REGISTRATION NO. 333-23555
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ITHACA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2251, 2341 & 2322 56-1385842
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code No.) Identification No.)
HIGHWAY 268 WEST
P.O. BOX 620
WILKESBORO, NORTH CAROLINA 28697
(910) 667-5231
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ERIC N. HOYLE
Senior Vice President-Finance and Administration
Secretary, Principal Financial and Chief Accounting Officer
Highway 268 West
P.O. Box 620
Wilkesboro, North Carolina 28697
(910) 667-5231
(Name, address, including zip code, and telephone number, including area code,
of registrant's agent for service of process)
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COPIES TO:
CARL L. REISNER, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
From time to time after the effective date of the Registration Statement.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement of the earlier effective registration statement for the
same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED OCTOBER 23, 1997
PROSPECTUS
10,109,290 Shares
Ithaca Industries, Inc.
Common Stock
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This Prospectus relates to the offering from time to time of up to
10,109,290 shares ("Shares") of Common Stock, par value $.01 per share (the
"Common Stock"), issued by Ithaca Industries, Inc. (the "Company" or "Ithaca
Industries" or "Ithaca"), a Delaware corporation, to certain creditors of the
Company pursuant to the Company's Plan of Reorganization dated as of August 29,
1996 ("Plan of Reorganization") under Section 1121(a) of the United States
Bankruptcy Code (the "Bankruptcy Code") and pursuant to a Management Agreement
entered into with Alvarez & Marsal, Inc. dated December 17, 1996 (the
"Management Agreement"). The Plan of Reorganization became effective on December
16, 1996 (the "Effective Date of the Plan of Reorganization"). Pursuant to the
Plan of Reorganization, 10,000,000 shares of Common Stock were issued following
the Effective Date of the Plan of Reorganization and as of October 23, 1997,
constituted all of the shares of Common Stock outstanding. Pursuant to the
Management Agreement, an option to purchase 109,290 shares of Common Stock was
granted to Alvarez & Marsal, Inc., the Company's financial and business advisor,
as of January 31, 1997. As of the date of this Prospectus, Alvarez & Marsal,
Inc. has not exercised its option.
The Shares may be sold to the public from time to time by certain holders
thereof (the "Selling Stockholders") in the amount and the manner described
herein or as may be set forth in a Prospectus Supplement accompanying this
Prospectus. The Company will receive no proceeds from the sale of any of the
Shares by any of the Selling Stockholders. See "Plan of Distribution."
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SEE "RISK FACTORS" ON PAGE 7 FOR INFORMATION CONCERNING CERTAIN RISKS
ASSOCIATED WITH AN INVESTMENT IN ANY OF THE SHARES.
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Through the date hereof, there has been no established public trading
market for the Common Stock. An Application to list the Common Stock on the
NASDAQ National Market was submitted in August 1997, however, there can be no
assurance that such application will be approved. Further there can be no
assurance that any active trading market will develop or will be sustained for
the Common Stock or as to the price at which the Common Stock may trade or that
the market for the Common Stock will not be subject to disruptions that will
make it difficult or impossible for the holders of the Common Stock to sell
shares in a timely manner, if at all, or to recoup their investment in the
Common Stock. See "Risk Factors--Liquidity; Absence of Market for Common Stock."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is October 29, 1997.
<PAGE>
The Selling Stockholders directly, through agents designated from time to
time or through dealers or underwriters also to be designated, may sell the
Common Stock from time to time on terms to be determined at the time of sale. To
the extent required, the Common Stock to be sold, the names of the Selling
Stockholders, the respective purchase prices, public offering prices, historical
trading information for the Common Stock, the names of any such agent, dealer or
underwriter and any applicable commissions or discounts with respect to a
particular offer will be set forth in an accompanying Prospectus Supplement. See
"Plan of Distribution." If the Company is advised that an underwriter has been
engaged with respect to the sale of any Shares offered hereby or in the event of
any other material change in the plan of distribution, the Company will cause an
appropriate amendment to the Registration Statement of which this Prospectus
forms a part to be filed with the Securities and Exchange Commission (the
"Commission") reflecting such engagement or other change. See "Additional
Information."
The Company will not receive any proceeds from this offering, but agreed
to pay substantially all of the expenses of this offering other than applicable
transfer taxes, seller's counsel fees, commissions, fees and discounts payable
to dealers, agents or underwriters. The Selling Stockholders and any broker
dealers, agents or underwriters that participate with the Selling Stockholders
in the distribution of the Shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act") and any
commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Description of Capital Stock--Registration Rights
Agreement" and "Plan of Distribution" for a description of certain
indemnification arrangements.
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ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith is obligated to file reports and other information with the
Commission. Reports and other information concerning the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Commission located at Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661 and at Suite 1300, 7 World Trade Center, New
York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 upon payment of the fees prescribed by the Commission.
Reports, proxy, information statements and other information regarding the
Company filed electronically with the Commission are available on the
Commission's web site (http://www.sec.gov).
The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendments and exhibits thereto) under the Securities
Act with respect of the Shares offered hereby. This Prospectus, which forms a
part of such Registration Statement, does not contain all the information set
forth in such Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, with respect to each such contract,
agreement or other document filed as an exhibit to such Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved and each such statement shall be deemed qualified in its entirety by
such reference. Any interested parties may inspect such Registration Statement,
without charge, at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and may obtain copies of all
or any part of it from the Commission upon payment of the fees prescribed by the
Commission. Neither the delivery of this Prospectus or any Prospectus
Supplement, nor any sales made hereunder or thereunder shall under any
circumstances create any implication that the information contained herein or
therein is correct as of any time subsequent to the date hereof or thereof or
that there has been no change in the affairs of the Company since the date
hereof or thereof.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. FOR PURPOSES OF PRESENTING FINANCIAL INFORMATION
IN THIS PROSPECTUS (OTHER THAN THE FINANCIAL STATEMENTS), THE COMPANY'S FISCAL
YEARS ARE INDICATED AS ENDING ON JANUARY 31, ALTHOUGH BEFORE DECEMBER OF 1996
SUCH PERIODS ACTUALLY ENDED ON THE FRIDAY NEAREST SUCH DATE AND AFTER NOVEMBER
OF 1996 SUCH PERIODS ACTUALLY END ON THE SATURDAY NEAREST SUCH DATE.
THE COMPANY
The Company believes it is the largest manufacturer of private label
underwear and women's hosiery products in the United States, operating
distribution and manufacturing facilities in the Southeastern United States and
off-shore manufacturing facilities in Central America. The Company has three
principal product lines: (1) men's and boys' underwear and outerwear T-shirts,
(2) women's and girls' underwear and (3) women's hosiery. 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 key
elements of the Company's strategy are to supply a wide variety of product
offerings at a number of price points, to maintain a strong presence in multiple
channels of distribution, to maintain close customer relationships by developing
products and programs that suit individual customer needs and to maintain low
cost and flexible manufacturing or sourcing capabilities.
The Company was founded in 1948 in Ithaca, New York as a manufacturer of
women's underwear. Since that 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 women's hosiery in 1968, men's and boys' underwear in 1972 and
T-shirts in 1983. In 1983, Ithaca's founder sold the business to an investor
group led by Merrill Lynch Capital Partners Inc. ("MLCP"), a private investment
firm affiliated with Merrill Lynch & Co., Butler Capital Corporation ("Butler")
and senior management. The Company was recapitalized in 1988 and in December
1992, the Company completed a public offering of $125,000,000 of 11.125% Senior
Subordinated Notes due 2002 (the "Notes"). In connection with the completion of
the offering, the Company and its stockholders completed a reorganization
whereby the Company became a wholly-owned subsidiary of Ithaca Holdings, Inc., a
Delaware corporation ("Holdings").
During fiscal 1996, the Company incurred covenant defaults under its bank
credit agreement, originally dated as of December 10, 1992 and amended and
restated as of December 16, 1996 (the "Credit Agreement"). Under the terms of a
series of waivers between the Company and the parties to the Credit Agreement,
the Company was unable to pay the interest due on the Notes. In the third and
fourth quarters of fiscal 1996 the Company undertook an extensive review of its
manufacturing capacity, overhead structure, product lines and customer base.
These efforts resulted in the promulgation of a three-year business plan,
revised in May 1996 (as revised, the "Business Plan"), to enhance performance
and reduce overhead expenses. The Company consolidated its distribution centers
and production capacity to increase efficiencies, consolidated the operations of
certain plants to off-shore facilities and accelerated the process of moving
sewing operations off-shore. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
In furtherance of its restructuring efforts, on October 8, 1996, the
Company filed a voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code ("Chapter 11") with the Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). On December 16, 1996, the Company emerged
from bankruptcy pursuant to the Plan of Reorganization. Pursuant to the Plan of
Reorganization, among other things, 10,000,000 shares of Common Stock were
distributed to the holders of the Notes, the Notes were retired, the Company
ceased to be a subsidiary of Holdings and the Credit Agreement was amended and
restated. In August 1997, the Credit Agreement was amended principally to modify
certain financial covenants to more closely reflect the Company's operating
results.
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The Company is organized under the laws of the State of Delaware and its
principal executive offices are located at Highway 268 West, P.O. Box 620,
Wilkesboro, North Carolina 28697, telephone number (910) 667-5231.
RISK FACTORS
See "Risk Factors" for information concerning certain risks associated
with an investment in the Shares.
SUMMARY FINANCIAL INFORMATION
The summary financial information set forth below is qualified by and
should be read in conjunction with the "Financial Statements" and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The Company's
Results of Operations after November 22, 1996 reflect the consummation of the
Plan of Reorganization, the transactions contemplated thereby and the
application of Fresh Start Reporting rules and procedures. Accordingly, results
of Operations of the Company prior to November 22, 1996 will generally not be
comparable to subsequent periods due to the effects of the Plan of
Reorganization, the transactions completed thereby and related financing. Income
per share for periods prior to the Effective Date of the Plan of Reorganization
is not meaningful because during such periods the Company was a wholly owned
subsidiary of Holdings.
<TABLE>
<CAPTION>
Post
Confirmation Preconfirmation
--------------------------- ------------------------------------------------------------
(Unaudited)
26-Week 10-Week 42-Week
Period Ended Period Ended Period Ended Fiscal Year Ended
August 2, January 31, November 22, January 31,
--------- --------- -------- --------- -------- -------- --------
1997 1997 1996 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $119,676 $ 42,708 $297,603 $398,819 $414,800 $414,671 $440,357
Gross profit 17,962 4,487 42,060 44,882 72,859 68,072 79,137
Selling, general and
administrative expenses 13,164 7,354 27,670 43,486 37,075 39,711(1) 33,996
(Recovery of) provision for --
asset write-downs and
restructuring -- -- (2,964) 51,591(2)
Operating income (loss) 4,798 (2,867) 17,354 (50,195) 35,784 28,361 45,141
Interest expense - net(3) 3,509 1,385 17,489 26,905 23,147 23,455 24,027
Reorganization items -- -- (1,176)(4) -- -- -- --
Income (loss) before income
taxes and extraordinary
items 1,608 (4,157) 1,666 (76,802) 13,166 4,968 21,647
Income tax expense (benefit) 754 (1,400) 4,218 (27,157) 5,653 2,086 8,415
Income (loss) before
extraordinary items 854 (2,757) (2,552) (49,644) 7,513 2,882 13,232
Extraordinary items(5) -- -- 67,924 -- -- -- (5,939)
Net income (loss) $ 854 $ (2,757) $ 65,372 $ (49,644) $ 7,513 $ 2,882 $ 7,293
========= ========== ======== ========== ======== ======== ========
Net income (loss) per
common share $ 0.09 $ 0.28 -- -- -- -- --
========= ========== ======== ========== ======== ======== ========
Dividend per common share -- -- -- -- -- -- --
BALANCE SHEET DATA (AT END
OF PERIOD): Post-Confirmation
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Working capital (deficit) $ 67,633 $ 63,523 $ 75,591 ($145,909) $113,028 $123,222 $122,230
Total assets 129,434 133,687 155,993 208,642 224,471 235,997 236,588
Long-term debt exclusive of
current maturities 66,970 66,069 77,255 n/a(6) 221,819 242,785 250,720
Total stockholders' equity 20,215 19,359 22,116 (93,558) (43,914) (51,427) (54,309)
(deficit)
</TABLE>
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(1)Includes a bad debt provision of $4 million to cover the bankruptcy of a
major T-shirt customer during the second quarter of fiscal 1994.
(2)In fiscal 1996, the Company initiated a restructuring plan to improve
operating performance and reduce costs. In connection with this plan, the
Company recorded charges totaling $51,591,000 ($33,379,000 after related
income tax benefits). Such charges related to (a) the closing and
consolidation of certain manufacturing and distribution facilities, (b) the
write-down of certain equipment associated with closed facilities, (c) 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, (d) severance
and other costs associated with plant closures and overhead reductions and
(e) the write-off of certain impaired intangible assets.
(3)Principally includes interest expense on long-term debt and amortization of
deferred debt expense, offset by interest income from the short-term
investment of excess cash. During the period from August 29, 1996 through
November 22, 1996, the Company did not accrue interest on the Senior
Subordinated Notes due 2002 which were canceled in connection with the Plan
of Reorganization.
(4)Reorganization items for the 42-week period ended November 22, 1996 include
$3,765,000 of adjustments to record assets and liabilities at fair value in
connection with the application of Fresh Start Reporting.
(5)Loss on early extinguishment of debt (net of income tax benefit of
$3,763,000) on December 10, 1992 and gain on debt discharge (net of income
tax expense of $23,056,000) pursuant to confirmation of Plan of
Reorganization at November 22, 1996.
(6)Due to continuing covenant violations, temporary waivers granted and events
of default, as further discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," all of the Company's
outstanding debt was classified as current at January 31, 1996.
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RISK FACTORS
PRIOR TO MAKING AN INVESTMENT DECISION, PROSPECTIVE INVESTORS IN THE
COMMON STOCK SHOULD CONSIDER THE SPECIFIC FACTORS SET FORTH BELOW AS WELL AS THE
OTHER INFORMATION SET FORTH IN THIS PROSPECTUS.
EMERGENCE FROM REORGANIZATION PROCEEDING
On December 16, 1996, the Company emerged from bankruptcy pursuant to the
Plan of Reorganization. The Plan of Reorganization left all the Company's
creditor's claims unimpaired except for parties to the Credit Agreement, which
was restructured and the holders of the Notes (the "Noteholders"), who received
10,000,000 shares of Common Stock in exchange for all of their Notes, which were
then retired. While trade creditors were paid in full, it is possible that the
fact of the bankruptcy will adversely impact the Company's future relationship
with customers and suppliers and its future access to capital. The Company can
not predict what, if any, impact this will have.
SUBSTANTIAL LEVERAGE
Although, in connection with the Plan of Reorganization, $125 million of
indebtedness was converted to equity, the Company remains significantly
leveraged. As of October 17, 1997 the Company had $41.2 million outstanding
under its term loan facility ("Term Loan") and $6.6 million of letters of credit
and $19.4 million of borrowings outstanding under its revolving loan facility.
The Company had additional borrowing capacity under the Credit Agreement of up
to $28.7 million.
The degree to which the Company is leveraged could have important
consequences for holders of the Common Stock, including: the Company's future
ability to obtain additional financing for working capital, capital
expenditures, product development, acquisitions, general corporate purposes or
other purposes may be impaired; a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of the principal and interest
on its indebtedness; terms of the Credit Agreement restrict the Company's
ability to pay dividends and impose other operating and financial restrictions;
and the Company's degree of leverage may make it vulnerable to economic
downturns and may limit its ability to withstand competitive pressures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company believes that, based on current levels of operations, its cash
flow from operations will be adequate to make scheduled payments of principal
and interest on its indebtedness prior to final maturity, to permit anticipated
capital expenditures and to fund working capital requirements. However, the
Company's ability to make required payments of principal at maturity will depend
on its ability to refinance its indebtedness at maturity, and the ability of the
Company to meet its debt service obligations generally will be dependent upon
the future performance of the Company, which, in turn, will be subject to
general economic conditions, financial, competitive, business factors and other
factors, including factors beyond the Company's control. The Company's
obligations under the Credit Agreement mature on August 31, 1999 (the "Maturity
Date"). The form of refinancing of outstanding obligations under the Credit
Agreement, on or before the Maturity Date, will be based upon economic
conditions at the time of refinancing.
The Credit Agreement contains a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, make capital expenditures, pay dividends, create
liens on assets, enter into leases, investments or acquisitions, engage in
mergers or consolidations or engage in certain transactions with
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<PAGE>
affiliates and otherwise restrict corporate activities (including change of
control and asset sale transactions). In addition, under the Credit Agreement,
the Company is required to maintain specified financial ratios and comply with
tests, including minimum EBITDA levels, minimum interest coverage ratios and
minimum fixed charge coverage ratios, some of which become more restrictive over
time. The Company and the financial institutions party to the Credit Agreement
have entered into Amendment No. 1 of the Credit Agreement ("Amendment No. 1")
principally to modify certain financial covenants contained in the Credit
Agreement so that they more closely reflect the Company's current operating
results. The Company believes that based on its current and anticipated levels
of operations it will maintain compliance with the financial covenants set forth
in the Credit Agreement, as amended; however, there can be no assurance that the
Company will be able to do so if its actual financial results in the future are
significantly below the Company's current expectations. Any significant
deterioration in the Company's future operating or financial performance could
result in a breach of these provisions. The Company's obligations under the
Credit Agreement are secured by substantially all the assets of the Company. The
breach of any of these covenants or restrictions could result in a default under
the Credit Agreement, which could permit the lenders party to the Credit
Agreement to declare all amounts borrowed thereunder to be due and payable
together with accrued and unpaid interest, to terminate their commitments to
make further loans and issue letters of credit and to proceed against the
collateral securing the obligations owed to them. Any such default could have a
significant adverse effect on the market value and the marketability of the
Common Stock.
RISKS INHERENT IN BUSINESS PLAN
In the third and fourth quarters of fiscal 1996 the Company undertook an
extensive review of its manufacturing capacity, overhead structure, product
lines and customer base. These efforts resulted in the promulgation of the
Business Plan to enhance performance and reduce overhead expenses. The Company
consolidated its distribution centers and production capacity to increase
efficiencies, consolidated the operations of certain plants to off-shore
facilities and accelerated the process of moving sewing operations off-shore.
Beginning in fiscal 1998, the Company has been unable to attain the level of
sales revenue anticipated by the Business Plan and therefore has not and may
continue to be unable to achieve the Operating Results set forth in the Business
Plan. The Company believes this resulted from customers' reluctance to place new
or additional programs with the Company while it was implementing its financial
restructuring as well as increased pressure from the Company's competitors to
place programs with both existing and potential new customers. See "Management's
Discussion and Analysis of Financial Condition" and "Results of
Operations--Business Plan."
The Business Plan is dependent upon, among other things, the Company's
ability to increase its foreign sourcing capabilities and to otherwise
manufacture its products at a competitive cost. A key element of the Business
Plan is to develop foreign contracting sources, particularly for women's and
girls' underwear. The Company is also engaged in ongoing efforts to consolidate
its women's hosiery operations and to consolidate other operations in offshore
facilities. 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, embargoes or currency fluctuations that might
adversely affect the Company, particularly in Honduras and other foreign
countries where the Company currently or in the future sources its products.
The 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 ("SKU's") to eliminate unprofitable and
low-profit lines and products, to reduce its selling, general and administrative
expenses and to efficiently manage its inventory levels.
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FRESH START REPORTING
The Company adopted Fresh Start Reporting on November 22, 1996, the date
the Plan of Reorganization was confirmed by the Bankruptcy Court. Accordingly,
the Company's Consolidated Balance Sheets as of August 2, 1997, January 31, 1997
and November 22, 1996 and its Consolidated Statements of Operations,
Consolidated Statement of Stockholders' Equity (Deficit) and Consolidated
Statement of Cash Flows for the 26-week period ended August 2, 1997 and the
10-week period ended January 31, 1997 will not be comparable to the Consolidated
Financial Statements for prior periods included elsewhere herein.
IMPORTANCE OF MAJOR CUSTOMERS
For the 52-week period ended January 31, 1997, J.C. Penney accounted for
approximately 48% of the total net sales of the Company. No other customers
accounted for 10% or more of total net sales for the 52-week period ended
January 31, 1997. 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 the Company's Results of
Operations. See "Business--Importance of Major Customers."
COMPETITION
The underwear and women's hosiery businesses are highly competitive. While
a number of the Company's competitors have moved to foreign sourcing to a
significantly greater degree, a substantial portion of the Company's operations
remain located in the United States. A key element of the Business Plan is to
develop foreign sourcing, particularly for women's and girls' underwear. The
Company's failure to develop such sourcing capabilities could materially
adversely affect the Company.
The Company believes that suppliers in the underwear and women's hosiery
businesses compete 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. Several of the Company's competitors have
significantly greater financial resources and market recognition than the
Company. Many of the Company's customers purchase a portion of their private
label program's requirements from competitors as well as from Ithaca. See
"Business--Competition."
FOREIGN SOURCING
The Company currently relies and anticipates increasing reliance on the
foreign sourcing of its products. The Company's ability to utilize foreign
sourcing is dependent on the absence of political or economic disruptions,
quotas, labor disruptions, embargoes or currency fluctuations in the countries
in which the Company sources its products.
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 of Directors (the "Board"), Eric N. Hoyle, Senior Vice
President-Finance and Administration, Secretary, Principal Financial and Chief
Accounting Officer, R. Dean Riggs, Executive Vice President-Manufacturing and
David H. Jones, Executive Vice President-Sales. 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.
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LIQUIDITY; ABSENCE OF MARKET FOR COMMON STOCK
There is no currently existing formal trading market for the Common Stock.
Pursuant to the Plan of Reorganization and the Management Agreement, the Shares
were issued to a limited number of holders. Application was made to list the
Common Stock on NASDAQ National Market. There can be no assurance that any
active trading market for the Common Stock will develop or be sustained or as to
the price at which the Common Stock may trade or that the market for the Common
Stock will not be subject to disruptions that will make it difficult or
impossible for the holders of the Common Stock to sell shares in a timely
manner, if at all. The trading market, if such market develops, may be unstable
and illiquid for an indeterminate period of time. In addition, holders of the
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 Shares (which securities
will be "restricted securities" within the meaning of the Securities Act),
except pursuant to an available exemption from registration under the Securities
Act and under equivalent state securities or "blue sky" laws. However, as
described below, certain holders of Common Stock have certain registration
rights. See "Description of Capital Stock--Registration Rights Agreement."
EFFECT OF FUTURE SALES OF COMMON STOCK; REGISTRATION RIGHTS
No prediction can be made as to the effect, if any, that future sales of
Common Stock or the availability of Common Stock for future sale will have on
the market price of the Common Stock. Sales of substantial amounts of Common
Stock or the perception that such sales may occur, could adversely affect
prevailing market prices for the Common Stock.
An aggregate of 10,000,000 shares of Common Stock were issued pursuant to
the Plan of Reorganization. Pursuant to Section 1145 of the Bankruptcy Code, all
of such shares of Common Stock are freely tradeable without registration under
the Securities Act, except for shares that were issued to an "underwriter" (as
defined in Section 1145(b) of the Bankruptcy Code) or that are acquired by an
"affiliate" of the Company. With respect to all of the shares of Common Stock
issued to the Noteholders pursuant to the Plan of Reorganization (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") the Company has entered into a registration rights agreement with
certain stockholders (the "Registration Rights Agreement") which requires Ithaca
to use its reasonable best efforts to file, cause to be declared effective and
keep effective for three years or until all registerable securities are sold, a
"shelf" registration statement (the "Shelf Registration"). The Registration
Statement of which this Prospectus is a part is the Shelf Registration referred
to in the Registration Rights Agreement. See "Description of Capital
Stock--Registration Rights Agreement."
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 Common Stock. In addition, the Credit
Agreement prohibits the payment of cash dividends on the Company's equity
securities.
CERTAIN CORPORATE GOVERNANCE MATTERS
The Company's Amended and Restated Certificate of Incorporation filed with
the Secretary of State of Delaware on December 16, 1996 (the "Certificate")
provides that the terms of the seven members of the Board of Directors of the
Company, one of whom is Jim D. Waller,
10
<PAGE>
Chief Executive Officer of the Company, will expire at the annual meeting of the
stockholders of the Company next following the Company's fiscal year ending
January 31, 1998. It is possible that such provisions, as well as certain other
provisions of the Company's Certificate and certain provisions of the General
Corporation Law of Delaware (the "DGCL"), may make it more difficult to
accomplish transactions which stockholders may otherwise deem to be in their
best interests. Such provisions may be deemed to have an anti-takeover effect
and may delay, defer or prevent a tender offer or takeover attempt that might
result in the receipt of a premium over the market price for the Shares held by
stockholders. See "Description of Capital Stock."
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus including information set forth
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations," constitute "Forward-Looking Statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Ithaca
desires to take advantage of certain "safe harbor" provisions of the Reform Act
and is including this special note to enable the Company to do so.
