose. The purposes of this Ithaca Industries, Inc. 1996
Long-Term Stock Incentive Plan are to promote the interests of Ithaca
Industries, Inc. and its stockholders by (i) attracting and retaining
exceptional officers and other key employees and consultants of the Company and
its Subsidiaries, as defined below; (ii) motivating such individuals by means of
performance-related incentives to achieve longer-range performance goals; and
(iii) enabling such individuals to participate in the long-term growth and
financial success of the Company.
SECTION 2. Definitions. As used in the Plan, the following terms shall have
the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or indirectly, is
controlled by or controls the Company and (ii) any entity in which the Company
has a significant equity interest, in either case as determined by the
Committee.
"Award" shall mean any Option, Stock Appreciation Right, Restricted Stock
Award, Restricted Stock Unit Award, Performance Award, Other Stock-Based Award
or Performance Compensation Award.
"Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Change of Control" shall mean the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition, in one or a series
of related transactions, of all or substantially all of the assets of the
Company to any "person" or "group" (as such terms are used in Sections 13(d)(3)
and 14(d)(2) of the Exchange Act) other than a disposition to a Person or
Persons who are the "beneficial owners" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of at least fifty percent (50%) of the combined voting
power of the outstanding voting stock of the Company at the time of disposition,
(ii) any Person or group (other than the Company, any employee benefit plan of
the Company, or any company owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their ownership of
Shares of the Company) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total voting power of
the voting stock of the Company, including by way of merger, consolidation or
otherwise or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board (together with any new
directors whose election by such Board or whose nomination for election by the
shareholders of the Company was approved by a vote of a majority of the
directors of the Company, then still in office, who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board, then in office; provided that in no event shall any public offering of
the Company' s equity securities pursuant to an effective registration statement
under the Securities Act of 1933 be deemed to constitute a Change of Control.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean (i) a committee of the Board designated by the Board
to administer the Plan and composed of not less two directors, each of whom is
intended to be a "Non-Employee Director" (within the meaning of Rule 16b-3) and
an "outside director" (within the meaning of Code section 162(m)) to the extent
Rule 16b-3 and Code section 162(m), respectively, are applicable to the Company
or (ii) during any period when Rule 16b-3 and Code section 162(m) are not
applicable to the Company, if at any time such a committee has not been so
designated by the Board, the Board or any authorized committee thereof.
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Exhibit I
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"Company" shall mean Ithaca Industries, Inc., together with any successor
thereto.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean, (A) with respect to any property other than
Shares, the fair market value of such property determined by such methods or
procedures as shall be established from time to time by the Committee and (B)
with respect to the Shares, as of any date, (i) the mean between the high and
low sales prices of the Shares as reported on the composite tape for securities
traded on the New York Stock Exchange for the immediately preceding trading date
(or if not then trading on the New York Stock Exchange, the mean between the
high and low sales price of the Shares on the stock exchange or over-the-counter
market on which the Shares are principally trading on such date), or if there
were no sales on such date, on the closest preceding date on which there were
sales of Shares or (ii) in the event there shall be no public market for the
Shares on such date, the fair market value of the Shares as determined in good
faith by the Committee.
"Incentive Stock Option" shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is intended to meet
the requirements of Section 422 of the Code or any successor provision thereto.
"Negative Discretion" shall mean the discretion authorized by the Plan to
be applied by the Committee to eliminate or reduce the size of a Performance
Compensation Award; provided that the exercise of such discretion would not
cause the Performance Compensation Award to fail to qualify as
"Performance-Based Compensation" under Section 162(m) of the Code. By way of
example and not by way of limitation, in no event shall any discretionary
authority granted to the Committee by the Plan including, but not limited to,
Negative Discretion, be used to (a) grant or provide payment in respect of
Performance Compensation Awards for a Performance Period if the Performance
Goals for such Performance Period have not been attained; or (b) increase a
Performance Compensation Award above the maximum amount payable under Sections
4(a) or 11(d)(vi) of the Plan. Notwithstanding anything herein to the contrary,
in no event shall Negative Discretion be exercised by the Committee with respect
to any Option or Stock Appreciation Right (other than an Option or Stock
Appreciation Right that is intended to be a Performance Compensation Award under
Section 11 of the Plan).
"Non-Qualified Stock Option" shall mean a right to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is not intended to
be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
"Other Stock-Based Award" shall mean any right granted under Section 10 of
the Plan.
"Participant" shall mean any officer or other key employee or consultant of
the Company or its Subsidiaries eligible for an Award under Section 5 and
selected by the Committee to receive an Award under the Plan.
"Performance Award" shall mean any right granted under Section 9 of the
Plan.
"Performance Compensation Award" shall mean any Award designated by the
Committee as a Performance Compensation Award pursuant to Section 11 of the
Plan.
"Performance Criteria" shall mean the criterion or criteria that the
Committee shall select for purposes of establishing the Performance Goal(s) for
a Performance Period with respect to any Performance Compensation Award under
the Plan. The Performance Criteria that will be used to establish the
Performance Goal(s) shall be based on the attainment of specific levels of
performance of the Company (or Subsidiary, Affiliate, division or operational
unit of the Company) and shall be limited to the following: Return on net
assets, return on shareholders' equity, return on assets, return on capital,
shareholder returns, profit margin, earnings before interest, taxes,
depreciation and amortization (EBITDA), earnings per Share, net earnings,
operating earnings, market price per Share and sales or market share. To the
extent required under Section 162(m) of the Code, the Committee shall, within
the first 90 days of a Performance Period (or, if longer, within the maximum
period allowed under Section 162(m) of the Code), define in an objective fashion
the manner of calculating the Performance Criteria it selects to use for such
Performance Period.
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"Performance Formula" shall mean, for a Performance Period, the one or more
objective formulas applied against the relevant Performance Goal to determine,
with regard to the Performance Compensation Award of a particular Participant,
whether all, some portion but less than all, or none of the Performance
Compensation Award has been earned for the Performance Period.
"Performance Goals" shall mean, for a Performance Period, the one or more
goals established by the Committee for the Performance Period based upon the
Performance Criteria. The Committee is authorized at any time during the first
90 days of a Performance Period, or at any time thereafter (but only to the
extent the exercise of such authority after the first 90 days of a Performance
Period would not cause the Performance Compensation Awards granted to any
Participant for the Performance Period to fail to qualify as Performance-Based
Compensation under Section 162(m) of the Code), in its sole and absolute
discretion, to adjust or modify the calculation of a Performance Goal for such
Performance Period to the extent permitted under Section 162(m) of the Code in
order to prevent the dilution or enlargement of the rights of Participants, (a)
in the event of, or in anticipation of, any unusual or extraordinary corporate
item, transaction, event or development affecting the Company; or (b) in
recognition of, or in anticipation of, any other unusual or nonrecurring events
affecting the Company, or the financial statements of the Company, or in
response to, or in anticipation of, changes in applicable laws, regulations,
accounting principles, or business conditions.
"Performance Period" shall mean the one or more periods of time of at least
one year in duration, as the Committee may select, over which the attainment of
one or more Performance Goals will be measured for the purpose of determining a
Participant's right to and the payment of a Performance Compensation Award.
"Person" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.
"Plan" shall mean this Ithaca Industries, Inc. 1996 Long-Term Stock
Incentive Plan.
"Restricted Stock" shall mean any Share granted under Section 8 of the
Plan.
"Restricted Stock Unit" shall mean any unit granted under Section 8 of the
Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the
SEC under the Exchange Act, or any successor rule or regulation thereto as in
effect from time to time.
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto and shall include the Staff thereof.
"Shares" shall mean the common shares of the Company, $.01 par value, or
such other securities of the Company (i) into which such common shares shall be
changed by reason of a recapitalization, merger, consolidation, split-up,
combination, exchange of shares or other similar transaction or (ii) as may be
determined by the Committee pursuant to Section 4(b).
"Stock Appreciation Right" shall mean any right granted under Section 7 of
the Plan.
"Subsidiary" shall mean (i) any entity that, directly or indirectly, is
controlled by the Company and (ii) any entity in which the Company has a
significant equity interest, in either case as determined by the Committee.
"Substitute Awards" shall have the meaning specified in Section 4(c).
SECTION 3. Administration. (a) The Plan shall be administered by the
Committee. Subject to the terms of the Plan and applicable law, and in addition
to other express powers and authorizations conferred on the Committee by the
Plan, the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to a
Participant and designate those Awards which shall constitute Performance
Compensation Awards; (iii) determine the number of Shares to be covered by, or
with respect to which payments, rights, or other matters are to be calculated in
connection with, Awards; (iv) determine the terms and conditions of any Award;
(v) determine whether, to what extent, and under what circumstances Awards may
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Exhibit I
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be settled or exercised in cash, Shares, other securities, other Awards or other
property, or canceled, forfeited, or suspended and the method or methods by
which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi)
determine whether, to what extent, and under what circumstances cash, Shares,
other securities, other Awards, other property, and other amounts payable with
respect to an Award (subject to Section 162(m) of the Code with regard to
Performance Compensation Awards) shall be deferred either automatically or at
the election of the holder thereof or of the Committee; (vii) interpret,
administer reconcile any inconsistency, correct any default and/or supply any
omission in the Plan and any instrument or agreement relating to, or Award made
under, the Plan; (viii) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; (ix) establish and administer Performance Goals and
certify whether, and to what extent, they have been attained; and (x) make any
other determination and take any other action that the Committee deems necessary
or desirable for the administration of the Plan.
(b) Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive, and binding upon all
Persons, including the Company, any Affiliate, any Participant, any holder or
beneficiary of any Award, and any shareholder.
(c) The mere fact that a Committee member shall fail to qualify as a
"Non-Employee Director" or "outside director" within the meaning of Rule 16b-3
and Code section 162(m), respectively, shall not invalidate any award made by
the Committee which award is otherwise validly made under the Plan.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award
hereunder.
(e) With respect to any Performance Compensation Award granted to a
Participant under the Plan, the Plan shall be interpreted and construed in
accordance with Section 162(m) of the Code.
SECTION 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section 4(b),
the aggregate number of Shares with respect to which Awards may be granted under
the Plan shall be 928,962; the maximum number of Shares with respect to which
Options and Stock Appreciation Rights may be granted to any Participant in any
fiscal year shall be 273,224 and the maximum number of Shares which may be paid
to a Participant in the Plan in connection with the settlement of any Award(s)
designated as Performance Compensation Awards in respect of a single Performance
Period shall be 109,290 or, in the event such Performance Compensation Award is
paid in cash, the equivalent cash value thereof. If, after the effective date of
the Plan, any Shares covered by an Award granted under the Plan, or to which
such an Award relates, are forfeited, or if an Award has expired, terminated or
been canceled for any reason whatsoever (other than by reason of exercise or
vesting), then the Shares covered by such Award shall, to the maximum extent
permitted under Section 162(m) of the Code, again be, or shall become, Shares
with respect to which Awards may be granted hereunder.
(b) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee in its discretion to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number of Shares or other securities of the Company (or number and kind
of other securities or property) with respect to which Awards may be granted,
(ii) the number of Shares or other securities of the Company (or number and kind
of other securities or property) subject to outstanding Awards, and (iii) the
grant or exercise price with respect to any Award or, if deemed appropriate,
make provision for a cash payment to the holder of an outstanding Award in
consideration for the cancellation of such Award; provided, in each case, that
no such adjustment shall be authorized to the extent that such authority or
adjustment would cause an Award designated by the Committee as a Performance
Compensation Award under Section 11 of the Plan or an Option or Stock
Appreciation Right with an exercise price or grant price (as applicable) equal
to Fair Market Value of a Share to fail to qualify as "performance-based
compensation" under Section 162(m) of the Code.
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(c) Substitute Awards. Awards may, in the discretion of the Committee, be
made under the Plan in assumption of, or in substitution for, outstanding awards
previously granted by the Company or its Affiliates or a company acquired by the
Company or with which the Company combines ("Substitute Awards"). The number of
Shares underlying any Substitute Awards shall be counted against the aggregate
number of Shares available for Awards under the Plan.
(d) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
SECTION 5. Eligibility. Any officer or other key employee or consultant to
the Company or any of its Subsidiaries (including any prospective officer, key
employee or consultant), who is not a member of the Committee, shall be eligible
to be designated a Participant.
SECTION 6. Stock Options.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Options shall
be granted, the number of Shares to be covered by each Option, the exercise
price therefor and the conditions and limitations applicable to the exercise of
the Option. The Committee shall have the authority to grant Incentive Stock
Options, or to grant Non-Qualified Stock Options, or to grant both types of
Options. In the case of Incentive Stock Options, the terms and conditions of
such grants shall be subject to and comply with such rules as may be prescribed
by Section 422 of the Code, as from time to time amended, and any regulations
implementing such statute. All Options when granted under the Plan are intended
to be Non-Qualified Stock Options, unless the applicable Award Agreement
expressly states that the Option is intended to be an Incentive Stock Option. If
an Option is intended to be an Incentive Stock Option, and if for any reason
such Option (or any portion thereof) shall not qualify as an Incentive Stock
Option, then, to the extent of such nonqualification, such Option (or portion
thereof) shall be regarded as a Non-Qualified Stock Option appropriately granted
under the Plan; provided that such Option (or portion thereof) otherwise
complies with the Plan's requirements relating to Non-Qualified Stock Options.
(b) Exercise Price. The Committee shall establish the exercise price at the
time each Option is granted, which exercise price shall be set forth in the
applicable Award Agreement.