Forward-looking statements included in this Prospectus, involve known and
unknown risks, uncertainties and other factors which could cause the Company's
actual results, performance (financial or operating) or achievements to differ
materially from the future results, performance (financial or operating) or
achievements expressed or implied by such forward-looking statements. The
Company believes a change in the following important factors could cause such a
material difference to occur: (1) the level of sales to the Company's major
customers, in particular J.C. Penney which accounted for approximately 48% of
the Company's total net sales for the 52-week period ended January 31, 1997; (2)
the Company's ability to source or manufacture its products at a competitively
favorable cost; (3) the general strength of retailing particularly in the
apparel categories in which the Company operates and at the retail outlets which
are major customers of the Company; (4) the continued services of certain of the
Company's senior executives; (5) the comparative strength of the Company's
principal competitors, particularly the impact of foreign sourcing in certain of
the Company's product categories; (6) 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; (7)
the success of the Company's recent Business Plan and reorganization,
particularly (a) the success of the Company's ongoing efforts to consolidate its
women's hosiery operations and certain other operations in offshore facilities
and to increase its foreign sourcing capabilities (especially in women's and
girls' underwear categories), (b) the level of efficiency of operation of the
Company's new centralized distribution centers, (c) the success of the Company's
efforts to streamline its SKU's and eliminate unprofitable and low-profit lines
and products, (d) the success of the Company's efforts to reduce its selling,
general and administrative expenses and (e) the success of the Company's efforts
to efficiently manage its inventory levels; (8) the impact of price fluctuations
for raw materials utilized by the Company, particularly cotton and spandex, and
the Company's ability to pass on to retailers and consumers any possible price
increases; (9) the continued improvement of the Company's information systems;
or (10) the ability of the Company to have access to adequate capital to meet
its working capital needs and to fund necessary capital expenditures.
Many of the foregoing factors have been discussed in the Company's prior
filings with the Commission and other publicly available documents. Had the
Reform Act been effective at an earlier time, this special note would have been
included in earlier Commission filings. The foregoing review of significant
factors should not be construed as exhaustive or as an admission regarding the
adequacy of disclosures previously made by the Company prior to the effective
date of the Reform Act.
11
<PAGE>
USE OF PROCEEDS
The Company will receive none of the proceeds from the sale of the Shares
by the Selling Stockholders. A total of 10,000,000 shares of Common Stock were
issued to Noteholders of the Company in accordance with the Plan of
Reorganization under which the Company emerged from a Chapter 11 bankruptcy
proceeding. An option to purchase 109,290 shares of the Company's Common Stock
was issued to Alvarez & Marsal, Inc. as part of the compensation due under the
Management Agreement for the turnaround-management and financial restructuring
advisory services rendered to the Company.
DIVIDEND POLICY
The Company has no present intention of paying any dividends on the Common
Stock. The declaration and payment of future dividends to holders of Common
Stock will be at the discretion of the Company's Board and will depend upon many
factors, including the Company's financial condition, earnings, the capital
requirements of its operating subsidiaries, legal requirements and such other
factors as the Board deems relevant. In addition, the Credit Agreement prohibits
the payment of cash dividends on the capital stock of the Company.
Under the DGCL, the Company may only declare and pay dividends out of
surplus (as defined in the DGCL) or if there is no surplus and subject to
certain conditions, out of net profits for the fiscal year in which the dividend
is declared and/or the preceding fiscal year.
MARKET FOR THE COMMON STOCK
Through the date hereof there has been no established public trading
market. An application has been made to list the Common Stock on NASDAQ National
Market. See "Risk Factors--Liquidity; Absence of Market for Common Stock."
Pursuant to the Plan of Reorganization, 10,000,000 Shares were issued following
the Effective Date of the Plan of Reorganization and as of October 29, 1997,
constituted all of the outstanding shares of Common Stock. In reliance on the
exemption provided by Section 1145 of the Bankruptcy Code, none of the
10,000,000 Shares issued pursuant to the Plan of Reorganization was registered
under the Securities Act in connection with its issuance pursuant to the Plan of
Reorganization; however, those shares are being registered hereby for resale by
the Selling Stockholders pursuant to certain registration rights. Shares issued
pursuant to the Plan of Reorganization are freely tradeable without registration
under the Securities Act, except for any shares that were issued to an
"underwriter" (as defined in Section 1145(b) of the Bankruptcy Code) or that are
subsequently acquired by an "affiliate" of the Company, all of which shares will
be "restricted securities" within the meaning of Rule 144 under the Securities
Act ("Rule 144"). Shares which are "restricted securities" within the meaning of
Rule 144 may not be resold in the absence of registration under the Securities
Act other than in accordance with Rule 144 or another exemption from
registration. See "Description of Capital Stock--Registration Rights Agreement"
for a discussion of the rights of certain stockholders of the Company to request
registration of sales of their Shares. Also registered hereby are 109,290 shares
of Common Stock which Alvarez & Marsal, Inc. hold an option to purchase. As of
October 29, 1997, there were approximately 8 holders of record of Common Stock
and there were no outstanding options or warrants to purchase, or securities
convertible into, Common Stock or Preferred Stock, par value $.01 per share
("Preferred Stock"), other than options to purchase 973,962 shares of Common
Stock, including the options granted to Alvarez & Marsal, Inc., issuable under
the Company's 1996 Long Term Stock Incentive Plan ("LTIP"), and the 1997 Stock
Option Plan for Non-Employee Directors (the "Director Option Plan"), of which
options to purchase 369,350 shares are currently exercisable.
12
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at August 2, 1997. This table should be read in conjunction with the
Company's Consolidated Financial Statements, including the notes thereto, found
elsewhere in this Prospectus.
August 2, 1997
--------------
(in thousands)
Current Installments of Long Term Debt $ 13
Long Term Debt
Credit Facility: 66,909
Other 61
Total 66,983
--------------
Stockholders' Equity:
Preferred Stock, par value $.01 per share; --
2,500,000 Shares authorized; none issued
Common Stock par value $.01 per share, 100
27,500,000 authorized, 10,000,000 issued and
outstanding
Additional Paid-In Capital 22,016
Retained (Deficit) Earnings (1,901)
Total Stockholders' Equity 20,215
--------------
Total Capitalization $ 87,198
- ----------
13
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Statement of Operations for
the 42- week period ended November 22, 1996, has been prepared to reflect the
consummation of the Company's Plan of Reorganization and certain Fresh Start
Reporting Adjustments. The Unaudited Pro Forma Consolidated Statement of
Operations has been prepared as if such consummation occurred on February 1,
1996. The Unaudited Pro Forma Consolidated Statement of Operations is not
necessarily indicative of the results that would have actually occurred if the
Plan of Reorganization had actually been consummated on such date and should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Company's Audited Consolidated
Financial Statements and the notes thereto included elsewhere in this
Prospectus.
Unaudited Pro Forma Consolidated Statement of Operations
42-Week Period ended November 22, 1996
(Dollars in thousands, except per share information)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fresh Start
Reporting and
Reorganization
Historical Adjustments Pro Forma
-------------- ------------------ -------------
<S> <C> <C> <C>
Net sales $ 297,603 $ 297,603
Cost of sales 255,543 $ (1,934)/1/ 253,609
-------------- ------------------ -------------
Gross profit 42,060 1,934 43,994
Selling general and administrative expense 27,670 (385)/1/ 27,285
-------------- ------------------ -------------
(Recovery of) asset write-downs and
restructuring (2,964) -- (2,964)
-------------- ------------------ -------------
Operating income 17,354 2,319 19,673
Other income (deductions): -- -- --
-------------- ------------------ -------------
Interest and amortization of deferred debt
expense-related parties (2,597) 1,377/2/ (1,220)
Interest and amortization of deferred debt
expense - other (14,892) 7,871/2/ (7,021)
Reorganization Items:
Adjustments to fair value (2,589) 2,589/3/ --
Professional fees and other 3,765 (3,765)/4/ --
Other, net 625 -- 625
-------------- ------------------ -------------
Income before taxes 1,666 10,391 12,057
Income tax expense 4,218 605/5/ 4,823
-------------- ------------------ -------------
Net (loss) income before extraordinary item $ (2,552) $ 9,786 $ 7,234
============== ================== =============
Extraordinary gain on debt forgiveness, net
of tax 67,924 (67,924)/6/ --
Net income $ 65,372 $ (58,138) $ 7,234
============== ================== =============
(Loss) income per share/7/ (0.25) -- 0.72
(Loss) income before extraordinary item
Extraordinary item 6.79 -- --
-------------- ------------------ -------------
Net income $ 6.54 -- $ 0.72
============== ================== =============
</TABLE>
14
<PAGE>
/1/ To adjust depreciation expense for fixed asset writedowns of $13,500
recorded in conjunction with Fresh Start Reporting adjustments as follows:
Cost of Sales $ 1,934
Selling, general & admin 385
-------
Total $ 2,319
=======
/2/ To reflect interest expense of the debt structure of the Company after
confirmation of the Plan of Reorganization. The interest rate under the
Credit Agreement was assumed to be 9.75%. The adjustment to interest
expense is summarized as follows:
Related party:
Note interest $ 1,604
Other interest (227)
-------
Net $ 1,377
=======
Non-Related party:
Note interest 6,414
Other interest 1,457
-------
Net $ 7,871
=======
/3/ To eliminate net fair value adjustments recorded in conjunction with fresh
start reporting.
/4/ To eliminate reorganization items.
/5/ Income tax expense is assumed at an effective rate of 40%.
/6/ To reverse extraordinary gain on debt discharge and related income tax
expense.
/7/ Pro forma earnings per share are based upon 10 million shares of Common
Stock outstanding.
15
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial information with respect
to the Company for the 26- week period ended August 2, 1997 (unaudited), the
10-week period ended January 31, 1997, the 42-week period ended November 22,
1996 and each of the four fiscal years prior to the fiscal year ended January
31, 1996 and is derived from and should be read in conjunction with the
Company's audited Consolidated Financial Statements and related notes included
elsewhere in this Prospectus. Income per share for periods prior to December 16,
1996 is not meaningful because during such periods the Company was a wholly
owned subsidiary of Holdings.
The selected financial information set forth below is qualified by and
should be read in conjunction with the "Financial Statements" and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this Prospectus. The Company's Results of
Operations after November 22, 1996 reflect the consummation of the Plan of
Reorganization and the transactions contemplated thereby and the application of
Fresh Start Reporting rules and procedures. Accordingly, Statement of Operations
Data and Balance Sheet Data of the Company after November 22, 1996, will
generally not be comparable to the other periods discussed below.
<TABLE>
<CAPTION>
Post
Confirmation Preconfirmation
--------------------------- ------------------------------------------------------------
(Unaudited)
26-Week 10-Week 42-Week
Period Ended Period Ended Period Ended Fiscal Year Ended
August 2, January 31, November 22, January 31,
--------- --------- -------- --------- -------- -------- --------
1997 1997 1996 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $119,676 $ 42,708 $297,603 $398,819 $414,800 $414,671 $440,357
Gross profit 17,962 4,487 42,060 44,882 72,859 68,072 79,137
Selling, general and
administrative expenses 13,164 7,354 27,670 43,486 37,075 39,711(1) 33,996
(Recovery of) provision for --
asset write-downs and
restructuring -- -- (2,964) 51,591(2)
Operating income (loss) 4,798 (2,867) 17,354 (50,195) 35,784 28,361 45,141
Interest expense - net(3) 3,509 1,385 17,489 26,905 23,147 23,455 24,027
Reorganization items -- -- (1,176)(4) -- -- -- --
Income (loss) before income
taxes and extraordinary
items 1,608 (4,157) 1,666 (76,802) 13,166 4,968 21,647
Income tax expense (benefit) 754 (1,400) 4,218 (27,157) 5,653 2,086 8,415
Income (loss) before
extraordinary items 854 (2,757) (2,552) (49,644) 7,513 2,882 13,232
Extraordinary items(5) -- -- 67,924 -- -- -- (5,939)
Net income (loss) $ 854 $ (2,757) $ 65,372 $ (49,644) $ 7,513 $ 2,882 $ 7,293
========= ========== ======== ========== ======== ======== ========
Net income (loss) per
common share $ 0.09 $ 0.28 -- -- -- -- --
========= ========== ======== ========== ======== ======== ========
Dividend per common share -- -- -- -- -- -- --
BALANCE SHEET DATA (AT END
OF PERIOD): Post-Confirmation
-----------------
Working capital (deficit) $ 67,633 $ 63,523 $ 75,591 ($145,909) $113,028 $123,222 $122,230
Total assets 129,434 133,687 155,993 208,642 224,471 235,997 236,588
Long-term debt exclusive of
current maturities 66,970 66,069 77,255 n/a(6) 221,819 242,785 250,720
Total stockholders' equity 20,215 19,359 22,116 (93,558) (43,914) (51,427) (54,309)
(deficit)
</TABLE>
- ------------------------
(1) Includes a bad debt provision of $4 million to cover the bankruptcy of a
major T-shirt customer during the second quarter of fiscal 1994.
16
<PAGE>
(2) In fiscal 1996, the Company initiated a restructuring plan to improve
operating performance and reduce costs. In connection with this plan, the
Company recorded charges totaling $51,591,000 ($33,379,000 after related
income tax benefits). Such charges related to (a) the closing and
consolidation of certain manufacturing and distribution facilities, (b) the
write-down of certain equipment associated with closed facilities, (c) 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, (d)
severance and other costs associated with plant closures and overhead
reductions and (e) the write-off of certain impaired intangible assets.
(3) Principally includes interest expense on long-term debt and amortization of
deferred debt expense, offset by interest income from the short-term
investment of excess cash. During the period from August 29, 1996 through
November 22, 1996, the Company did not accrue interest on the Senior
Subordinated Notes due 2002 which were canceled in connection with the Plan
of Reorganization.
(4) Reorganization items for the 42-week period ended November 22, 1996 include
$3,765,000 of adjustments to record assets and liabilities at fair value in
connection with the application of Fresh Start Reporting.
(5) Loss on early extinguishment of debt (net of income tax benefit of
$3,763,000) on December 10, 1992 and gain on debt discharge (net of income
tax expense of $23,056,000) pursuant to confirmation of Plan of
Reorganization at November 22, 1996.
(6) Due to continuing covenant violations, temporary waivers granted and events
of default, as further discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," all of the Company's
outstanding debt was classified as current at January 31, 1996.
17
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Index to Financial Statements
Page
Independent Auditors' Report .............................................. F-2
Consolidated Balance Sheets as of February 1, 1997 and February 2, 1996 ... F-3
ConsolidatedStatements of Operations for the 10-Week Period ended
February 1, 1997, the 42-Week Period ended November 22, 1996,
and for the Years ended February 2, 1996 and January 27, 1995 ............ F-5
ConsolidatedStatements of Stockholders' Equity (Deficit) for the
10-Week Period ended February 1, 1997, the 42-Week Period ended
November 22, 1996, and for the Years ended February 2, 1996 and
January 27, 1995 ......................................................... F-6
ConsolidatedStatements of Cash Flows for the 10-Week Period ended
February 1, 1997, the 42-Week Period ended November 22, 1996,
and for the Years ended February 2, 1996 and January 27, 1995 ............ F-7
Notes to Consolidated Financial Statements ................................. F-9
F-1
<PAGE>
KPMG Peat Marwick LLP
303 Peachtree Street, N.E.
Suite 2000
Atlanta, GA 30308
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ithaca Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Ithaca
Industries, Inc. and subsidiaries as of February 1, 1997 and February 2, 1996,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the 10-week period ended February 1, 1997, the
42-week period ended November 22, 1996, and each of the years in the two-year
period ended February 2, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ithaca Industries,
Inc. and subsidiaries as of February 1, 1997 and February 2, 1996, and the
results of their operations and their cash flows for the 10-week period ended
February 1, 1997, the 42-week period ended November 22, 1996, and each of the
years in the two-year period ended February 2, 1996, in conformity with
generally accepted accounting principles.
On December 16, 1996, the Company emerged from bankruptcy. As described in note
1 to the consolidated financial statements, the Company accounted for the
reorganization as of November 22, 1996 and adopted fresh-start reporting in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code. As a result, the consolidated financial statements as of
February 1, 1997 and for the ten-week period then ended present the financial
position, results of operations, and cash flows of the reorganized entity and
are, therefore, not comparable to the consolidated financial statements for
periods prior to the Company's emergence from bankruptcy.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 27, 1997
F-2
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
February 1, 1997 and February 2, 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
Post-confirmation Preconfirmation
----------------- ---------------
February 1, February 2,
Assets (Note 6) 1997 1996
--------------- ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 66 10,369
Trade accounts receivable, net of allowance for
doubtful accounts of $1,256 at February 1, 1997
and $1,215 at February 2, 1996 (note 9) 26,486 29,958
Due from former Parent (note 8) - 604
Inventories (note 3) 65,680 56,079
Deferred taxes (note 7) - 20,212
Prepaid expenses and other current assets 876 1,567
Refundable income taxes (note 7) - 13,159
Assets held for disposition, net of estimated
reserves (notes 3, 4, and 13) 3,755 17,139
------ -------
Total current assets 96,863 149,087
------ -------
Net property, plant, and equipment (note 4) 35,531 54,295
Other assets:
Intangible assets, net of accumulated amortization
of $91 and $22,570 at February 1, 1997 and February 2,
1996, respectively (note 5) 362 905
Deferred debt expenses, net of accumulated amortization
of $7,868 at February 2, 1996 (note 13) - 3,651
Other 931 704
----- -----
Total other assets 1,293 5,260
--------- -------
$ 133,687 208,642
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
Post-confirmation Preconfirmation
----------------- ---------------
February 1, February 2,
Liabilities and Stockholders' Equity (Deficit) 1997 1996
---------------------------------------------- ---- ----
<S> <C> <C>
Current liabilities:
Current installments of long-term debt, due to related
parties (notes 6 and 10) $ - 33,757
Current installments of long-term debt (notes 6
and 10) 70 206,301
Accounts payable 10,742 16,414
Accrued payroll and related expenses 11,396 10,335
Accrued restructuring costs (note 13) 2,106 12,204
Income taxes payable (note 7) 3,073 -
Deferred income taxes (note 7) 2,255 -
Other accrued expenses 3,698 15,985
Total current liabilities 33,340 294,996
------ -------
Long-term debt, excluding current installments, due to
related parties (notes 6 and 10) 9,710 -
Long-term debt, excluding current installments (notes 6 and 10) 56,359 -
Deferred income taxes (note 7) 14,919 7,204
Preconfirmation redeemable cumulative preferred stock of
$.01 par value. Authorized but unissued 500,000 shares
at February 2, 1996 - -
Stockholders' equity (deficit):
Preferred stock, $.01 par value; authorized 2,500,000
shares; none outstanding at February 1, 1997 - -
Common stock of $.01 par value; authorized 27,500,000
shares; issued and outstanding 10,000,000 shares at
February 1, 1997 100 -
Preconfirmation common stock, par value $.01; authorized
and issued 1,000 shares at February 2, 1996 - -
Additional paid-in capital 22,016 9,000
Accumulated deficit (2,757) (102,558)
---------- --------
Total stockholders' equity (deficit) 19,359 (93,558)
Commitments and contingencies (notes 6, 9, 11, and 12)
---------- -------
$ 133,687 208,642
</TABLE>
F-4
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
10-Week Period ended February 1, 1997,
42-Week Period ended November 22, 1996, and
Years ended February 2, 1996 and January 27, 1995
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Post-confirmation Preconfirmation
----------------- ---------------
10-Week 42-Week
Period ended Period ended Years ended
February 1, November 22, February 2, January 27,
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales (note 9) $ 42,708 297,603 398,819 414,800
Cost of sales (note 3) 38,221 255,543 353,937 341,941
------ ------- ------- -------
Gross profit 4,487 42,060 44,882 72,859
Selling, general, and administrative expenses
(notes 8, 11, and 12) 7,354 27,670 43,486 37,075
(Recovery of) provision for asset write-downs and
restructuring (note 13) - (2,964) 51,591 -
------- ------ ------
Operating income (loss) (2,867) 17,354 (50,195) 35,784
Other income (deductions):
Interest expense - related parties (contractual interest
of $3,252 at November 22, 1996) (196) (2,597) (3,918) (3,566)
Interest and other, net of interest income of $81,
$164, $237, and $895 at February 1, 1997,
November 22, 1996, February 2, 1996, and
January 27, 1995, respectively (contractual
interest of $17,512 at November 22, 1996) (1,189) (14,892) (22,987) (19,581)
----- ------ ------ -------
Other, net 95 625 299 529
----- ------ ------ ------
(1,290) (16,864) (26,606) (22,618)
----- ------ ------ ------
Income (loss) before reorganization items,
income taxes, and extraordinary item (4,157) 490 (76,801) 13,166
Reorganization items:
Adjustments to fair value - 3,765 - -
Professional fees and other - (2,589) - -
--------------------------- ----- ------- ------ ------
Income (loss) before income taxes
and extraordinary item (4,157) 1,666 (76,801) 13,166
Income tax (expense) benefit (note 7) 1,400 (4,218) 27,157 (5,653)
- ----- ----- ------ -----
(Loss) income before extraordinary item (2,757) (2,552) (49,644) 7,513
Extraordinary item - gain on debt discharge of $90,980
before income taxes of $23,056 at November 22,
1996 (notes 1 and 7) - 67,924 - -
---------- ------ ------ -----
Net income (loss) $ (2,757) 65,372 (49,644) 7,513
======== ====== ====== =====
Net loss per common share $ (.28)
Weighted average common shares outstanding 10,000,000
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity (Deficit)
10-Week Period ended February 1, 1997,
42-Week Period ended November 22, 1996, and
Years ended February 2, 1996 and January 27, 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
Shares Total
-------------------------------- Additional Retained stockholders'
Post- Common paid-in earnings equity
Preconfirmation confirmation stock capital (deficit) (deficit)
--------------- ------------ ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 28, 1994 1,000 - $ - 9,000 (60,427) (51,427)
Net income - - - - 7,513 7,513
------- ----------- ---- ------ -------- --------
Balance at January 27, 1995 1,000 - - 9,000 (52,914) (43,914)
Net loss - - - - (49,644) (49,644)
----- ----------- ---- ------ ------- -------
Balance at February 2, 1996 1,000 - - 9,000 (102,558) (93,558)
Net income for 42-week period ended November 22,
1996 (Preconfirmation) - - - 65,372 65,372
Effect of reorganization:
Elimination of accumulated deficit - - - 37,186 37,186
Cancellation of preconfirmation shares (1,000) - - (9,000) - (9,000)
Issuance of post-confirmation shares - 10,000,000 100 22,016 - 22,116
------ ---------- --- ------ ------- ------
Balance at November 22, 1996 (Post-Confirmation) - 10,000,000 100 22,016 - 22,116
Net loss for 10-week period ended February 1, 1997 - - - - (2,757) (2,757)
------ ---------- ---- ------ -------- -------
Balance at February 1, 1997 - 10,000,000 $100 22,016 (2,757) 19,359
======= ========== ==== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
10-Week Period ended February 1, 1997,
42-Week Period ended November 22, 1996, and
Years ended February 2, 1996 and January 27, 1995
(In thousands)
<TABLE>
<CAPTION>
Post-confirmation Preconfirmation
----------------- ---------------
10-Week 42-Week
Period ended Period ended Years ended
February 1, November 22, February 2, January 27,
1997 1996 1996 1995
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Cash provided by operating activities:
Net income (loss) $ (2,757) 65,372 (49,644) 7,513
Adjustments to reconcile net income (loss) to net
cash provided by operations:
(Recovery of) provision for asset write-downs
and restructuring - (2,964) 40,623 -
Gain on debt discharge - (90,980) - -
Depreciation and amortization of property,
plant, and equipment 853 6,936 8,713 8,652
Provision for (recovery of) doubtful accounts (252) 293 - (582)
Amortization of intangible assets, deferred debt
expense , and discount on subordinated notes 91 1,568 5,521 2,697
Provision for deferred taxes (1,396) 31,578 (15,486) (765)
(Gain) loss on sale of property, plant, and
equipment - (292) 22 (238)
Net adjustments in accounts for fair value - (3,765) - -
Provision for reorganization items - 2,589 - -
Changes in operating assets and liabilities before
the effects of restructuring reclassifications:
Trade accounts receivable and due to/from Parent 19,108 (13,011) 4,668 (2,871)
Inventories 3,026 (646) 12,071 (22,455)
Prepaid expenses and other assets (264) 14,204 (13,495) 1,514
Assets held for disposition (781) 18,523 - -
Accounts payable (1,744) (3,928) (725) 78
Accrued payroll and related expenses (3,347) 4,408 (941) 2,695
Other accrued expenses (1,811) 1,469 6,390 4,645
Accruals relating to IRS examination - - - (4,354)
------ ------ ------ ------
Net cash provided by (used in)
operating activities 10,726 31,354 (2,283) (3,471)
------ ------ ------ ------
Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment 59 949 219 563
Additions to property, plant, and equipment (797) (3,248) (13,887) (8,478)
Decrease (increase) in other assets - - 1,251 (711)
---- ----- ------ -----
Net cash used in investing activities (738) (2,299) (12,417) (8,626)
---- ----- ------ ------
(Continued)
</TABLE>
F-7
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Post-confirmation Preconfirmation
----------------- ---------------
10-Week 42-Week
Period ended Period ended Years ended
February 1, November 22, February 2, January 27,
1997 1996 1996 1995
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Repayment of long-term debt $ (11,251) (38,095) (19,462) (20,971)
Proceeds from long-term debt - - 37,000 -
--------- ------ ------ -----
Net cash (used in) provided by
financing activities (11,251) (38,095) 17,538 (20,971)
------- ------- ------ -------
Net (decrease) increase in cash and
cash equivalents (1,263) (9,040) 2,838 (33,068)
Cash and cash equivalents at beginning of period 1,329 10,369 7,531 40,599
---------- ------ ----- ------
Cash and cash equivalents at end of period $ 66 1,329 10,369 7,531
========== ===== ====== =====
Supplemental disclosures - net cash paid (received)
during the period for:
Income taxes $ (360) (16,835) 1,224 7,149
========== ======= ===== =====
Interest paid to related parties $ 301 379 2,654 3,314
========== === ===== =====
Interest paid to others $ 1,690 7,632 16,309 17,046
========== ===== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
February 1, 1997 and February 2, 1996
(In thousands, except share data)
(1) Reorganization and Emergence from Chapter 11 Bankruptcy
-------------------------------------------------------
On December 16, 1996 (the "Effective Date"), Ithaca Industries, Inc.