(c) Exercise. Each Option shall be exercisable at such times and subject to
such terms and conditions as the Committee may, in its sole discretion, specify
in the applicable Award Agreement or thereafter. The Committee may impose such
conditions with respect to the exercise of Options, including without
limitation, any relating to the application of federal or state securities laws,
as it may deem necessary or advisable. Options with an exercise price equal to
the Fair Market Value per Share as of the date of grant are intended to qualify
as "performanced-based compensation" under Section 162(m) of the Code. In the
sole discretion of the Committee, Options may be granted with an exercise price
that is less than the Fair Market Value per Share and such Options may, but need
not, be intended to qualify as Performanced Based Compensation in accordance
with Section 11 hereof.
(d) Payment. No Shares shall be delivered pursuant to any exercise of an
Option until payment in full of the aggregate exercise price therefor is
received by the Company. Such payment may be made in cash, or its equivalent,
or, if and to the extent permitted by the Committee, (i) by exchanging Shares
owned by the optionee (which are not the subject of any pledge or other security
interest and which have been owned by such optionee for at least 6 months) or
(ii) subject to such rules as may be established by the Committee, through
delivery of irrevocable instructions to a broker to sell such Shares and deliver
promptly to the Company an amount equal to the aggregate exercise price, or by a
combination of the foregoing, provided that the combined value of all cash and
cash equivalents and the Fair Market Value of any such Shares so tendered to the
Company as of the date of such tender is at least equal to such aggregate
exercise price.
SECTION 7. Stock Appreciation Rights.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Stock
Appreciation Rights shall be granted, the number of Shares to be covered by each
Stock Appreciation Right Award, the grant price thereof and the conditions and
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limitations applicable to the exercise thereof. Stock Appreciation Rights with a
grant price equal to the Fair Market Value per Share as of the date of grant are
intended to qualify as "performanced-based compensation" under Section 162(m) of
the Code. In the sole discretion of the Committee, Stock Appreciation Rights may
be granted with a grant price that is less than the Fair Market Value per Share
and such Options may, but need not, be intended to qualify as Performanced Based
Compensation in accordance with Section 11 hereof. Stock Appreciation Rights may
be granted in tandem with another Award, in addition to another Award, or
freestanding and unrelated to another Award. Stock Appreciation Rights granted
in tandem with or in addition to an Award may be granted either at the same time
as the Award or at a later time. Stock Appreciation Rights shall not be
exercisable earlier than six months after the date of grant.
(b) Exercise and Payment. A Stock Appreciation Right shall entitle the
Participant to receive an amount equal to the excess of the Fair Market Value of
a Share on the date of exercise of the Stock Appreciation Right over the grant
price thereof. The Committee shall determine whether a Stock Appreciation Right
shall be settled in cash, Shares or a combination of cash and Shares.
(c) Other Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine, at or after the grant
of a Stock Appreciation Right, the term, methods of exercise, methods and form
of settlement, and any other terms and conditions of any Stock Appreciation
Right. Any such determination by the Committee may be changed by the Committee
from time to time and may govern the exercise of Stock Appreciation Rights
granted or exercised prior to such determination as well as Stock Appreciation
Rights granted or exercised thereafter. The Committee may impose such conditions
or restrictions on the exercise of any Stock Appreciation Right as it shall deem
appropriate.
SECTION 8. Restricted Stock and Restricted Stock Units.
(a) Grant. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Participants to whom Shares of
Restricted Stock and Restricted Stock Units shall be granted, the number of
Shares of Restricted Stock and/or the number of Restricted Stock Units to be
granted to each Participant, the duration of the period during which, and the
conditions, if any, under which, the Restricted Stock and Restricted Stock Units
may be forfeited to the Company, and the other terms and conditions of such
Awards.
(b) Transfer Restrictions. Shares of Restricted Stock and Restricted Stock
Units may not be sold, assigned, transferred, pledged or otherwise encumbered,
except, in the case of Restricted Stock, as provided in the Plan or the
applicable Award Agreements. Certificates issued in respect of Shares of
Restricted Stock shall be registered in the name of the Participant and
deposited by such Participant, together with a stock power endorsed in blank,
with the Company. Upon the lapse of the restrictions applicable to such Shares
of Restricted Stock, the Company shall deliver such certificates to the
Participant or the Participant's legal representative.
(c) Payment. Each Restricted Stock Unit shall have a value equal to the
Fair Market Value of a Share. Restricted Stock Units shall be paid in cash,
Shares, other securities or other property, as determined in the sole discretion
of the Committee, upon the lapse of the restrictions applicable thereto, or
otherwise in accordance with the applicable Award Agreement. Dividends paid on
any Shares of Restricted Stock may be paid directly to the Participant, withheld
by the Company subject to vesting of the Restricted Shares pursuant to the terms
of the applicable Award Agreement, or may be reinvested in additional Shares of
Restricted Stock or in additional Restricted Stock Units, as determined by the
Committee in its sole discretion.
SECTION 9. Performance Awards.
(a) Grant. The Committee shall have sole and complete authority to
determine the Participants who shall receive a "Performance Award", which shall
consist of a right which is (i) denominated in cash or Shares, (ii) payable in
amounts, as determined by the Committee, based upon the achievement of such
performance goals during such performance periods as the Committee shall
establish, and (iii) payable at such time and in such form as the Committee
shall determine.
(b) Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the performance goals
to be achieved during any performance period, the length of any performance
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period, the amount of any Performance Award and the amount and kind of any
payment or transfer to be made pursuant to any Performance Award.
(c) Payment of Performance Awards. Performance Awards may be paid in a lump
sum or in installments following the close of the performance period or, in
accordance with procedures established by the Committee, on a deferred basis.
SECTION 10. Other Stock-Based Awards.
(a) General. The Committee shall have authority to grant to Participants an
"Other Stock-Based Award", which shall consist of any right which is (i) not an
Award described in Sections 6 through 9 above and (ii) an Award of Shares or an
Award denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Shares (including, without limitation,
securities convertible into Shares), as deemed by the Committee to be consistent
with the purposes of the Plan. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the terms and
conditions of any such Other Stock-Based Award, including the price, if any, at
which securities may be purchased pursuant to any Other Stock-Based Award
granted under this Plan.
(b) Dividend Equivalents. In the sole and complete discretion of the
Committee, an Award, whether made as an Other Stock-Based Award under this
Section 10 or as an Award granted pursuant to Sections 6 through 9 hereof, may
provide the Participant with dividends or dividend equivalents, payable in cash,
Shares, other securities or other property on a current or deferred basis.
SECTION 11. Performance Compensation Awards.
(a) General. The Committee shall have the authority, at the time of grant
of any Award described in Sections 6 through 10 (other than Options and Stock
Appreciation Rights granted with an exercise price or grant price, as the case
may be, equal to the Fair Market Value per Share on the date of grant), to
designate such Award as a Performance Compensation Award in order to qualify
such Award as Performance-Based Compensation under Section 162(m) of the Code.
(b) Eligibility. The Committee will, in its sole discretion, designate
within the first 90 days of a Performance Period (or, if longer, within the
maximum period allowed under Section 162(m) of the Code) which Participant will
be eligible to receive Performance Compensation Awards in respect of such
Performance Period. However, designation of a Participant eligible to receive an
Award hereunder for a Performance Period shall not in any manner entitle the
Participant to receive payment in respect of any Performance Compensation Award
for such Performance Period. The determination as to whether or not such
Participant becomes entitled to payment in respect of any Performance
Compensation Award shall be decided solely in accordance with the provisions of
this Section 11. Moreover, designation of a Participant eligible to receive an
Award hereunder for a particular Performance Period shall not require
designation of such Participant eligible to receive an Award hereunder in any
subsequent Performance Period and designation of one person as a Participant
eligible to receive an Award hereunder shall not require designation of any
other person as a Participant eligible to receive an Award hereunder in such
period or in any other period.
(c) Discretion of Committee with Respect to Performance Compensation
Awards. With regard to a particular Performance Period, the Committee shall have
full discretion to select the length of such Performance Period, the type(s) of
Performance Compensation Awards to be issued, the Performance Criteria that will
be used to establish the Performance Goal(s), the kind(s) and/or level(s) of the
Performance Goals(s) that is(are) to apply to the Company and the Performance
Formula. Within the first 90 days of a Performance Period (or, if longer, within
the maximum period allowed under Section 162(m) of the Code), the Committee
shall, with regard to the Performance Compensation Awards to be issued for such
Performance Period, exercise its discretion with respect to each of the matters
enumerated in the immediately preceding sentence of this Section 11(c) and
record the same in writing.
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(d) Payment of Performance Compensation Awards
(i) Condition to Receipt of Payment. Unless otherwise provided in the
applicable Award Agreement, a Participant must be employed by the Company on the
last day of a Performance Period to be eligible for payment in respect of a
Performance Compensation Award for such Performance Period.
(ii) Limitation. A Participant shall be eligible to receive payment in
respect of a Performance Compensation Award only to the extent that: (1) the
Performance Goals for such period are achieved; and (2) the Performance Formula
as applied against such Performance Goals determines that all or some portion of
such Participant's Performance Award has been earned for the Performance Period.
(iii) Certification. Following the completion of a Performance Period, the
Committee shall meet to review and certify in writing whether, and to what
extent, the Performance Goals for the Performance Period have been achieved and,
if so, to calculate and certify in writing that amount of the Performance
Compensation Awards earned for the period based upon the Performance Formula.
The Committee shall then determine the actual size of each Participant's
Performance Compensation Award for the Performance Period and, in so doing, may
apply Negative Discretion, if and when it deems appropriate.
(iv) Negative Discretion. In determining the actual size of an individual
Performance Award for a Performance Period, the Committee may reduce or
eliminate the amount of the Performance Compensation Award earned under the
Performance Formula in the Performance Period through the use of Negative
Discretion if, in its sole judgement, such reduction or elimination is
appropriate.
(v) Timing of Award Payments. The Awards granted for a Performance Period
shall be paid to Participants as soon as administratively possible following
completion of the certifications required by this Section 11.
(vi) Maximum Award Payable. Notwithstanding any provision contained in this
Plan to the contrary, the maximum Performance Compensation Award payable to any
one Participant under the Plan for a Performance Period is 109,290 Shares or, in
the event the Performance Compensation Award is paid in cash, the equivalent
cash value thereof on the last day of the Performance Period to which such Award
relates. Furthermore, any Performance Compensation Award that has been deferred
shall not (between the date as of which the Award is deferred and the payment
date) increase (i) with respect to a Performance Compensation Award that is
payable in cash, by a measuring factor for each fiscal year greater than a
reasonable rate of interest set by the Committee or (ii) with respect to a
Performance Compensation Award that is payable in Shares, by an amount greater
than the appreciation of a Share from the date such Award is deferred to the
payment date.
SECTION 12. Amendment and Termination.
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan or any portion thereof at any time; provided
that no such amendment, alteration, suspension, discontinuation or termination
shall be made without shareholder approval if such approval is necessary to
comply with any tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief from Section
16(b) of the Exchange Act or Code section 162(m) (provided that the Company is
subject to the requirements of Section 16 of the Exchange Act or Code section
162(m), as the case may be, as of the date of such action).
(b) Amendments to Awards. The Committee may waive any conditions or rights
under, amend any terms of, or alter, suspend, discontinue, cancel or terminate,
any Award theretofore granted, prospectively or retroactively; provided that any
such waiver, amendment, alteration, suspension, discontinuance, cancellation or
termination that would impair the rights of any Participant or any holder or
beneficiary of any Award theretofore granted shall not to that extent be
effective without the consent of the affected Participant, holder or
beneficiary.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee is hereby authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, the events
described in Section 4(b) hereof) affecting the Company, any Affiliate, or the
financial statements of the Company or any Affiliate, or of changes in
8
Exhibit I
<PAGE>
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan; provided that no such adjustment shall be authorized to the
extent that such authority or adjustment would cause an Award designated by the
Committee as a Performance Compensation Award under Section 11 of the Plan to
fail to qualify as "Performance-Based Compensation" under Section 162(m) of the
Code.
SECTION 13. Change of Control. In the event of a Change of Control after
the date of the adoption of this Plan, any outstanding Awards then held by
Participants which are unexercisable or otherwise unvested shall automatically
be deemed exercisable or otherwise vested, as the case may be, as of immediately
prior to such Change of Control.
SECTION 14. General Provisions.
(a) Nontransferability.
(i) Each Award, and each right under any Award, shall be exercisable only
by the Participant during the Participant's lifetime, or, if permissible under
applicable law, by the Participant's legal guardian or representative.
(ii) No Award may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant otherwise than by will or
by the laws of descent and distribution, and any such purported assignment,
alienation, pledge, attachment, sale, transfer or encumbrance shall be void and
unenforceable against the Company or any Affiliate; provided that the
designation of a beneficiary shall not constitute an assignment, alienation,
pledge, attachment, sale, transfer or encumbrance.
(b) No Rights to Awards. No Participant or other Person shall have any
claim to be granted any Award, and there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Awards. The terms and
conditions of Awards and the Committee's determinations and interpretations with
respect thereto need not be the same with respect to each Participant (whether
or not such Participants are similarly situated).
(c) Share Certificates. All certificates for Shares or other securities of
the Company or any Affiliate delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which such Shares or other securities are then listed,
and any applicable Federal or state laws, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions.
(d) Withholding. A Participant may be required to pay to the Company or any
Affiliate and the Company or any Affiliate shall have the right and is hereby
authorized to withhold from any Award, from any payment due or transfer made
under any Award or under the Plan or from any compensation or other amount owing
to a Participant the amount (in cash, Shares, other securities, other Awards or
other property) of any applicable withholding taxes in respect of an Award, its
exercise, or any payment or transfer under an Award or under the Plan and to
take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for the payment of such taxes.