(the "Company") emerged from proceedings under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11") pursuant to a Prepackaged Chapter 11 Plan of
Reorganization (the "Plan"), which was confirmed by United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court") on November 22, 1996
(the "Confirmation Date"). The Plan implemented a financial restructuring
whereby approximately $125,000 ($124,625, net of original issue discount) of
previously outstanding Senior Subordinated Notes (the "Notes") and related
accrued interest, which were subject to settlement under the Plan were exchanged
for approximately 10,000,000 shares of new common stock (the "Common Stock")
issued by the Company in connection with the reorganization. Additionally, the
Company's Credit Agreement was amended and restructured. The restructured
long-term debt outstanding after consummation of the Plan is secured by
substantially all of the assets of the Company. All previously outstanding
common stock was canceled, annulled, and extinguished.
Pursuant to the Plan, the Company's certificate of incorporation and
bylaws were amended and restated in their entirety by the Amended and Restated
Certificate of Incorporation (the "Certificate") and the Amended and Restated
Bylaws (the "Bylaws") to provide, among other things, for the restructuring of
the Company's equity capitalization under the Plan. As of the Effective Date of
the Plan, the Company was authorized to issue 27,500,000 of the Company's $.01
par value, common stock of which an aggregate of 10,000,000 shares was issued
and distributed pursuant to the Plan. An aggregate of 928,962 shares of common
stock was reserved for issuance pursuant to the 1996 Long-Term Stock Incentive
Plan (the "Stock Plan").
The Company's Certificate authorized 2,500,000 shares of preferred
stock with $.01 par value. The Board of Directors is authorized, upon two-thirds
affirmative vote, to issue preferred stock subject to restrictions contained in
the Amended and Restated Credit Agreement ("Amended Agreement"), in one or more
series, for any purpose permitted by law, and is authorized to fix the
designations, power, rights, and preferences of the preferred stock. The
Certificate provides that the Company will not issue any nonvoting equity
securities to the extent prohibited by the Bankruptcy Code. The Certificate may
be amended in accordance with applicable law to remove the prohibition.
During fiscal 1996, as a result of diminished operating performance
and profitability, the Company incurred covenant defaults under the Credit
Agreement. In addition, the Company did not make the December 15, 1995 and June
15, 1996 scheduled 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. As a result of negotiations between the Company's creditors,
owners, and management, the parties agreed to effect a financial restructuring
and, accordingly, on October 8, 1996 (the "Petition Date"), the Company filed a
voluntary petition for relief under Chapter 11 in the Bankruptcy Court. The
Company filed the Plan to consummate a financial restructuring that had been
negotiated among the Company, its Noteholders and parties to the Credit
Agreement, and the sole stockholder of the Company's outstanding stock. The
Company was operated as a debtor-in-possession subject to the supervision of the
Bankruptcy Court until December 16, 1996.
F-9
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
The Company continued to pay its trade creditors and other debt
obligations in the ordinary course of business while under the supervision of
the Bankruptcy Court.
Fresh-Start Reporting
- ---------------------
For financial reporting purposes, the effective date of the
Company's emergence from Chapter 11 was assumed to be November 22, 1996. In
accordance with AICPA Statement of Position 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code ("SOP 90-7"), the Company
adopted "fresh-start reporting," including the terms of the Amended Agreement
and reflected the effects of such adoption in the consolidated financial
statements as of November 22, 1996. The Post-Confirmation consolidated financial
statements have been separated from the Preconfirmation balance sheet and prior
period amounts by a bold line to signify that the Post-Confirmation consolidated
financial statements are those of a new reporting entity and have been prepared
on a basis not comparable to prior periods.
The Company adopted Fresh-Start Reporting because holders of
existing voting shares before filing and confirmation of the Plan received less
than 50% of the voting shares of the emerging entity and its reorganization
value was less than its post-petition liabilities and allowed claims. The
adjustments to reflect the consummation of the Plan, include the pretax gain on
debt discharge of $90,980 (principally accrued interest and principal of the
Notes) and the adjustment of $3,765 to record assets and liabilities at their
estimated fair values, have been reflected in the accompanying consolidated
statements of operations for the 42-week period ended November 22, 1996.
Deferred taxes of approximately $23,056 were provided as a result of the debt
discharge and the resulting reductions to the tax bases of assets in accordance
with Section 108 of the Internal Revenue Code.
The reorganization value of the Company was determined by management
utilizing several factors and various valuation methods, including discounted
cash flows, cash flow multiple ratios, and other applicable ratios.
Reorganization value generally approximates fair value of the entity before
considering liabilities and approximates the amount a willing buyer would pay
for the assets of the entity after the restructuring. The primary valuation
methodology employed to determine the reorganization value of the Company was a
net present value approach. The estimated unleveraged reorganization value of
the Company was computed using a discounted cash flow analysis. This analysis
included the present values of (i) the discounted projected free cash flows of
the Company through fiscal year 1999, (ii) the discounted terminal value of the
Company at the end of that 1999 fiscal year, and (iii) projected excess cash on
hand at the Confirmation Date. For purposes of discounting values, a discount
rate of 9.5% was utilized throughout the analysis. The terminal value was based
upon a 3.5% growth factor in perpetuity with a 6% terminal discount rate.
(Continued)
F-10
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
Based on information from parties-in-interest and from the Company's financial
advisors, the total reorganization value of the Company was estimated to be
$155,993 at November 22, 1996. The estimated reorganization value of the Company
was allocated to specific asset categories as follows:
Current assets $ 118,858
Property and equipment 35,647
Other noncurrent assets 1,488
$ 155,993
All payments and distributions required by the Plan to be made by the Company
with respect to prepetition claims against the Company have been made or
provided for at November 22, 1996, and no further material recourse to the
Company is available to any person with respect to any prepetition claims.
The effect of the Plan and the implementation of Fresh-Start Reporting on the
Company's consolidated balance sheet as of November 22, 1996 was as follows:
<TABLE>
<CAPTION>
Post-
Preconfirmation Adjustments confirmation
balance sheet at to record the balance sheet at
November 22, Plan at Fair value November 22,
1996 confirmation(a) adjustments(b) 1996
---- --------------- -------------- ----
<S> <C> <C> <C> <C>
Cash $ 1,329 - - 1,329
Other current assets 117,802 (13,549) 13,276 117,529
Property, plant, and equipment 139,026 - (103,379) 35,647
Accumulated depreciation 89,876 - 89,876 -
---------- ------- ------- -------
Net property, plant, and equipment 49,150 - (13,503) 35,647
---------- ------- ------- -------
Other long-term assets 1,035 - - 1,035
Other intangible assets 3,042 (2,589) - 453
---------- ------- ------- -------
$ 172,358 (16,138) (227) 155,993
========== ======= ======= =======
Current long-term debt $ 202,016 (201,881) - 135
Other current liabilities 55,847 (8,723) (3,992) 43,132
Long-term debt - 77,255 - 77,255
Noncurrent deferred income taxes 6,651 5,198 1,506 13,355
Stockholders' equity (deficit) (92,156) 112,013 2,259 (c) 22,116
---------- ------- ------- ------
$ 172,358 (16,138) (227) 155,993
========== ======= ======= =======
<FN>
(a) To record the forgiveness of the notes, the issuance of common stock, and the related income tax effects pursuant
to the Plan.
(b) To record the adjustments to assets and liabilities to their estimated fair value.
(c) Net adjustment to equity consists of net fair value adjustments of $3,765 less related income tax effects of
$1,506.
</FN>
</TABLE>
F-11
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(2) Summary of Significant Accounting Policies and Practices
--------------------------------------------------------
(a) Description of Business and Basis of Presentation
-------------------------------------------------
The Company is a manufacturer of private-label underwear and women's
hosiery products, operating distribution and manufacturing
facilities in the Southeastern United States and off-shore
manufacturing facilities in Central America. Additionally, the
Company sources some of its production from various contractors
worldwide. The Company has three principal product lines: (i) men's
and boy's underwear and outerwear T-shirts, (ii) women's and girls'
underwear, and (iii) women's hosiery. The Company markets its
products through a wide range of national and regional retail
distribution channels, including discount stores, department stores,
specialty stores, drug stores, and supermarkets. The majority of the
Company's raw materials are readily available and are not dependent
upon a single supplier.
(b) Principles of Consolidation
---------------------------
These consolidated financial statements include the financial
statements of Ithaca Industries, Inc. and its wholly owned
subsidiaries. All significant intercompany balances and transactions
have been eliminated.
(c) Cash and Cash Equivalents
-------------------------
Cash balances at year-end reflect short-term interest-earning
deposits, net of outstanding checks. Cash balances also include
overdraft amounts for which the right of offset with other accounts
exists. For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents.
Cash and cash equivalents include interest-earning deposits of $66
and $10,369 at February 1, 1997 and February 2, 1996, respectively.
(d) Inventories
-----------
Inventories consist of raw materials, work in process, and finished
goods relating to manufacturing operations and are valued at the
lower of cost or market with cost determined using the last-in,
first-out (LIFO) method.
(e) Property, Plant, and Equipment
------------------------------
Property, plant, and equipment acquired after November 22, 1996 are
stated at cost. Upon emergence from Chapter 11, the Company adopted
Fresh-Start Reporting effective November 22, 1996 and, accordingly,
all property, plant, and equipment at November 22, 1996 was recorded
at its estimated fair value and historical accumulated depreciation
was eliminated. Depreciation and amortization expense of property,
plant, and equipment is calculated using the straight-line method
over the estimated remaining useful lives of the assets as follows:
Buildings 25 - 30 years
Property improvements 5 - 10 years
Machinery and equipment 3 - 8 years
Vehicles 3 years
(Continued)
F-12
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(f) Intangibles
-----------
Intangible assets, consisting of patents, are amortized over their
respective remaining terms. On an ongoing basis, management reviews
the valuation and amortization of intangible assets. As part of the
review, management estimates fair values based upon recent
historical results and expected future results, taking into
consideration events or circumstances which might affect their fair
values.
Deferred debt expenses are amortized over the lives of the loans to
which the expenses relate. As a result of the adoption of
Fresh-Start Reporting and the related amendment of the Credit
Agreement, the unamortized balance of deferred debt expense was
included in reorganization expense for the 42-week period ended
November 22, 1996.
(g) Revenue Recognition
-------------------
Sales are recognized at the time the related goods are shipped.
(h) Income Taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Prior to its emergence from Chapter 11, the Company was included in
an affiliated group and the Company's Federal taxable income was
included in such group's consolidated tax return. Pursuant to a tax
sharing agreement with the former Parent, the Company recognized
income tax expense or benefit as if it were to file separate
Federal, state, or local income tax returns. The Company entered
into the Intercompany Compromise and Settlement Agreement which
included a provision that terminated the tax sharing agreement
effective November 22, 1996.
(Continued)
F-13
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(i) Stock Option Plan
-----------------
Effective November 22, 1996, with the adoption of its stock option
plan, the Company adopted Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), Accounting for Stock-Based
Compensation, which permits the Company to recognize as expense over
the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also permits the Company
to apply the provisions of APB Opinion No. 25 where compensation
expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price of
the option and provide pro forma net income and pro forma income per
share disclosures for stock option grants made in future years as if
the fair-value based method defined in SFAS No. 123 had been
applied. The Company has elected to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123.
(j) Fiscal Year
-----------
The Company's fiscal year ends on the last Saturday closest to the
end of January. The results of operations for fiscal 1997 include
the 10-week period ended February 1, 1997 (post-confirmation) and
the 42-week period ended November 22, 1996 (preconfirmation). The
results of operations for the year ended February 2, 1996 reflect a
53-week period (fiscal 1996), and the results for the year ended
January 27, 1995 reflect a 52-week period (fiscal 1995).
(k) Use of Estimates
----------------
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
(l) Net Income Per Common Share
---------------------------
Net income per common share is calculated based upon the
weighted-average number of common shares and common stock
equivalents outstanding. Common stock equivalents consist of stock
options and have been excluded from shares outstanding because their
impact is antidilutive.
F-14
(Continued)
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(3) Inventories
-----------
Inventories consist of the following:
Post-confirmation Preconfirmation
----------------- ---------------
February 1, February 2,
1997 1996
---- ----
Raw materials and supplies $ 15,607 24,676
Work-in-process 12,381 16,882
Finished goods 41,278 53,962
69,266 95,520
Less excess of FIFO over LIFO cost - 10,474
Less inventory included in assets held for
disposition, net (note 13) 3,586 28,967
$ 65,680 56,079
Upon adoption of Fresh-Start Reporting at November 22, 1996, the excess of
first-in, first-out (FIFO) over LIFO cost is equal to zero as inventories
were restated to their estimated fair value. The adjustment has been
included in fair value adjustments in note 1.
During the 42-week period ended November 22, 1996 and the year ended
February 2, 1996, LIFO inventory layers were liquidated. This reduction
resulted in charging lower inventory costs prevailing in prior years to
cost of goods sold, thus reducing cost of sales by $1,367 and $271,
respectively, which is lower than the amount that would have resulted from
replacing the liquidated inventory at end of period prices on those dates.
(4) Property, Plant, and Equipment
------------------------------
Property, plant, and equipment consist of the following:
Post-confirmation Preconfirmation
----------------- ---------------
February 1, February 2,
1997 1996
---- ----
Land $ 1,306 2,936
Buildings and improvements 18,528 55,838
Machinery and equipment 16,288 85,821
Vehicles 104 428
Construction in progress 327 241
36,553 145,264
Less accumulated depreciation and amortization 853 84,941
Less property, plant, and equipment included in
assets held for disposition (note 13) 169 6,028
$ 35,531 54,295
(Continued)
F-15
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(5) Intangible Assets
-----------------
Intangible assets consist of the following (see note 13):
Post-confirmation Preconfirmation
February 1, February 2,
1997 1996
------------ -------------------------------------
Value of
work-force in Licensing
Patents Patents place agreement
------- ------- ------------- ---------
Gross amount $ 453 $ 11,860 7,946 3,669
Less accumulated amortization 91 10,955 7,946 3,669
----- -------- ----- -----
$ 362 $ 905 - -
===== ======== ====== ======
(6) Long-Term Debt
- --- --------------
A summary of long-term debt follows:
Post-confirmation Preconfirmation
February 1, February 2,
1997 1996
----------------- ---------------
Borrowings under credit agreements:
Revolving loans:
Base rate loans $ 13,000 -
LIBOR-based loans - 37,000
Term loans:
Base rate loans 53,000 -
LIBOR-based loans - 77,771
Senior Subordinated Notes, due 2002 with interest
payable quarterly at 11.125%, net of unamortized
original issue discount of $375 - 124,573
9.0% to 10.5% notes, maturing through 1998 139 714
-------- -------
66,139 240,058
Less current installments of long-term debt 70 240,058
-------- -------
$ 66,069 -
======== ========
Pursuant to the Plan, the Credit Agreement was amended and restated and the
Notes were canceled and exchanged for all of the Company's outstanding common
stock on the Effective Date. The following is a summary description of the
Amended and Restated Credit Agreement ("Amended Agreement") issued on the
Effective Date.
REVOLVING CREDIT COMMITMENT
The total Revolving Credit Commitment ("Revolving Loan") under the Amended
Agreement is $77,200 which is inclusive of (i) any outstanding unpaid balance of
prepetition revolving credit loans and post-petition debtor-in-possession
financing, (ii) $22,185 transferred from the Preconfirmation term loan balance,
and (iii) a $25,000 letter of credit subfacility. For a 30-day period beginning
in May and December of each year, commitments under the Revolving Loan are
reduced to $63 million and $68 million, respectively.
(Continued)
F-16
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
The total outstanding Revolving Loan including letters of credit may not exceed
a borrowing base determined by specified percentages of eligible accounts
receivable and inventory as defined by the Amended Agreement. A commitment fee
of 0.5% of the unused Revolving Loan is due each year. A letter of credit fee of
2.5% per annum of the daily stated amount of all letters of credit and facing
fees of 1/4 of 1% per annum of the daily stated amount of all standby and trade
letters of credit is payable quarterly in arrears. The Revolving Loan expires
August 31, 1999.
At February 1, 1997, there was $13,000 outstanding under the Revolving Loan
provisions and $6,825 issued under the trade and standby letters of credit
provision of the Amended Agreement. The additional availability as calculated
under the provisions of the Amended Agreement at February 1, 1997 was $33,145.
TERM LOAN COMMITMENT
The total Term Loan Commitment ("Term Loan") under the Amended Agreement is
$55,000 which was reduced to $53,000 as a result of fiscal 1997 payments. The
remaining balance is payable in installments of $5,000 on January 31, 1998;
$4,000 on January 31, 1999; and $44,000 on August 31, 1999. At February 1, 1997,
$5,000 of the outstanding term loan balance has been excluded from current
installments of long-term debt as this amount could be repaid using the
Revolving Loan.
The Term Loan contains mandatory prepayment provisions which require that
certain excess cash flows, proceeds from the sale of assets for disposition,
other proceeds outside the ordinary course of business, and tax refunds as
defined must be used to pay down the outstanding term loan balance in reverse
order of maturity. Once repaid, Term Loans may not be reborrowed. The Term Loan
Commitment expires August 31, 1999.
At February 1, 1997, there was $53,000 outstanding under the Term Loan
provisions of the Amended Agreement.
Except in certain limited circumstances, the Revolving Loan and the Term Loan
will bear interest at 150 basis points above the base rate which is defined as
the higher of (i) 1/2 of 1% in excess of the adjusted certificate of deposit
rate, (ii) the prime lending rate, and (iii) 1/2 of 1% in excess of the
overnight federal funds rate. Interest is due in arrears on the last day of each
month. The interest rate is subject to cumulative increases in the event the
Company (i) does not achieve certain earnings before interest taxes and
depreciation (EBITDA) targets or (ii) fails to make annual principal payments,
other than regularly scheduled term loan amortization payments, of at least
$5,000. In addition, default interest is payable at the base rate plus 2%. On
January 29, 1997, the Company entered into a rate protection agreement which
limits the base interest rate payable on the first $45 million outstanding term
loan principal to 9.5% through July 28, 1998.
Borrowings under the Amended Agreement are secured by a lien against all assets
of the Company and subsidiaries. The Amended Agreement contains certain
financial and nonfinancial covenants. As of February 1, 1997, the Company was in
compliance with such covenants.
(Continued)
F-17
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
Prior to its amendment and restatement pursuant to the Plan, the Credit
Agreement had a revolving credit facility (the "Facility") which provided for
availability of $65 million until October 31, 1998. The term loan was originally
repayable in quarterly installments of $7,148 in 1997, $6,291 in 1998, and
$6,004 in 1999. The entire amount outstanding under the Credit Agreement was to
mature on October 31, 1998. Advances under the Facility were not to exceed a
borrowing base determined by specific percentages of eligible accounts
receivable and inventories (each as defined in the Credit Agreement). A
commitment fee of 0.5% per annum was required on all unused amounts under the
Facility. The Company had a rate protection agreement which limited the base
interest rate payable on the first $25 million outstanding term loan principal
to 7.5% through December 21, 1995. At February 2, 1996, amounts totaling
approximately $240,058 were classified as current due to defaults under the
Credit Agreement.
Borrowings under the Credit Agreement, at the Company's option, were either base
rate loans or LIBOR (London Interbank Offered Rate) based loans. Base rate loans
accrued interest at the lenders' prime rate (8.25% at February 2, 1996) of
interest plus 1.5%. LIBOR-based loans accrued interest at the LIBOR rate of
5.375% at February 2, 1996 plus 2.75%.
Borrowings under the Credit Agreement were secured by a pledge of all assets
owned by the Company and a security interest in all the Company's tangible and
intangible assets.
Interest on the Notes was payable semiannually on each June 15 and December 15,
commencing December 15, 1992. Prior to the conversion of the Notes to equity
interests pursuant to the Plan, approximately $33,757 of the Notes were held by
related parties at February 2, 1996 and are included in related party
liabilities on the accompanying consolidated balance sheets.
(7) Income Taxes
------------
Components of income tax benefit (expense) consist of:
Post-confirmation Preconfirmation
----------------- ---------------
10-week 42-week
period ended period ended Years ended
February 1, November 22 February 2, January 27,
1997 1996 1996 1995
---- ---- ---- ----
Current:
Federal $ 4 3,113 10,302 (4,751)
State 1 1,191 1,369 (1,106)
Deferred 1,395 (8,522) 15,486 204
$1,400 (4,218) 27,157 (5,653)
(Continued)
F-18
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
Income tax benefit (expense) for the 10-week period ended February 1, 1997, the
42-week period ended November 22, 1996, and the years ended February 2, 1996 and
January 27, 1995 amounted to $1,400, $(4,218), $27,157, and $(5,653), an
effective rate of 33.7%, 253.0%, 35.3%, and 42.9%, respectively, which differs
from the "expected" income tax expense (computed by applying the U.S. Federal
corporate income tax rate of 35% to income (loss) before income taxes and
extraordinary item) as follows:
<TABLE>
<CAPTION>
Post-confirmation Preconfirmation
----------------- ---------------
10-week 42-week
period ended period ended Years ended
February 1, November 22 February 2, January 27,
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Computed "expected" income tax benefit (expense) $ 1,455 (583) 26,881 (4,610)
State and local taxes, net of Federal
income tax benefit 175 (45) 2,090 (695)
Amortization of intangible assets - - (1,632) (64)
Nondeductible expenses relating to reorganization (216) (744) - -
Provision for resolution of tax audits and adjustments
to refund receivable - (2,727) - -
Other, net (14) (119) (182) (284)
--- ---- ---- ----
$ 1,400 (4,218) 27,157 (5,653)
======= ====== ====== ======
</TABLE>
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at February 1, 1997 and
February 2, 1996 are presented below:
<TABLE>
<CAPTION>
Post-confirmation Preconfirmation
February 1, February 2,
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Nondeductible accruals $ 3,387 9,036
Restructuring related reserves and write-downs
of inventory, receivables, and property, plant,
and equipment - 9,049
Inventory write-downs 1,349 718
Accounts receivable reserves and allowances 173 291
State taxes - 749
Other - 369
----- ---
Deferred tax assets 4,909 20,212
----- ------
Deferred tax liabilities:
Tax attribute reductions of inventory, receivables,
and property, plant, and equipment (21,090) -
Plant and equipment - (7,204)
State taxes (579) -
Other (414) -
----
Deferred tax liabilities (22,083) (7,204)
------- ------
Net deferred tax (liability) asset $ (17,174) 13,008
========= ======
</TABLE>
(Continued)
F-19
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(8) Related Party Transactions
--------------------------
During the period ended November 22, 1996 and the years ended February 2,
1996 and January 27, 1995, the Company engaged in transactions with
related parties, including (income) expenses incurred on behalf of the
former Parent company of approximately $(299), $325, and $2,390,
respectively, with a balance receivable of $604 at February 2, 1996 which
was settled prior to February 1, 1997.
The Company also licensed certain trademarks from an affiliate under terms
and conditions consistent within the industry. Royalties paid to the
affiliate totaled $175 in fiscal 1995. No royalty payments have been made
since fiscal 1995.
Prior to November 22, 1996, long-term debt to related parties consisted of
notes held by parties which were stockholders, or their affiliates, of the
former Parent. After November 22, 1996, long-term debt due to related
parties consists of borrowings under the Amended Agreement held by a
stockholder of the Company.
In accordance with the Plan, the equity interests of the former Parent
were canceled, extinguished, and annulled. Additionally, the Company
entered into the Intercompany Compromise and Settlement Agreement as of
the Effective Date which included a provision to terminate the license
agreement.
(9) Credit Concentrations
---------------------
Most of the Company's sales are concentrated with national retailers. For
the 10-week period ended February 1, 1997 and the 42-week period ended
November 22, 1996, one customer individually accounted for 48% and 47%,
respectively, of net sales. For the years ended February 2, 1996 and
January 27, 1995, two customers accounted for 42% and 11% and 44% and 13%
of net sales, respectively.