(e) Award Agreements. Each Award hereunder shall be evidenced by an Award
Agreement which shall be delivered to the Participant and shall specify the
terms and conditions of the Award and any rules applicable thereto, including
but not limited to the effect on such Award of the death, disability or
termination of employment or service of a Participant and the effect, if any, of
such other events as may be determined by the Committee.
(f) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other compensation arrangements, which may, but need not, provide for the
grant of options, restricted stock, Shares and other types of Awards provided
for hereunder (subject to shareholder approval if such approval is required),
and such arrangements may be either generally applicable or applicable only in
specific cases.
9
Exhibit I
<PAGE>
(g) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of, or in any
consulting relationship to, the Company or any Affiliate. Further, the Company
or an Affiliate may at any time dismiss a Participant from employment or
discontinue any consulting relationship, free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(h) No Rights as Stockholder. Subject to the provisions of the applicable
Award, no Participant or holder or beneficiary of any Award shall have any
rights as a stockholder with respect to any Shares to be distributed under the
Plan until he or she has become the holder of such Shares. Notwithstanding the
foregoing, in connection with each grant of Restricted Stock hereunder, the
applicable Award shall specify if and to what extent the Participant shall not
be entitled to the rights of a stockholder in respect of such Restricted Stock.
(i) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware.
(j) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to such applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Person or Award and the remainder of the Plan and any
such Award shall remain in full force and effect.
(k) Other Laws. The Committee may refuse to issue or transfer any Shares or
other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary. Without limiting the generality of
the foregoing, no Award granted hereunder shall be construed as an offer to sell
securities of the Company, and no such offer shall be outstanding, unless and
until the Committee in its sole discretion has determined that any such offer,
if made, would be in compliance with all applicable requirements of the U.S.
federal securities laws.
(l) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(m) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Shares or whether such fractional Shares or any rights thereto
shall be canceled, terminated, or otherwise eliminated.
(n) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 16. Term of the Plan.
(a) Effective Date. The Plan shall be effective as of the date of its
approval by the shareholders of the Company.
10
Exhibit I
<PAGE>
(b) Expiration Date. Unless sooner terminated by the Board, the Plan shall
remain effective until the earlier to occur of (i) January 31, 2006 and (ii) the
first meeting of shareholders of the Company at which directors are to be
elected that occurs after the Company's registration of any class of common
equity securities under Section 12 of the Securities Exchange Act of 1934 (the
"Expiration Date"). No Award shall be granted under the Plan after the
Expiration Date unless the Plan has been re-approved by the Company's
shareholders. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Award granted hereunder may, and the authority
of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award or to waive any conditions or rights under any such
Award shall, continue after the Expiration Date.
11
Exhibit I
WAIVER
Waiver (this "Waiver"), dated as of September 1, 1996 among ITHACA
HOLDINGS, INC. ("Holdings"), ITHACA INDUSTRIES, INC. (the "Borrower"), the
various lending parties hereto (the "Banks"), CANADIAN IMPERIAL BANK OF
COMMERCE, acting through one or more of its agencies, branches or affiliates,
and KLEINWORT BENSON LIMITED, as Co-Agents (in such capacity, the "Co-Agents"),
and BANKERS TRUST COMPANY, as Agent (in such capacity, the "Agent"). All
capitalized terms used herein and not otherwise defined herein shall have the
respective means provided such terms in the Credit Agreement referred to below.
WITNESSETH:
WHEREAS, Holdings, the Borrower, the Banks, the Co-Agents and the Agent are
parties to Credit Agreement, dated as of December 1, 1992 (as amended, modified
or supplemented through the date hereof, the "Credit Agreement"); and
WHEREAS, the parties hereto wish to waive the Events of Default which have
arisen, or may arise, under Sections 4.02(c), 8.01(e), 9.10, 9.11 or 9.12 of the
Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. Waiver. Effective as of the Waiver Effective Date (as hereinafter
defined):
a. The Banks hereby waive for the period from and after September 1, 1996
through and including October 31, 1996 (as the same may be earlier
terminated pursuant to paragraph 1(d) hereof, the "Wavier Period") any
Event of Default that may have arisen solely under Sections 9.10, 9.11
or 9.12 of the Credit Agreement for the Borrower's fiscal quarters
ending July 28, 1995, October 27, 1995, May 3, 1996 and August 2, 1996
and fiscal year ending January 31, 1996, it being understood and
agreed that in no event during the Waiver Period shall (i) the
aggregate amount of Letter of Credit Outstandings exceed $10,000,000
and (ii) the aggregate outstanding principal amount of Revolving Loans
and Swingline Loans exceed (x) $28,000,000 minus (y) the sum of (aaa)
the Excess Letter of Credit Amount plus (bbb) the Commitment Reduction
Amount. "Excess Letter of Credit Amount" shall mean, at any time, the
aggregate amount of the Letter of Credit Outstandings, if any, in
excess of $9,645,767.79.
<PAGE>
b. The Banks hereby waive during the Waiver Period the Events of Default
arising solely by reason of the Borrower's failure to make the
payments of principal of the Term Loans as and when due on January 31,
1996, April 30, 1996 and July 31, 1996 (the "Due Dates") under Section
4.02(c) of the Credit Agreement (the "Deferred Principal Payments");
provided, however, that the Deferred Principal Payments shall be due
and payable on October 31, 1996, together with the excess of (i)
interest accrued thereon from and after the respective Due Dates at
the rate set forth in Section 1.08(c) of the Credit Agreement over
(ii) interest paid thereon pursuant to paragraph 5(d) of each of this
Waiver, the Waiver dated as of July 1, 1996 among Holdings, the
Borrower, the Required Banks, the Agent and the Co-Agents (the "July
Waiver"), the Waiver dated as of March 31, 1996 among Holdings, the
Borrower, the Required Banks, the Agent and the Co-Agents (the "March
Waiver") and the Waiver dated as of January 30, 1996 among Holdings,
the Borrower, the Required Banks, the Agent and the Co-Agents (the
"January Waiver"), as applicable, it being understood and agreed that
any Event of Default arising solely by reason of the Borrower's
failure to pay interest due on August 31, 1996 pursuant to the proviso
to paragraph 1(b) of the July Waiver is hereby waived.
c. The Banks hereby waive during the Waiver Period any Event of Default
that may have arisen solely by reason of the Borrower's failure to
deliver a budget as and when due under Section 8.01(e) of the Credit
Agreement.
d. Notwithstanding the foregoing, the waiver set forth in this paragraph
1, and the confirmation set forth in paragraph 2 hereof, shall expire
and the Waiver Period shall terminate, in each case automatically and
without necessity of further action by any Person, in the event that
(i) the representations and warranties set forth in paragraph 4 hereof
shall prove to be untrue or incorrect, (ii) the Borrower shall breach
any covenant or agreement set forth in paragraph 5 hereof or (iii) any
other Event of Default shall occur under the Credit Agreement, unless
the same shall have been waived in writing in accordance with the
terms of the Credit Agreement.
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<PAGE>
2. Confirmation. Effective as of the Waiver Effective Date, the Banks
(including without limitation BTCo) hereby
confirm that, subject to paragraph 1 above and Sections 2 and 6 of the Credit
Agreement, BTCo shall, at the request of the Borrower made during the Waiver
Period, renew or extend any and all Letters of Credit the stated maturity of
which occurs, or that would otherwise expire or mature, during the Waiver
Period.
3. Waiver Effective Date. This Waiver shall become effective on the first
date (the "Waiver Effective Date" ) by which Holdings, the Borrower and the
Required Banks shall have signed a counterpart hereof (whether the same or
different counterparts) and shall have delivered (including by way of
telecopier) the same to the Agent at the Notice Office.
4. Representations and Warranties. In order to induce the Banks to enter
into this Waiver, the Borrower hereby represents and warrants that (a) no
Default or Event of Default exists as of the Waiver Effective Date after giving
effect to this Waiver, (b) all of the representations and warranties contained
in the Credit Agreement shall be true and correct in all material respects as of
the Waiver Effective Date after giving effect to this Waiver, with the same
effect as though such representations and warranties had been made on and as of
the Waiver Effective Date (it being understood that any representation or
warranty made as of a specific date shall be required to be true and correct in
all material respects only as of such specific date) and (c) the Borrower is in
compliance with all of the terms of the December, January, March and July
Waivers (except as expressly modified herein).
5. Covenants. In order to induce the Banks to enter into this Waiver, the
Borrower hereby covenants and agrees as follows:
a. Accounts. The Borrower and its Subsidiaries shall:
i. Except for deposit and other bank accounts at the institutions set
forth on Schedule A to the January Waiver ("Excepted Accounts"),
maintain all of their respective active deposit and other bank
accounts ("Accounts") (x) as collateral accounts (collectively, the
"First Union Collateral Account") at First Union National Bank of
North Carolina, as cash collateral agent (the "Cash Collateral Agent")
pursuant to the Cash Collateral Agreement dated as of December 4, 1995
(the "Cash Collateral Agreement") between the Borrower and the Cash
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<PAGE>
Collateral Agent, and/or (y) as collateral accounts at one or more
other banks reasonably acceptable to the Required Banks (such other
banks, collectively, an "Alternative Bank"), and in the event that
such deposits shall be maintained at any such other Alternative Bank,
the Borrower shall have conveyed to such Alternative Bank for the
ratable benefit of the Secured Creditors (as defined in the Cash
Collateral Agreement), a lien on the security interest in such
Accounts and the funds and other property therein, pursuant to
agreements in form and substance reasonably satisfactory to the
Required Banks; provided, however, that the Borrower shall (x) not
maintain balances in (aa) the Excepted Accounts and Transferred
Accounts (as such term in defined in the January Waiver) in excess of
$600,000 in the aggregate at any one time and (bb) an Excepted Account
or Transferred Account in any amount unless the Local Bank (as defined
in the January Waiver) or the bank holding the Transferred Account, as
applicable, shall have executed the delivered a Letter Agreement (as
defined in the January Waiver) with respect thereto, provided that
(xx) with respect to Excepted Accounts other than the two Accounts
identified on Schedule A to the January Waiver as being located in
Honduras (the "Honduras Accounts"), this clause (x) (bb) shall apply
only to Excepted Accounts having $25,000 or more on deposit at any
time from and after the January Waiver Effective Date and (yy) with
respect to the Honduras Accounts, the Borrower and its Subsidiaries
shall use their respective best efforts to have the Local Bank holding
such Accounts execute and deliver a Letter Agreement and shall not,
unless and until a Letter Agreement shall have been so executed and
delivered, maintain balances in such Accounts in excess of $200,000 in
the aggregate for more than two consecutive Business Days and (y) take
any other action with respect thereto reasonably requested by the
Agent, the Co-Agents or the Cash Collateral Agent; provided, further,
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<PAGE>
that (xxx) so long as an Event of Default has occurred and is
continuing, which Event of Default has not been waived under the terms
of the Credit Agreement, the Cash Collateral Agent may deliver the
written instructions referred to in the Letter Agreement directing
that the funds and other property in the Excepted Accounts or
Transferred Accounts be paid to the Cash Collateral Agent, which funds
shall then be distributed or otherwise dealt with on accordance with
the terms of the Cash Collateral Agreement and the Security Agreement,
dated as of December 10, 1992, as amended, between the Borrower and
Bankers Trust Company, as Collateral Agent and (yyy) nothing herein
shall be deemed to prohibit the Borrower from, at its option at any
time, terminating an Excepted Account or Transferred Account and
transferring the funds therein to the First Union Collateral Account
or another Transferred Account with respect to which a Letter
Agreement has been executed and delivered;
ii. Deposit cash receipts into, and make cash disbursement out of, the
Accounts and (subject to the limitation on balances set forth in
clause (x) to the first proviso above) the Excepted Accounts and
Transferred Accounts, in each case in the ordinary course of business;
and
iii. Not hold cash or Cash Equivalents in excess of $5,000,000 in the
aggregate (aa) for any period of more than two consecutive Business
Days from and after the Waiver Effective Date through and including
October 23, 1996 and (bb) for more than one Business Day from and
after October 24, 1996 through and including October 31, 1996.
b. Reporting Requirements. The Borrower shall furnish to each Bank:
i. On the second Business Day of each week (the "Delivery Day")
during the Waiver Period (w) projections showing (on a daily
-5-
<PAGE>
basis for such week and the immediately succeeding week, and on a
weekly basis thereafter) anticipated cash receipts and
disbursements, Revolving Loans, Swingline Loans and Letter of
Credit Outstandings for the four-week period commencing on the
Business Day immediately preceding the Delivery Day, (x) a
statement of such information on a historical basis for the
immediately preceding week, (y) a statement of outstanding
accounts receivable and, to the best extent practicable, accounts
payable, in each case as of the end of the immediately preceding
week, and all reserves applicable to such accounts receivable,
together with an aging report on such accounts receivable and, to
the best extent practicable, accounts payable and (z) such other
information pertaining to any of the foregoing as any Bank my
reasonably request;
ii. On the fifteenth Business Day of each month during the Waiver
Period, (x) a Borrowing Base Certificate in the form of Exhibit K
to the Credit Agreement for the immediately preceding month,
including a breakdown of inventory showing the amounts thereof
comprising work in process, raw materials and finished goods and
(y) such other information pertaining thereto as any Bank may
reasonably request; and
iii. To the best extent practicable, on the twentieth Business Day of
each month during the Waiver Period, but in no event later than
the date of delivery of the monthly reports required by Section
8.01(a) of the Credit Agreement, (x) a breakdown reflecting (aa)
inventory by location, (bb) the ten largest accounts payable by
payee, (cc) overhead expenditures by category and (dd) a
preliminary estimate of Consolidated EBITDA and (y) an officers'
certificate (aa) describing in reasonable detail the Borrower's
progress in selling the "assets held for disposition" as
described in the Borrower's "FY 1997-FY 1999 Business Plan,"
dated March 12, 1996 (as revised, the "Business Plan") and the
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<PAGE>
net book value and sales prices of the assets sold and (bb)
demonstrating the Borrower's and its Subsidiaries' compliance
with paragraphs 5(i) and (j) hereof.