At February 1, 1997 and February 2, 1996, the Company had $659 and $2,935,
respectively, of trade accounts receivable due from customers that are
believed to be moderate to high credit risks. These accounts have been
factored under a nonrecourse non-notification factoring arrangement which
reduces the credit risk to the Company subject to performance by the
factor. Management anticipates the factor will be able to fulfill its
obligations if required.
(Continued)
F20
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(10) Fair Value of Financial Instruments
-----------------------------------
At February 1, 1997, the fair value of the Company's debt is equal to the
carrying amount as it was subject to restructuring and is based upon
market rates. At February 2, 1996, the fair value of the Company's
long-term debt is estimated based on the most recent trading prices
offered for the Company's debt. The carrying amounts and estimated fair
values of the Company's long-term debt are as follows:
Preconfirmation
February 2, 1996
----------------
Carrying Fair
amount value
------ -----
Long-term debt:
Revolving credit facility $ (37,000) (37,000)
Term loans (77,771) (72,716)
Senior subordinated notes (124,573) (56,250)
Other long-term borrowings (714) (714)
The carrying value of all other financial instruments in the consolidated
balance sheets approximates fair value.
(11) Commitments and Other Matters
----------------------------
The Company leases certain equipment and warehousing facilities under
operating leases expiring at various dates through 2010. Total rent
expense under these leases amounted to approximately $790, $3,881, $3,414,
and $3,798, for the 10-week period ended February 1, 1997, the 42-week
period ended November 22, 1996, and the years ended February 2, 1996 and
January 27, 1995, respectively. In addition, the Company is responsible
for payment of applicable real estate taxes, insurance, and maintenance
expenses.
At February 1, 1997, future minimum annual rentals under these leases are
as follows:
Fiscal years ending in:
-----------------------
1998 $ 3,293
1999 2,716
2000 2,114
2001 1,373
2002 902
Thereafter 731
---
$11,129
=======
The Company has royalty agreements for certain licensed products. The
total royalty expense under these agreements amounted to approximately
$92, $479, $2,541, and $2,644 the 10-week period ended February 1, 1997,
for the 42-week period ended November 22, 1996, and the years ended
February 2, 1996 and January 27, 1995, respectively. At February 1, 1997,
the future minimum royalty expense for the fiscal year ending in 1998 is
approximately $557.
(Continued)
F-21
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(12) Employee Benefit Plans
----------------------
In fiscal 1997, the Company adopted an incentive compensation plan under
which certain employees may receive discretionary bonus awards from a
bonus pool calculated based on achievement of specified targets
established by the Board of Directors. Bonus amounts expensed for the
10-week period ended February 1, 1997 and the 42-week period ended
November 22, 1996 were $560 and $1,740, respectively. Bonus amounts
expensed under the provisions of the previous bonus plan were $1,310 for
the year ended January 27, 1995. No bonuses were earned for the year ended
February 2, 1996.
On the Effective Date, the Company adopted the Stock Plan which permits
the Company's Board of Directors to grant stock options to officers and
key employees. The Stock Plan initially reserved 928,962 shares of
authorized but unissued common stock. Total shares available for grant may
be increased by the Board of Directors at their discretion. Stock options
may be granted at an exercise price equal to or less than fair market
value as stipulated in the applicable option agreement. Excluding a grant
of 109,290 options to certain outside consultants, 50% of the total
options available vest over three years and one-third of these options
vest and become fully exercisable when granted and on the subsequent first
and second anniversaries from the date of grant. The remaining 50% of the
options available are performance based and vest in equal amounts based
upon the achievement of certain performance targets for each of the next
three years.
During the 10-week period ended February 1, 1997, 899,514 options were
granted at $6 per share; of the 899,514 options outstanding, 240,994 were
vested and exercisable at February 1, 1997. The weighted-average
contractual life of options outstanding at February 1, 1997 is nine years.
Had compensation cost for the Company's stock option plan been determined
based upon the fair value at the grant date for awards under this plan
consistent with SFAS 123, the effect on the Company's net income and
income per share would not be material, based upon the following
assumptions related to the options: risk-free interest rate of 6.2%, no
dividend yield, and three-year expected lives.
The Company maintains a medical benefits plan and trust which covers
substantially all employees of the Company. The plan is funded currently
by contributions from the Company and employees based on anticipated claim
costs and administrative expenses. Company contributions to the plan were
$1,250, $5,604, $8,585, and $9,544 for the 10-week period ended February
1, 1997, the 42-week period ended November 22, 1996, and the years ended
February 2, 1996 and January 27, 1995, respectively. Net assets available
for plan benefits held in trust were $1,037 at February 1, 1997 and $605
at February 2, 1996.
The Company sponsors a defined contribution retirement plan for its
employees. Company contributions are based upon a percentage of the
employees' contributions. Contributions and administrative expenses
incurred by the Company on behalf of the plan totaled approximately $53,
$319, $456, and $473 for the 10-week period ended February 1, 1997, the
42-week period ended November 22, 1996, and the years ended February 2,
1996 and January 27, 1995, respectively.
(Continued)
F-22
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(13) Restructuring
-------------
In the third quarter of fiscal 1996, in response to operating losses
resulting from decreasing sales as well as high manufacturing and
distribution costs, the Company initiated a restructuring to improve
operating performance and reduce costs. In connection with this
restructuring, the Company recorded charges totaling $51,591 ($33,379
after related income tax benefits), of which $14,153 ($9,157 net of income
tax benefits), and $37,438 ($24,222 after related income tax benefits)
were charged to operating expenses in the third and fourth quarters of
fiscal 1996, respectively. 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 to
net realizable value; (iii) the write-off and establishment of reserves to
reduce inventory and accounts receivable to estimated net realizable value
for amounts 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 resulting from a total domestic work
force reduction in fiscal 1996 and fiscal 1997 of approximately three
thousand employees, of which approximately one thousand one hundred and
one thousand nine hundred had occurred during fiscal 1996 and fiscal 1997,
respectively; and (v) the write-off of certain impaired intangible assets,
principally deferred debt expenses of $2,672 and goodwill of $2,395.
As of February 1, 1997 and February 2, 1996, assets held for disposition
consist of the following:
<TABLE>
<CAPTION>
Post-confirmation Preconfirmation
February 1, February 2,
1997 1996
---- ----
<S> <C> <C>
Trade accounts receivable, net of estimated reserve
of $2,176 at February 2, 1996 $ - 3,824
Property, plant, and equipment, net of estimated
reserve of $ $4,228 at February 2, 1996 169 1,800
Inventory, net of obsolescence reserve of
$17,452 and allocated LIFO reserve of $1,033
at February 2, 1996 3,586 11,515
-- ---- ----- ------
$3,755 17,139
====== ======
</TABLE>
The reserves reflect management's estimates of the recoverability of the
related assets.
(Continued)
F-23
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share data)
(14) Quarterly Financial Data (Unaudited)
------------------------------------
<TABLE>
<CAPTION>
Preconfirmation Post-confirmation
--------------- -----------------
Fourth quarter - 1997
---------------------
Fourth 3 weeks ended 10 weeks ended
First Second Third quarter - November 22, February 1,
quarter quarter quarter 1996 1996 1997
------- ------- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Year ended 1997:
Net sales $97,619 78,883 98,624 22,477 42,708
Gross profit 12,691 11,707 13,367 4,295 4,487
Recovery of provision for asset write-
downs and restructuring - (2,964) - - -
Loss from continuing operations before
extraordinary items - - - (592) -
Extraordinary items - - - 67,924 -
Net income (loss) (1,298) 641 (1,303) 67,332 (2,757)
====== === ====== ====== ======
Net loss per common share(1) $(.28)
== =====
Year ended 1996:
Net sales $93,661 101,688 111,521 91,949
Gross profit 16,856 13,664 12,227 2,135
Provision for asset write-downs and
restructuring - - (14,153) (37,438)
Net income (loss) 110 (1,907) (11,840) (36,007)
=== ====== ======= =======
<FN>
(1) Net income (loss) and per share amounts for periods prior to November 22, 1996 have not been presented because they are not
meaningful due to the implementation of Fresh-Start Reporting and the substantial change in the number of shares outstanding
subsequent to the consummation of the Plan.
</FN>
</TABLE>
F-24
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 2, 1997 FEBRUARY 1, 1997
-------------- ----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 1,502 $ 66
Accounts Receivable - Net 27,038 26,486
Inventories (Note 2) 64,021 65,680
Prepaid Expenses and Other Current Assets 894 4,630
--------- ---------
Total Current Assets 93,455 96,862
Property, Plant and Equipment -Net 34,588 35,531
Other Assets 1,388 1,294
--------- ---------
Total Net Assets $ 129,434 $ 133,687
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Installments of Long-Term Debt $ 13 70
Accounts Payable 8,404 10,742
Accrued Payroll and Related Expenses 8,293 11,396
Accrued Restructuring Costs 1,274 2,106
Other Accrued Expenses 3,078 3,698
Current Deferred Income Tax 2,255 2,255
Income Taxes Payable 2,505 3,073
--------- ---------
Total Current Liabilities 25,822 33,340
Long Term Debt - Related 24,762 9,710
Long Term Debt - Non Related 42,208 56,359
Deferred Income Taxes 16,427 14,919
--------- ---------
Total Liabilities 109,219 114,328
Stockholders' Equity:
Common Stock of $.01 Par Value 100 100
Additional Paid-In Capital 22,016 22,016
Accumulated Deficit (1,901) (2,757)
--------- ---------
Total Stockholders' Equity 20,215 19,359
Total Liabilities and Stockholders' Equity $ 129,434 $ 133,687
========= =========
</TABLE>
F-25
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-------------------------------------
AUGUST 2, 1997 AUGUST 2, 1996
POST-CONFIRMATION PRECONFIRMATION
----------------- ---------------
<S> <C> <C>
Net Sales $ 119,676 $ 176,502
Cost of Sales 101,714 152,103
------------ ------------
Gross Profit 17,962 24,399
Selling, General and Administrative Expenses 13,164 15,979
Recovery of Previously Recorded Writedowns - 0 - (2,964)
------------ ------------
Operating Profit 4,798 11,384
Interest Expense, Related Parties 656 1,943
Interest Expense, Non-Related Parties - Net 2,853 10,969
Other Income - Net (319) (545)
------------ ------------
Income (Loss) Before Income Taxes 1,608 (983)
Income Tax Expense (Benefit) 754 (325)
------------ ------------
Net Income (Loss) $ 854 $ (658)
============ ============
Net Income Per Common Share $ 0.09 n/a
============
Weighted Average Common Shares Outstanding 10,000,000 n/a
============
</TABLE>
F-26
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-----------------------------------------
AUGUST 2, 1997 AUGUST 2, 1996
Post-confirmation Preconfirmation
----------------- ---------------
<S> <C> <C>
Cash Provided By Operating Activities:
Net Income (Loss) $ 854 $ (658)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by
Operations
Depreciation and Amortization 3,080 5,257
Decrease in Provision for Deferred Taxes 1,507 3,994
Gain on Sale of Property, Plant and Equipment (65) (293)
Asset Writedown Recovery - 0 - (2,964)
Changes in Assets and Liabilities:
(Increase) in Accounts Receivable (553) (4,981)
Decrease (Increase) in Inventories 1,660 (12,681)
Decrease in Assets Held for Disposition 3,626 18,445
(Increase) Decrease in Prepaid Expenses (131) 7,441
Decrease in Accounts Payable (2,337) (3,442)
(Decrease) Increase in Accrued Expenses and Other Liabilities (3,721) 10,184
Decrease In Asset Writedown and Restructuring Reserve (832) (6,517)
Decrease in Income Taxes Payable (568) (1,031)
-------- --------
Net Cash Provided by Operations 2,520 12,754
Cash Flows From Investing Activities:
Proceeds From the Sale of Property, Plant and Equipment 205 872
Additions to Property, Plant and Equipment (2,133) (1,901)
Decrease in Other Assets - 0 - 223
-------- --------
Net Cash Used in Investing Activities (1,928) (806)
Cash Flows From Financing Activities:
Repayment of Long-Term Debt - Net (10,656) (890)
Increase (Decrease) in Revolver 11,500 (21,000)
-------- --------
Net Cash Used in Financing Activities 844 (21,890)
Net Increase (Decrease) in Cash and Cash Equivalents 1,436 (9,942)
Cash and Cash Equivalents at Beginning of Period 66 10,369
-------- --------
Cash and Cash Equivalents at End of Period $ 1,502 $ 427
======== ========
Supplemental Disclosure of Cash Paid (Received) During the Period For:
Income Taxes $ (182) $(10,241)
======== ========
Interest $ 2,599 $ 5,720
======== ========
</TABLE>
F-27
<PAGE>
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED
AUGUST 2, 1997 AND AUGUST 2, 1996
(UNAUDITED)
1. FINANCIAL STATEMENTS
The consolidated balance sheet as of August 2, 1997 and the consolidated
statements of operations for the thirteen and twenty-six weeks ended August 2,
1997 and August 2, 1996, respectively, and the consolidated statements of cash
flows for the twenty-six weeks ended August 2, 1997 and August 2, 1996 have been
prepared by Ithaca Industries, Inc. (the "Company") without audit. In the
opinion of management, all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of the financial position of the
Company at August 2, 1997 and the results of operations for the thirteen and
twenty-six weeks ended August 2, 1997 and August 2, 1996, respectively, and the
statements of cash flows for the twenty-six weeks ended August 2, 1997 and
August 2, 1996 have been made on a consistent basis.
The Company adopted "fresh-start reporting" and reflected the effects of
such adoption in the consolidated financial statements as of November 22, 1996,
the date assumed for financial reporting purposes of the Company's emergence
from Chapter 11. The post-confirmation consolidated financial statements have
been separated from the preconfirmation prior period amounts by a bold line to
signify that the post-confirmation consolidated financial statements are those
of a new reporting entity and have been prepared on a basis not comparable to
prior periods.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the audited financial statements and
notes thereto for the year ended February 1, 1997 and February 2, 1996 included
in the Company's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission on May 2, 1997.
The results of operations for the periods presented are not necessarily
indicative of the operating results for the full year.
2. INVENTORIES
Inventories consist of the following:
AUGUST 2, 1997 FEBRUARY 1, 1997
Raw Materials $16,725 $15,607
Work in Process 13,221 12,381
Finished Goods 34,075 37,692
------- -------
$64,021 $65,680
======= =======
F-28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the related notes included elsewhere in
this Prospectus.
The following table sets forth the percentage relationship to total net
sales of certain items included in the Company's Statements of Operations:
<TABLE>
<CAPTION>
POST-CONFIRMATION PRECONFIRMATION
-------------------------------------------- ----------------------------------------------
(UNAUDITED) FISCAL YEAR ENDED
26-WEEK PERIOD ENDED 10-WEEK PERIOD ENDED 42-WEEK PERIOD ENDED JANUARY 31,
AUGUST 2, 1997 JANUARY 31, 1997 NOVEMBER 22, 1996 1996 1995
-------------- ---------------- ----------------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales:
Men's & boys' underwear and
T-shirts 60.8% 51.2% 56.4% 52.0% 49.6%
Women's and girls' underwear 14.5 17.1 17.2 18.7 20.6
Women's hosiery 21.1 28.6 24.5 27.3 27.8
Other 3.6 3.1 1.9 2.0 2.0
-------- -------- -------- -------- --------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
-------- -------- -------- -------- --------
Cost of sales 85.0% 89.5% 85.9% 88.7% 82.4%
-------- -------- -------- -------- --------
Gross profit 15.0% 10.5 14.1 11.3 17.6
Selling, general and administrative
expenses 11.0 17.2 9.3 10.9 8.9
(Recovery of) provisions for asset
write-downs and restructuring -- -- (1.0)% 12.9% --
Operating income (loss) 4.0 (6.7) 5.8 (12.6) 8.7
Interest expense-net 2.9 3.2 5.9 6.7 5.6
Other (net) (0.2) (0.2) (0.2) -- (0.1)
Reorganization items -- -- (0.4)% -- --
-------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary items 1.3 (9.7) 0.5 (19.2) 3.2
Income tax expense (benefit) 0.6 3.3 1.4 (6.8) 1.4
Extraordinary item-gain on debt
discharge -- 22.8 -- --
Net income (loss) 0.7% (6.4)% 21.9% (12.4)% 1.8%
======== ======== ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
COMPARISON OF THE 26-WEEK PERIOD ENDED AUGUST 2, 1997 TO THE 26-WEEK PERIOD
ENDED AUGUST 2, 1996
Net sales decreased from $176.5 million for the 26-week period ended
August 2, 1996 to $119.7 million (32.2%) for the 26-week period ended August 2,
1997. Men's and boys' underwear and T-shirt sales were down 27.9%, women's and
girls' underwear sales were down 47.6% and women's hosiery sales were down
36.6%. Unit volume was down 34.4% with men's and boys' underwear and T-shirts
down 24.8%, women's and girls' underwear down 47.1% and women's hosiery down
36.2%. The average selling price per dozen in the 26-week period ended August 2,
1997 increased to $20.87 from $20.20 in the comparable prior period, primarily
reflecting a change in the mix among product lines. There were no significant
pricing changes to the Company's customers during the 26-week period ended
August 2, 1997. The sales decline
18
<PAGE>
reflected, in part, the reduction in sales of discontinued products, which were
approximately $27.2 million in the 26-week period ended August 2, 1996 compared
to $3.6 million in the 26- week period ended August 2, 1997. Sales of continuing
products were lower in the current period reflecting lower sales to the
Company's major customers.
The gross profit margin increased for the first half of fiscal 1997 to
15.0% from 13.8% for the comparable period last year. The increase in gross
profit margin resulted from the sale this year of a lower proportion of
discontinued goods to continued products, as discontinued goods have
comparatively lower gross profit margins than continuing products, offset in
part by higher manufacturing costs related to lower production volume in the
current period versus the comparable prior period.
Selling, general and administrative expenses for the 26-week period ended
August 2, 1997 decreased to $13.2 million from $16.0 million (17.6%) in the
26-week period ended August 2, 1996, excluding the one-time benefit in the prior
year from the recovery of writedowns previously recorded.
Operating profit decreased to $4.8 million for the 26-week period ended
August 2, 1997 from $11.4 million for the comparable prior period due to the
asset writedown recovery of $3.0 million included in the prior year, and the
lower sales level in the current year.
Interest expense for the 26-week period ended August 2, 1997 of $3.5
million was 72.8% below the $12.9 million incurred in the 26-week period ended
August 2, 1996. The lower interest expense was due to the retirement of $125
million of Notes pursuant to the Plan of Reorganization and lower average bank
borrowings, partially offset by higher interest rates on the Company's bank
borrowings.
COMPARISON OF THE 10-WEEK PERIOD ENDED JANUARY 31, 1997 TO THE 10-WEEK PERIOD
ENDED JANUARY 31, 1996.
Net sales declined 33.0% to $42.7 million in the 10-week period ended
January 31, 1997, from $63.7 million in the 10-week period ended January 31,
1996. Men's and boys' underwear and T-shirt sales were down 30.8%, women's and
girls' underwear sales were down 34.2% and women's hosiery sales were down
36.4%. Unit volume was down 29.8% with men's and boys' underwear and T-shirts
down 20.3%, women's and girls' underwear down 39.8% and women's hosiery down
32.0%. The average selling price per dozen in the 10-week period ended January
31, 1997 decreased to $18.75 from $19.63 in the comparable prior period,
primarily reflecting a change in the mix among product lines. There were no
significant pricing changes to the Company's customers during the 10-week period
ended January 31, 1997.
The sales declines reflect, in part, the implementation of the Company's
Business Plan, which was designed in part to eliminate unprofitable products.
While the Company does not consider its business to be seasonal, the relative
level of sales for the 10-week period ended January 31, 1997, proportionate to
the Company's sales in other periods, is consistent with the Company's past
experience as that period is traditionally a period of relatively low sales
activity. The sales level is not believed to be representative of the Company's
sales level and financial results on an annualized basis. Net sales in the
10-week period ended January 31, 1997 included approximately $3.8 million of
sales resulting from the wind-down of discontinued products, which will not
recur in future periods. Sales of discontinued products were not included in the
projections made in the Business Plan as it only included sales of products
which the Company intended to sell in future periods.
Gross profit, excluding provisions for asset write-down and restructuring
charges incurred in the 10-week period ended January 31, 1996, increased by $4.7
million from
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($0.2) million to $4.5 million during the 10-week period ended January 31, 1997,
compared to the 10-week period ended January 31, 1996; with gross margin
improving to 10.5% of sales from (0.3%) in the comparable prior period, as
product costs fell proportionately faster than the sales decline. The improved
gross margin was principally attributable to lower costs of production resulting
from the offshore sourcing of men's and boys' underwear and outerwear T-shirts
and women's and girls' underwear and improved efficiencies in hosiery
operations.
The Company recorded provisions for workforce reductions and asset
write-downs of $37.4 million in the 10-week period ended January 31, 1996. There
were no provisions for workforce reductions and asset write-downs in the 10-week
period ended January 31, 1997.
Selling, general, and administrative expenses, excluding the provisions
for workforce reductions and asset write-downs incurred in the 10-week period
ended January 31, 1996, decreased by $2.3 million (23.2%) in the 10-week period
ended January 31, 1997 to $7.3 million from $9.5 million in the 10-week period
ended January 31, 1996. Shipping expense was $1.6 million lower in the 10-week
period ended January 31, 1997 as compared to the 10-week period ended January
31, 1996. Lower shipping costs were realized, in part, because during the
10-week period ended January 31, 1997 the Company's consolidated distribution
centers were fully operational, while in the comparable prior period, the
Company's consolidated distribution centers could not be fully utilized. In
addition, the company experienced lower sales levels in the current period
compared to the comparable prior period. Selling costs were $1.4 million lower
in the current period, reflecting staffing reductions implemented early in
fiscal 1997.
Interest expense, net of interest income, decreased to $1.4 million in
the 10-week period ended January 31, 1997 compared to $4.9 million in the
10-week period ended January 31, 1996. The decrease in the 10-week period ended
January 31, 1997, compared to the 10-week period ended January 31, 1996, was due
to lower average borrowings, including the effect of the retirement of the Notes
pursuant to the Plan of Reorganization, partially offset by higher interest
rates.
The income tax benefit in the 10-week period ended January 31, 1997 was
34% of the loss before income taxes, compared to a benefit of 46% of the loss
before income taxes in the 10-week period ended January 31, 1996.
COMPARISON OF 42-WEEK PERIOD ENDED NOVEMBER 22, 1996 TO 43-WEEK PERIOD ENDED
NOVEMBER 24, 1995.
Net sales declined 11.2% to $297.6 million in the 42-week period ended
November 22, 1996 from $335.1 million in the 43-week period ended November 24,
1995. Men's and boys' underwear sales were up 1.2%; women's and girls' underwear
sales were down 19.5% and women's hosiery sales were down 18.8%. Outerwear
T-shirts sales decreased 16.6%. Unit volume was down 12.9% with men's and boys'
underwear down 3.3%, women's and girls' underwear down 18.6% and women's hosiery
down 17.3%, and outerwear T-shirt volume down 18.7%. The average selling price
per dozen in the 42-week period ended November 22, 1996 increased to $20.57 from
$20.18, primarily reflecting a mix change among product lines. There were no
significant pricing changes to the Company's customers during the 42-week period
ended November 22, 1996.
The sales declines reflected, in part, the implementation of the
Company's Business Plan which was designed, among other objectives, to eliminate
unprofitable products. Net sales in the 42-week period ended November 22, 1996
included $39.9 million of sales resulting from the wind-down of discontinued
products, which will not recur in future periods. These sales of discontinued
products were not included in the Business Plan which reflected only sales of
products that the Company intends to continue selling.
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Gross profit declined $3.0 million or 6.6% during the 42-week period
ended November 22, 1996 compared to the 43-week period ended November 24, 1995;
however, gross margin improved to 14.1% of sales from 13.4% in the prior period,
as product costs fell proportionately faster than the sales decline. The
improved gross margin was attributable to lower costs from offshore sourcing of
men's and boys' underwear and women's and girls' underwear. In the 42- week
period ended November 22, 1996, the Company reduced its excess domestic
manufacturing capacity in the men's and boys' underwear, women's and girls'
underwear and outerwear T-Shirt divisions by closing plants. Approximately 1,500
manufacturing and overhead jobs were eliminated by these closings in the 42-week
period ended November 22, 1996. Women's hosiery was favorably impacted by
improved production efficiency and progress in eliminating unprofitable
products.
The Company recorded a reversal in the 42-week period ended November 22,
1996 of $3.0 million of asset writedowns taken during fiscal 1996 (related to
recovery of receivables previously identified as impaired assets) compared to
provisions for workforce reductions and assets writedown of $14.2 million in the
43-week period ended November 24, 1995.
Selling, general and administrative expenses decreased by $6.3 million
(18.5%) in the 42-week period ended November 22, 1996 to $27.7 million from
$34.0 million in 43-week period ended November 24, 1995, which represented a
decrease from 10.9% as a percentage of sales in the 43-week period ended
November 24, 1995 to 9.3% as a percentage of sales in the 42-week period ended
November 22, 1996. The primary component of this decrease was lower employee
related costs, resulting from headcount reductions early in fiscal 1997.
Shipping expense was $2.0 million lower in the current period reflecting
operation of the consolidated distribution centers in the current period
compared with the transition to these distribution centers in the prior period
and lower sales levels in the 42-week period ended November 22, 1996 as compared
to the 43-week period ended November 24, 1995.
Interest expense, net of interest income, decreased to $17.5 million for
the 42-week period ended November 22, 1996 compared to $22.0 million in fiscal
1996. The decrease in the 42-week period ended November 22, 1996 was due to
nonaccrual of bondholder interest after August 29, 1996 ($3.2 million lower than
the 43-week period ended November 24, 1995) and lower average borrowings in
fiscal 1997, partially offset by higher interest rates during the period.
Income tax expense in the 42-week period ended November 22, 1996 was
253.3% of income before income taxes, compared to 35.3% in full year fiscal
1996. The increase is due primarily to the provision for deferred tax
liabilities resulting from tax bases reductions in connection with the gain from
the debt discharge associated with the confirmation of the Plan of
Reorganization and to the non-deductibility of certain restructuring charges.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
Net sales declined 3.9% ($398.9 million) in fiscal 1996 from fiscal 1995
($414.8 million). Men's and boys' underwear sales were down 1.7%, women's and
girls' underwear sales were down 12.6%, and women's hosiery sales were down 5.4%
reflecting in part the increase in casual workplace attire and longer lasting
products. Outerwear T-shirt sales increased 6.2%. Unit volume was down 7.0%,
with men's and boys' underwear down 4.3%, women's and girls' underwear down
8.8%, and women's hosiery down 11.3%, partially offset by a 9.1% increase in
outerwear T-shirt volume. The average selling price per dozen in fiscal 1996
increased to $20.09 from $19.04, reflecting a mix change among product lines.
There were no significant pricing changes to the Company's customers during
fiscal 1996.
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Gross profit decreased significantly ($28.0 million or 38%) during fiscal
1996 compared to fiscal 1995. All product categories had decreased gross profit
during fiscal 1996, due to erratic demand, lower production volume and
manufacturing cost increases which were not offset by price increases. In
particular, lower sales, increased SKU's, and higher overhead costs resulted in
an operating loss in the branded women's hosiery line. Anticipating that the
weakness in the U.S. retail environment would persist, with severe pricing
pressures likely to continue or escalate with resulting adverse effect on the
Company's profitability, the Company undertook an extensive review of its
manufacturing capacities, overhead structure, product lines and customer base in
the third and fourth quarters of fiscal 1996 and the first and second quarters
of fiscal 1997.
As a result of the implementation of objectives formulated during this
review, the Company recorded provisions for workforce reduction and asset
write-downs of $51.6 million in fiscal 1996. Approximately $24.2 million of this
provision was related to cost of goods, including costs associated with a major
program sourced in the Far East. In fiscal 1996 the Company reduced its excess
domestic manufacturing capacity in the men's and boys' underwear, women's and
girls' underwear and outerwear T-shirt divisions by closing plants.
Approximately 1,100 manufacturing and overhead jobs were eliminated by these
closings in the 1996 fiscal year.
Selling, general and administrative expenses, excluding provisions for
workforce reductions and asset write-downs, increased by $6.4 million (17.3%) in
fiscal 1996 to $43.5 million from fiscal 1995. The primary component of this
increase was shipping expense, which increased by $2.5 million (27.1%), due to
non-recurring costs incurred in the relocation of both the men's and boys'
underwear and women's and girls' underwear distribution activities to new
facilities in fiscal 1996, while operating from inefficient temporary facilities
during much of the year. Professional and legal fees were approximately $3.1
million higher in fiscal 1996 compared to the prior year, related primarily to
costs associated with a proposed bank debt refinancing in the second and third
fiscal quarters of 1996 and the subsequent financial restructuring activities.
Interest expense, net of interest income, increased to $26.9 million for
fiscal 1996 compared to $23.1 million in fiscal 1995. The increase in fiscal
1996 was due to higher average borrowings in 1996 and higher interest rates
during the period.
The loss before income taxes generated an income tax benefit of $27.2
million in fiscal 1996, an effective rate of 35.3% compared to an effective rate
of 43% in fiscal 1995. The change in effective tax rate was primarily due to the
write-off in fiscal 1996 of certain intangibles which did not create any tax
benefit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's existing Credit Agreement was amended and restated on
December 16, 1996. As of that date, the Credit Agreement provides for the Term
Loan of $55.0 million and a revolving loan facility of $77.2 million. The
revolving loan facility includes a sub-limit of $25.0 million for the issuance
of letters of credit. For thirty-day periods beginning in December and May of
each year, commitments under the revolving loan facility are reduced to $63.0
million and $68.0 million, respectively (the "Clean-Down Periods").
Additionally, Amendment No. 1 to the Credit Agreement provides for an additional
clean-down period during January of each year under which commitments under the
revolving loan facility, excluding letters of credit, are reduced to $20
million. As of October 17, 1997 the Company had $41.2 million of Term Loans
outstanding, and $6.6 million letters of credit and $19.4 million of borrowings
outstanding under its revolving loan facility. The Company at October 17, 1997
had $28.7 million of additional borrowing capacity under the Credit Agreement.
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The Company's cash on hand as of October 17, 1997 was $11.8 million
overdraft compared to $0.1 million at January 31, 1997 and $1.3 million at
November 22, 1996. The Company manages cash to minimize outstanding bank
borrowings, with the overdraft representing checks issued but not cleared as of
October 17, 1997. The decrease in cash as of January 31, 1997 was due to the use
of cash to reduce outstanding bank borrowings during the 10-week period ended
January 31, 1997.
At August 2, 1997 the Company's working capital was $67.6 million and the
current ratio was 3.6:1. At January 31, 1997 the Company's working capital was
$63.5 million and the current ratio was 2.9:1. At November 22, 1996 the
Company's working capital was $75.6 million and the current ratio was 2.7:1. The
Company reported a working capital deficit at the end of fiscal 1996 because of
the presentation of substantially all outstanding debt as currently payable. The
calculation of a current ratio under such circumstance would not be meaningful.
Working capital of $113.0 million as of January 31, 1995 decreased by $10.2
million (8.3%) from $123.2 million as of January 31, 1994. The current ratio was
3.9:1 as of January 31, 1995, compared to 4.2:1 as of January 31, 1994.
Capital additions of $2.1 million during the 26-week period ended August
2, 1997 were primarily related to purchases of machinery and equipment. Capital
additions for the comparable prior period were $1.9 million. Capital additions
of $0.8 million during the 10-week period ended January 31, 1997 were primarily
related to purchases of machinery and equipment. Capital additions of the
comparable prior period were $1.0 million. Capital additions of $3.2 million
during the 42-week period ended November 22, 1996, also primarily related to
purchases of machinery and equipment, were substantially below capital additions
of $13.9 million during the full fiscal year 1996. Capital additions of $13.9
million in fiscal year 1996 related principally to the Company's new centralized
distribution facilities and were significantly above the additions of $8.5
million in fiscal 1995.
Inflation has had only a minimal impact on the Company in the past. The
Company has minimized the impact of inflation on costs and expenses through cost
controls and increased manufacturing efficiency. The Company has at times
experienced some increase in the cost of labor, supplies, raw materials and
administrative expenses. The Company is not always able to promptly pass on cost
increases to its customers, principally due to timing of raw materials purchases
and customer orders as well as competitive pressures.
FINANCIAL CONDITION
On October 8, 1996 the company filed a voluntary petition for
reorganization under Chapter 11 with the Bankruptcy Court. The filing of the
voluntary petition resulted from a sequence of events stemming from the
Company's default under the Credit Agreement.
The Company emerged from bankruptcy on December 16, 1996 and a final
order was issued by the Bankruptcy Court on April 7, 1997. Pursuant to the Plan
of Reorganization, the Company has repaid or will repay all of the secured and
unsecured claims allowed by the Bankruptcy Court as follows: (1) general
unsecured claims were satisfied in the ordinary course of business, (2)
Noteholder claimants received a pro rata share of 10,000,000 shares of Ithaca
Common Stock (representing, in the aggregate, all of the outstanding shares of
Ithaca Common Stock except for Common Stock reserved for issuance pursuant to
the LTIP and the Director Option Plan), (3) prior equity interests in the
Company were cancelled, annulled and extinguished, (4) administrative claims
were paid in full, in cash, in the ordinary course of business, (5) tax claims
were paid in full, (6) priority claims were paid in full, (7) the Credit
Agreement was amended and restated and (8) general secured claims were paid in
full. Each holder of an allowed general secured claim was either paid in full on
December 16, 1996 (or the
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date upon which there is a final order allowing such claim as an allowed secured
claim), or was otherwise to be rendered unimpaired.
BUSINESS PLAN
In the third and fourth quarters of fiscal 1996 the Company undertook an
extensive review of its manufacturing capacity, overhead structure, product
lines and customer base. The Company analyzed its strategic plans in connection
with the utilization of its plants located in Honduras, as well as obtaining
products from other foreign sources. These efforts resulted in the promulgation
of the Business Plan to which the Company currently adheres. 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 moved sewing operations
off-shore. As part of the implementation of the Business Plan, the Company
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 produced, eliminated certain unprofitable
customers and product lines, began the process of establishing Far East
outsourcing capability and closed selected plants. Beginning in fiscal 1998, the
Company has been unable to attain the level of sales revenue anticipated by the
Business Plan and therefore has and may continue to be unable to achieve the
Operating Results set forth in the Business Plan. The Company believes this
resulted from customers' reluctance to place new or additional programs with the
Company while it was implementing its financial restructuring as well as
increased pressure from the Company's competitors to place programs with both
existing and potential new customers.
The Company has previously made its Business Plan, which contained
projections regarding the Company's future net sales and operating income,
publicly available. Projections contained in the Business Plan were not prepared
with a view to complying with published guidelines of the Commission nor with
the accounting profession's principles regarding projections. In addition, such
information was based on a number of assumptions and was subject to significant
uncertainties and contingencies, many of which are beyond the Company's control.
Further, the Business Plan did not reflect any tax expense or credits during the
projection period, and utilized asset and liability valuations from the
Company's Historical Financial Statements, modified for the impact of the
exchange of the Notes for equity and the resultant elimination of bondholder
interest during the projection period. Such information does not reflect the
impact of Fresh Start accounting rules, does not conform to generally accepted
accounting principles, and constitutes Forward Looking Statements under the
Reform Act as discussed elsewhere in this Prospectus.
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BUSINESS
GENERAL
Ithaca is a leading designer, marketer and manufacturer of private label
men's and boys' underwear and outerwear T-shirt products, women's and girls'
underwear and women's hosiery. The Company believes it is the largest
manufacturer of private label underwear and women's hosiery products in the
United States, operating distribution and manufacturing facilities in the
southeastern United States and off-shore manufacturing facilities in Central
America. The key elements of the Company's strategy are to supply a wide variety
of product offerings at a number of price points, to maintain a strong presence
in multiple channels of distribution, to maintain close customer relationships
by developing products and programs that suit individual customer needs and to
maintain a low cost and flexible manufacturing capability.
PRODUCTS AND SALES
The Company's three principal product lines are (1) men's and boys'
underwear and outerwear T-shirts, (2) women's and girls' underwear and (3)
women's hosiery. The Company offers a large selection of products in a wide
range of styles, sizes and colors. Ithaca has worked closely with its customers
over the years to develop a wide variety of products in each of its product
lines to meet the needs of retailers in varied distribution channels. The
Company's offerings within each product line range from lower priced goods sold
by supermarkets and discount stores to higher quality, higher priced styles sold
by department stores. Management believes that this product breadth gives it a
competitive advantage over other U.S. private label manufacturers who do not
offer such a wide selection and over foreign manufacturers who generally are not
as capable of providing prompt delivery on a broad range of products. Ithaca'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.
MEN'S AND BOYS' UNDERWEAR AND OUTERWEAR T-SHIRTS
Ithaca designs and manufactures over 80 styles of crew-neck T-shirts,
V-neck T-shirts, briefs, athletic shirts and fashion underwear for its line of
men's and boys' underwear. Ithaca also designs and manufactures over 50 styles
of tank top shirts, mock turtleneck shirts, white and colored pocket T-shirts
and white and colored T-shirt blanks for screen printing for its T-shirt product
line. Products are made of 100% cotton, cotton and polyester blends and for
fashion underwear, nylon.
Men's and boys' underwear and outerwear T-shirts accounted for
approximately 61% of the Company's net sales in the 26-week period ended August
2, 1997, 51% in the 10-week period ended January 31, 1997, 56% in the 42-week
period ended November 22, 1996, 52% in fiscal 1996 and 50% in fiscal 1995.
WOMEN'S AND GIRLS' UNDERWEAR
Ithaca designs and manufactures over 100 styles of briefs, hip huggers
and bikini panties for its line of women's and girls' underwear.
Women's and girls' underwear sales accounted for approximately 15% of the
Company's net sales in the 26-week period ended August 2, 1997, 17% in the
10-week period ended January 31, 1997, 17% in the 42-week period ended November
22, 1996, 19% in fiscal 1996 and 21% in fiscal 1995.
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WOMEN'S HOSIERY
Ithaca designs and manufactures over 130 styles of regular sheer
pantyhose, control top and support pantyhose, knee-highs and stockings for its
line of women's hosiery.
Women's hosiery sales accounted for approximately 21% of the Company's
net sales in the 26-week period ended August 2, 1997, 29% in the 10-week period
ended January 31, 1997, 25% for the 42-week period ended November 22, 1996, 27%
in fiscal 1996 and 28% in fiscal 1995.
RAW MATERIALS
The principal materials used in the Company's production of goods are
cotton, polyester, nylon and spandex yarns as well as tricot and powernet
fabrics. The Company does not produce its own yarns and believes that purchasing
yarns from the wide range of available sources in the United States is
cost-effective. Ithaca also purchases dyestuffs and packaging materials. The
Company is not always able to promptly pass on to its customers price increases
in raw materials principally due to the timing of raw material purchases and
customer orders as well as competitive conditions.
Management believes its sources of raw materials are adequate and does
not currently anticipate difficulty in obtaining raw materials to meet its
needs. The Company has not experienced any significant shortages of raw
materials during the past 30 years.
MANUFACTURING AND SOURCING
Ithaca manufactures its products at 10 plants in the southeastern United
States and Central America and sources a portion of its products from
contractors located in other countries throughout the world. Goods typically are
produced in anticipation of customer demand and the Company maintains a general
inventory which turned over 1.6 times in the 26-week period ended August 2,
1997, 0.7 times in the 10-week period ending January 31, 1997 and 3.6 times in
the 42-week period ending November 22, 1996. In both its women's hosiery and
fabric production facilities, Ithaca has the flexibility to shift its
manufacturing processes easily among many styles, colors and sizes in response
to changes in demand. Approximately half of the Company's men's and boys' and
women's and girls' products are either assembled off-shore from components that
are cut in the United States or sourced from the Far East or Mexico. Most of the
Company's women's hosiery products are produced domestically with a portion
sourced from Mexico.
TRADEMARKS, LICENSES AND PATENTS
Ithaca's products are predominantly sold under the private label names or
trade names of its customers. The Company usually seeks to obtain trademark
registration protection for those private label names developed by the Company,
although such protection generally is not as critical as with branded products.
The Company has registered over 44 trademarks in the United States, and has 5
trademark applications pending as of October 8, 1997.
Ithaca has license agreements permitting it to manufacture and sell
specific underwear products using the trademarks of others. The Company has the
exclusive U.S. license from Hang Ten International to use the Hang Ten trademark
on men's and boys' underwear through January 31, 1999. Ithaca has a license
agreement with International Licensing Corporation to use the Lightning Bolt
trademark on specified underwear products for men through January 31, 1999. The
Company has exclusive U.S. licenses from Salant Corporation to use the Lady
Manhattan
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trademark on specified women's underwear products through December 31, 1999.
Ithaca holds a patent for an Automatic Labeling Machine & Method which expires
on February 3, 2001.
The Company does not believe that the loss of any trademark or license
with respect to any product or products or the expiration or invalidation of any
patent would have a material adverse effect on the overall business of the
Company.
DELIVERY REQUIREMENTS
All purchase orders are taken for current delivery and the Company has no
long-term sales contracts with any customer, or any contract entitling Ithaca to
be the exclusive supplier of merchandise to any retailer. The Company's standard
payment terms are net 30 days and are shipped F.O.B.--distribution center.
SEASONALITY
The Company does not regard its overall business as highly seasonal.
IMPORTANCE OF MAJOR CUSTOMERS
For the 52-week period ended January 31, 1997, J.C. Penney accounted for
approximately 48% of the total net sales of the Company, compared to nearly 42%
in fiscal 1996 and 44% in fiscal 1995. Wal-Mart accounted for approximately 9%
of total net sales for the 52-week period ended January 31, 1997, compared to
approximately 11% in fiscal 1996 and 13% in fiscal 1995. No other customers
accounted for 10% or more of net sales in the 52-week period ended January 31,
1997, in fiscal 1996 or fiscal 1995. Although the Company's reliance on its
major customers has generally decreased over the last ten years, 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.
BACKLOG
The dollar amount of backlog of orders believed to be firm is not
material for an understanding of the business of the Company.
COMPETITION
The underwear and women's hosiery markets in the United States are highly
competitive. The Company's products compete with products manufactured by other
private label suppliers as well as with products manufactured under recognized
name brands.
Ithaca believes it is the largest manufacturer of private label
merchandise in each of its three principal product lines, offering a broad
selection of styles, sizes and colors. The private label underwear and women's
hosiery products business is generally comprised of small scale, privately owned
companies with limited product lines. However, management is aware of several
large private label manufacturers with substantial resources. Ithaca's principal
private label competitors include: Beltex, Springford, Nantucket, Oneita, Tultex
and Delta Woodside in men's and boys' underwear or outerwear T-shirts;
Fitzgerald and Wundies Industries Inc. in women's and girls' underwear; and
Americal Corp., Glendale Hosiery Company, Inc. and Acme-McCrary Corp. in women's
hosiery.
The supply of branded underwear and women's hosiery products is dominated
by a few large manufacturers, some of which have substantially greater financial
resources and market
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recognition than Ithaca. Many of these manufacturers also produce some private
label underwear and women's hosiery products. The Company's largest competitors
among branded product manufacturers are: Jockey International Inc. ("Jockey" and
"Jockey for Her" brands), Sara Lee Corp. ("Hanes" and "Hanes Her Way" brands)
and Fruit of the Loom, Inc. ("Fruit of the Loom" and "BVD" brands) in underwear;
and Sara Lee Corp. ("Hanes" and "L'eggs" brands), Kayser-Roth Corp. ("No
Nonsense" brand) and Pennaco Hosiery Inc. ("Round the Clock" brand) in women's
hosiery.
Competition in the underwear and women's hosiery products market is
generally based on price, quality and service. The Company believes that it has
an advantage over other private label suppliers because of the level of
merchandising and marketing services it offers to retailers implementing private
label programs.
IMPORTS
Ithaca's products compete with goods produced worldwide. Trade
association data available to the Company suggests that imported goods,
including offshore assembly of domestically cut garments, represented
approximately 36.5% of the total retail sales of men's and boys' underwear in
calendar 1996, up from 26.4% in calendar 1995, represented 51.7% of women's and
girls' panties compared with 45.4% in the prior year, and represented 13.1% of
sheer hosiery and tights versus 8.4% in calendar 1995. Reliable data on sales of
imported T-shirts is not believed to be available; however, retail sales of
imported men's and boys' knit sport shirts was reported to be 52.8% in calendar
1996 versus 49.3% in the prior year. The Company believes that it is important
to have the capability of sourcing a portion of its products from outside the
United States. The Company has consolidated certain plants to off-shore
facilities and has accelerated the process of moving more sewing operations
off-shore. The Company has established four Honduran subsidiaries which operate
three sewing plants in that country, primarily for men's and boys' underwear and
outerwear T-shirts. With respect to women's and girls' underwear, Ithaca sources
certain products from the Far East. The Company's ability to utilize foreign
sourcing is dependent on the absence of political or economic disruptions,
quotas, labor disruptions, embargoes or currency fluctuations in the countries
in which the Company sources its products.
ENVIRONMENTAL MATTERS
The Company believes that its facilities and operations are substantially
in compliance with current federal, state and local regulations regarding
safety, health and environmental pollution. Ithaca generally has experienced no
difficulty in complying with these regulations and such compliance has not had a
material adverse effect on the Company's capital expenditures, earnings or
competitive position.
EMPLOYEES
The Company employed approximately 5,700 people as of September 30, 1997,
of which approximately 5,200 were engaged in manufacturing and approximately 500
were engaged in managerial, administrative or sales and marketing functions.
None of the Company's employees are covered by a collective bargaining
agreement. The Company considers its relations with employees to be satisfactory
and has never experienced any interruption of operations due to labor disputes.
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PROPERTIES
The Company owns its corporate headquarters in Wilkesboro, North
Carolina. The Company leases sales offices in New York City and Dallas, Texas.
The Company manufactures and distributes its women's and girls' underwear at its
owned facilities in Cairo, Georgia. Cutting and distribution for men's and boys'
underwear and T-shirt products takes place at an owned centralized distribution
and cutting facility in Vidalia, Georgia. Men's and boys' underwear and
outerwear T-shirts are sewn in three owned plants in the southeastern United
States and at three facilities leased by the Company in Honduras. The Company
manufactures and distributes its women's hosiery products at two owned
facilities in North Carolina. Fabric for use in the Company's underwear and
T-shirt products is knit and finished at the Company's owned facility in
Gastonia, North Carolina and narrow fabrics, such as waistbands, are
manufactured at an owned facility in Graham, North Carolina. The Company also
utilizes leased storage facilities at several plant locations. All of the
Company's facilities are kept in good repair and have well-maintained equipment.
LEGAL PROCEEDINGS
From time to time the Company is involved in legal proceedings relating to
claims arising out of its operations in the normal course of business. The
Company believes that there are no material legal proceedings pending or
threatened against the Company or any of its properties.
29
<PAGE>
DIRECTORS AND MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Present Position With the Company
---- --- ---------------------------------
<S> <C> <C>
Walter J. Branson 35 Director
Marvin B. Crow 65 Director
Francis Goldwyn 43 Director
Morton Handel 62 Director
Eric N. Hoyle 50 Senior Vice President-Finance and Administration,
Secretary, Chief Accounting and Principal Financial
Officer
David H. Jones 54 Executive Vice President-Sales
R. Dean Riggs 45 Executive Vice President-Manufacturing
Jim D. Waller 56 Chairman of the Board, Chief Executive Officer,
President, Director
David N. Weinstein 38 Director
James A. Williams 54 Director
</TABLE>
Walter J. Branson was elected as a member of the post-reorganization
Board. Mr. Branson is currently Senior Vice President of Development of the Big
Party Corp. He joined the retailing firm as Vice President of Development in
1996. From 1993 to 1996, Mr. Branson was the Chief Financial Officer for CWT
Specialty Stores. From 1989 to 1992, Mr. Branson was employed by Executive Life
Insurance as an Investment Manager.
Marvin Crow was elected as a member of the post-reorganization Board. At
present, Mr. Crow serves on the Board of Directors of Dyersberg Corporation,
National Spinning Company, The Bibb Company and Ameritex Yarn Corporation and
works as a consultant for National Spinning Company, Texfi Industries, Inc.,
Fortsmann & Company, Inc. and Charles Craft. Mr. Crow is also actively involved
with KBO Enterprises, Inc. Established by his family in 1989, KBO Enterprises is
involved in video rental, fitness, and TCBY Yogurt stores in the Carolinas.
Francis Goldwyn was elected as a member of the post-reorganization Board.
Since 1993 Mr. Goldwyn has been a principal of Chapman Management Inc., a
provider of strategic operating and financial consulting services. From 1991 to
1992, Mr. Goldwyn served as an Executive Vice President with the Gitano Group,
Inc.
Morton Handel was elected as a member of the post-reorganization Board.
Presently, Mr. Handel is a director of CompUSA, Chairman of the Board of
Concurrent Computer Corporation and President of S&H Consulting Ltd. Mr. Handel
has served as a director of Concurrent Computer Corporation since 1991. S&H
Consulting Ltd. provides strategic operating and financial consulting services.
Mr. Handel served as a member of the Management Committee of Remington Products
Company, a consumer products manufacturer, from 1992 to 1996.
Eric N. Hoyle joined the Company in January 1994 as Senior Vice
President--Finance and Administration and Chief Financial Officer. Mr. Hoyle was
previously employed by Bali Company, a manufacturer and marketer of intimate
apparel from 1980 to 1994, most recently as
30
<PAGE>
Chief Financial Officer and Vice President Finance and Administration. Mr. Hoyle
is a Certified Public Accountant.