c. Ithaca Professionals; Aggregate Fees and Expenses. The Borrower shall
provide the Banks with reasonable access (subject to the
attorney-client privilege) to Alvarez & Marsal ("A&M"), Arthur
Andersen LLP ("AA") and all other professionals retained by the
Borrower (A&M, AA and such other professionals, collectively, the
"Ithaca Professionals") as and when requested by the Banks. The
Borrower shall continue to discuss with the Banks and appropriate
rationalization of the costs and activities of the Ithaca
Professionals (so as to prevent or eliminate any unnecessary overlap).
Without limiting the generality of the immediately preceding sentence,
the Borrower shall not pay, or become obligated to pay, aggregate
professional fees and expenses (including all such fees and expenses
for Ithaca Professionals and for professionals referred to in
paragraph 5(f) hereof) in excess of $1,600,000 for the Waiver Period.
d. Base Rate Loans; Interest Payments. During the Waiver Period:
i. Each outstanding Loan shall be, and remain, a Base Rate Loan; and
ii. The Borrower shall pay accrued (and theretofore unpaid) interest
on each Base Rate Loan on the last Business Day of each month, at
the rate set forth in Section 1.08(a) of the Credit Agreement.
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<PAGE>
e. Subordinated Interest Payment. If the Borrower or any of its
Subsidiaries makes all or any portion of the interest payments due
December 15, 1995 and June 15, 1996 under the New Subordinated Note
Indenture, the Borrower shall have received (prior thereto or
contemporaneously therewith) a subordinated, unsecured loan for an
equal amount of immediately available funds from, or on behalf of,
Holdings or any Affiliate thereof (other than the Borrower or its
Subsidiaries) pursuant to a promissory note in form and substance
reasonably satisfactory to the Required Banks, the parties hereto
acknowledging and agreeing that the issuance of such promissory note,
and the Borrower's incurrence of indebtedness thereunder, shall not
constitute a Default or Event of Default; provided, however, that in
no event shall (i) interest, principal, fees or other amounts on or in
respect of such loan be payable or paid, nor shall such loan otherwise
mature, prior to the payment in full of the Obligations (as defined in
the Cash Collateral Agreement) or (ii) such promissory note contain
representations, warranties, covenants, events of default or other
terms or provisions more restrictive than those set forth in the
Credit Agreement as the same may be amended, modified or otherwise
waived from time to time; provided, further, that if the Borrower
elects not to make, or not to cause any of its Subsidiaries to make,
such interest payment, no Default or Event of Default shall have been
caused thereby unless and until the Indebtedness under the New
Subordinated Note Indenture shall have become due prior to its stated
maturity by reason of such failure, or any holder (a "Subordinated
Holder") of such Indebtedness (or the indenture trustee under the New
Subordinated Note Indenture (the "Subordinated Indenture Trustee"))
shall have exercised any remedy under the New Subordinated Note
Indenture, or otherwise shall have initiated any legal proceeding, in
respect of, or relation to, such failure.
f. Fees and Expenses of Subordinated Holders. The Borrower shall not, and
shall not permit any of its Subsidiaries to, pay, or obligate itself
to pay, the fees and expenses of any Subordinated Holder, the
Subordinated Indenture Trustee, any formal or informal committee of
Subordinated Holders or their respective professionals (including
-8-
<PAGE>
without limitation counsel, financial advisers and/or accountants), in
excess of, in the aggregate for all of the foregoing, $150,000 (plus
$8,500 solely for the Subordinated Indenture Trustee) for each 30-day
period during the Waiver Period.
g. Sales of Assets. If the Borrower or any of its Subsidiaries sells
inventory, accounts receivable or other assets ("Asset Sales") during
the Waiver Period outside of the ordinary course of business (other
than sales of "assets held for disposition" as described in the
Business Plan), an amount equal to 100% of the Net Sale Proceeds
thereof shall be paid as a mandatory repayment of principal of
outstanding Loans and applied in accordance with paragraph 6(a)
hereof; provided, however, that the foregoing shall not apply to sales
permitted under Sections 9.02(ii), 9.02(vi) or 9.02(vii) of the Credit
Agreement and generating aggregate proceeds from and after the Waiver
Effective Date not in excess of (x) the First Sale Amount (as
hereinafter defined) under such Section 9.02(ii) and (y) the Second
Sale Amount (as hereinafter defined) under such Section 9.02(vi) and
9.02(vii). "First Sale Amount" means $275,000 minus the proceeds of
Asset Sales received during the period of time covered by the December
Waiver (as hereinafter defined), the January Waiver, the March Waiver
and the July Waiver not applied, pursuant to clause (x) of the proviso
to paragraph 4(g) of the December Waiver, clause (x) of the proviso to
paragraph 5(g) of the January Waiver, clause (x) of the proviso to
paragraph 5(g) of the March Waiver or clause (x) of the proviso to
paragraph 5(g) of the July Waiver, to the repayment of principal of
outstanding Term Loans. "Second Sale Amount" means $250,000 minus the
proceeds of Asset Sales received during the period of time covered by
the December Waiver, the January Waiver, the March Waiver and the July
Waiver not applied, pursuant to clause (y) of the proviso to paragraph
4(g) of the December Waiver, clause (y) of the proviso to paragraph
5(g) of the January Waiver, clause (y) of the proviso to paragraph
5(g) of the March Waiver or clause (y) of the proviso to paragraph
5(g) of the July Waiver, to the repayment of principal of outstanding
Term Loans. "December Waiver" means that certain Waiver, dated as of
December 4, 1995, among Holdings, the Borrower, the Required Banks,
the Agent and the Co-Agents.
h. No Dividends. During the Waiver Period, the Borrower shall not, and
shall not permit any of its Subsidiaries to, authorize, declare or pay
-9-
<PAGE>
any Dividends with respect to the Borrower or any of it Subsidiaries,
except that any Subsidiary of the Borrower may pay Dividends to the
Borrower or any Wholly-Owned Subsidiary of the Borrower.