David H. Jones joined the Company in January 1997 as Executive Vice
President-Sales. Prior to joining Ithaca, Mr. Jones was with Gerber
Childrenswear, Inc. where he served as President and CEO from 1994 to 1996 and
as Vice President-Sales from 1991 to 1994. Mr. Jones has over 25 years
experience in the apparel business.
R. Dean Riggs joined the Company in August 1996 as Executive Vice
President-Manufacturing. Mr. Riggs was previously employed by Sara Lee Knit
Products from 1974 to 1996. At Sara Lee Knit Products, his most recent
assignments included Vice President-Operations Planning and Vice
President-Manufacturing & Operations in the Casual Wear Division.
Jim D. Waller has served as Chief Executive Officer since April 1991. Mr.
Waller joined Anderson Hosiery as Vice President--Marketing in 1968 and became
Vice President--Marketing of Ithaca upon its acquisition of Anderson Hosiery
from Collins and Aikman in 1982. Mr. Waller was elected a director in January
1985, President in June 1987 and Chairman of the Board in March 1995. Mr. Waller
has served as President and as director of Holdings between January 1992 and
December 1996 and as Chairman between March 1995 and December 1996.
David N. Weinstein was elected as a member of the post-reorganization
Board. Mr. Weinstein is a Managing Director in the High Yield Department at
BancBoston Securities, Inc. Mr. Weinstein was Head of the High Yield Capital
Market Group at Chase Securities, Inc. and a Managing Director of the firm from
1993 to 1996. From 1990 through 1993, Mr. Weinstein served in various roles at
Lehman Brothers/Smith Barney Shearson including as Head of the Capital Markets
Group in the High Yield Department at Lehman Brothers and as Director of the
High Yield/Private Finance Group at Smith Barney Shearson.
James A. Williams was elected as a member of the post-reorganization
Board. Mr. Williams also serves on the Board of Directors of The Bibb Company.
He is the President and Chief Executive Officer of Great American Knitting Mills
and has served in that capacity since 1991. Mr. Williams joined Great American
Mills as Senior Vice President of Sales and Marketing in 1985. From 1970 through
1985, Mr. Williams was employed by Adams-Millin Hosiery Company, first as a
Sales Manager and later as Senior Vice President-Sales & Marketing.
Pursuant to the Plan of Reorganization, the Board consists of seven (7)
directors, one of whom is Jim D. Waller. 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. Directors of the
Company hold office until their successors are elected and qualified, or until
their earlier resignation or removal. Each executive officer is appointed by the
Board for a term specified by the Board or until his or her earlier resignation
or removal.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has established an Audit Committee and a Compensation and Stock
Option Committee.
The "Audit Committee" is responsible for meeting with representatives of
the Company's independent certified public accountants and financial management
to review accounting, internal control, auditing and financial reporting matters
and is responsible, among other things, for maintaining liaison with and
exercising supervision over the actions of said accountants in
31
<PAGE>
whatever manner and to whatever extent deemed, at its discretion, necessary,
proper and in the best interest of the Company and its stockholders. The Audit
Committee consists of Messrs. Crow, Goldwyn and Handel, three Directors who are
not and never have been employees of the Company.
The "Compensation and Stock Option Committee" is responsible for reviewing
and approving officer and executive salaries and for reviewing and recommending
for approval by the Board executive and key employee compensation plans,
including incentive compensation and other benefits and consists of Messrs.
Branson, Weinstein and Williams, all of whom are not and never have been
employees of the Company.
DIRECTOR COMPENSATION
Currently, non-employee directors of the Company (Messrs. Branson, Crow,
Goldwyn, Handel, Weinstein and Williams) are paid retainer fees of $20,000 per
year and a fee of $1,500 for each day of Board or committee meetings attended.
Non-employee directors are eligible to participate in the Company's Director
Option Plan. See "Director Option Plan" below. Pursuant to the Director Option
Plan, as of May 14, 1997, each non-employee director was granted an option to
purchase 1,500 shares of Common Stock at an exercise price of $6.00 per share.
Such options will become exercisable on the date immediately preceding the
Company's next annual stockholder meeting. The Company and its subsidiaries do
not pay fees to Directors who are employees of the Company or its subsidiaries.
Other than $21,909 paid to F. Richard Redden, a director of the Company until
December 16, 1996, non-employee directors received no remuneration for serving
on the Board during the 42-week period ended November 22, 1996.
EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation for
services rendered in all capacities for the three fiscal years ended January 31,
1997 for the Chief Executive Officer, the three other most highly compensated
executive officers of the Company and two executives for whom disclosure would
be required but for the fact that they were not employed by the Company at the
end of the last completed fiscal year.
32
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------------ -------------------------------
Securities
Fiscal Underlying All Other
Name and Position Year Salary Bonus Options(1) Compensation(2)
----------------- ---- ------ ----- ---------- ---------------
<S> <C> <C> <C> <C> <C>
J.D. Waller 1997 $490,988 $422,005 273,224 $1,219
Chairman, President and Chief 1996 490,984 -0- -0- 1,219
Executive Officer 1995 480,413 316,130 -0- 1,079
N.J. Wehrmann(3) 1997 206,583 -0- -0- 1,219
Executive Vice President - 1996 206,583 -0- -0- 1,219
Manufacturing 1995 202,194 88,060 -0- 1,092
G.P. Felten(4) 1997 123,384 -0- -0- 660
Senior Vice President - 1996 217,000 -0- -0- 1,219
Sales & Marketing 1995 214,000 88,514 -0- 1,651
E.N. Hoyle 1997 190,500 109,538 65,000 1,219
Senior Vice President - 1996 190,000 -0- -0- 1,544
Finance and Administration, 1995 180,847 82,032 -0- 64
Secretary, Principal Financial
and Chief Accounting Officer
R. Dean Riggs(5) 1997 80,641 46,369 75,000 -0-
Executive Vice President - 1996 -0- -0- -0- -0-
Manufacturing 1995 -0- -0- -0- -0-
David H. Jones(6) 1997 8,267 -0- 70,000 -0-
Executive Vice President - 1996 -0- -0- -0- -0-
Sales 1995 -0- -0- -0- -0-
</TABLE>
- --------------------
(1) Represents options to purchase shares of Common Stock pursuant to the
Company's LTIP. See "Options Grants in Last Fiscal Year."
(2) The amounts reported in this column represent the Company's matching
contributions for the account of the named executive officers pursuant to
the Company's Employee Retirement Savings Plan (the "401(k) Plan").
(3) Mr. Wehrmann's employment with the Company terminated in August 1996. He has
since been replaced by R. Dean Riggs.
(4) Mr. Felten's employment with the Company terminated in August 1996. He has
since been replaced by David H. Jones.
(5) Mr. Riggs joined the Company in August 1996. The compensation reported for
him in respect of fiscal 1997 reflects compensation for services rendered
for a portion of the 1997 fiscal year.
(6) Mr. Jones joined the Company in January 1997. The compensation reported for
him in respect of fiscal 1997 reflects compensation for services rendered
for a portion of the 1997 fiscal year.
33
<PAGE>
OPTIONS GRANTS IN LAST FISCAL YEAR /1/
% of Total
<TABLE>
<CAPTION>
Number of Options Exercise Potential Realizable Value at
Securities Granted to or Base Assumed Annual Rates of Stock
Underlying Employees in Price Expiration Price Appreciation for Option Term
Name Options Granted Fiscal Year ($/Sh) Date (5%) ($) (10%) ($)
- ------------------- -------------- ------------ -------- ----------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
J.D. Waller 273,224 34.58% $6.00 1/23/07 $1,030,874 $2,612,692
E.N. Hoyle 65,000 8.23% $6.00 1/23/07 $245,245 $621,560
R.D. Riggs 75,000 9.49% $6.00 1/23/07 $282,975 $717,184
D.H. Jones 70,000 8.86% $6.00 1/23/07 $264,110 $669,372
All Employees as a 790,224 100.00% $6.00 1/23/07 $2,981,515 $7,556,481
group
</TABLE>
/1/ All options granted in fiscal 1997 are exercisable at a strike price of
$6.00 which the Company's Board determined to be approximately equal to the
fair market value of the Common Stock at the time of grant. As of January
31, 1997 16.67% of the options awarded vested in the employees and as of
April 15, 1997 an additional 16.67% of the options awarded vested in the
employees. Subject to certain restrictions, approximately 16.67% of the
options awarded will vest at the end of each of fiscal 1998 and fiscal 1999.
Up to an additional 16.67% of the options will vest approximately 45 days
after the end of each of fiscal 1998 and fiscal 1999, with the number of
options vesting linked to the achievement of certain performance goals
related to EBITDA, subject to the discretion of the Compensation and Stock
Option Committee in accordance to the terms of the LTIP. Assuming the
officers' continued employment with the Company, the options will expire on
the tenth anniversary of the date of grant. See "Long Term Stock Incentive
Plan".
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company entered into an employment agreement with Jim D. Waller in
February 1997 (the "Employment Agreement"). The Employment Agreement, which
expires on December 31, 1999, calls for Mr. Waller to serve as the Company's
Chief Executive Officer at an annual base salary of $490,000. Mr. Waller is
eligible to participate in the Company's Cash Bonus Plan (as defined below) and
the Company's LTIP.
If Mr. Waller's employment is terminated during the term of the Employment
Agreement, he will be entitled to receive his base salary until termination. If
such termination is without cause (defined as gross negligence that is
materially detrimental to the Company; willful, material, continued and bad
faith failure to perform and discharge his duties and responsibilities; or
conviction of a felony involving personal dishonesty) or if Mr. Waller resigns
for good reason (defined as either a failure to re-elect him as Chief Executive
Officer, an assignment of duties significantly different from Chief Executive
Officer, a material limitation of the powers of Chief Executive Officer, a
reduction in base salary, relocation from Wilkesboro, North Carolina or a
failure to obtain the assumption of the Employment Agreement by a successor),
until the expiration of the Employment Agreement, Mr. Waller will be entitled to
receive 65% of his base salary if his employment terminates during the fiscal
year ending in the third year prior to the expiration date, 80% of his base
salary if his employment terminates during the fiscal year ending in the second
year prior to the expiration date and 100% of his base salary if his employment
is terminated thereafter. In the case of Mr. Waller's death during the term of
the Employment Agreement, his designee, estate, personal or legal
representative, as the
34
<PAGE>
case may be, shall be entitled to receive his then current base salary until the
earlier of one year after his death or the date of expiration of the Employment
Agreement. If Mr. Waller is mentally or physically incapacitated during the term
of the Employment Agreement and is unable to perform his duties, he will be
entitled to receive 50% of his base salary until the earlier of one year after
his replacement or the expiration of the Employment Agreement.
The Employment Agreement contains restrictions on disclosure by Mr. Waller
of confidential information and restricts Mr. Waller's right to compete with the
Company anywhere the Company does business during the term of his employment and
for 24 months thereafter. As described above, the Employment Agreement is
terminable upon the death of Mr. Waller, by the Company for cause (as defined
above), upon disability or by Mr. Waller under certain circumstances. In
addition, unless Mr. Waller's employment is terminated for cause (as defined
above) by the Company, or Mr. Waller terminates his employment other than for
good reason (as defined above), Mr. Waller is entitled to continue to
participate in all group health, medical and employee benefits plans and
programs to which he was previously entitled for the remaining term of the
Employment Agreement.
CASH BONUS PLAN
Approximately 150 employees, as recommended by management, are eligible to
participate in the Cash Bonus Plan (the "Cash Bonus Plan"). Under the provisions
of the Cash Bonus Plan, 85% of the amount available for cash bonuses will be
paid out if 85% of the target performance level is achieved and will be
increased pro rata as actual performance meets or equals up to 115% of the
Business Plan targets. In fiscal 1997, the maximum bonus of $2,280,739 was
awarded by the Board at the recommendation of the Compensation and Stock Option
Committee.
The following summary is qualified in its entirety by the provisions of
the LTIP, the Directors Option Plan, and the Management Agreement, copies of
which have been filed as exhibits to the Registration Statement of which this
prospectus is a part.
LONG-TERM STOCK INCENTIVE PLAN
Ithaca has implemented the Ithaca Industries, Inc. 1996 Long-Term Stock
Incentive Plan (previously defined as the "LTIP"), to be administered by the
Compensation and Stock Option Committee which is intended to be comprised of two
or more members of the Board each of whom is a "Non-Employee Director" (within
the meaning of Rule 16b-3 promulgated under the Exchange Act) and an "outside
director" (within the meaning of the Internal Revenue Code of 1986, as amended
(the "Code") Section 162 (m)) although, the mere fact that the Compensation and
Stock Option Committee does not consist of Non-Employee Directors and outside
directors will not invalidate any awards made by it. Any officer, other key
employee or consultant to the Company or any of its subsidiaries who is not a
member of the Compensation and Stock Option Committee is eligible to participate
in the LTIP. The Compensation and Stock Option Committee has the sole and
complete authority to determine the participants to whom awards shall be granted
("Participant" or "Participants").
The LTIP authorizes the grant of awards to Participants with respect to a
maximum of 928,962 shares of the Company's Common Stock, which awards may be
made in the form of (1) nonqualified stock options, (2) stock options intended
to qualify as incentive stock options under Section 422 of the Code, (3) stock
appreciation rights, (4) restricted stock and/or restricted stock units, (5)
performance awards and (6) other stock based awards. In any calendar year, a
Participant may not receive stock options or stock appreciation rights for more
than 273,224 of the Company's Common Stock. No more than 109,290 shares of
Common Stock or the equivalent cash value thereof, may be paid to a Participant
in connection with the settlement of
35
<PAGE>
any award(s) designated as a Performance Compensation Award (as defined below)
in respect of a single performance period. Any Performance Compensation Award
(as defined below) that is deferred shall not (between the date that the award
is deferred and the payment date), increase (1) 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 Compensation and Stock Option Committee or (2) with
respect to an award payable in shares of the Company, by an amount greater than
the appreciation of a share of the Common Stock from the date such award is
deferred to the payment date. If any award granted under the LTIP is 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 of
Common Stock covered by such award may be granted to another Participant
pursuant to the terms of the LTIP, to the maximum extent permitted under Section
162(m) of the Code.
Stock options intended to qualify as incentive stock options will be
subject to terms, conditions and such rules as may be prescribed by Section 422
of the Code. Additionally, non-qualified and incentive stock options granted
under the LTIP shall be subject to such terms, including exercise price and
conditions and timing of exercise, as may be determined by the Compensation and
Stock Option Committee and specified in the applicable award agreement. Payment
in respect of the exercise of an option granted under the LTIP may be made (1)
in cash, (2) its equivalent or if and to the extent permitted by the
Compensation and Stock Option Committee and subject to such rules as may be
established by the Compensation and Stock Option Committee, (3) by exchanging
Common Stock 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), (4) through the delivery of irrevocable instructions to a broker to
sell the Common Stock being acquired upon exercise of the option and to deliver
promptly to the Company an amount equal to the aggregate exercise price or (5)
by a combination of the foregoing, provided that the combined value of all cash,
cash equivalents and the fair market value of shares of Common Stock 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 LTIP may not be exercisable
earlier than six months after the date of grant but shall otherwise be subject
to such terms, including grant price and conditions and limitations applicable
to exercise as may be determined by the Compensation and Stock Option Committee
and specified in the applicable award agreement. 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 of Common Stock over the grant price on the date of
exercise thereof. The Compensation and Stock Option Committee shall determine
whether a stock appreciation right shall be settled in cash, Common Stock or a
combination of cash and Common Stock.
Restricted stock and restricted stock units granted under the LTIP shall
be subject to such terms and conditions as may be determined by the Compensation
and Stock Option Committee in its sole discretion, 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. Each restricted stock unit shall have a value equal to the fair
market value of a share of Common Stock. Upon the lapse of the restrictions
applicable thereto, or otherwise in accordance with the applicable award
agreement, restricted stock units shall be paid in cash, shares of Common Stock,
other securities or other property, as determined in the sole discretion of the
Compensation and Stock Option Committee. 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 Compensation and Stock Option Committee in its sole
discretion.
36
<PAGE>
Performance awards granted under the LTIP shall consist of a right
denominated in cash or shares of Common Stock, payable at such time and in such
form as the Compensation and Stock Option Committee shall determine, payable in
amounts determined by the Compensation and Stock Option Committee, based upon
the achievement of such performance goals during such performance periods as the
Compensation and Stock Option Committee shall establish. Subject to the terms of
the LTIP and any applicable award agreement, the Compensation and Stock Option
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 Compensation and Stock Option
Committee, on a deferred basis.
In addition to the foregoing types of awards, the Compensation and Stock
Option Committee shall have the authority to grant to Participants an "Other
Stock-Based Award," which shall consist of any right which is (1) not a stock
option, stock appreciation right, restricted stock or restricted unit award or
performance award, and (2) an award of shares of Common Stock or an award
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares of Common Stock (including, without
limitation, securities convertible into shares of Common Stock), as deemed by
the Compensation and Stock Option Committee to be consistent with the purposes
of the LTIP; provided that any such rights must comply, to the extent deemed
desirable by the Compensation and Stock Option Committee, with Rule 16b-3 and
applicable law. Subject to the terms of the LTIP and any applicable award
agreement, the Compensation and Stock Option 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 LTIP. In the sole and complete discretion of the Compensation
and Stock Option Committee, an award, whether made as any other stock-based
award or as any other type of award issuable under the LTIP, may provide the
participant with dividends or dividend equivalents, payable in cash, shares of
Common Stock, other securities or other property on a current or deferred basis.
The Compensation and Stock Option Committee shall also 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 the grant price, as the case may be, is established
by the Compensation and Stock Option Committee to be equal to the fair market
value per share of Common Stock as of the date of grant, this form of award
enables the Compensation and Stock Option Committee to treat certain other
awards under the LTIP 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 LTIP.
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 Compensation and
Stock Option Committee for such period. The Compensation and Stock Option
Committee may designate one or more performance criteria for purposes of
establishing a performance goal with respect to Performance Compensation Awards
made pursuant to the LTIP. 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, sales or market share.
37
<PAGE>
With regard to a particular performance period, the Compensation and Stock
Option Committee shall have the discretion, subject to the terms of the LTIP, 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
Compensation and Stock Option Committee in writing no later than 90 days after
the commencement of the period. Performance for the period shall be measured and
certified by the Compensation and Stock Option Committee upon the period's
close. In determining entitlement to payment in respect of a Performance
Compensation Award, the Compensation and Stock Option 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 Compensation and Stock Option
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.
In the event that the Compensation and Stock Option Committee determines
that any corporate transaction or event affects the shares of Common Stock
awarded pursuant to the LTIP, such that an adjustment is appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the LTIP, then the Compensation and Stock Option
Committee shall, in such manner as it may deem equitable, adjust any or all of
(1) 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,
(2) the number of shares of Common Stock or other securities of the Company (or
number and kind of other securities or property) subject to outstanding awards
and (3) the grant or exercise price with respect to any award or (4) 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 such authority
would cause an award designated by the Compensation and Stock Option 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 of Common Stock to fail to qualify as Performance Based
Compensation.
In the event of a Change of Control of the Company (as defined in the
LTIP), any outstanding awards which are unexercisable or otherwise unvested
shall automatically be deemed exercisable or otherwise vested as of immediately
prior to the Change of Control.
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.
The Board of Directors may amend, alter, suspend, discontinue, or
terminate the LTIP 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).
38
<PAGE>
As of January 24, 1997, options representing 899,514 shares were awarded
to 40 individuals and Alvarez & Marsal, Inc. Options representing 504,402 shares
were awarded as nonqualified stock options, and options representing 395,112
were awarded as Performance Compensation Awards. Of the options awarded as of
January 24, 1997, options representing 20,000 shares were subsequently canceled.
As of October 29, 1997, options representing 369,350 are exercisable.
In addition, the Company presently (1) maintains a medical and dental
benefits plan (the "Medical Plan") which covers substantially all employees and
(2) sponsors a qualified defined contribution retirement plan for its employees
under section 401(k) of the Internal Revenue Code of 1986 (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.
DIRECTOR OPTION PLAN
The Board has adopted the Ithaca Industries 1997 Stock Option Plan for
Non-Employee Directors (previously defined as the "Director Option Plan"). The
Director Option Plan enables the Company to make nonqualified stock option
grants to directors of the Company who are not employees of the Company or its
affiliates. The Director Option Plan was adopted as of May 14, 1997 and will
remain in effect until May 13, 2007 unless sooner terminated by the Board. The
Board may terminate or amend the Director Option Plan at any time, provided that
(1) any such amendment complies with all applicable laws and applicable stock
exchange listing requirements, (2) any amendment or termination for which
stockholder approval is necessary to comply with any tax or regulatory
requirement will not be effective until such approval has been obtained and (3)
no amendment or termination, without the consent of the holder of an option
under the Director Option Plan, may adversely affect the rights of such person
with respect to any option previously granted.
The purpose of the Director Option Plan is to secure for the Company the
benefits of the additional incentive inherent in the ownership of Common Stock
by Non-Employee Directors and to help the Company secure and retain the services
of such Non-Employee Directors. The Director Option Plan is not subject to any
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or Section 401(a) of the Code. All options granted under the Director
Option Plan will be nonqualified stock options subject to Section 83 of the
Code. The Director Option Plan is intended to be a self-governing formula plan
and to require minimal discretionary action by any administrative body with
regard to related transactions. To the extent, if any, that questions of
administration arise, such questions will be resolved by the Board.
Options representing 45,000 shares of Common Stock ("Director Shares") are
available for award under the Director Option Plan. If, and to the extent that,
options granted under the Director Option Plan terminate, expire or are canceled
for any reason before they are exercised, new options may be granted in respect
of the Director Shares covered by such terminated, expired or canceled options.
In addition, the Director Option Plan provides the Board with discretion to
adjust any or all of (1) the number of shares of Common Stock or other
securities of the Company (or number and kind of other securities or property)
with respect to which options may be granted, (2) the number of shares of Common
Stock or other securities of the Company (or number and kind of other securities
or property) subject to outstanding options and (3) the grant or exercise price
with respect to any option or if deemed appropriate, make provision for a cash
payment to the holder of an outstanding option in consideration for the
cancellation of such option, if the Board determines that certain corporate
transactions or events affect the Director Shares such that an adjustment would
be appropriate in order to prevent
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<PAGE>
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Director Option Plan.
Pursuant to the Director Option Plan, each person who served as a
Non-Employee Director on May 14, 1997 was granted an option to purchase 1,500
Director Shares. Thereafter, during the term of the Director Option Plan, each
year, each person who is a Non-Employee Director on the date immediately after
the Company's annual meeting of stockholders will receive an option to purchase
1,500 shares of Common Stock, on such date, however, if the Company's equity
securities are listed on a national securities exchange or an
over-the-counter-market, such options will be granted only if the Director
Option Plan has been approved by the stockholders of the Company prior to date
of grant.
Each option granted under the Director Option Plan will vest and become
exercisable on the date immediately preceding the Company's annual stockholders'
meeting which first occurs after the date of grant, provided that the director
is in the service of the Company on such date. If a director ceases to serve the
Company as a director, any options which have not vested will be canceled by the
Company without consideration.
Each vested option will terminate on the earliest of the following (1) ten
years from the date of grant, (2) one year from the termination of the
optionee's service as a Non-Employee Director due to death or disability (as
defined in the Director Option Plan), (3) six (6) months from the termination of
the optionee's service as a Non-Employee Director due to the expiration (and
non-renewal) of the term for which the optionee was elected to serve, or (4) the
date the optionee is removed as a director or resigns as a director prior to the
end of the term for which such director was elected to serve.
All options granted on May 14, 1997 have an exercise price of $6.00 per
share. If the Common Stock is trading on an over-the-counter market. The
exercise price for any future grants under the Director Option Plan will be
equal to the mean between the reported high and low sales prices of the Common
Stock on the date immediately preceding the date of grant, or if there were no
sales on such date, on the closest preceding date on which there were sales of
Common Stock; however, if the Common Stock is not trading on an
over-the-counter-market, the exercise price of an Annual Director Option will be
the fair market value of a share of Common Stock as of the date such option is
granted, as determined in good faith by the Board.
Any Director Shares purchased are to be paid for in cash, or its
equivalent or (1) by exchanging Common Stock 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), (2) subject to such rules as may
be established by the Board, through delivery of irrevocable instructions to a
broker to sell the Common Stock deliverable upon the exercise of the option and
to deliver promptly to the Company an amount equal to the aggregate exercise
price or (3) by a combination of the foregoing, provided that the combined value
of all cash and cash equivalents and the fair market value of any Common Stock
so tendered to the Company, as of the date of such tender, is at least equal to
such aggregate exercise price.
In the event of a Change of Control, any outstanding awards then held by
an optionee which are unexercisable or otherwise unvested will automatically be
deemed exercisable or otherwise vested immediately prior to such Change of
Control.
Director Shares may be shares of authorized and unissued Common Stock,
issued Common Stock held in the Company's treasury or both. In the case of any
purchase of Common Stock that is not made on the open market, no fee, commission
or other charge will be paid.
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<PAGE>
During the optionee's lifetime, only the optionee (or, if permissible
under applicable law, the optionee's legal guardian or representative) may
exercise an option. Furthermore, no option may be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by an optionee 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 of its affiliates, provided
that the designation of a beneficiary shall not constitute an assignment,
alienation, pledge, attachment, sale, transfer or encumbrance.
COMPENSATION AND STOCK OPTION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
During the Company's last fiscal year there were no Compensation and Stock
Option Committee interlocks or insider participation in compensation decisions.
CONSULTING ARRANGEMENTS
During parts of fiscal 1997, and 1998, Alvarez & Marsal, Inc. and the
Company were party to a Management Agreement, pursuant to which Peter Cheston
served as the Company's Acting Chief Operating Officer at a monthly fee of
$35,000. Mr. Cheston received remuneration from Alvarez & Marsal, Inc. and was
not compensated by the Company directly. In addition, Alvarez & Marsal, Inc.
received an option to purchase 109,290 shares of the Company's Common Stock as
of January 24, 1997 at an exercise price of $6.00 per share and received
$313,950 under the Cash Bonus Plan. As of the date of this Prospectus, Alvarez &
Marsal, Inc. has not exercised any portion of its option. The Management
Agreement was terminated on August 15, 1997.
In connection with consulting services provided by Mr. Redden, a former
Director of the Company who resigned on December 16, 1997, Osnos and Company, of
which Mr. Redden was President, billed the Company $21,258 for services rendered
through the fiscal year ended January 31, 1997. The Company does not anticipate
working with Osnos and Company in the future.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares
including 2,500,000 shares of Preferred Stock, par value $.01 per share and
27,500,000 shares of Common Stock, par value of $.01 per share. American Stock
Transfer & Trust Company is the transfer agent and registrar for the Common
Stock. As of October 23, 1997, 10,000,000 shares of Common Stock were issued and
outstanding. Pursuant to the LTIP, options representing a maximum of 928,962
shares of Common Stock may be awarded. Pursuant to the Director Option Plan,
options representing a maximum of 45,000 shares of Common Stock may be awarded.
Of the options issued pursuant to the LTIP (including the Shares issued to
Alvarez & Marsal, Inc.) and the Director Option Plan, options representing
369,350 shares are exercisable as of October 29, 1997. See "Employment and
Consulting Agreements" for a description of the terms and conditions of options
distributed pursuant to the LTIP or the Director Option Plan.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 2,500,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of Preferred Stock could
adversely affect the voting power of holders of Common Stock and could have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present plan to issue any shares of Preferred Stock.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share
held of record and shall vote as a single class on all matters on which
stockholders are entitled to vote. There are no cumulative voting rights in the
election of directors. The quorum required at any stockholders' meeting for
consideration of any matter is a majority of all outstanding shares entitled to
vote, represented in person or by proxy. All matters will be decided by a
majority of the votes cast at stockholder meetings by holders of shares present
in person or by proxy who are entitled to vote.
Holders of the Common Stock are entitled to receive dividends when, as and
if declared by the Board out of funds legally available for dividends. See "Risk
Factors--Dividends" and "Dividend Policy." In the event of any liquidation,
dissolution or winding up of the Company, the holders of the Common Stock are
entitled to receive pro rata any assets distributable to stockholders in respect
of shares of Common Stock held by them, after payment of all obligations of the
Company. The holders of Common Stock are not entitled to pre-emptive rights to
any securities issued by the Company.
The Shares offered hereby are duly authorized, validly issued, fully paid
and nonassessable.
The Company is authorized to issue additional shares of capital stock from
time to time There are no specific restrictions upon such issuances, except that
the Company's Certificate prohibits the issuance of non-voting equity securities
if, and only to the extent that and so long as, Section 1123 of the Bankruptcy
Code is applicable and would prohibit such issuance.
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<PAGE>
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE AND AMENDED AND RESTATED BY-LAWS
Certain provisions of the Certificate and the Amended and Restated By-laws
("Bylaws") of the Company summarized below may 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 a premium over the market price for shares held by
stockholders.
The following summary is qualified in its entirety by the provisions of
the Company's Certificate and By-laws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
The Certificate or By-laws provide that (1) that no director may be
removed from office during his term except for cause, (2) vacancies on the Board
may be filled only by the remaining directors and not by the stockholders, (3)
any action required or permitted to be taken by the stockholders may only be
taken at an annual or special meeting of the stockholders and stockholder action
by written consent in lieu of a meeting is prohibited, (4) special meetings of
stockholders may be called only by a majority of the Board, by the Chairman of
the Board or the President of the Company, (5) stockholders are not permitted to
call a special meeting or require that the Board call a special meeting of
stockholders, (6) the nomination of candidates for election as directors, other
than by or at the direction of the Board, requires advance notice and (7) the
consideration of stockholder proposals at annual meetings of stockholders
requires advance notice. In general, notice of intent to nominate a director or
raise business at such meetings must be received by the Company not less than 60
or more than 90 days prior to the anniversary of the previous year's annual
meeting and must contain certain information concerning the person to be
nominated or the matters to be brought before the meeting and concerning the
stockholder submitting the proposal.
The By-laws provide that the Board is to consist of seven (7) members. The
terms of the directors, one of whom pursuant to the Plan of Reorganization is
Jim D. Waller, Chief Executive Officer of the Company, will expire at the annual
meeting of the stockholders of the Company next following the Company's fiscal
year ending January 31, 1998. For the relevant period, it is possible that such
provisions may make it more difficult to accomplish transactions which
stockholders may otherwise deem to be in their best interest. Such provisions
may be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that might result in the receipt of a premium
over the market price for the securities held by stockholders.
CERTAIN PROVISIONS OF DELAWARE LAW
Section 203 of the DGCL ("Section 203") prohibits, subject to certain
exceptions specified therein, certain transactions between a Delaware
corporation and an Interested Stockholder (as defined below) of a Delaware
corporation. An Interested Stockholder may not engage in any business
combination, including mergers, consolidations or acquisitions of additional
shares of the corporation having an aggregate value in excess of 10% of the
consolidated assets of the corporation and certain transactions that would
increase the Interested Stockholder's proportionate share ownership in the
corporation, for a three-year period following the date on which such
stockholder becomes an Interested Stockholder unless (1) prior to such date, the
Board approved either the business combination or the transaction which resulted
in the stockholder becoming an Interested Stockholder, (2) upon consummation of
the transaction which resulted in the stockholder becoming an Interested
Stockholder, the Interested Stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares), or (3) on or subsequent to such date, the business
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<PAGE>
combination is approved by the Board and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66-2/3% of the
outstanding voting stock which is not owned by the Interested Stockholder.
Except as otherwise specified in Section 203, an "Interested Stockholder" is
defined to include (a) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the
relevant date and (b) the affiliates and associates of any such person.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an Interested Stockholder to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Certificate does not exclude the Company from the restrictions
imposed under Section 203. The provisions of Section 203 may encourage companies
interested in acquiring the Company to negotiate in advance with the Board
because the stockholder approval requirement would be avoided if a majority of
the directors then in office approve the business combination of the transaction
which results in the stockholder becoming an Interested Stockholder. Such
provisions also may have the effect of preventing changes in the management of
the Company. It is possible that such provisions could make it more difficult to
accomplish transactions which stockholders may otherwise deem to be in their
best interests.
REGISTRATION RIGHTS AGREEMENT
The Company entered into a Registration Rights Agreement, dated as of the
Effective Date of the Plan of Reorganization, with certain holders of Common
Stock pursuant to which the Company agreed to use its reasonable best efforts to
file within 90 days after the consummation of the Plan of Reorganization a
Registration Statement, use its reasonable best efforts to cause the Shelf
Registration to be declared effective and to keep such Shelf Registration
continuously effective until the earlier of the disposition of all Registrable
Securities and three (3) years after the initial date of the Shelf Registration;
provided, however, that Ithaca will be permitted to suspend the availability of
the Self Registration for up to ninety (90) days during any twelve-month period
and, during any period in which Ithaca is not eligible to use Form S-3 for the
Shelf Registration, for 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). 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 of Registerable Securities ("Holder" or "Holders").
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 the effective date of any Registration Statement (other than the
Shelf Registration or a Registration Statement on Form S-4 or From S-8 (or any
successor form thereto)) of Ithaca, under the Securities Act, covering
securities of the same class as any Registrable Securities. The Registration
Rights Agreement provides that, subject to certain conditions, Butler 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
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<PAGE>
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. The Butler Noteholders sold their Notes prior to the
execution of the Registration Rights Agreement and, accordingly, the Company
believes that they are deemed to have forfeited their right to request a Demand
Registration.
Pursuant to the Registration Rights Agreement, Ithaca is required to 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 Ithaca. 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 the good
faith judgment of its Board, such registration would materially interfere with
any material financing, acquisition, corporate reorganization or merger or other
transaction involving 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 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 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 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 (1) 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, based on the amounts of Registrable Securities and
neither Ithaca nor any person who is not a Holder will not be permitted to
include any securities therein, and (2) to the extent that the number of
Registrable Securities to be included by the Holders is less than the Approved
Underwriter Amount, securities that Ithaca and any person who is not a Holder
proposes to register may also be included. Ithaca will pay substantially all
expenses in connection with the Demand Registration (including certain fees and
expenses of a single counsel for all Holders participating in such
registration).
If Ithaca proposes to file or files a Registration Statement under the
Securities Act with respect to an offering by 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 Securities Act, then Ithaca will offer
the Holders the opportunity to register the number of Registrable Securities as
each such Holder may request. Subject to certain conditions, 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 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, Ithaca will
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<PAGE>
include in such registration, to the extent of the number of Registrable
Securities which Ithaca 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 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. 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).
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 Securities 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, preliminary Prospectus, notification or offering circular (as
amended or supplemented if 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 the 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
Ithaca by or on behalf of such Holder expressly for use therein. 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 Securities 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 Ithaca, any underwriter
retained by Ithaca and their respective directors, officers, employees,
advisors, agents and each person who controls (within the meaning of the
Securities Act and the Exchange Act) Ithaca or such underwriter to the same
extent as the foregoing indemnity from 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.
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<PAGE>
SELLING STOCKHOLDERS
The following tables provide certain information with respect to the
Common Stock held by each Selling Stockholder, which information has been
furnished to the Company by the Selling Stockholders and other sources and which
the Company has not verified. Because the Selling Stockholders may sell all or
some part of the Common Stock which they hold pursuant to this Prospectus and
the fact that this offering is not being underwritten on a firm commitment
basis, no estimate can be given as to the amount of Common Stock that will be
held by the Selling Stockholders upon termination of this Offering. See "Plan of
Distribution." The Common Stock offered by this Prospectus may be offered from
time to time in whole or in part by the persons named below or by their
transferees, as to whom applicable information will, to the extent required, be
set forth in a Prospectus Supplement.
<TABLE>
<CAPTION>
Amount to be
Amount of Stock offered for
owned prior to Stockholder's
Name Offering Account
- ---- ----------------- -----------------
<S> <C> <C>
The Northwestern Mutual Life Insurance Company 2,400,000 /1//2/ 2,400,000 /1//2/
Northwestern Mutual Series Fund, Inc. 136,000 /3/ 136,000 /3/
Merrill Lynch, Pierce Fenner & Smith Incorporated 1,252,080 1,252,080
Alvarez & Marsal, Inc. 109,290 109,290
</TABLE>
- ------------------------------
/1/ Includes 120,000 shares of Common Stock held in The Northwestern Mutual Life
Insurance Company Group Annuity Separate Account.
/2/ See the Selling Stockholder listed immediately following for additional
shares of Common Stock which The Northwestern Mutual Life Insurance Company
indirectly beneficially owns as the parent of Northwestern Mutual Series
Fund, Inc.
/3/ Held in its High Yield Bond Portfolio.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned, as of October 23, 1997, by certain executive officers and by
each person known by the Company to beneficially own more than 5% of the Common
Stock.
<TABLE>
<CAPTION>
Number
Name and Address of Owners of Shares Percentage
- -------------------------- ------------- ----------
<S> <C> <C>
Northwestern Mutual Life Insurance Company 2,536,000 /1/ 25.4%
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Merrill Lynch, Pierce, Fenner & Smith Incorporated 1,252,080 12.5%
250 Vesey Street
New York, NY 10281
Jim D. Waller/2/ 91,075 *
Ithaca Industries, Inc.
Highway 268 West
P.O. Box 620
Wilkesboro, North Carolina 28697
Eric N. Hoyle/2/ 21,667 *
Ithaca Industries, Inc.
Highway 268 West
P.O. Box 620
Wilkesboro, North Carolina 28697
R.D. Riggs/2/ 25,000 *
Ithaca Industries, Inc.
Highway 268 West
P.O. Box 620
Wilkesboro, North Carolina 28697
D.H. Jones/2/ 23,334 *
Ithaca Industries, Inc.
Highway 268 West
P.O. Box 620
Wilkesboro, North Carolina 28697
All Executive Officers as a group/2/ 283,408 2.6%
- ----------
</TABLE>
* Less than 1%.
/1/ Of The Northwestern Mutual Life Insurance Company's holdings of 2,536,000
shares of Common Stock, 120,000 shares are held pursuant to shared voting
and investment power with The Northwestern Mutual Life Insurance Company
Group Annuity Separate Account, an affiliate and 136,000 shares are held
pursuant to shared voting and investment power with Northwestern Mutual
Series Fund, Inc., a wholly-owned subsidiary.
/2/ The named executive officers have been awarded options to purchase the
shares indicated as of January 24, 1997, pursuant to the LTIP. Options
awarded under the LTIP that are not vested or that do not vest within 60
days from the date of this Prospectus are not included. In each case,
options to purchase half of the number of the shares indicated vested as of
January 31, 1997 while options to purchase the remaining half of the number
of shares indicated vested as of April 15, 1997.
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<PAGE>
PLAN OF DISTRIBUTION
Of the Shares included in this Prospectus, 10,000,000 were distributed on
a pro rata basis to holders of the Notes, which were retired pursuant to the
Plan of Reorganization under which the Company emerged from bankruptcy on
December 16, 1996. An option to purchase 109,290 of the Shares was issued to
Alvarez & Marsal, Inc. pursuant to the Management Agreement as a portion of the
compensation for the turnaround-management and financial restructuring advisory
services rendered the Company.
The Company will receive no proceeds from this offering. The Common Stock
may be sold from time to time to purchasers directly by any of the Selling
Stockholders. Alternatively, any of the Selling Stockholders may from time to
time, offer the Common Stock through underwriters, dealers or agents, who may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Selling Stockholders and/or the purchasers of Common Stock
for whom they may act as agent. The Selling Stockholders and any underwriters,
dealers or agents that participate in the distribution of Common Stock may be
deemed to be underwriters and any profit on the sale of Common Stock by them and
any discounts, commissions or concessions received by any such underwriters,
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act. If the Company is advised that an underwriter has been
engaged with respect to the sale of any Common Stock offered hereby or in the
event of any other material change in the plan of distribution, including but
not limited to, the intention of any such underwriter to engage in passive
market making or stabilizing transactions, the Company will cause appropriate
amendments to the Registration Statement of which this Prospectus forms a part
to be filed with the Commission reflecting such engagement or other change. See
"Additional Information."
At the time a particular offer of Common Stock is made, to the extent
required, a Prospectus Supplement will be provided by the Company and
distributed by the relevant Selling Stockholder which will set forth the
aggregate amount of Common Stock being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, any
discounts, commissions and other items constituting compensation from the
Selling Stockholders, any discount, commissions or concessions allowed or
reallowed or paid to dealers, or any intention by underwriters, if any, to
engage in passive market making or stabilizing transactions.
The Common Stock may be sold from time to time in one or more transactions
at a fixed offering price, which may be changed, or at varying prices determined
at the time of sale or at negotiated prices. Such prices will be determined by
the Selling Stockholders or by agreement between the Selling Stockholders and
underwriters or dealers.
Through the date hereof, there has been no established public trading
market for the Common Stock. The Shares were issued to the holders of the Notes
pursuant to the Plan of Reorganization and the Management Agreement. Application
has been made to list the Common Stock on NASDAQ National Market. There can be
no assurance that any active trading market will develop or will be sustained
for the Common Stock or as to the price at which the Common Stock may trade or
that the market for the Common Stock will not be subject to disruptions that
will make it difficult or impossible for the holders of Common Stock to sell
Common Stock in a timely manner, if at all, or to recoup their investment in the
Common Stock. See "Risk Factors--Liquidity; Absence of Market for Common Stock"
and "Risk Factors--Effect of Future Sales of Common Stock; Registration Rights."
Under applicable rules and regulations under the Exchange Act any person
engaged in a distribution of Common Stock may not simultaneously engage in
market-making activities with
49
<PAGE>
respect to such Common Stock for a period of nine business days prior to the
commencement of such distribution and ending upon the completion of such
distribution. In addition to and without limiting the foregoing, each Selling
Stockholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including without limitation Regulation M,
which provisions may limit the timing of purchases and sales of any of the
Common Stock by the Selling Stockholders. All of the foregoing may affect the
marketability of the Common Stock and the ability of any person or entity to
engage in market-making activities with respect to the Common Stock.
Pursuant to the Registration Rights Agreement, the Company is obligated to
pay substantially all of the expenses incident to the registration, offering and
sale of the Common Stock of the Selling Stockholders to the public other than
commissions and discounts of underwriters, dealers or agents. The Selling
Stockholders and any underwriter they may utilize, and their respective
controlling persons are entitled to be indemnified by the Company against
certain liabilities, including liabilities under the Securities Act. See
"Description of Capital Stock --Registration Rights Agreement."
LEGAL MATTERS
Certain legal matters regarding the Shares were passed upon for the
Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of February 1,
1997 and February 2, 1996 and for the 10-week period ended February 1, 1997, the
42-week period ended November 22, 1996 and for each of the years in the two-year
period ended February 2, 1996, have been included herein and in the Registration
Statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
The reports of KPMG Peat Marwick LLP covering the November 22, 1996
consolidated financial statements contains an explanatory paragraph that states
the Company emerged from bankruptcy and as of November 22, 1996 adopted
fresh-start reporting in accordance with the American Institute of Certified
Public Accountants Statement of Position 90-7 "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code."
50
<PAGE>
================================================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
---------------------------
TABLE OF CONTENTS
Page
----
Additional Information ....................................................... 3
Prospectus Summary ........................................................... 4
Risk Factors ................................................................. 7
Use of Proceeds ..............................................................12
Dividend Policy ..............................................................12
Market for the Common Stock ..................................................12
Capitalization ...............................................................13
Unaudited Pro Forma Financial
Information ..............................................................14
Selected Financial Data ......................................................16
Management's Discussion and
Analysis of Financial Condition
and Results of Operations .................................................18
Business .....................................................................25
Directors and Management .....................................................30
Description of Capital Stock .................................................42
Selling Stockholders .........................................................47
Security Ownership of Certain
Beneficial Owners and
Management ................................................................48
Plan of Distribution .........................................................49
Legal Matters ................................................................50
Experts ......................................................................50
Index to Financial Statements ...............................................S-1
---------------------------
================================================================================
10,109,290 SHARES
ITHACA INDUSTRIES, INC.
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
October 29, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the Shares being registered, other than underwriting
discounts and commissions. All of the amounts shown are estimated except the
Commission registration fee.
Commission registration fee .......................................... 100
Legal fees and expenses .............................................. 50,000
Accounting fees and expenses ......................................... 30,000
Miscellaneous ........................................................ 10,000
-------
Total .............................................................. $90,100
=======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL provides that a corporation may indemnify
directors and officers as well as other employees and individuals against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation (a "Derivative Action")), if the relevant party
acted in good faith and in a manner they reasonably 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 their conduct
was unlawful. A similar standard is applicable in the case of Derivative
Actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
actions and the statute requires court approval before there can be any
indemnification where the person seeking indemnification had been found liable
to the corporation. The Statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, by-laws,
disinterested director vote, stockholder vote, agreement or otherwise.
Section 8.1 of the Certificate and Article 8.1 of the By-Laws of the
registrant calls for indemnification to the full extent permitted under Delaware
law as from time to time in effect. Subject to any restrictions imposed by
Delaware law, the By-Laws provide a right to indemnification for expenses
(including attorneys' fees and disbursements, judgments, fines, excise taxes,
penalties, amounts paid in settlement, charges and costs) actually and
reasonably incurred or suffered by any person in connection with any actual or
threatened action, suit or proceeding, whether civil, criminal, administrative
or investigative (including, to the extent permitted by law, any Derivative
Action) by reason of the fact that such person is or was serving as a director
or officer of the registrant or that, being or having been a director or officer
or an employee of the registrant, such person is or was serving at the request
of the registrant as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, including an
employee benefit plan. The By-Laws also provide that the registrant may, by
action of its Board of Directors, provide indemnification to its employees and
agents with the same scope and effect as the foregoing indemnification of
directors and officers.
II-1
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the laws of Delaware, the Certificate and Bylaws, or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person of the
Registrant in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SELLING STOCKHOLDERS.
10,000,000 Shares of Common Stock were issued in reliance upon the
exemption provided by 11 USC 1145.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(Defined terms are used herein as defined in the Prospectus.)
Exhibit No. Description of Exhibits
----------- -----------------------
2.1* Plan of Reorganization (incorporated by reference to
Exhibit A of Exhibit 2.1 to the Company's Form 8-K,
dated October 3, 1996.)
2.2* Modification of the Plan of Reorganization
2.3* Second Modification of the Plan of Reorganization
3.1* Amended and Restated Certificate of Incorporation
3.2* By-Laws (incorporated by reference to Exhibit F of
Exhibit 2.1 to the Company's Form 8-K, dated October 3,
1996.)
4* Registration Rights Agreement (incorporated by reference
to Exhibit H of Exhibit 2.1 to the Company's Form 8-K,
dated October 3, 1996.)
5* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison re:
legality
10.1* Credit Agreement (Exhibit P of which is incorporated by
reference to Exhibit 99.1 to the Company's Form 10-K,
dated May 17, 1996 and Exhibit Q of which is included in
item 2.1
10.2* LTIP (incorporated by reference to Exhibit I of Exhibit
2.1 to the Company's Form 8-K, dated October 3, 1996.)
10.3* Management Agreement
II-2
<PAGE>
Exhibit No. Description of Exhibits
----------- -----------------------
10.4* Employment Agreement of Jim D. Waller
10.5 Director Option Plan
10.6 Cash Bonus Plan
21* List of Subsidiaries of the Company
23.1* Consent of Paul, Weiss, Rifkind, Wharton & Garrison
(included in item 5)
23.2 Consent of KPMG Peat Marwick LLP
24* Power of Attorney
27* Financial Data Schedule for the 26-week period ended
August 2, 1997.
- -----------------------
* Previously filed exhibit
- -----------
FINANCIAL STATEMENT SCHEDULE:
Page
----
Schedule II Valuation and Qualifying Accounts--42-week period ended S-1
November 22, 1996 - Preconfirmation and years ended
February 2, 1996 and January 27, 1995. (Previously filed)
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any
II-3
<PAGE>
increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b), if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to its Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Wilkesboro, North Carolina, on October 23, 1997.
ITHACA INDUSTRIES, INC.
By: /s/ Eric N. Hoyle
-----------------------------------
Eric N. Hoyle
Senior Vice President-Finance
and Administration, Secretary,
Chief Accounting and Principal
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman, Chief
- ---------------------------------- Executive Officer,
Jim D. Waller President and Director
*
- ---------------------------------- Director
Walter J. Branson
*
- ---------------------------------- Director
Marvin B. Crow
*
- ---------------------------------- Director
Francis Goldwyn
*
- ---------------------------------- Director
Morton E. Handel
*
- ---------------------------------- Director
David N. Weinstein
*
- ---------------------------------- Director
James A. Williams
* By: /s/ Eric N. Hoyle
-------------------------
Name: Eric N. Hoyle
Title: Attorney-in-fact October 23, 1997
II-5
<PAGE>
Schedule II
-----------
ITHACA INDUSTRIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
42-Week Period ended November 22, 1996, Preconfirmation,
and Years ended February 2, 1996 and January 27, 1995
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning cost and end of
Description of year expenses Deductions year/period
----------- ------- -------- ---------- -----------
<S> <C> <C> <C> <C>
42-week period ended November 22, 1996,
Preconfirmation :
Allowance for doubtful accounts $1,215,000 333,724 40,428 1,508,296
Provision for discounts 99,178 1,925,578 2,019,996 4,760
Provision for claims and allowances 1,255,602 4,579,938 4,590,803 1,244,737
---------- ---------- ---------- ----------
Total $2,569,780 6,839,240 6,651,227 2,757,793
========== ========== ========== ==========
Year ended February 2, 1996:
Allowance for doubtful accounts $1,215,000 54,965 54,965 1,215,000
Provision for discounts 146,974 2,776,842 2,824,638 99,178
Provision for claims and allowances 1,373,208 6,530,524 6,648,130 1,255,602
---------- ---------- ---------- ----------
Total $2,735,182 9,362,331 9,527,733 2,569,780
========== ========== ========== ==========
Year ended January 27, 1995:
Allowance for doubtful accounts $1,797,344 (528,547) 53,797 1,215,000
Provision for discounts 269,658 2,937,297 3,059,981 146,974
Provision for claims and allowances 1,061,451 5,575,020 5,263,263 1,373,208
---------- ---------- ---------- ----------
Total $3,128,453 7,983,770 8,377,041 2,735,182
========== ========== ========== ==========
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibits
----------- -----------------------
2.1* Plan of Reorganization (incorporated by reference to
Exhibit A of Exhibit 2.1 to the Company's Form 8-K,
dated October 3, 1996.)
2.2* Modification of the Plan of Reorganization
2.3* Second Modification of the Plan of Reorganization
3.1* Amended and Restated Certificate of Incorporation
3.2* By-Laws (incorporated by reference to Exhibit F of
Exhibit 2.1 to the Company's Form 8-K, dated October 3,
1996.)
4* Registration Rights Agreement (incorporated by reference
to Exhibit H of Exhibit 2.1 to the Company's Form 8-K,
dated October 3, 1996.)
5* Opinion of Paul, Weiss, Rifkind, Wharton & Garrison re:
legality
10.1* Credit Agreement (Exhibit P of which is incorporated by
reference to Exhibit 99.1 to the Company's Form 10-K,
dated May 17, 1996 and Exhibit Q of which is included in
item 2.1
10.2* LTIP (incorporated by reference to Exhibit I of Exhibit
2.1 to the Company's Form 8-K, dated October 3, 1996.)
10.3* Management Agreement
10.4* Employment Agreement of Jim D. Waller
10.5 Director Option Plan
10.6 Cash Bonus Plan
21* List of Subsidiaries of the Company
23.1* Consent of Paul, Weiss, Rifkind, Wharton & Garrison
(included in item 5)
23.2 Consent of KPMG Peat Marwick LLP
24* Power of Attorney
27* Financial Data Schedule for the 26-week period ended
August 2, 1997.
- -----------------------
* Previously filed exhibit
Exhibit 10.5
Conformed Copy
ITHACA INDUSTRIES, INC.
1997 Stock Option Plan For Non-Employee Directors
Ithaca Industries, Inc., a Delaware corporation (the "Company"),
hereby formulates and adopts the following Stock Option Plan (the "Plan") for
non-employee directors of the Company.
1. PURPOSE. The purpose of the Plan is to secure for the Company the
benefits of the additional incentive inherent in the ownership of shares of
common stock, par value $.01 per share, of the Company (the "Shares") by
non-employee directors of the Company and to help the Company secure and retain
the services of such non-employee directors.
2. ADMINISTRATION.
(a) The Plan is intended to be a self-governing formula plan.
To this end, the Plan requires minimal discretionary action by any
administrative body with regard to any transaction under the Plan. To the
extent, if any, that questions of administration arise, these shall be resolved
by the Board of Directors of the Company (the "Board of Directors").
(b) Subject to the express provisions of the Plan, the Board
of Directors shall have plenary authority to interpret the Plan, to prescribe,
amend and rescind the rules and regulations relating to it and to make all other
determinations deemed necessary and advisable for the administration of the
Plan. The determination of the Board of Directors shall be conclusive.
3. COMMON STOCK SUBJECT TO OPTIONS.
(a) Subject to the adjustment provisions of Paragraph 23
below, a maximum of 45,000 Shares may be made subject to options granted under
the Plan (each an "Option"). If, and to the extent that, Options granted under
the Plan shall terminate, expire or be canceled for any reason without having
been exercised, new Options may be granted in respect of the Shares covered by
such terminated, expired or canceled Options. The granting and terms of such new
Options shall comply in all respects with the provisions of the Plan.
(b) Shares issued upon the exercise of any Option granted
under the Plan may be authorized and unissued Shares or issued Shares held in
the Company's treasury or both. There shall be reserved at all times for sale
under the Plan a number of Shares, of either authorized and unissued Shares,
Shares held in the
<PAGE>
2
Company's treasury, or both, equal to the maximum number of Shares which may be
purchased pursuant to Options granted or that may be granted under the Plan.
4. INDIVIDUALS ELIGIBLE. Only directors of the Company who are
not employees of the Company or any affiliate of the Company ("Outside
Directors") shall participate in the Plan.
5. GRANT OF OPTIONS. A director receiving an Option pursuant to the
Plan is hereinafter referred to as an "Optionee."
(a) On the Effective Date (as defined in Section 27(a) hereof)
the compensation committee of the Board approved the grant to each person who
was an Outside Director on the Effective Date of an Option to purchase 1,500
Shares on the Effective Date on terms and conditions consistent with those
contained herein. Such Options shall be subject to the terms and provisions of
the Plan.
(b) Each person who is an Outside Director on the date
immediately after each of the Company's annual meetings of its stockholders
occurring after the Effective Date and during the term of the Plan and after
approval by the Board of the Plan will receive, on such date (the "Annual Grant
Date"), an Option to purchase 1,500 Shares; PROVIDED, HOWEVER, that if on such
Annual Grant Date the Company's equity securities are listed on a national
securities exchange, such Options will be granted only if the Plan has been
approved by the stockholders of the Company prior to such Annual Grant Date.
6. TYPE OF OPTIONS. All Options granted under the Plan shall be
"nonqualified" stock options subject to the provisions of section 83 of the
Internal Revenue Code of 1986, as amended (the "Code").
7. FORM OF AGREEMENTS WITH OPTIONEES. Each Option granted pursuant
to the Plan shall be evidenced by a written option agreement (an "Option
Agreement") and shall have such form, terms and provisions, not inconsistent
with the provisions of the Plan, as the Board of Directors shall provide for in
such Option Agreement.
8. PRICE.
(a) The exercise price per Share purchasable under any Option
granted pursuant to the Plan on the Effective Date shall be $6.00.
(b) The exercise price per Share purchasable under all other
Options granted pursuant to the Plan shall be the Fair Market Value (as defined
below) of a Share as of the date such Option is granted.
<PAGE>
3
For purposes of the Plan, "Fair Market Value" of a Share as of any
grant date shall mean:
(i) the mean between the high and low sales prices of
a Share 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 a Share 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 a Shares as determined in good
faith by Board of Directors.
9. VESTING OF OPTIONS.
(a) Each Option granted to an Optionee hereunder shall vest
and become exercisable on the date immediately preceding the Company's annual
stockholders' meeting which first occurs after the date of grant; PROVIDED that
the Optionee continues in the service of the Company as a director until such
date. At any given time, the portion of the Option which has become vested and
exercisable as described above (or pursuant to subsection (c) below) is
hereinafter referred to as the "Vested Portion."
(b) If the Optionee's service with the Company is terminated
for any reason, the Option shall, to the extent not then vested, be cancelled by
the Company without consideration and the Vested Portion of the Option shall
remain exercisable as set forth in Section 10 below.
(c) Notwithstanding any other provision of the Plan to the
contrary, in the event of a Change of Control (as defined below) the Option
shall to the extent not yet vested, immediately become fully vested and
exercisable as of immediately prior to such Change of Control.
For purposes of this Plan, "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 Securities Exchange
Act of 1934 (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
<PAGE>
4
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 of
Directors (together with any new directors whose election by such Board of
Directors 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.
10. DURATION OF OPTIONS. Notwithstanding any provision of the Plan
to the contrary, the unexercised portion of any Option granted under the Plan
shall automatically and without notice terminate and become null and void at the
time of the earliest to occur of the following:
(a) The expiration of ten years from the date on which such
Option was granted;
(b) The expiration of one year from the date the Optionee's
service as an Outside Director shall terminate due to death or "Disability" (as
defined below);
(c) The expiration of six months from the date the Optionee's
service as an Outside Director shall terminate due to the expiration (and
non-renewal) of the term for which he was elected to serve; and
(d) the date the Optionee is removed as a Director or resigns
as a director prior to the end of the term for which such director was elected
to serve.
For purposes of this Plan, "Disability" shall mean the Optionee
becoming physically or mentally incapacitated and consequently unable, for a
period of six (6) months in any twelve (12) consecutive month period, to perform
his duties as a director of the Company.
<PAGE>
5
11. EXERCISE OF OPTIONS.
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
(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), (ii) subject to such rules as may be established by the
Board of Directors, through delivery of irrevocable instructions to a broker to
sell the Shares deliverable upon the 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 any such Shares so tendered to the
Company as of the date of such tender is at least equal to such aggregate
exercise price.
12. NONTRANSFERABILITY OF OPTIONS.
(a) During the Optionee's lifetime, each Option, and each
right under any Option, shall be exercisable only by the Optionee, or, if
permissible under applicable law, by the Optionee's legal guardian or
representative.
(b) No Option may be assigned, alienated, pledged, attached,
sold or otherwise transferred or encumbered by an Optionee 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 of its affiliates; provided
that the designation of a beneficiary shall not constitute an assignment,
alienation, pledge, attachment, sale, transfer or encumbrance.
13. SHARE CERTIFICATES. All certificates for Shares or other
securities of the Company or any of its affiliates delivered under the Plan
pursuant to any Option or the exercise thereof shall be subject to such stop
transfer orders and other restrictions as the Board of Directors 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 Board of Directors may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
14. NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained
in the Plan shall prevent the Company or any of its affiliates 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
compensatory awards (subject to shareholder approval if such approval is
required),
<PAGE>
6
and such arrangements may be either generally applicable or applicable only in
specific cases.
15. NO RIGHT TO CONTINUED DIRECTOR STATUS. The grant of an Option
shall not be construed as giving an Optionee the right to continue to serve as
an Outside Director or otherwise be retained in the employ of, or in any
consulting relationship to, the Company or any of its affiliates.
16. NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Option Agreement, no Optionee or holder or beneficiary of any Option
shall have any rights as a stockholder with respect to any Shares or other
securities to be distributed under the Plan until he or she has become the
holder of such Shares or other securities.
17. GOVERNING LAW. The validity, construction, and effect of the
Plan and any rules and regulations relating to the Plan and any Option Agreement
shall be determined in accordance with the laws of the State of Delaware.
18. SEVERABILITY. If any provision of the Plan or any Option is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any person, entity or Option, or would disqualify the Plan
or any Option under any law deemed applicable by the Board of Directors, such
provision shall be construed or deemed amended to conform the applicable laws,
or if it cannot be construed or deemed amended without, in the determination of
the Board of Directors, materially altering the intent of the Plan or the
Option, such provision shall be stricken as to such jurisdiction, person, entity
or Option and the remainder of the Plan and any such Option shall remain in full
force and effect.
19. OTHER LAWS. The Board of Directors may refuse to issue or
transfer any Shares or other consideration under an Option 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 an Optionee, other holder or
beneficiary in connection with the exercise of such Option shall be promptly
refunded to the relevant Optionee, holder or beneficiary. Without limiting the
generality of the foregoing, no Option 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 Board of Directors 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.
20. NO TRUST OR FUND CREATED. Neither the Plan nor any Option shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any of its affiliates and an
Optionee or any other person or entity. To the extent that any person acquires a
right to receive
<PAGE>
7
payments from the Company or any of its affiliates pursuant to an Option, such
right shall be no greater than the right of any unsecured general creditor of
the Company or any of its affiliates.
21. NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Option, and the Board of Directors 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.
22. 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.
23. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC. In the event
that the Board of Directors 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 Board of Directors 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 Board of Directors 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 Options 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 Options, and (iii) the grant or
exercise price with respect to any Option or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Option in
consideration for the cancellation of such Option.
24. PURCHASE FOR INVESTMENT. Whether or not the Options and Shares
covered by the Plan have been registered under the Securities Act of 1933, as
amended, each person exercising an Option under the Plan may be required by the
Company to give a representation in writing that such person is acquiring such
Shares for investment and not with a view to, or for sale in connection with,
the distribution of any part thereof. The Company will endorse any necessary
legend referring to the foregoing restriction upon the certificate or
certificates representing any Shares issued or transferred to the Optionee upon
the exercise of any option granted under the Plan.
25. AMENDMENT/TERMINATION. The Plan may be terminated or amended at
any time by the Board of Directors; provided, however, that (i) any such
amendment shall comply with all applicable laws and applicable stock exchange
listing
<PAGE>
8
requirements and (ii) no such termination or amendment shall be made without
shareholder approval if such approval is necessary to comply with any tax or
regulatory requirement applicable to the Plan and provided that no termination
or amendment of the Plan, without the consent of the Optionee, may adversely
affect the rights of such person with respect to any Option previously granted
under the Plan.
26. WITHHOLDING. An Optionee may be required to pay to the Company
and the Company shall have the right and is hereby authorized to withhold from
the settlement of any Option granted hereunder or from any compensation or other
amount owing to an Optionee the amount (in cash, Shares, other securities, or
other property) of any applicable withholding taxes in respect of an Option or
its exercise 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.
27. TERM OF THE PLAN.
(a) EFFECTIVE DATE. The Plan shall be effective as of
May 14, 1997.
(b) EXPIRATION DATE. No Option shall be granted under the Plan
after May 13, 2007. Unless otherwise expressly provided in the Plan or in an
applicable Option Agreement, any Option granted hereunder may, and the authority
of the Board of Directors to amend, alter, adjust, suspend, discontinue, or
terminate any such Option or to waive any conditions or rights under any such
Option shall, continue after May 13, 2007.
Exhibit 10.6
ANNUAL CASH BONUS PLAN
- --------------------------------------------------------------------------------
<PAGE>
ANNUAL BONUS PLAN
OBJECTIVES
The following are the principal objectives of the annual bonus plan:
o To communicate performance expectations.
o To tie incentive awards to the achievement of these performance
objectives.
o To provide a rational basis for individual bonus allocations.
PROGRAM OVERVIEW
ELIGIBILITY
Eligibility to participate in this plan is intended to generally
cover department heads and above, including plant managers and marketing
managers.
TARGET AWARD OPPORTUNITY
Each plan participant will be assigned a target award opportunity
(expressed as a percentage of salary) that relates to his/her salary grade. That
target award level represents the level of bonus payment the participant can
expect to earn in the event all performance goals are achieved at 100% during
the ensuing fiscal year period. When performance levels exceed or fall below
expectations, actual awards will be Proportionately increased or decreased from
the target.
TABLE A
TARGET AWARD OPPORTUNITIES
-------------------------------------------------
EXECUTIVE TARGET AWARD
SALARY GRADE* (% OF SALARY)
------------------------ ------------------------
13 75%
11-12 65%
9-10 50%
7-8 35%
5-6 25%
2-4 20%
1 15%
A3-A5 10%
-------------------------------------------------
*Based on the salary structure shown on page 7.
<PAGE>
2
AWARD ADJUSTMENT FOR PERFORMANCE
Actual performance achieved, expressed as a percentage of expected
performance, will cause the following adjustment to the target award levels:
TABLE B
AWARD ADJUSTMENT FACTORS
- --------------------------------------------------------------------------
ACHIEVED PERFORMANCE PERCENTAGE OF TARGET AWARD EARNED*
- ------------------------ -------------------------------------------------
(CURRENT & PLAN) (INITIAL PLAN)
EFFECTIVE 11/96**
- ------------------------ ------------------------ ------------------------
115% 115% 135%
110% 110% 120%
105% 105% 110%
100% 100% 100%
95% 90% 85%
90% 80% 70%
85% 70% 50%
Below 85% 0% 0%
- --------------------------------------------------------------------------
*Prorate awards between performance increments (e.g., performance at 103%
of goal yields 103% of target award).
- --------------------------------------------------------------------------
**Changed due to restructuring.
PERFORMANCE MEASURES
At the beginning of each fiscal year, specific performance measures
and goals are to be established and communicated that best reflect the most
important accomplishments expected from corporate, divisions, and individuals.
Ideally, they should reflect the key strategic and business goals established by
the business plan for that year and should be realistic and attainable stretch
goals.
<PAGE>
3
ORGANIZATIONAL PERFORMANCE MEASURES
The following organizational performance measures will govern for
1994:
TABLE C
ORGANIZATIONAL PERFORMANCE MEASURES
- --------------------------------------------------------------------------------
WEIGHT
ORGANIZATIONAL -----------------------------------------------------
PERFORMANCE MEASURE DIVISION
-----------------------------------------------------
CORPORATE SALES MANUFACTURING
- --------------------------------------------------------------------------------
EBITDA 50% 40% 40%
- --------------------------------------------------------------------------------
Sales 20% 40% 20%
- --------------------------------------------------------------------------------
ROA 30% - 20%
- --------------------------------------------------------------------------------
Inventory Turns - 20% 20%
- --------------------------------------------------------------------------------
INVENTORY PERFORMANCE MEASURES
Each participant will have several appropriate and measurable
individual performance goals assigned relating to quality, productivity, expense
control, personnel management, etc. Their accomplishment (or lack) will account
for 70% of Individual Performance.
The remaining 30% of individual performance will consist of a
discretionary managerial judgment that reflects significant positive or negative
performance outside the scope of the assigned goals.
COMPOSITE PERFORMANCE
One composite performance will be calculated for each of the
pertinent corporate, division, and individual performance factors made up from
their respective performance measures and weighted by their relative importance.
<PAGE>
4
For example, composite corporate performance would be calculated as
follows, assuming performance levels shown:
- --------------------------------------------------------------------------------
ASSUMED COMPOSITE
PERFORMANCE WEIGHT PERFORMANCE
VERSUS GOAL (FROM TABLE C) VERSUS GOAL
- --------------------------------------------------------------------------------
EBITDA 110% 50% 55%
- --------------------------------------------------------------------------------
Sales 90% 20% 18%
- --------------------------------------------------------------------------------
ROA 100% 30% 30%
- --------------------------------------------------------------------------------
Total 103%
- --------------------------------------------------------------------------------
INDIVIDUAL AWARDS
o Individual bonus awards are calculated by multiplying the
designated individual bonus targets by the respective award adjustment factor
from Table A for each of the pertinent corporate, division, and individual
performance goals achieved. The sum of these bonus components represent the
total bonus awards.
o Since all senior executives are considered members of the
management team that is accountable for corporate performance, some portion of
their bonus should be tied to corporate performance to reinforce the team-spirit
concept.
o Since bonus awards should relate to accomplishments over which the
participant has the most control, authority, and accountability, the impact of
those performances might be weighted along the following lines:
- --------------------------------------------------------------------------------
PERFORMANCE WEIGHTING: TABLE D
- --------------------------------------------------------------------------------
CORPORATE DIVISION INDIVIDUAL
- --------------------------------------------------------------------------------
Corporate CEO and EVP's 75% -- 25%
- --------------------------------------------------------------------------------
Other Corporate Positions 70% -- 30%
- --------------------------------------------------------------------------------
Division Heads 30% 50% 20%
- --------------------------------------------------------------------------------
Other Division Managers 20% 40% 40%
- --------------------------------------------------------------------------------
Plant Managers & Below 10% 30% 60%
- --------------------------------------------------------------------------------
<PAGE>
5
o SAMPLE BONUS CALCULATION. Assume: Plant Manager with bonus target of
$6,000 ($40,000, salary x 15% target) and assumed performances as shown:
- --------------------------------------------------------------------------------
ASSUMED AWARD
PERFOR- ADJUST- BONUS
MANCE MENT TARGET BONUS
VS. GOAL FACTOR* X PORTION** = AWARD
- --------------------------------------------------------------------------------
Corporate 100% 100% x ($6,000 x 10%) = $ 600
- --------------------------------------------------------------------------------
Division 90% 85% x ($6,000 x 30%) = $1,530
- --------------------------------------------------------------------------------
Individual 110% 110% x ($6,000 x 60%) = $3,960
- --------------------------------------------------------------------------------
TOTAL $6,090
- --------------------------------------------------------------------------------
CALCULATED
TOTAL ROUNDED TO NEAREST $100 $6,100
- --------------------------------------------------------------------------------
* From Table B.
** From Table D.
MAXIMUM/MINIMUM AWARD SIZES
Notwithstanding the calculation of an individual award level, no
participant will be paid an incentive award in excess of $120% of her/his target
opportunity. Conversely, no bonus award will be granted to anyone whose
performance is considered unsatisfactory.
AWARD ROUNDING
All bonus awards are to be rounded off to the nearest $100.
FUNDING
"TARGET" BONUS POOL
The "target" bonus pool represents the sum of all the "bonus
targets" of the eligible participants and assumes expected performance levels.
This amount is factored into the initial business plan budget and approved by
the Compensation Committee.
<PAGE>
6
ACCRUAL PROCESS
Periodically throughout the performance year, accrual for bonus
expenditures should be revised to reflect current projections of company
performance by multiplying the target pool by the pertinent award adjustment
factors of Table B.
"SPENDABLE" BONUS POOL
In order to tie total bonus expenditures, or the "spendable" bonus
pool, to overall corporate performance, the sum of all normally calculated
awards (A) cannot exceed the amount generated by adjusting the "target" bonus
pool only by the corporate performance. (B) If that should occur, all individual
awards are to be reduced by the ratio of B/A and rounded off to the nearest
$100.
TERMINATION OF EMPLOYMENT
o In the event of termination of employment on account of death,
disability or retirement, awards will be paid pro rata on the basis of the
number of full months worked during the fiscal year.
o In the event of voluntary termination or discharge "for cause"
prior to the end of the year, such award payment will be forfeited.
PART-YEAR EMPLOYMENT
o New hires, or individuals promoted into eligible positions during
the fiscal year, will be eligible for prorated awards based on the number of
full months of employment during the fiscal period. In no event, however, will
an award be paid to an employee with less than three months service during the
year.
ADMINISTRATION
o Bonus payments will be made within two and one-half months
of the end of the fiscal year.
o If approved by the Compensation Committee, unbudgeted
extraordinary events that impact Net Income and EBIT results will be excluded
from the calculation of performance and spendable pool.
<PAGE>
7
o Participation in the bonus plan for a given fiscal year will not
be construed to confer a right to participate in the plan in any subsequent year
or the right to continue in the Company's employment.
o Plan administration (including approval of annual Net Income
plans, award accrual percentage, and final award payments) will be the
responsibility of the Compensation Committee of the Board.
o Plan modifications or cancellation can only be effected by the
Compensation Committee of the Board.
EFFECTIVE DATE
o The plan will become effective as of February 1, 1994.
<PAGE>
8
SAMPLE BONUS CALCULATIONS
Example:
- --------------------------------------------------------------------------------
AWARD
ASSUMED ADJUST-
PERFOR- MENT BONUSTARGET BONUS
MANCE FACTOR** X PORTION*** = AWARD
- --------------------------------------------------------------------------------
Division Head: $100,000 Salary
Bonus Target: 25%* x $100,000 = $25,000
- --------------------------------------------------------------------------------
Corporate 120% 120% x ($25,000 x 30%) = $ 9,000
Division 90% 80% x ($25,000 x 50%) = $10,000
Individual 85% 70% x ($25,000 x 20%) = $ 3,500
TOTAL $22,500
- --------------------------------------------------------------------------------
Division 2nd Level: $60,000 Salary
Bonus Target: 15% x $60,000 = $9,000
- --------------------------------------------------------------------------------
Corporate 90% 80% x ($9,000 x 20%) = $ 1,440
Division 120% 120% x ($9,000 x 40%) = $ 4,320
Individual 110% 110% x ($9,000 x 40%) = $ 3,960
TOTAL $ 9,720
- --------------------------------------------------------------------------------
Corporate SVP: $200,000 Salary
Bonus Target: 50% x $200,000 = $100,000
- --------------------------------------------------------------------------------
Corporate 112% 112% x ($100,000 x 75%) = $ 94,500
Division -- -- -- --
Individual 120% 120% x ($100,000 x 25%) = $ 37,500
TOTAL $132,000
- --------------------------------------------------------------------------------
* From Table A.
** From Table B.
*** From Table D.
#Bonus awards to be rounded to nearest $100.
Exhibit 23.2
The Board of Directors
Ithaca Industries, Inc.
The audits referred to in our report dated March 27, 1997, included the related
financial statement schedule for the 10-week period ended February 1, 1997, the
42- week period ended November 22, 1996 and for each year in the two-year period
ended February 2, 1996, included in the registration statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Our report dated March 27, 1997 contains an explanatory paragraph that states
that the Company emerged from bankruptcy and as of November 22, 1996, adopted
fresh-start reporting in accordance with the American Institute of Certified
Public Accountants Statement of Position 90-7, FINANCIAL REPORTING BY ENTITIES
IN REORGANIZATION UNDER THE BANKRUPTCY CODE.
We consent to the use of our reports included herein and to the reference of our
firm under the heading "Experts" in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
Atlanta, Georgia
October 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> AUG-02-1997
<CASH> 1,502
<SECURITIES> 0
<RECEIVABLES> 27,957
<ALLOWANCES> 919
<INVENTORY> 64,021
<CURRENT-ASSETS> 93,455
<PP&E> 38,078
<DEPRECIATION> 3,490
<TOTAL-ASSETS> 129,434
<CURRENT-LIABILITIES> 25,822
<BONDS> 0
<COMMON> 100
0
0
<OTHER-SE> 20,115
<TOTAL-LIABILITY-AND-EQUITY> 129,434
<SALES> 119,676
<TOTAL-REVENUES> 119,676
<CGS> 101,714
<TOTAL-COSTS> 101,714
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,190
<INCOME-PRETAX> 1,608
<INCOME-TAX> 754
<INCOME-CONTINUING> 854
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 854
<EPS-PRIMARY> .09
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