i. EBITDA. The Borrower will not permit Consolidated EBITDA for the
periods commencing on February 1, 1996 and ending at the end of each
of the fiscal months set forth in column 1 below to be less than the
amount set forth in column 2 below:
1 2
----- -----
April 1996 $ 6,724,000
May 1996 8,236,000
June 1996 9,401,000
July 1996 11,736,000
August 1996 12,783,000
September 1996 13,658,000
October 1996 14,655,000
j. Capital Expenditures. The Borrower will not, and will not permit any
of its Subsidiaries to, make aggregate Capital Expenditures during the
periods commencing on February 1, 1996 and ending at the end of each
of the fiscal months set forth in column 1 below, in excess of the
amounts set forth in column 2 below:
1 2
----- -----
February 1996 $ 600,000
March 1996 1,200,000
April 1996 1,800,000
May 1996 2,400,000
June 1996 3,000,000
July 1996 3,500,000
August 1996 4,000,000
September 1996 4,500,000
October 1996 5,000,000
k. Other. During the Waiver Period:
i. The Borrower shall not, and shall not permit any of its
Subsidiaries to, (i) incur Indebtedness, other than (x)
Indebtedness pursuant to the Credit Agreement and the other
Credit Documents, (y) accrued expenses and current accounts
payable incurred in the ordinary course of business and (z)
Indebtedness otherwise permitted by this Waiver, (ii) reduce the
amount owed by an account debtor on an account receivable in
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exchange for an accelerated payment of all or a portion of such
account receivable by such account debtor or any other Person or
(iii) pay performance or related bonuses to senior management.
ii. The Borrower shall, and shall cause its Subsidiaries to, use
their respective best efforts, consistent with the proper
operation of the Borrower's business under the Borrower's present
circumstances, to maintain aggregate accounts payable ("Aggregate
Payables") at the target level for the Waiver Period as set forth
in the Business Plan (the "Target Level"); provided, however,
that the Borrower shall not, and shall not permit its
Subsidiaries to, use cash or other assets constituting Collateral
to reduce Aggregate Payables by more than 12.5% below the Target
Level for each fiscal month of the Waiver Period, measured as of
the last Business Day of each such other month (or any other day
during such month upon which the borrower regularly reports its
Aggregate Payables); provided, further, that nothing herein shall
constitute a direction to the Borrower to pay, not to pay, or to
delay in paying, or otherwise to take or not to take action with
respect to, one or more individual accounts payable.
6. Application of Payments; Sharing. From and after the Waiver Effective
Date:
a. All mandatory repayments of Loans pursuant to the terms of the Credit
Agreement or this Waiver (other than payments, if any, required in
order for the Borrower to comply with paragraphs 1(a) or 5(a) (iii)
hereof), and all voluntary repayments that would otherwise by
repayments of Term Loans, shall be applied ratably to the outstanding
principal of Revolving Loans and Term Loans. All such payments so
applied to Revolving Loans shall reduce the Revolving Loan Commitments
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by the amount of such payments (the "Commitment Reduction Amount").
All such payments so applied to Term Loans shall reduce the then
remaining Scheduled Repayments in inverse order to maturity.
b. If, on or after the expiration of the Waiver Period (as the same may
be extended pursuant to the terms of the Credit Agreement), the Loans,
Notes and Obligations shall have been declared, or shall have
automatically become, due and payable pursuant to Section 11 of the
Credit Agreement (a "Termination Event"), and (i) the outstanding
principal amount of the Revolving Loans shall, by reason of repayments
from and after the Waiver Effective Date, be less than (ii) the amount
that would have been outstanding if all repayments of Loans from and
after the Waiver Effective Date had been applied ratably to the
outstanding principal amount of the Revolving Loans and the Term Loans
(the excess, if any, of (ii) over (i) being the "Revolver Paydown
Amount"), then each Bank holding Revolving Loans shall severally and
ratably based on its Revolving Loan Commitments, purchase at par from
each Bank holding Term Loans (a "Selling Bank"), a pari passu
undivided assignment of such Selling Bank's Term Loans by paying to
such Selling Bank an amount equal to such Selling Bank's pro rata
share (based on the Term Loans held by such Selling Bank) of the
Revolver Paydown Amount; provided, however, that nothing contained
herein shall require a Bank to purchase or sell a pari passu undivided
assignment of Term Loans to the extent that such Bank's pro rata
portion of the outstanding principal amount of the Revolving Loans is
equal to such Bank's pro rata portion of the outstanding principal
amount of the Term Loans. All purchases and sales pursuant to this
paragraph 6(b) shall be made without representation, recourse or
warranty (other than customary representations concerning corporate
power and authority to make such purchases and sales and related
matters) pursuant to customary documentation negotiated in good faith
by the Banks as soon as reasonably practicable after the occurrence of
a Termination Event.
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<PAGE>
7. Limitation; Headings. This Waiver is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document. The headings of the paragraphs of
this Waiver are intended for convenience only and shall not in any way affect
the meaning or construction of any provision of this Waiver.
8. Execution; Credit Document; Co-Agent's Fees. This Waiver may be executed
in any number of counterparts and by the different parties hereto on separate
counterparts, each of which counterparts when executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. A complete set of counterparts shall be lodged with the Borrower and
the Agent. This Waiver shall be a "Credit Document" for all purposes of the
Credit Agreement. The Borrower hereby agrees to pay the reasonable legal fees
and expenses, if any, of the Co-Agents in connection with this Waiver and
preceding waivers.
9. Governing Law. This Waiver and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the law of the
State of New York for contracts made and wholly performed in that State.
10. References to Credit Agreement. From and after the Waiver Effective
Date, all references in the Credit Agreement and the other Credit Documents to
the Credit Agreement shall be deemed to be references to the Credit Agreement as
modified hereby.
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Signature Page
Ithaca Waiver Dated as of September 1, 1996
ITHACA HOLDINGS, INC.
By: Jim D. Waller
------------------------------
Title: Chairman, CEO
ITHACA INDUSTRIES, INC.
By: Eric N. Hoyle
------------------------------
Title: Sr. VP
BANKERS TRUST COMPANY
individually and as Agent
By: Dana Klein
------------------------------
Title: Vice President
CANADIAN IMPERIAL BANK OF COMMERCE
acting through one or more
agencies, branches or affiliates
as Co-Agent.
By: [Illegible]
------------------------------
Title: Authorized Signatory
CIBC INC.
By: [Illegible]
------------------------------
Title: Director
KLEINWORT BENSON LIMITED
individually and as Co-agent
By:
------------------------------
Title:
<PAGE>
Signature Page
Ithaca Waiver Dated as of September 1, 1996
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By:
------------------------------
Title:
FOOTHILL CAPITAL CORPORATION
By: [Illegible]
------------------------------
Title: V.P.
THE FIRST NATIONAL BANK OF BOSTON
By:
------------------------------
Title:
NATIONAL CITY BANK
By: [Illegible]
------------------------------
Title: V.P.
PEARL STREET, L.P.
By: [Illegible]
------------------------------
Title: Authorized Signatory
THE FUJI BANK, LIMITED
By:
------------------------------
Title:
