As Filed With The Securities And Exchange Commission On May 26, 1998
Registration No. 333-50761
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SALANT CORPORATION
(Exact Name Of Registrant As Specified In Its Charter)
DELAWARE 2320 13-3402444
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification
Incorporation or Classification Code Number)
Organization) Number)
--------------------
1114 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 221-7500
(Address, Including Zip Code, And Telephone Number,
Including Area Code, Of Registrant's Principal Executive Offices)
TODD KAHN
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
SALANT CORPORATION
1114 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 221-7500
(Name, Address, Including Zip Code, And Telephone Number
Including Area Code, of Agent For Service)
COPIES TO:
BRAD ERIC SCHELER, ESQ.
LAWRENCE A. FIRST, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
(212) 859-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon
as practicable after: (i) a post-effective amendment to the Registration
Statement becomes effective and (ii) the occurrence of the expiration date
of the Exchange Offer described in each of the Exchange Restructuring
Prospectus and the Proxy Statement/Prospectus included as part of the
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. |_|
CALCULATION OF REGISTRATION FEE
===============================================================================
Title of each Class of Amount to Proposed Proposed Amount of
Securities to be be Maximum Per Maximum Registration
Registered Registered Unit Offering Aggregate Fee
Price Offering Price
- -------------------------------------------------------------------------------
Common Stock, par 22,169,790
value $1.00 per share Shares -- (3)
(1)(2)
- -------------------------------------------------------------------------------
Warrants 2,216,979
Warrants (2) -- (3)
- -------------------------------------------------------------------------------
Total -- -- $123,199,456 $36,580*
- -------------------------------------------------------------------------------
* Previously paid
(1) Maximum number of shares of common stock, par value $1.00 per share
(the "New Common Stock"), (i) to be issued initially by Salant
Corporation (the "Company") pursuant to the Registration Statement and
(ii) to be issued subsequently upon the exercise of newly created
warrants (the "Warrants"), issued pursuant to the Warrant Agreement (as
defined herein), to purchase New Common Stock also being registered
hereby. Such number reflects a one-for-ten reverse stock split (the
"Reverse Split") as further described herein.
(2) Each $1,000 principal amount of 10-1/2% Senior Secured Notes due
December 31, 1998 (the "Senior Notes") will be exchanged for 175.97755
shares of New Common Stock, representing an aggregate of 18,456,350
shares. Each share of the Company's previously issued and outstanding
common stock, par value $1.00 per share (the "Old Common Stock"), will
receive one-tenth of a share of New Common Stock (representing, in the
aggregate, 1,496,461 shares of New Common Stock) and .14814815 Warrants
to purchase, in the aggregate, 2,216,979 shares of New Common Stock at
an exercise price of $6.2648 per share, subject in each case to
adjustment.
(3) The Proposed Maximum Aggregate Offering Price has been calculated
pursuant to Rule 457(f) as the sum of (i) the aggregate market value of
the Old Common Stock as of April 21, 1998 ($11,223,456 which is the
product of (a) $0.75, the closing price of the Old Common Stock on the
New York Stock Exchange on April 21, 1998, and (b) 14,964,608, the
number of shares of Old Common Stock issued and outstanding on such
date), and (ii) the aggregate book value of the Senior Notes (plus
accrued and unpaid interest) as of April 21, 1998 ($111,976,000, or the
sum of the aggregate book value of $104,879,000 and accrued and unpaid
interest of $7,097,000).
This Post-Effective Amendment shall become effective in accordance
with Section 8(c) of the Securities Act of 1933 on such date as the
Securities and Exchange Commission, acting pursuant to Section 8(c), may
determine.
<PAGE>
[LOGO OF SALANT CORPORATION]
_________, 1998
Dear Stockholder:
You are cordially invited to attend the annual meeting (the
"Stockholders' Meeting") of the stockholders of Salant Corporation (the
"Company") to be held at the offices of Fried, Frank, Harris, Shriver &
Jacobson, One New York Plaza, New York, New York on _______, 1998, at _____
__.m., New York City time. At the Stockholders' Meeting, you will be asked
to consider and vote on certain proposals relating to the financial
restructuring (the "Exchange Restructuring") of the Company whereby holders
of 10-1/2% Senior Secured Notes due December 31, 1998 (the "Senior Notes")
immediately prior to the Exchange Restructuring would exchange their Senior
Notes for shares of common stock, par value $1.00 per share, of the Company
("New Common Stock") and stockholders of the Company ("Stockholders") as of
immediately prior to the Exchange Restructuring would receive shares of New
Common Stock, as well as warrants (the "Warrants") to purchase additional
shares of New Common Stock.
Stockholders will be asked to consider and vote upon proposals (the
"Restructuring Proposals") to implement the Exchange Restructuring,
consisting of (a) an amendment (the "Charter Amendment") of the Company's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation"), in order to effect (i) a ten-to-one reverse stock split
(the "Reverse Split") of each outstanding share of common stock, par value
$1.00 per share, of the Company (the "Old Common Stock"), into one-tenth of
a share of New Common Stock, and (ii) an increase in the number of shares
of New Common Stock authorized; (b) to approve the issuance (the
"Issuance") of (i) shares of New Common Stock to holders of Senior Notes
("Noteholders") in exchange for their Senior Notes and to Stockholders in
exchange for their Old Common Stock upon consummation of the Exchange
Restructuring, (ii) the Warrants, and (iii) shares of New Common Stock to
holders of Warrants upon exercise of their Warrants (such shares of New
Common Stock being hereinafter referred to as the "Warrant Shares"); and
(c) to elect new directors to the Board of Directors (the "Board") of the
Company (the "Election of the New Board") upon consummation of the
Restructuring. In addition, the Stockholders will be asked to (i) consider
a proposal (the "Plan Proposal") to approve the adoption of the Salant
Corporation 1998 Stock Award and Incentive Plan (the "Stock Award and
Incentive Plan"), and (ii) ratify the appointment of Deloitte & Touche LLP
as independent auditors to the Company (together with the Restructuring
Proposals and the Plan Proposal, the "Proposals"). If the Prepackaged
Restructuring (as defined below) is required and a petition is filed under
the Bankruptcy Code, the Company expects that each of the Restructuring
Proposals will be implemented pursuant to the Prepackaged Plan (as defined
below).
Apollo Apparel Partners, L.P. ("Apollo"), the beneficial owner of
5,924,352 shares (the "Apollo Shares") of Old Common Stock, which
represents approximately 39.6% of the issued and outstanding shares of Old
Common Stock, has entered into a Voting Agreement with the Company, dated
May ___, 1998, wherein Apollo has agreed, among other things, to vote all
of the Apollo Shares held by it in favor of each of the Restructuring
Proposals and the Prepackaged Restructuring (as defined below).
Assuming all of the conditions to the consummation of the Exchange
Restructuring are fulfilled, the Issuance will result in the Noteholders
receiving 92.5% of the issued and outstanding shares of New Common Stock
(subject to dilution for shares of New Common Stock issued under the Stock
Award and Incentive Plan, the Warrant Shares, and in the case of the
Exchange Restructuring only, the shares of New Common Stock issued under
the Company's 1987 Stock Plan, 1988 Stock Plan, 1993 Stock Plan and 1996
Stock Plan (the "Old Plans")). Stockholders would receive 7.5% of the
outstanding shares of New Common Stock as a result of the Reverse Split
(subject to dilution for shares of New Common Stock issued under the Stock
Award and Incentive Plan, the Warrant Shares, and in the case of the
Exchange Restructuring only, the shares of New Common Stock issued under
the Old Plans and, upon exchange of certificates of their Old Common Stock,
would receive Warrants which, upon exercise, would represent 10% of the New
Common Stock outstanding immediately following consummation of the Exchange
Restructuring and the Reverse Split (on a fully diluted basis). Each
Stockholder would receive, in exchange for each share of Old Common Stock
held, .14814815 Warrants and one-tenth of a share of New Common Stock. The
Warrants would be exercisable for seven years from the Exchange
Restructuring Date (as defined below). The Warrants would have an exercise
price ("Exercise Price") of $6.2648 per share and each Warrant would be
exercisable for one share of New Common Stock, in each case subject to
adjustment. Stockholders will not be entitled to receive Warrants unless
and until they exchange their certificates of Old Common Stock for
certificates of New Common Stock.
Copies of the Notice of Annual Meeting of Stockholders and the Proxy
Statement/Prospectus, which serves as a prospectus for the shares of New
Common Stock to be issued to the Stockholders, the Warrants and Warrant
Shares are enclosed herewith, covering the formal business to be conducted
at the Stockholders' Meeting.
The Stockholder votes with respect to the Issuance and the Election of
the New Board will not be effective unless and until the Charter Amendment
is approved at the Stockholders' Meeting and filed with the Secretary of
State of the State of Delaware and the Exchange Restructuring has been
consummated. Each of the Restructuring Proposals is conditioned upon the
approval by the Stockholders of each of the other Restructuring Proposals.
If any or all of the Restructuring Proposals are not approved by the
Stockholders at the Stockholders' Meeting, then none of the Restructuring
Proposals will become effective. If the Stockholders approve the Stock
Award and Incentive Plan, the Stock Award and Incentive Plan will become
effective regardless of whether the Exchange Restructuring is implemented
or any of the Restructuring proposals are approved. However, the approval
of the Stock Award and Incentive Plan is not a condition to the
consummation of the Restructuring.
The Exchange Restructuring is conditioned on, among other things, 100%
of the outstanding Senior Notes being validly tendered pursuant to the
Exchange Restructuring and the approval by the Stockholders of each of the
Restructuring Proposals. If each of the Restructuring Proposals is not
approved by the Stockholders or the Minimum Tender Condition (as defined
below) is not satisfied or waived, but the Company receives sufficient
acceptances of the Prepackaged Plan (as defined below) to obtain
confirmation thereof by the Bankruptcy Court (as defined below), then the
Company intends instead to pursue the financial restructuring of the
Company (the "Prepackaged Restructuring") by means of the filing of a
petition under Chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code") and of a "Prepackaged Plan" (the "Prepackaged Plan" and
together with the Exchange Restructuring, the "Restructuring") and to use
such acceptances to obtain confirmation of the Prepackaged Plan. The
Prepackaged Restructuring may be effected with the approval of a minimum of
two-thirds of the principal amount and a majority in number of the
Noteholders voting on the Prepackaged Plan. If the Prepackaged
Restructuring is pursued, the Company expects that each of the
Restructuring Proposals will be implemented pursuant to the Prepackaged
Plan.
THE COMPANY'S SUBSIDIARIES WOULD NOT BE PARTIES TO THE PREPACKAGED
PLAN, AND WOULD NOT BECOME DEBTORS IN CONNECTION WITH THE PREPACKAGED
RESTRUCTURING. THEREFORE THE SUBSIDIARIES OF THE COMPANY WOULD CONTINUE TO
OPERATE IN THE ORDINARY COURSE OF BUSINESS DURING THE COMPANY'S CHAPTER 11
CASE. AS SUCH, THE PREPACKAGED PLAN WOULD NOT AFFECT THE CONTINUING AND
TIMELY PAYMENT IN FULL OF THE SUBSIDIARIES' OBLIGATIONS TO SUPPLIERS,
EMPLOYEES, AND OTHER CREDITORS. IN ADDITION, THE PREPACKAGED PLAN PROVIDES
FOR ALL PREPETITION UNSECURED CREDITORS OF THE COMPANY, INCLUDING, WITHOUT
LIMITATION, TRADE CREDITORS, TO BE PAID IN FULL IN ACCORDANCE WITH THEIR
TERMS, AND SUCH CREDITORS WOULD NOT, THEREFORE BE IMPAIRED BY, AND WOULD BE
DEEMED TO ACCEPT, THE PREPACKAGED PLAN, AND THEIR VOTE ON THE PREPACKAGED
PLAN WOULD NOT BE SOUGHT.
The purpose of the Restructuring is to help ensure the long-term
viability and to contribute to the success of the Company by deleveraging
the Company's capital structure. Specifically, in accordance with the
Three-Year Operating Plan for 1998-2000 (the "Three-Year Business Plan")
developed by the Company, the Restructuring is designed to recapitalize the
Company by converting all of the Company's long-term debt obligations under
the Senior Notes (which, as of March 2, 1998, was $110.379 million,
consisting of $104.879 million aggregate principal amount of, and $5.5
million of accrued interest on, the Senior Notes) into New Common Stock.
Interest charges for the Company should be substantially reduced and
stockholders' equity should be substantially increased as a result of the
Restructuring. Upon consummation of the Restructuring, the Company will not
have any long-term debt, other than the term loan portion of its working
capital facility. This significantly lower debt-to-equity ratio should help
the Company to achieve the objectives as described in the Three-Year
Business Plan and make the Company more attractive to investors. The
Company believes that by reducing the uncertainty surrounding its ability
to pay or retire the Senior Notes which are due in their entirety on
December 31, 1998, the Restructuring should maximize liquidity for the
Company's business operations and thereby provide a platform for future
growth and enhance the Company's total enterprise value. The Company
further believes that by providing the Company with a deleveraged capital
structure, the company that results from the Restructuring should be
positioned favorably to withstand the normal market fluctuations in the
highly volatile apparel industry.
In addition, in contemplation of the Restructuring, the Company
elected not to pay the interest payment of approximately $5.5 million that
was due and payable under the Senior Notes on March 2, 1998, subject to a
30 day grace period. Because the Company elected not to pay the interest
due on the Senior Notes by the expiration of the applicable grace period,
an event of default has occurred with respect to the Senior Notes entitling
the Noteholders to accelerate the maturity thereof. Pursuant to a certain
letter agreement, dated March 2, 1998 (the "Letter Agreement"), Magten
Asset Management Corp., the beneficial owner of, or the investment manager
on behalf of the beneficial owners of not less than $70 million in
aggregate face amount of the Senior Notes has, in accordance with Section
6.5 of the Indenture, dated September 20, 1993, as amended (the
"Indenture") caused a written direction to be provided to the Trustee under
the Indenture, to forbear during the term of the Letter Agreement from
taking any action under the Indenture in connection with the failure by the
Company to make the interest payment on the Senior Notes that was due and
payable on March 2, 1998. On April 8, 1998, the Trustee issued a Notice of
Default stating that as a result of the Company's failure to make the
interest payment due on the Senior Notes, an event of default under the
Indenture had occurred on April 1, 1998. In addition, the Company's working
capital lender, the CIT Group/Commercial Services Inc., agreed to forbear
until July 1, 1998, subject to certain conditions, from exercising any of
its rights or remedies under the Revolving Credit, Factoring and Security
Agreement, dated as of September 20, 1993, as amended (the "Credit
Agreement"), arising by virtue of the Company's failure to pay such
interest on the Senior Notes. Failure to consummate the Restructuring could
result in the acceleration of all of the indebtedness under the Senior
Notes and/or the Credit Agreement.
ABSENT THE RESTRUCTURING, THE COMPANY DOES NOT BELIEVE IT WILL BE ABLE
TO SATISFY ITS OBLIGATIONS UNDER THE SENIOR NOTES WITHOUT A REFINANCING OF
THE COMPANY'S INDEBTEDNESS UNDER THE CREDIT AGREEMENT AND/OR THE SENIOR
NOTES OR AN ADDITIONAL CAPITAL INFUSION, AND IT IS UNLIKELY THAT THE
COMPANY WILL BE ABLE TO OBTAIN SUCH REFINANCING OR ADDITIONAL CAPITAL
INFUSION. IF THE COMPANY DETERMINES THAT IT IS OR WILL BE UNABLE TO
COMPLETE THE RESTRUCTURING, THE COMPANY WILL CONSIDER ALL OTHER AVAILABLE
FINANCIAL ALTERNATIVES, INCLUDING THE SALE OF ALL OR A PART OF THE
COMPANY'S BUSINESSES, THE IMPLEMENTATION OF AN ALTERNATIVE RESTRUCTURING
ARRANGEMENT OUTSIDE OF BANKRUPTCY, OR THE COMMENCEMENT OF A CHAPTER 11 CASE
WITHOUT A PRE-BANKRUPTCY ACCEPTED PLAN OF REORGANIZATION. THERE CAN BE NO
ASSURANCE, HOWEVER, THAT ANY ALTERNATIVE WOULD BE ON TERMS AS FAVORABLE TO
NOTEHOLDERS AND STOCKHOLDERS AS THE RESTRUCTURING.
IN ORDER TO EXPEDITE THE SOLICITATION OF ACCEPTANCES UNDER THE
PREPACKAGED PLAN, SHOULD IT BE NECESSARY, THE COMPANY IS CONCURRENTLY
SOLICITING SUCH ACCEPTANCES TOGETHER WITH PROXIES FOR THE STOCKHOLDERS'
MEETING. ACCORDINGLY, THIS PROXY STATEMENT/PROSPECTUS ALSO SERVES AS A
SOLICITATION BY THE COMPANY FOR ACCEPTANCE OF THE PREPACKAGED PLAN.
Stockholders may vote in favor of the Prepackaged Plan by signing, marking
and returning the enclosed ballot for that purpose in the enclosed
envelope. Unlike the proxy, the ballot must be marked FOR or AGAINST
acceptance for it to be counted for any purpose.
IF EACH OF THE RESTRUCTURING PROPOSALS IS NOT APPROVED BY THE
STOCKHOLDERS OR THE CONSENT OF 100% OF THE NOTEHOLDERS TO THE RESTRUCTURING
(THE "MINIMUM TENDER CONDITION") IS NOT SATISFIED OR WAIVED, BUT THE
COMPANY RECEIVES SUFFICIENT ACCEPTANCES OF THE PREPACKAGED PLAN TO OBTAIN
CONFIRMATION THEREOF BY THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK THE BANKRUPTCY COURT, THEN THE COMPANY INTENDS TO
PURSUE CONFIRMATION OF THE PREPACKAGED PLAN UNDER CHAPTER 11 OF THE
BANKRUPTCY CODE AND TO ATTEMPT TO USE SUCH ACCEPTANCES TO OBTAIN
CONFIRMATION OF THE PREPACKAGED PLAN. IF THE COMPANY DETERMINES THAT IT IS
OR WILL BE UNABLE TO COMPLETE THE RESTRUCTURING, THE COMPANY WILL CONSIDER
ALL FINANCIAL ALTERNATIVES AVAILABLE TO IT AT SUCH TIME, WHICH MAY INCLUDE
THE SALE OF ALL OR PART OF THE COMPANY'S BUSINESS, THE IMPLEMENTATION OF AN
ALTERNATIVE RESTRUCTURING ARRANGEMENT OUTSIDE OF BANKRUPTCY, OR THE
COMMENCEMENT OF A CHAPTER 11 CASE WITH OR WITHOUT A PREAPPROVED PLAN OF
REORGANIZATION. THERE CAN BE NO ASSURANCE, HOWEVER, THAT ANY ALTERNATIVE
RESTRUCTURING WOULD RESULT IN A REORGANIZATION OF THE COMPANY RATHER THAN A
LIQUIDATION, OR THAT ANY SUCH REORGANIZATION WOULD BE ON TERMS AS FAVORABLE
TO THE NOTEHOLDERS AND STOCKHOLDERS AS THE TERMS OF THE RESTRUCTURING. IF A
LIQUIDATION OR A PROTRACTED AND NON-ORDERLY REORGANIZATION WERE TO OCCUR,
THERE IS A RISK THAT THE ABILITY OF THE NOTEHOLDERS AND STOCKHOLDERS TO
RECOVER THEIR INVESTMENTS WOULD BE EVEN MORE IMPAIRED THAN UNDER THE
RESTRUCTURING AND WOULD BE SUBSTANTIALLY DELAYED. A NON-CONSENSUAL
RESTRUCTURING WOULD LIKELY HAVE A MATERIAL ADVERSE IMPACT ON THE COMPANY
AND ITS EMPLOYEES, SUPPLIERS AND CUSTOMERS. ACCORDINGLY, YOUR BOARD
BELIEVES THE EXCHANGE RESTRUCTURING AND THE PREPACKAGED RESTRUCTURING ARE IN
THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE RESTRUCTURING PROPOSALS AND
FOR THE ACCEPTANCE OF THE PREPACKAGED PLAN. ON _________, 1998, AT THE
BOARD'S REQUEST, ERNST & YOUNG LLP ("E&Y"), FINANCIAL ADVISORS TO THE
COMPANY, DELIVERED TO THE BOARD A WRITTEN OPINION THAT, AS OF THAT DATE AND
BASED UPON AND SUBJECT TO THE FACTORS AND ASSUMPTIONS SET FORTH THEREIN,
THE CONSIDERATION TO BE RECEIVED BY STOCKHOLDERS PURSUANT TO THE
RESTRUCTURING IS FAIR TO PUBLIC STOCKHOLDERS FROM A FINANCIAL POINT OF
VIEW. E&Y SUBSEQUENTLY DELIVERED TO THE BOARD THEIR WRITTEN OPINION THAT,
AS OF THE DATE OF THIS PROXY STATEMENT/PROSPECTUS AND BASED UPON AND
SUBJECT TO THE FACTORS AND ASSUMPTIONS SET FORTH THEREIN, THE CONSIDERATION
TO BE RECEIVED BY STOCKHOLDERS PURSUANT TO THE RESTRUCTURING IS FAIR TO
PUBLIC STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW.
Regardless of the size of your holdings, it is important that your
shares be voted at the Stockholders' Meeting and with respect to the
Prepackaged Plan. Whether or not you plan to attend the Stockholders'
Meeting, please sign and return both your proxy and ballot in the enclosed
envelope by no later than ___________, 1998 to assure that your shares will
be voted with respect to each of the Restructuring Proposals. Your vote on
the Prepackaged Plan will not be counted unless you return a properly
completed ballot.
Sincerely,
Jerald S. Politzer
Chairman of the Board and Chief Executive Officer
SALANT CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON __________, 1998
NOTICE IS HEREBY GIVEN that an annual meeting of stockholders (the
"Stockholders") of Salant Corporation (the "Company") will be held at the
offices of Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza,
New York, New York on _________, 1998, at ____ __.m., New York City time
(the "Stockholders' Meeting"), for the purpose of implementing a financial
restructuring (the "Exchange Restructuring") of the Company whereby holders
(the "Noteholders") of 10-1/2% Senior Secured Notes due December 31, 1998
(the "Senior Notes") would exchange their Senior Notes for shares of common
stock, par value $1.00 per share, of the Company ("New Common Stock") and
Stockholders immediately prior to the Exchange Restructuring would receive
shares of New Common Stock as well as warrants ("Warrants") to purchase
additional shares of New Common Stock. Specifically, Stockholders will be
asked to consider and vote upon the following proposals, all of which are
more fully described in the accompanying Proxy Statement/Prospectus:
1. An amendment (the "Charter Amendment") of the Company's Amended and
Restated Certificate of Incorporation, which would authorize (i) a
ten-to-one reverse stock split of the Company's outstanding shares of
Old Common Stock (the "Reverse Split") and (ii) an increase in the
number of shares of New Common Stock authorized;
2. The issuance of (i) shares of New Common Stock (the "Issuance") to
Noteholders in exchange for their Senior Notes and to Stockholders in
exchange for their shares of common stock, par value $1.00 per share
(the "Old Common Stock") pursuant to the terms of the Exchange
Restructuring, (ii) the Warrants, and (iii) shares of New Common Stock
to holders of Warrants upon exercise of their Warrants;
3. The election of new directors to the Board of Directors (the "Board")
of the Company (the "Election of the New Board," and together with the
Charter Amendment and the Issuance, the "Restructuring Proposals");
4. The proposal (the "Plan Proposal") to approve the adoption of the
Salant Corporation 1998 Stock Award and Incentive Plan (the "Stock
Award and Incentive Plan");
5. The ratification of the appointment of Deloitte & Touche, LLP as
independent auditors to the Company (together with the Restructuring
Proposals and the Plan Proposal, the "Proposals"); and
6. Such other business as may properly come before the Stockholders'
Meeting or any adjournments or postponements thereof.
The proposed text of the Charter Amendment is set forth in full in the
accompanying Proxy Statement/Prospectus. The text of the Exchange
Restructuring Prospectus pursuant to which, if the Exchange Restructuring
is consummated, the Noteholders would receive shares of New Common Stock is
set forth in Annex IV to the accompanying Proxy Statement/Prospectus. The
proposed text of the Stock Award and Incentive Plan is set forth in Annex
III of the accompanying Proxy Statement/Prospectus.
The Issuance and the Election of the New Board will not become
effective unless and until the Charter Amendment is approved at the
Stockholders' Meeting and filed with the Secretary of State of the State of
Delaware and the Exchange Restructuring is consummated. Each of the
Restructuring Proposals is conditioned upon the approval by the
Stockholders of each of the other Restructuring Proposals. If any or all of
the Restructuring Proposals are not approved by the Stockholders at the
Stockholders' Meeting, then none of the Restructuring Proposals will become
effective. If the Stockholders approve the Stock Award and Incentive Plan,
the Stock Award and Incentive Plan will become effective regardless of
whether the Exchange Restructuring is implemented or any of the
Restructuring Proposals are approved. However, the approval of the Stock
Award and Incentive Plan is not a condition to the consummation of the
Restructuring.
The Board has fixed the close of business on ________, 1998 as the
record date ("Record Date") for the determination of Stockholders entitled
to notice of and to vote at the Stockholders' Meeting and any adjournments
or postponements thereof. Only Stockholders of record at the close of
business on such date are entitled to notice of and to vote at the
Stockholders' Meeting.
Common Stock, par value $1.00 per share, of the Company is the only
security of the Company whose holders are entitled to vote upon the
proposals to be presented at the Stockholders' Meeting. Apollo Apparel
Partners, L.P. ("Apollo"), the beneficial owner of 5,924,352 shares (the
"Apollo Shares") of the Old Common Stock, which represents approximately
39.6% of the issued and outstanding shares of Old Common Stock, has entered
into a Voting Agreement with the Company, dated May ___, 1998, wherein
Apollo has agreed to vote all of the Apollo Shares in favor of each of the
Restructuring Proposals and the Solicitation (as defined in the Proxy
Statement/Prospectus).
Your vote is important regardless of the number of shares you own.
Each Stockholder, even though he or she now plans to attend the
Stockholders' Meeting, is requested to sign, date and return the enclosed
proxy, without delay in the enclosed postage-paid envelope. You may revoke
your proxy at any time prior to its exercise. Any Stockholder present at
the Stockholders' Meeting or at any adjournments or postponements thereof
may revoke his or her proxy and vote personally on each matter brought
before the Stockholders' Meeting.
By Order of the Board of Directors,
Todd Kahn
Executive Vice President, General
Counsel and Secretary
________, 1998
THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE FOR EACH OF THE PROPOSALS
PLEASE DATE AND SIGN THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE
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 AND HAS BECOME EFFECTIVE. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME THAT A POST-EFFECTIVE AMENDMENT TO 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 AS OF MAY 26, 1998
SALANT CORPORATION
[LOGO OF SALANT CORPORATION]
PROXY STATEMENT/PROSPECTUS
AND SOLICITATION OF PREPACKAGED PLAN ACCEPTANCES
This Proxy Statement/Prospectus (this "Proxy Statement/Prospectus") is
being furnished to holders ("Stockholders") of common stock, par value
$1.00 per share ("Old Common Stock"), of Salant Corporation, a Delaware
corporation (the "Company"), in connection with (A) the solicitation of
proxies by the Board of Directors of the Company (the "Board") for use at
the annual meeting of Stockholders to be held on _______, 1998 at _____
__.m., New York City time, at Fried, Frank, Harris, Shriver & Jacobson, One
New York Plaza, New York, New York 10004 and any adjournments or
postponements thereof (the "Stockholders' Meeting"), and (B) the
solicitation of acceptances of a prepackaged plan of reorganization of the
Company (the "Prepackaged Plan") under Chapter 11 of title 11 of the United
States Code, as amended (the "Bankruptcy Code"). References herein to the
"Company" shall, unless the context otherwise require, refer to Salant
Corporation and its operating subsidiaries.
The Board is soliciting proxies to be voted at the Stockholders'
Meeting. The Stockholders' Meeting will be held to consider the proposals
(the "Restructuring Proposals") described herein to implement a financial
restructuring (the "Exchange Restructuring") of the Company whereby (i) the
holders (the "Noteholders") of 10-1/2% Senior Secured Notes due December
31, 1998 (the "Senior Notes") immediately prior to the Exchange
Restructuring would exchange their Senior Notes for, in the aggregate,
18,456,350 shares of common stock, par value $1.00 per share, of the
Company ("New Common Stock") (after giving effect to the Reverse Split (as
defined below)), constituting 92.5% of the New Common Stock issued and
outstanding immediately following consummation of the Exchange
Restructuring (subject to dilution for shares of New Common Stock issued
under the Stock Award and Incentive Plan (as defined below), the Warrant
Shares (as defined below), and in the case of the Exchange Restructuring
only, the shares of New Common Stock issued under the Company's 1987 Stock
Plan, 1988 Stock Plan, 1993 Stock Plan and 1996 Stock Plan (the "Old
Plans"), and (ii) Stockholders immediately prior to the Exchange
Restructuring would receive, in the aggregate, 1,496,461 shares of New
Common Stock, constituting 7.5% of the New Common Stock issued and
outstanding immediately following consummation of the Exchange
Restructuring (subject to dilution for shares of New Common Stock issued
under the Stock Award and Incentive Plan, the Warrant Shares, and in the
case of the Exchange Restructuring only, the shares of New Common Stock
issued under the Old Plans), plus an aggregate of 2,216,979 warrants (the
"Warrants"), representing the right to purchase, in the aggregate,
2,216,979 additional shares of New Common Stock (subject to adjustment).
Specifically, the Proxy Statement/Prospectus seeks Stockholder approval of
the Restructuring Proposals (A) to amend (the "Charter Amendment") the
Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation"), to effect (i) a ten-to-one reverse stock
split (the "Reverse Split") of each outstanding share of Old Common Stock
into one-tenth of a share of New Common Stock, and (ii) an increase in the
number of shares of New Common Stock authorized; (B) to approve the
issuance (the "Issuance") of New Common Stock and Warrants pursuant to the
Exchange Restructuring, including the issuance of (i) the shares of New
Common Stock issuable to the Noteholders upon consummation of the Exchange
Restructuring and to Stockholders in exchange for their Old Common Stock,
(ii) the Warrants, and (iii) the shares of New Common Stock issuable upon
exercise of the Warrants (the "Warrant Shares") (such issuance pursuant to
either the Exchange Restructuring or the Prepackaged Restructuring (as
hereinafter defined)), and (C) to elect new directors to the Board (the
"Election of the New Board") upon consummation of the Exchange
Restructuring. In addition, the Stockholders will be asked to (i) consider
a proposal (the "Plan Proposal") to approve the adoption of the Salant
Corporation 1998 Stock Award and Incentive Plan (the "Stock Award and
Incentive Plan"); and (ii) ratify the appointment of Deloitte & Touche LLP
as independent auditors to the Company (together with the Restructuring
Proposals and the Plan Proposal, the "Proposals"). If the Prepackaged
Restructuring (as hereinafter defined) is required and a petition is filed
under the Bankruptcy Code, the Company expects that each of the
Restructuring Proposals will be implemented pursuant to the Prepackaged
Plan.
Apollo Apparel Partners, L.P. ("Apollo"), the beneficial owner of
5,924,352 (the "Apollo Shares") of the Old Common Stock, which represents
approximately 39.6% of the issued and outstanding shares of the Old Common
Stock, has entered into a Voting Agreement with the Company, dated May __,
1998, wherein Apollo has agreed to vote all of the Apollo Shares in favor
of each of the Restructuring Proposals and the Prepackaged Restructuring
(as hereinafter defined).
Assuming that all of the conditions to consummation are fulfilled,
based upon the current number of shares of Old Common Stock issued and
outstanding, the Exchange Restructuring will result in the Noteholders
receiving, in the aggregate, 18,456,350 shares of New Common Stock (after
giving effect to the Reverse Split), constituting 92.5% of the New Common
Stock issued and outstanding immediately following consummation of the
Exchange Restructuring (subject to dilution for the Stock Award and
Incentive Plan, the Warrant Shares, and in the case of the Exchange
Restructuring only, the shares of New Common Stock issued under the Old
Plans). The Stockholders currently own 100% of the common equity of the
Company in the form of the Old Common Stock. As of March 16, 1998, there
were 14,964,608 shares of Old Common Stock issued and outstanding. Assuming
all of the conditions to the Exchange Restructuring are fulfilled, the
Exchange Restructuring will result in the Stockholders receiving, in
exchange for their shares of Old Common Stock, an aggregate of 1,496,461
shares of New Common Stock after giving effect to the Reverse Split,
constituting 7.5% of the New Common Stock issued and outstanding
immediately following consummation of the Exchange Restructuring (subject
to dilution for the Stock Award and Incentive Plan, the Warrant Shares, and
in the case of the Exchange Restructuring only, the shares of New Common
Stock issued under the Old Plans). In addition, the Stockholders will
receive the Warrants, which, would represent the right to purchase up to
10% of the New Common Stock issued and outstanding immediately after giving
effect to the Exchange Restructuring and the Reverse Split (on a fully
diluted basis). The Warrants would be exercisable for seven years from the
date of the Exchange Restructuring. Each Stockholder would receive, for
each share of Old Common Stock held, .14814815 Warrants. The Warrants would
have an exercise price ("Exercise Price") of $6.2648 per share, and each
Warrant would be exercisable for one share of New Common Stock, in each
case, subject to adjustment.
SEE "RISK FACTORS" ON PAGES 21 TO 27 FOR A DISCUSSION OF CERTAIN
RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE
RESTRUCTURING AND THE PREPACKAGED RESTRUCTURING (AS HEREINAFTER DEFINED).
SEE "RISK FACTORS" IN PART B TO THE EXCHANGE RESTRUCTURING PROSPECTUS ON
PAGES A-28 TO A-34, ATTACHED HERETO AS ANNEX IV, FOR A DISCUSSION OF
CERTAIN ADDITIONAL RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION
WITH THE PREPACKAGED RESTRUCTURING.
NEITHER THE SECURITIES OFFERED HEREBY NOR THE PREPACKAGED PLAN HAS
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 FAIRNESS OR
MERITS OF THESE TRANSACTIONS OR THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS [ ], 1998.
The Company's obligation to accept Senior Notes tendered pursuant to
the Exchange Restructuring is conditioned, among other things, on (a) 100%
of the Senior Notes being validly tendered and not withdrawn prior to the
Expiration Date (as defined herein) (the "Minimum Tender Condition"), and
(b) approval by the Stockholders of each of the Restructuring Proposals.
The Company reserves the right to waive any of the conditions to the
Exchange Restructuring but does not currently intend to waive any
condition. Pursuant to a certain letter agreement, dated March 2, 1998 (the
"Letter Agreement"), the prior written consent of Magten Asset Management
Corp., the beneficial owner of, or the investment manager on behalf of the
beneficial owners of ("Magten"), not less than $70 million in aggregate
principal face amount of the Senior Notes, is required for the Company to
waive the Minimum Tender Condition. The Issuance and the Election of the
New Board will not become effective unless and until the Charter Amendment
is approved at the Stockholders' Meeting and filed with the Secretary of
State of the State of Delaware and the Exchange Restructuring is
consummated. Each of the Restructuring Proposals is conditioned upon the
approval by the Stockholders of each of the other Restructuring Proposals.
If any or all of the Restructuring Proposals are not approved by the
Stockholders at the Stockholders' Meeting, then none of the Restructuring
Proposals will become effective. If the Stockholders approve the Stock
Award and Incentive Plan, the Stock Award and Incentive Plan will become
effective regardless of whether the Exchange Restructuring is implemented
or any of the Restructuring Proposals are approved. However, the approval
of the Stock Award and Incentive Plan is not a condition to the
consummation of the Restructuring.
Should less than 100% of the Noteholders tender their Senior Notes
pursuant to the Exchange Restructuring and/or the Stockholders do not
approve each of the Restructuring Proposals, but the Company receives
sufficient acceptances of the Prepackaged Plan to obtain confirmation
thereof by the Bankruptcy Court, then the Company intends to pursue the
financial restructuring of the Company by means of the filing of the
Prepackaged Plan (the "Prepackaged Restructuring" and, together with the
Exchange Restructuring, the "Restructuring"). The Company's ability to seek
confirmation of the Prepackaged Plan depends upon certain minimum levels of
acceptance thereof, as further set forth in this Proxy Statement/Prospectus.
In the event that the requisite percentage and number of Noteholders have
executed acceptances of the Prepackaged Plan, but the Minimum Tender
Condition has not been satisfied or the Company determines in its sole
discretion that it is unlikely to be satisfied at or prior to the Expiration
Date, the Company may elect to terminate the Exchange Offer at or prior to
its scheduled expiration and proceed directly to the Prepackaged Plan.
THE SUBSIDIARIES OF THE COMPANY WOULD NOT BE PARTIES TO THE
PREPACKAGED PLAN, AND WOULD NOT BECOME DEBTORS IN CONNECTION WITH THE
PREPACKAGED RESTRUCTURING. THEREFORE THE SUBSIDIARIES OF THE COMPANY WOULD
CONTINUE TO OPERATE IN THE ORDINARY COURSE OF BUSINESS DURING THE COMPANY'S
CHAPTER 11 CASE. AS SUCH, THE PREPACKAGED PLAN WOULD NOT AFFECT THE
CONTINUING AND TIMELY PAYMENT IN FULL OF THE SUBSIDIARIES' OBLIGATIONS TO
SUPPLIERS, EMPLOYEES, AND OTHER CREDITORS. IN ADDITION, THE PREPACKAGED
PLAN PROVIDES FOR ALL PREPETITION UNSECURED CREDITORS OF THE COMPANY,
INCLUDING, WITHOUT LIMITATION, TRADE CREDITORS, TO BE PAID IN FULL IN
ACCORDANCE WITH THEIR TERMS, AND SUCH CREDITORS WOULD NOT, THEREFORE, BE
IMPAIRED BY, AND WOULD BE DEEMED TO ACCEPT, THE PREPACKAGED PLAN, AND THEIR
VOTE ON THE PREPACKAGED PLAN WOULD NOT BE SOUGHT.
The purpose of the Restructuring is to help ensure the long-term
viability and to contribute to the success of the Company by deleveraging
the Company's capital structure. Specifically, in accordance with the
Company's Three-Year Operating Plan for 1998-2000 (the "Three-Year Business
Plan") developed by the Company, the Restructuring is designed to
recapitalize the Company by converting all of the Company's long-term debt
obligations under the Senior Notes (which as of March 2, 1998, was $110.379
million, consisting of $104.879 million aggregate principal amount of, and
$5.5 million of accrued interest on, the Senior Notes) into New Common
Stock. Interest charges for the Company should be substantially reduced and
stockholders' equity should be substantially increased as a result of the
Restructuring. Upon consummation of the Restructuring, the Company will not
have any long-term debt, other than the term loan portion of its working
capital facility. This significantly lower debt-to-equity ratio should help
the Company to achieve the objectives as described in the Three-Year
Business Plan and make the Company more attractive to investors. The
Company believes that by reducing the uncertainty surrounding its ability
to pay or retire the Senior Notes which are due in their entirety on
December 31, 1998, the Restructuring should maximize liquidity for the
Company's business operations and thereby provide a platform for future
growth and enhance the Company's total enterprise value. The Company
further believes that by providing the Company with a deleveraged capital
structure, the company that results from the Restructuring should be
positioned favorably to withstand the normal market fluctuations in the
highly volatile apparel industry.
In contemplation of the Restructuring, the Company elected not to pay
the interest payment of approximately $5.5 million that was due and payable
under the Senior Notes on March 2, 1998, subject to a 30 day grace period.
Because the Company elected not to pay the interest due on the Senior Notes
by the expiration of the applicable grace period, an event of default has
occurred with respect to the Senior Notes entitling the Noteholders to
accelerate the maturity thereof. Pursuant to the Letter Agreement, Magten
has, in accordance with Section 6.5 of the Indenture, dated September 20,
1993, as amended (the "Indenture"), caused a written direction to be
provided to the Trustee under the Indenture (the "Trustee"), to forbear
during the term of the Letter Agreement from taking any action under the
Indenture in connection with the failure by the Company to make the
interest payment on the Senior Notes that was due and payable on March 2,
1998. On April 8, 1998, the Trustee issued a Notice of Default stating that
as a result of the Company's failure to make the interest payment due on
the Senior Notes, an event of default under the Indenture had occurred on
April 1, 1998. If holders of at least 25% in the aggregate principal face
amount of the Senior Notes accelerate all outstanding indebtedness under
the Senior Notes pursuant to the terms of the Indenture, such an
acceleration of outstanding indebtedness under the Senior Notes could
result in the Company becoming subject to a proceeding under Federal
bankruptcy laws without having solicited acceptances for the Prepackaged
Plan prior to the commencement of such proceeding. In addition, the
Company's working capital lender, The CIT Group/Commercial Services, Inc.,
agreed to forbear until July 1, 1998, subject to certain conditions, from
exercising any of its rights or remedies under the Revolving Credit,
Factoring and Security Agreement, dated as of September 20, 1993, as
amended (the "Credit Agreement"), arising by virtue of the Company's
failure to pay such interest on the Senior Notes. Failure to consummate the
Restructuring could result in the acceleration of all of the indebtedness
under the Senior Notes and/or the Credit Agreement.
ABSENT THE RESTRUCTURING, THE COMPANY DOES NOT BELIEVE IT WILL BE ABLE
TO SATISFY ITS OBLIGATIONS UNDER THE SENIOR NOTES WITHOUT A REFINANCING OF
THE COMPANY'S INDEBTEDNESS UNDER THE CREDIT AGREEMENT AND/OR THE SENIOR
NOTES OR AN ADDITIONAL CAPITAL INFUSION, AND IT IS UNLIKELY THAT THE
COMPANY WILL BE ABLE TO OBTAIN SUCH REFINANCING OR ADDITIONAL CAPITAL
INFUSION. IF THE COMPANY DETERMINES THAT IT IS OR WILL BE UNABLE TO
COMPLETE THE RESTRUCTURING, THE COMPANY WILL CONSIDER ALL OTHER AVAILABLE
FINANCIAL ALTERNATIVES, INCLUDING THE SALE OF ALL OR A PART OF THE
COMPANY'S BUSINESSES, THE IMPLEMENTATION OF AN ALTERNATIVE RESTRUCTURING
ARRANGEMENT OUTSIDE OF BANKRUPTCY, OR THE COMMENCEMENT OF A CHAPTER 11 CASE
WITHOUT A PRE-BANKRUPTCY ACCEPTED PLAN OF REORGANIZATION. THERE CAN BE NO
ASSURANCE, HOWEVER, THAT ANY ALTERNATIVE WOULD BE ON TERMS AS FAVORABLE TO
NOTEHOLDERS AND STOCKHOLDERS AS THE RESTRUCTURING.
A copy of the Exchange Restructuring Prospectus pursuant to which, if
the Restructuring is consummated, New Common Stock will be issued to
Noteholders is attached hereto as Part A to Annex IV. A copy of the Warrant
Agreement pursuant to which the Warrants would be issued to the
Stockholders upon consummation of the Restructuring is attached hereto as
Annex II. A copy of the Stock Award and Incentive Plan is attached hereto
as Annex III. A copy of the Disclosure Statement with respect to the
Prepackaged Plan is attached hereto as Part B to Annex IV. A copy of the
Prepackaged Plan is attached as Appendix I to Annex IV.
This Proxy Statement/Prospectus also constitutes the Company's
Prospectus, filed with the Securities and Exchange Commission (the
"Commission") as part of a Registration Statement (the "Registration
Statement") on Form S-4 under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the New Common Stock, Warrants and the
Warrant Shares to be issued to Stockholders in the Exchange Restructuring.
The Old Common Stock is currently traded on the New York Stock
Exchange (the "NYSE") and is quoted on the NYSE under the symbol "SLT". On
_____ __, 1998, the closing sale price for the Old Common Stock was $[ ]
per share. The Company expects that the New Common Stock and the Warrants
will be eligible for listing and will be listed for trading on the NYSE.
However, there can be no assurances that the New Common Stock and/or the
Warrants will be listed for trading on the NYSE. If the Company is unable
to have the New Common Stock and Warrants listed for trading on the NYSE
upon consummation of the Restructuring, the Company will use its best
efforts to cause all New Common Stock and Warrants to be quoted on the
National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ") Stock Market or to be listed on
another national securities exchange. However, there is no assurance that
the Company would be successful in such efforts.
THE SOLICITATION PERIOD FOR ACCEPTANCES OF THE PREPACKAGED PLAN WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _________, 1998, UNLESS
EXTENDED (THE "EXPIRATION DATE"). VOTES ON THE PREPACKAGED PLAN MAY BE
REVOKED, SUBJECT TO THE PROCEDURES DESCRIBED HEREIN, AT ANY TIME PRIOR TO
THE EXPIRATION DATE. IF A BANKRUPTCY CASE HAS BEEN COMMENCED, REVOCATIONS
OF SUCH VOTES THEREAFTER MAY BE EFFECTED ONLY WITH THE APPROVAL OF THE
BANKRUPTCY COURT.
The record date for purposes of determining which Stockholders are
eligible to vote on the Prepackaged Plan and at the Stockholders' Meeting
is ________, 1998 (the "Record Date"). Stockholders are not required to
vote at the Stockholders' Meeting in order to vote on the Prepackaged Plan.
It is important that all Stockholders vote to accept or to reject the
Prepackaged Plan because, under the Bankruptcy Code, for purposes of
determining whether the requisite acceptances have been received, only
Stockholders who vote will be counted. Failure by a holder to send a duly
completed and signed Ballot will be deemed to constitute an abstention by
such holder with respect to a vote on the Prepackaged Plan. Abstentions as
a result of not submitting a duly completed and signed Ballot will not be
counted as votes for or against the Prepackaged Plan. Any Ballot which is
executed by a holder but does not indicate an acceptance or rejection of
the Prepackaged Plan will not be counted as a vote for or against the
Prepackaged Plan. See "TENDERING AND VOTING PROCEDURES" in Part A to the
Exchange Restructuring Prospectus, attached hereto as Annex IV and "VOTING
PROCEDURES AND REQUIREMENTS" in Part B thereto.
STOCKHOLDERS WHO COMPLETE A PROXY ("PROXY") WITH RESPECT TO THE
STOCKHOLDERS' MEETING SHOULD ALSO DULY COMPLETE AND SIGN A BALLOT
("BALLOT") IN ORDER TO VOTE ON THE PREPACKAGED PLAN.
BECAUSE NO PREPACKAGED BANKRUPTCY CASE HAS BEEN FILED, NEITHER THIS
PROXY STATEMENT/PROSPECTUS NOR THE DISCLOSURE STATEMENT ATTACHED HERETO
HAVE BEEN APPROVED BY ANY BANKRUPTCY COURT WITH RESPECT TO THE ADEQUACY OF
THE INFORMATION CONTAINED HEREIN OR THEREIN. IF SUCH A CASE IS SUBSEQUENTLY
COMMENCED, THE COMPANY INTENDS TO SEEK AN ORDER OF THE BANKRUPTCY COURT
DETERMINING THAT THE SOLICITATION OF VOTES ON THE PREPACKAGED PLAN BY MEANS
OF THIS PROXY STATEMENT/PROSPECTUS AND THE DISCLOSURE STATEMENT WAS IN
COMPLIANCE WITH SECTION 1126(b) OF THE BANKRUPTCY CODE WHICH PERMITS VOTES
RECEIVED BEFORE THE FILING OF A CHAPTER 11 PETITION TO BE COUNTED FOR
PURPOSES OF CONFIRMATION OF A PLAN IF CERTAIN DISCLOSURE REQUIREMENTS HAVE
BEEN MET.
YOUR BOARD BELIEVES THE EXCHANGE RESTRUCTURING AND THE PREPACKAGED
RESTRUCTURING ARE IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF EACH OF
THE RESTRUCTURING PROPOSALS AND FOR THE ACCEPTANCE OF THE PREPACKAGED PLAN.
ON _________, 1998, AT THE BOARD'S REQUEST, ERNST & YOUNG LLP ("E&Y"),
FINANCIAL ADVISOR TO THE COMPANY, DELIVERED TO THE BOARD A WRITTEN OPINION
THAT, AS OF THAT DATE AND BASED UPON AND SUBJECT TO THE FACTORS AND
ASSUMPTIONS SET FORTH THEREIN, THE CONSIDERATION TO BE RECEIVED BY
STOCKHOLDERS PURSUANT TO THE RESTRUCTURING IS FAIR TO PUBLIC STOCKHOLDERS
FROM A FINANCIAL POINT OF VIEW. E&Y SUBSEQUENTLY DELIVERED TO THE BOARD
THEIR WRITTEN OPINION THAT, AS OF THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS AND BASED UPON AND SUBJECT TO THE FACTORS AND
ASSUMPTIONS SET FORTH THEREIN, THE CONSIDERATION TO BE RECEIVED BY PUBLIC
STOCKHOLDERS PURSUANT TO THE RESTRUCTURING IS FAIR TO PUBLIC STOCKHOLDERS
FROM A FINANCIAL POINT OF VIEW. A COPY OF THE E&Y FAIRNESS OPINION IS
ATTACHED HERETO AS ANNEX I.
This Proxy Statement/Prospectus, the Proxy and the applicable Ballot
and Master Ballot are first being mailed to Stockholders on or about
_________, 1998.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Commission under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities
offered hereby. As permitted by the rules and regulations of the
Commission, this Proxy Statement/Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. Such
additional information, exhibits and undertakings can be inspected at and
obtained from the Commission in the manner set forth below. For further
information with respect to the Company and to the securities offered
hereby reference is made to the Registration Statement, and the financial
schedules and exhibits filed as a part thereof and the exhibits thereto.
Statements contained in this Proxy Statement/Prospectus as to the terms of
any contract or other documents are not necessarily complete and, in each
case, reference is made to the copy of each such contract or other document
that has been filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
The Company is subject to the information and reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and, in accordance therewith, files periodic reports, proxy statements and
other information with the Commission. Such reports and other information
filed by the Company with the Commission, as well as the Registration
Statement and the exhibits thereto, can be inspected and copied at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at the Commission's regional offices located 700
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained by mail from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains an Internet Web Site that
contains reports, proxy and information statements, and other information
regarding the Company and other registrants that file electronically with
the Commission. The address of such site is: http://www.sec.gov. In
addition, the Old Common Stock is listed and traded on the NYSE, and such
reports, proxy statements and other information concerning the Company
should be available for inspection and copying at the New York Stock
Exchange, Inc., 11 Wall Street, New York, New York 10005.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE
SPECIFICALLY REQUESTED), ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED UPON WRITTEN OR ORAL REQUEST DIRECTED TO SALANT CORPORATION,
ATTENTION: TODD KAHN, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY, 1114 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK, 10036;
TELEPHONE NUMBER (212) 221-7500. IN ORDER TO ASSURE TIMELY DELIVERY OF SUCH
DOCUMENTS PRIOR TO THE STOCKHOLDERS' MEETING, ANY REQUEST SHOULD BE
RECEIVED BY __________, 1998. COPIES OF SUCH DOCUMENTS WILL ALSO BE
AVAILABLE UPON REQUEST THEREAFTER UNTIL THE EXCHANGE RESTRUCTURING DATE (AS
HEREINAFTER DEFINED).
No person has been authorized to give any information or to make any
representation in connection with the Restructuring Proposals, the
Restructuring, the Prepackaged Plan or the solicitation of votes for the
Restructuring Proposals or the Prepackaged Plan, other than those contained
in this Proxy Statement/Prospectus and in the exhibits attached hereto or
incorporated by reference or referred to herein. If given or made, such
other information or representation may not be relied upon as having been
authorized by the Company. This Proxy Statement/Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
securities other than those to which it relates, or an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction in
which, or to any person to whom, it is unlawful to make such offer or
solicitation. Neither the delivery of this Proxy Statement/Prospectus nor
any distribution of securities hereunder shall under any circumstances
create any implication that the information contained herein is correct as
of any time subsequent to the date hereof or that there has been no change
in the information set forth herein or in the affairs of the Company since
the date hereof. Any estimates of Claims (as defined herein) and Interests
(as defined herein) set forth in this Proxy Statement/Prospectus may vary
from the final amounts of Claims or Interests allowed by the Bankruptcy
Court.
FORWARD LOOKING INFORMATION
Certain of the financial information contained herein contains
forward-looking statements within the meaning of Section 27A of the
Securities Act. Where any such forward-looking statement includes a
statement of the assumptions or bases underlying such forward-looking
statement, the Company cautions that assumed facts or bases almost always
vary from the actual results, and the differences between assumed facts or
bases and actual results can be material, depending upon the circumstances.
Where, in any forward-looking statement, the Company or its management
expresses an expectation or belief as to future results, there can be no
assurance that the statement of expectation or belief will result or be
achieved or accomplished. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The words "believe," "expect,"
"estimate," "project," "seek," "anticipate" and similar expressions may
identify forward-looking statements.
Taking into account the foregoing, the risk factors set forth in this
Proxy Statement/Prospectus are identified as important factors that could
cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company.
TABLE OF CONTENTS
AVAILABLE INFORMATION......................................................vii
FORWARD LOOKING INFORMATION...............................................viii
INDEX OF CERTAIN DEFINED TERMS..............................................iv
SUMMARY......................................................................1
THE COMPANY..................................................................1
BACKGROUND OF THE RESTRUCTURING..............................................1
THE EXCHANGE RESTRUCTURING AND PREPACKAGED RESTRUCTURING.....................5
SUMMARY DISTRIBUTION TABLE...................................................6
THE EXCHANGE OFFER AND PREPACKAGED PLAN......................................9
COMPARISON OF EXCHANGE RESTRUCTURING AND PREPACKAGED RESTRUCTURING...........9
PURPOSE OF THE RESTRUCTURING................................................10
RISK FACTORS................................................................11
Risk Factors Relating to the Exchange Restructuring and the Prepackaged
Restructuring.........................................................11
Additional Risk Factors Relating to the Prepackaged Restructuring........11
STOCKHOLDERS' MEETING.......................................................12
VOTING PROCEDURES FOR THE PREPACKAGED PLAN..................................15
DESCRIPTION OF WARRANTS.....................................................15
DESCRIPTION OF NEW CREDIT AGREEMENT.........................................16
DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT................................16
DESCRIPTION OF RIGHTS PLAN..................................................17
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION.......................18
CAPITALIZATION..............................................................20
RISK FACTORS................................................................21
Risk of Nonconsummation of the Restructuring.............................21
Company Results of Operations Subject to Variable Influences; Intense
Competition...........................................................21
Dilution.................................................................21
Limitation on Use of Net Operating Losses................................22
Lack of Trading Market for Warrants and New Common Stock; Volatility;
Potential De-Listing of the New Common Stock..........................22
Possible Volatility of Stock Price; Effect of Restructuring on Stock
Price.................................................................22
Concentrated Ownership of New Common Stock...............................22
Absence of and/or Restriction on Dividends...............................23
History of Losses; Effect of Transaction.................................23
Cash Flow From Operations................................................23
Declines in Net Sales and Gross Profits..................................24
Retail Environment.......................................................24
Apparel Industry Cycles and Other Economic Factors.......................24
Seasonality and Fashion Risk.............................................24
Dependence on Certain Customers and Licensees; Effect of Restructuring on
Licenses..............................................................25
Foreign Operations and Sourcing; Import Restrictions.....................25
Dependence on Contract Manufacturing.....................................26
Information Systems and Control Procedures...............................26
Leverage and Debt Service................................................27
Restrictive Covenants....................................................27
Need for Sustained Trade Support.........................................27
BACKGROUND OF RESTRUCTURING.................................................27
Background of the Restructuring..........................................27
The Letter Agreement.....................................................29
The Voting Agreement.....................................................32
The Waiver and Forbearance Under the Credit Agreement....................32
PURPOSE OF THE RESTRUCTURING................................................33
RESTRUCTURING FINANCIAL CONSIDERATIONS......................................34
Fairness Opinion.........................................................35
The Three-Year Business Plan.............................................39
Liquidation Analysis.....................................................39
STOCKHOLDERS' MEETING, VOTING RIGHTS AND PROXIES............................40
Date, Time and Place of Stockholders' Meeting............................40
Solicitation of Proxies; Record Date.....................................40
Purpose of Stockholders' Meeting.........................................41
The Charter Amendment....................................................41
The Issuance.............................................................43
The Stock Award and Incentive Plan.......................................43
Election of the New Board................................................44
Ratification of Appointment of Independent Auditors......................44
Voting of Proxies........................................................45
Voting Rights; Quorum....................................................45
No Dissenters' Rights....................................................45
Revocation of Proxies....................................................45
Prepackaged Plan.........................................................45
DISCUSSION OF THE PROPOSALS.................................................46
The Charter Amendment....................................................46
The Issuance.............................................................48
Stock Award and Incentive Plan...........................................48
Election of the New Board................................................52
CERTAIN CONSEQUENCES OF THE RESTRUCTURING...................................53
DESCRIPTION OF THE EXCHANGE RESTRUCTURING AND THE PREPACKAGED PLAN..........54
MARKET AND TRADING INFORMATION..............................................54
DESCRIPTION OF NEW COMMON STOCK.............................................55
Distributions............................................................55
Voting...................................................................55
Election of Directors....................................................56
Shares Reserved In Connection With the 1993 Chapter 11 Plan..............56
DESCRIPTION OF WARRANTS.....................................................56
General..................................................................56
Adjustments..............................................................57
Amendment................................................................57
Governing Law............................................................57
DESCRIPTION OF NEW CREDIT AGREEMENT.........................................58
DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT................................58
DESCRIPTION OF CERTAIN EXISTING INDEBTEDNESS OF THE COMPANY.................58
General..................................................................59
Credit Agreement.........................................................59
The Senior Notes.........................................................60
DESCRIPTION OF RIGHTS PLAN..................................................61
BUSINESS AND PROPERTIES OF THE COMPANY......................................61
LEGAL PROCEEDINGS...........................................................61
SELECTED HISTORICAL FINANCIAL DATA..........................................61
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.......................62
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION......................62
PROJECTED CONSOLIDATED FINANCIAL INFORMATION................................62
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...............................................................62
OTHER INFORMATION REGARDING THE EXISTING BOARD..............................62
EXECUTIVE OFFICERS..........................................................63
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS................................64
SECURITY OWNERSHIP OF MANAGEMENT............................................64
Beneficial Ownership of Salant Common Stock by Directors and Executive
Officers of the Company...............................................64
Section 16(a) Beneficial Ownership Reporting Compliance..................65
EXECUTIVE COMPENSATION......................................................66
OPTION GRANTS FOR FISCAL 1997...............................................69
OPTION EXERCISES AND VALUES FOR FISCAL 1997.................................69
THE COMPANY'S RETIREMENT PLAN...............................................70
MANAGEMENT..................................................................72
Directors................................................................72
Executive Officers.......................................................74
MANAGEMENT COMPENSATION.....................................................74
Employment Agreements and Change-in-Control Arrangements.................74
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.................76
JOINT REPORT OF THE COMPENSATION AND STOCK PLAN COMMITTEES ON EXECUTIVE
COMPENSATION.............................................................76
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................78
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS...................................78
Federal Income Tax Consequences To Stockholders..........................78
Federal Income Tax Consequences To The Company...........................79
POST RESTRUCTURING STOCK OPTION GRANTS......................................79
Exchange Restructuring...................................................79
Prepackaged Restructuring................................................80
PAYMENTS TO MANAGEMENT......................................................80
ADVISORS AND REPRESENTATIVES................................................80
ESTIMATED FEES AND EXPENSES.................................................81
LEGAL MATTERS...............................................................81
EXPERTS.....................................................................82
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING...............................82
OTHER MATTERS...............................................................82
CONSOLIDATED ANNUAL FINANCIAL STATEMENTS:
Report Of Independent Public Accountants................................F-1
Consolidated Statements of Operations...................................F-2
Consolidated Balance Sheets.............................................F-3
Consolidated Statements of Shareholders
Equity...............................................................F-4
Consolidated Statements of Cash Flows...................................F-5
Notes to Consolidated Financial Statements..............................F-6
CONDENSED CONSOLIDATED INTERIM UNAUDITED FINANCIAL STATEMENTS:
Condensed Consolidated Interim Unaudited
Statements of Operations............................................F-22
Condensed Consolidated Interim Unaudited
Statements of Comprehensive Income..................................F-23
Condensed Consolidated Interim Unaudited
Balance Sheets......................................................F-24
Condensed Consolidated Interim Unaudited
Statements of Cash Flows............................................F-25
Notes to Condensed Consolidated Interim Unaudited
Financial Statements................................................F-26
ANNEX I - E&Y FAIRNESS OPINION...........................................
ANNEX II - WARRANT AGREEMENT..............................................
ANNEX III - STOCK AWARD AND INCENTIVE PLAN.................................
ANNEX IV - EXCHANGE RESTRUCTURING PROSPECTUS..............................
PART A - EXCHANGE RESTRUCTURING PROSPECTUS...........................
PART B - DISCLOSURE STATEMENT........................................
APPENDIX I TO DISCLOSURE STATEMENT - PLAN OF REORGANIZATION..........
EXHIBIT A - WARRANT...........................................
EXHIBIT B - REGISTRATION RIGHTS AGREEMENT.....................
EXHIBIT C - STOCK AWARD AND INCENTIVE PLAN....................
EXHIBIT D - INITIAL BOARD OF REORGANIZED SALANT...............
EXHIBIT E - LIST OF EXECUTORY CONTRACTS TO BE REJECTED........
EXHIBIT F - REORGANIZED SALANT CERTIFICATE OF INCORPORATION...
UNDERTAKINGS..............................................................II-1
INDEX OF CERTAIN DEFINED TERMS
CERTAIN DEFINED TERMS NOT LISTED BELOW MAY BE FOUND ON THE INDEX OF
DEFINED TERMS TO THE DISCLOSURE STATEMENT, ATTACHED HERETO AS PART B TO ANNEX
IV.
As used in this Proxy Statement/Prospectus, the following are the
meanings for the terms set forth below:
"1995 Business Plan"..............means the business plan formulated in
fiscal 1995 to improve the Company's
overall liquidity.
"Apollo"..........................means Apollo Apparel Partners, L.P., a
Delaware limited partnership, in its
capacity as the beneficial owner of
5,924,352 shares of the Old Common Stock.
"Ballots".........................means the forms to be distributed to vote
on the Prepackaged Plan, included
herewith.
"Bankruptcy Code".................means title 11 of the United States Code,
as amended from time to time.
"Bankruptcy Court"................means the United States Bankruptcy Court
for the Southern District of New York.
"Board"...........................means the Board of Directors of the
Company.
"By-Laws".........................means the By-Laws, as amended, of the
Company.
"Certificate of Incorporation"....means the Amended and Restated
Certificate of Incorporation of the
Company.
"Charter Amendment"...............means the proposed Certificate of
Amendment to the Company's Amended and
Restated Certificate of Incorporation, as
more fully described herein.
"CIT".............................means The CIT Group/Commercial Services,
Inc., the lender under the Credit
Agreement.
"Claim"...........................means any right to (a) payment from the
Company, whether or not such right is
reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal,
equitable, secured or unsecured or (b) an
equitable remedy for breach of
performance if such breach gives rise to
a right to payment from the Company,
whether or not such right to an equitable
remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
"Commission"......................means the Securities and Exchange
Commission.
"Company".........................means, unless the context otherwise
requires, Salant Corporation, a Delaware
corporation, and its wholly owned
subsidiaries.
"Credit Agreement"................means the Revolving Credit, Factoring and
Security Agreement, dated as of September
20, 1993, as amended, modified or
supplemented from time to time.
"Deloitte & Touche"...............means Deloitte & Touche LLP, independent
auditors to the Company.
"Depositary"......................means __________, the entity which will
act as agent for the tendering
Noteholders for the purposes of receiving
New Common Stock from the Company and
transmitting such New Common Stock to
tendering Noteholders.
"Disclosure Statement"............means Part B of the Exchange
Restructuring Prospectus, entitled "THE
PREPACKAGED RESTRUCTURING DISCLOSURE
STATEMENT," including the appendices
attached thereto.
"Election of the New Board".......means the election of new directors to
the Board as of the Exchange
Restructuring Date.
"Exchange Act"....................means the Securities Exchange Act of
1934, as amended.
"Exchange Offer"..................means the Company's offer to exchange
shares of New Common Stock for the Senior
Notes pursuant to the terms of the
Exchange Restructuring.
"Exchange Restructuring"..........means the proposed financial
restructuring of the Company, as more
fully set forth herein.
"Exchange Restructuring Date".....means the date of consummation of the
Restructuring.
"Exchange Restructuring
Prospectus".......................means the Prospectus to be delivered to
the Noteholders in connection with the
Exchange Offer and the Prepackaged Plan,
included herein as Part A of Annex IV.
"Exercise Price"..................means $6.2648 per share, subject to
adjustment.
"Expiration Date" ................means, with respect to the Exchange Offer
and the solicitation of acceptances of
the Prepackaged Plan, 5:00 p.m., New York
City time, on ______ __, 1998, unless the
Company, in its sole discretion, extends
the Exchange Offer or solicitation
period, in which case the term
"Expiration Date" for the Exchange Offer
or solicitation period shall mean the
last time and date to which the Exchange
Offer or solicitation period is extended.
"E&Y".............................means Ernst & Young LLP, financial
advisor to the Company in connection with
the Restructuring.
"Fiscal 1997".....................means the fiscal year of the Company for
accounting purposes which ended on
January 3, 1998.
"Forbearance Agreement"...........means the Twelfth Amendment and
Forbearance Agreement, dated as of March
2, 1998, by and between the Company and
CIT, and included as Exhibit 10.43 to the
Company's Registration Statement on Form
S-4 of which this Proxy
Statement/Prospectus is a part.
"GAAP"............................means generally accepted accounting
principles.
"Indenture".......................means the Indenture, dated September 20,
1993, as amended, between the Company and
Bankers Trust Company, as Trustee,
relating to the Senior Notes.
"Interests".......................means the equity interests in the
Company, including, but not limited to,
shares of common stock and shares of
preferred stock of the company and any
options, warrants, calls, subscriptions
or other similar rights or agreements,
commitments or outstanding securities
obligating the Company to issue, transfer
or sell any shares of capital stock of
the Company.
"Issuance"........................means the issuance of (i) the shares of
New Common Stock to the Noteholders in
Exchange for the Senior Notes and to
Stockholders in exchange for their Old
Common Stock; (ii) the Warrants; and
(iii) the shares of New Common Stock to
holders of Warrants upon exercise of
their Warrants, pursuant to the Exchange
Restructuring.
"Letter Agreement"................means that certain letter agreement,
dated March 2, 1998, among Magten, Apollo
and the Company, regarding the basic
terms and conditions of the
Restructuring, and filed as Exhibit 10.42
to the Company's Registration Statement
on Form S-4 of which this Proxy
Statement/Prospectus is a part.
"Letter of Transmittal"...........means the letter of transmittal mailed to
the Stockholders with the Proxy
Statement/Prospectus or to the
Noteholders with the Exchange
Restructuring Prospectus, as applicable.
"Magten"..........................means Magten Asset Management Corp., a
New York corporation, in its capacity as
the beneficial owner, or the investment
manager on behalf of the beneficial
owners, of not less than $70 million in
aggregate principal face amount of the
Senior Notes, as of April 1, 1998.
"Master Ballots"..................means ballots to be voted on behalf of
beneficial owners of Old Common Stock
with respect to the Prepackaged Plan by
such beneficial owners' broker or other
record holder of such shares.
"Minimum Tender Condition"........means the condition to the Exchange Offer
requiring 100% of the aggregate principal
amount of the Senior Notes to be validly
tendered and not withdrawn prior to the
Expiration Date.
"NASD"............................means the National Association of
Securities Dealers, Inc.
"New Common Stock"................means shares of common stock, par value
$1.00 per share, of the Company to be
issued pursuant to the Restructuring.
"New Credit Agreement"............means the agreement in respect of a new
working capital facility to be entered
into by the Company and either CIT or
another working capital lender on the
Exchange Restructuring Date, and which
will replace the Company's current
working capital facility under the Credit
Agreement.
"Noteholders".....................means the holders of the Senior Notes.
"NYSE"............................means the New York Stock Exchange, Inc.
"Old Common Stock"................means the issued and outstanding common
stock, par value $1.00 per share, of the
Company authorized prior to the
Restructuring.
"Old Plans".......................means the Company's 1987 Stock Plan, 1988
Stock Plan, 1993 Stock Plan and 1996
Stock Plan.
"Plan Proposal"...................means the proposal to approve the
adoption of the Stock Award and Incentive
Plan.
"Prepackaged Plan"................means the prepackaged plan of
reorganization of the Company under
Chapter 11 of the Bankruptcy Code
contemplated by the Prepackaged
Restructuring and attached hereto as
Appendix I to Annex IV.
"Prepackaged Restructuring".......means the proposed financial
restructuring of the Company pursuant to
the Prepackaged Plan, as more fully
described herein.
"Proposals".......................means collectively the (A) proposal to
ratify Deloitte & Touche as independent
auditors, (B) the Plan Proposal, and (C)
the Restructuring Proposals.
"Proxy"...........................means the proxy card mailed to
Stockholders together with the Proxy
Statement/Prospectus which also serves as
a Letter of Transmittal for the
Stockholder.
"Proxy Statement/Prospectus"......means the Proxy Statement/Prospectus of
the Company mailed to Stockholders in
connection with the Stockholders'
Meeting.
"Record Date".....................means _____ __, 1998.
"Registration Statement"..........means the Registration Statement on Form
S-4 that the Company filed with the
Commission under the Securities Act, with
respect to the securities offered hereby.
"Reorganized Salant"..............means Salant Corporation, from and after
consummation of the Prepackaged
Restructuring.
"Restructuring"...................means the financial restructuring of the
Company pursuant to either the Exchange
Restructuring or the Prepackaged
Restructuring, as the case may be.
"Restructuring Proposals".........means the proposals of the Board that are
described herein (A) to approve the
Charter Amendment, (B) to approve the
Issuance, and (C) to elect new directors
pursuant to the Election of the New
Board.
"Reverse Split"...................means the ten-to-one reverse stock split
of the Company's common stock to be
effected pursuant to the Charter
Amendment.
"Rights Plan".....................means the shareholder rights plan between
the Company and Chase Manhattan Bank,
N.A., as rights agent dated December 8,
1987, as amended.
"Securities Act"..................means the Securities Act of 1933, as
amended.
"Senior Notes"....................means the 10-1/2% Senior Secured Notes
due December 31, 1998 of Salant that were
issued pursuant to the Indenture.
"Series A Preferred Stock"........means the 50,000 shares of preferred
stock designated as "Series A Junior
Participating Preferred Stock" authorized
pursuant to a resolution adopted by the
Board on December 8, 1987, in connection
with the Rights Plan.
"Solicitation"....................means the solicitation of Stockholders'
acceptances of the Restructuring
Proposals and the Prepackaged Plan, as
contemplated under the Proxy
Statement/Prospectus, or the solicitation
of the Noteholders' acceptances of the
Prepackaged Plan in connection with the
Exchange Offer, as applicable.
"Stock Award and Incentive Plan"..means the Company's 1998 Stock Award and
Incentive Plan, a copy of which is
attached hereto as Annex III.
"Stockholders"....................means the holders of Old Common Stock.
"Stockholders' Meeting" ..........means the Annual Meeting of Stockholders
of the Company to be held on _____ __,
1998 at __:__ _.m., New York City time,
at Fried, Frank, Harris, Shriver &
Jacobson, One New York Plaza, New York,
New York 10004.
"Three-Year Business Plan"........means the Company's Three-Year Operating
Plan for 1998-2000.
"Trustee".........................means Bankers Trust Company, as trustee
under the Indenture.
"Warrants"........................means the Warrants exercisable for shares
of New Common Stock and issued in
accordance with the Warrant Agreement.
"Warrant Agreement"...............means the Warrant Agreement under which
the Warrants will be issued, a copy of
which is attached hereto as Annex II.
"Warrant Shares"..................means shares of New Common Stock issued
to holders of Warrants upon exercise of
their Warrants.
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. Reference is made to, and this summary
is qualified in its entirety by, the more detailed information contained in
this Proxy Statement/Prospectus, the Annexes hereto and the documents
incorporated by reference herein. Stockholders are urged to read this Proxy
Statement/Prospectus and the Annexes hereto in their entirety. References
herein to the "Company" shall, unless the context otherwise requires, refer
to Salant Corporation and its operating subsidiaries.
THE COMPANY
The Company, which was incorporated in Delaware in 1987, is the
successor to a business founded in 1893 and incorporated in New York in
1919. The Company is a leading designer, manufacturer, importer and
marketer of a broad line of men's apparel, neckwear and belts and
children's sleepwear and underwear. The Company's corporate headquarters
are located at 1114 Avenue of the Americas, New York, New York 10036, and
its telephone number is (212) 221-7500. The Company's apparel products are
sold under internationally recognized owned and licensed brand names,
including PERRY ELLIS, MANHATTAN, JOHN HENRY AND JOE BOXER trademarks, as
well as under retailers' private labels. The Company's collection of PERRY
ELLIS menswear which includes collection sportswear, casual and dress
shirts, slacks, jeans, neckwear and belts, is the Company's largest product
offering. In Fiscal 1997, products sold under the PERRY ELLIS, PERRY ELLIS
PORTFOLIO and PERRY ELLIS AMERICA brand names (the "Perry Ellis
Trademarks") represented 44% of the Company's total Fiscal 1997 net sales.
The Company's merchandise is sold throughout the United States to
leading retailers, including Federated Department Stores, Inc., May
Company, Dillards Department Stores, Dayton Hudson, Sears, Roebuck & Co.,
Wal-Mart, and K-Mart. The Company believes its relationships with a wide
variety of leading retailers, design expertise, low-cost manufacturing
operations and sourcing relationships allow it to participate in numerous
areas of the men's apparel industry.
For additional information concerning the Company and its business,
financial position and operations, see "BUSINESS AND PROPERTIES OF THE
COMPANY," "SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" each in Part A to the Exchange Restructuring Prospectus,
attached to this Proxy Statement/Prospectus as Annex IV.
BACKGROUND OF THE RESTRUCTURING
On February 22, 1985, Salant Corporation, a New York corporation
("Salant NY") and its two largest subsidiaries, Thomson Company, Inc.
("Thomson") and Obion Company, Inc. ("Obion"), filed with the Bankruptcy
Court separate voluntary petitions for relief under Chapter 11 of title 11
of the Bankruptcy Code (Case Nos. 85-B-10229 (PBA) through 85-B-10231
(PBA), inclusive). Salant NY's other United States, Canada and Mexico
subsidiaries did not seek relief under the Bankruptcy Code or other foreign
insolvency laws, respectively. On May 19, 1987, the Bankruptcy Court issued
an order confirming the Joint Chapter 11 Plan of Salant NY, Thomson and
Obion (the "1987 Chapter 11 Plan"). The 1987 Chapter 11 Plan was
consummated on June 2, 1987. On June 2, 1987, pursuant to the provisions of
the 1987 Chapter 11 Plan, the assets and liabilities of Salant NY, Thomson
and Obion were substantially consolidated, and Salant NY, Thomson and Obion
and the inactive subsidiaries of Salant NY merged with a wholly-owned
subsidiary of Salant NY. The Company is the surviving corporation of such
merger.
On June 27, 1990, the Company and its wholly-owned subsidiary, Denton
Mills, Inc. ("Denton Mills"), each filed with the Bankruptcy Court a
separate voluntary petition for relief under Chapter 11 of the Bankruptcy
Code (Case Nos. 90-B-12037(CB) and 90-B-12038(CB)) (the "1990 Chapter 11
Case"). On July 30, 1993, the Bankruptcy Court issued an order confirming
the Third Amended Joint Plan of Reorganization of the Company and Denton
Mills (the "1993 Chapter 11 Plan"). The 1993 Chapter 11 Plan was
consummated on September 20, 1993.
Pursuant to the 1993 Chapter 11 Plan, on September 20, 1993, the
Company issued the Senior Notes. While issuance of the Senior Notes
facilitated the Company's emergence from Chapter 11, the Company, as a
result, was capitalized with a significant amount of long-term debt. In
connection with the formulation of the 1993 Chapter 11 Plan, management of
the Company believed that, based upon projected operating results, the
Company would be able to refinance the Senior Notes prior to their final
maturity. The entire aggregate principal amount of the Senior Notes (which
is currently in the aggregate amount of $104.879 million) becomes due on
December 31, 1998. Since emerging from bankruptcy in September 1993, the
Company has from time to time explored various strategies regarding its
overall business operations and, in particular, various possible
transactions that would result in a refinancing of its long-term debt
obligations. In this connection, during the period from the beginning of
Fiscal 1997 through the date of this Proxy Statement/Prospectus, including
since the announcement of the proposed Restructuring on March 3, 1998, the
Company has from time to time received informal indications of interest
from various third parties to purchase all or a portion of the Company's
businesses or assets. During this period, the Company's refinancing efforts
have been significantly hampered by its inconsistent operating results and
the fact that investors in the marketplace generally do not look favorably
upon investing in highly-leveraged apparel companies.
In the latter half of Fiscal 1997, the Company, working with the
Company's various investment banking firms, the Board and management
analyzed and assessed its financial situation and explored the availability
of capital in both the private and public debt and equity markets for the
purpose of recapitalizing the Company. The investment banking firms advised
the Company that they did not believe that the Company could recapitalize
by use of the capital markets, in light of the Company's past inconsistent
operating performance, together with the reluctance of investors to invest
in apparel companies suffering from high debt-to-equity ratios.
The Company's unfavorable operating results continued throughout the
fourth quarter of Fiscal 1997. Net sales for the fourth quarter of Fiscal
1997 were $116.4 million, a 1.1% increase from the comparable quarter in
1996, however, the Company's net losses amounted to $5.6 million (as
compared to a net income of $6.1 million in 1996), and the loss from
continuing operations before interest, income taxes and extraordinary gain
was $2.4 million (as compared to $10.6 million of income from continuing
operations before interest and income taxes for the same quarter of 1996).
These results heightened the Company's concern that, absent a restructuring
or other extraordinary transaction, it would be difficult for the Company
to make the principal payment under its Senior Notes due on December 31,
1998 of $104.879 million. Moreover, during the fourth quarter of Fiscal
1997, the Company closed 42 of its retail outlets (representing all retail
outlets other than the PERRY ELLIS outlet stores), determined to close one
of its distribution centers and changed the sourcing of a portion of its
PERRY ELLIS product line. While these changes were essential to streamline
the Company by eliminating non-core businesses and correcting certain
operational issues, these actions had a detrimental effect on the Company's
earnings and profitability in Fiscal 1997. As a result, heading into fiscal
year 1998, the Company was concerned that, in light of its inconsistent
operating performance and the Company's inability to access the capital
markets in order to refinance or retire its indebtedness under the Senior
Notes, the Company's ability to maintain the support and confidence of its
trade vendors was at risk. In that connection, the Company, in consultation
with its financial advisors, decided that it needed to immediately address
the Company's high level of indebtedness in order to avoid any permanent
adverse effects on its business operations, future productivity and growth
potential. In addition, as a result of the Company's performance during
Fiscal 1997, as of January 3, 1998, the Company had failed to meet certain
of the financial covenants contained in the Credit Agreement (the "CIT
Financial Covenants"). In this connection, the Company reviewed the
advisability of making the $5.5 million interest payment on the Senior
Notes due and payable on March 2, 1998 with a view towards maximizing
liquidity in order to appropriately fund operations during the pendency of
the restructuring transactions. Commencing in December 1997, the Company
began discussions with CIT regarding a possible restructuring of the
Company's indebtedness under the Senior Notes (including various issues
relating to the Company's failure to meet the CIT Financial Covenants and
the upcoming March 1998 interest payment on the Senior Notes). The Company
believed that, given the potential instability that is associated with any
restructuring process, it would be most productive to adopt a strategy to
maximize liquidity and thereby protect the total enterprise value of the
Company. The Company also concluded that the Noteholders and the
Stockholders would best be served by converting the Senior Notes into
equity of the Company, thus allowing the Company to eliminate a significant
portion of its debt and substantially improve its balance sheet.
In furtherance of the Company's continuing efforts to deleverage, the
Company approached Magten to discuss the possible terms and conditions of a
restructuring of the indebtedness under the Senior Notes, including the
Senior Notes held by Magten (the "Magten Notes"). In addition, in
connection with the Company's efforts to restructure, the Company developed
the Three-Year Business Plan. See RESTRUCTURING FINANCIAL CONSIDERATIONS --
"The Three-Year Business Plan." During the months of January and February
1998, the Company continued to actively discuss a restructuring of the
Company with Magten and Apollo, the beneficial owner of 5,924,352 shares
(the "Apollo Shares") of Old Common Stock, representing approximately 39.6%
of the issued and outstanding shares. During this period, the Company
continued its negotiations with CIT to ensure its support of the
Restructuring. These efforts culminated in the Letter Agreement.
In connection with the discussions concerning the Restructuring by the
parties, and in order to determine the allocation of the equity of the
Company among the Stockholders and Noteholders upon consummation of the
Restructuring, the parties assumed a total enterprise value for the Company
of $185 million. The parties also assumed that the average outstanding
balance under the Company's working capital facility for the
post-restructured Company would be $60 million. Thus, the total net equity
value of the Company, after giving effect to the Restructuring, was assumed
to be $125 million. Neither the Company, Magten nor Apollo has expressed
any opinion as to the accuracy of any of the foregoing assumptions,
including, without limitation, the total enterprise value of the Company.
Such assumptions were made solely for purposes of allocating the equity of
the Company post-Restructuring among the Noteholders and Stockholders
pursuant to the Restructuring and should not in any way be viewed as
indicative of any party's opinion as to the total enterprise value of the
Company.
As a result of the foregoing assumptions and calculations, the parties
agreed in the Letter Agreement that they would each support the
Restructuring (subject to certain conditions), pursuant to which (i)
Noteholders would receive 92.5% of the New Common Stock, which value would
imply a distribution of equity to Noteholders valued at $110 million after
giving effect to the conversion of the Senior Notes and after taking into
consideration the value of the Warrants as determined below (which is
approximately the aggregate outstanding amount under the Senior Notes -
i.e., $104.879 million in aggregate principal amount and $5.5 million in
accrued and unpaid interest as of March 2, 1998); and (ii) Stockholders
would receive (a) 7.5% of the New Common Stock, which value would imply a
distribution of equity to Stockholders valued at $8.9 million after taking
into consideration the value of the Warrants as determined below, and (b)
seven year Warrants representing the right to purchase 10% of the New
Common Stock (on a fully diluted basis). Using the Black-Scholes option
pricing formula, which incorporates such factors as the relationship of the
underlying stock's price to the strike price of the Warrants and the time
remaining until the Warrants expire, a value of $6.1 million is implied for
the Warrants.
On March 2, 1998, Magten, Apollo and the Company entered into the
Letter Agreement setting forth the basic terms and conditions of the
Restructuring. Pursuant to the Letter Agreement, the parties agreed, among
other things, to support the Restructuring on the following terms: (i) the
entire $104.879 million outstanding aggregate principal amount of, and all
accrued and unpaid interest on, the Senior Notes would be converted into
92.5% of the Company's issued and outstanding New Common Stock, subject to
dilution for shares of New Common Stock issued under the Stock Award and
Incentive Plan, the Warrant Shares, and in the case of the Exchange
Restructuring only, the shares of New Common Stock issued under the Old
Plans, (ii) the Old Common Stock would be converted into 7.5% of the
Company's issued and outstanding New Common Stock, subject to dilution for
shares of New Common Stock issued under the Stock Award and Incentive Plan and
the Warrant Shares and, in the case of the Exchange Restructuring only, the
shares of New Common Stock issued under the Old Plans, plus Stockholders
would receive seven year Warrants to purchase up to 10% of the Company's
New Common Stock, on a fully diluted basis. In addition, pursuant to the
Letter Agreement and in order to effect the Restructuring, the Company
agreed to (a) effectuate the Reverse Split in order to "normalize" the
post-restructuring trading of the New Common Stock by reducing the number
of outstanding shares and, thus, increasing the per share stock price; (b)
elect a new Board, consisting of between five and seven members and
comprised of Mr. Jerald Politzer, as Chairman, between three and five
members nominated by Magten, subject to consultation with the Company and
other Noteholders who may come forward, and one member nominated by the
current Board; (c) enter into a registration rights agreement for the
benefit of Noteholders who will hold 10% or more of the New Common Stock
immediately after the occurrence of the Exchange Restructuring Date, on
terms and conditions reasonably acceptable to Magten and the Company; (d)
enter into a New Credit Agreement to replace the Company's existing working
capital facility under the Credit Agreement on terms and conditions
reasonably satisfactory to Magten and Apollo; (e) adjust all existing stock
options and other equity based plans to reflect the Restructuring and/or
adopt the Stock Award and Incentive Plan; and (f) amend the Company's
existing Rights Plan to permit the Restructuring to be consummated without
causing any rights thereunder to become exercisable as a result. Pursuant
to the Letter Agreement, Magten agreed, among other things, to tender (or
with respect to managed accounts, use its reasonable best efforts to cause
to be tendered) all of the Magten Notes in acceptance of the Exchange
Offer, provided that certain conditions were satisfied, including that (i)
all applicable federal and state securities laws are complied with, and
(ii) the terms of the Exchange Offer and the remaining components of the
Restructuring are consistent with the terms of the Exchange Offer and
Restructuring as described in the Letter Agreement. In accordance with the
Letter Agreement, Magten has, in accordance with Section 6.5 of the
Indenture, caused a written direction to be provided to the Trustee to
forbear during the term of the Letter Agreement from taking any action
under the Indenture in connection with the failure by the Company to make
the interest payment on the Senior Notes that was due and payable on March
2, 1998.
CIT agreed to support the Company's restructuring efforts under the
Letter Agreement and, on March 2, 1998, the Company entered into the
Forbearance Agreement with CIT, wherein CIT (i) waived certain existing
financial covenant defaults under the Credit Agreement as of January 3,
1998, (ii) agreed to forbear until July 1, 1998 from exercising any of its
rights and remedies under the Credit Agreement arising from the Company's
failure to make the interest payment on the Senior Notes due and payable on
March 2, 1998, (iii) agreed to continue making loans, advances and other
financial accommodations to the Company, subject to the terms and
conditions of the Forbearance Agreement, and (iv) agreed to amend certain
provisions of the Credit Agreement, including an increase in the advance
rate for revolving loans made pursuant to the Credit Agreement. In
consideration for CIT's entering into the Forbearance Agreement, the
Company agreed to pay CIT certain fees. See "BACKGROUND TO THE
RESTRUCTURING -- The Waiver and Forbearance Under the Credit Agreement."
Under the Forbearance Agreement, such agreement to forbear by CIT will
terminate on July 1, 1998 or earlier upon the happening of: (a) the
occurrence of any Event of Default (as defined in the Credit Agreement)
(other than the Company's failure to make the March 2, 1998 interest
payment on the Senior Notes); (b) the failure of the Company to execute and
deliver to CIT before June 1, 1998, (i) a commitment letter executed by CIT
providing for the agreement between CIT and the Company to enter into a new
$135 million syndicated credit facility (in replacement of the financing
and factoring arrangements provided by CIT pursuant to the Credit
Agreement) on terms and conditions satisfactory to CIT or (ii) a copy of a
commitment letter executed between another lender and the Company providing
for a credit facility to the Company which by its terms provides for
closing and funding thereof on or before July 1, 1998, and enabling the
Company upon such closing and funding to simultaneously terminate the
Credit Agreement and all other Financing Agreements (as defined in the
Credit Agreement) and to satisfy in full all of its then existing
Obligations (as defined in the Credit Agreement) to CIT; (c) the exercise
of any right or remedy with respect to any of the Collateral (as defined in
the Credit Agreement) by any holder of any Senior Notes or by the Trustee
under the Indenture; or (d) the payment of any interest on the Senior Notes
in respect of the Company's failure to make the March 2, 1998 interest
payment or otherwise.
In accordance with the Letter Agreement, Apollo entered into a Voting
Agreement with the Company on May __, 1998, pursuant to which Apollo has
agreed to vote all of the Apollo Shares in favor of each of the
Restructuring Proposals and the Solicitation. See "BACKGROUND OF THE
RESTRUCTURING -- The Voting Agreement." The Company's refinancing efforts
during Fiscal 1997 included discussions with DDJ Capital Management, LLC
("DDJ") regarding a possible refinancing transaction. As of April 20, 1998,
DDJ was the beneficial owner of 1,615,730 shares of Old Common Stock which
represents approximately 10.8% of the issued and outstanding shares of Old
Common Stock. In connection with these discussions, DDJ entered into a
confidentiality agreement (the "DDJ Confidentiality Agreement") with the
Company relating to DDJ's review of various materials relative to such
proposed refinancing. The DDJ Confidentiality Agreement contained certain
restrictions on the ability of DDJ to buy or sell shares of Old Common
Stock. In accordance with the terms of the Letter Agreement, the Company
requested that DDJ enter into a voting agreement with the Company similar
to the Voting Agreement entered into with Apollo. DDJ, however, has
informed the Company that it does not wish to enter into such a voting
agreement. In addition, on or about March 3, 1998, DDJ requested that the
Company terminate the restrictions on DDJ's ability to buy or sell shares
of Old Common Stock set forth in the DDJ Confidentiality Agreement. On
March 4, 1998, the Company granted this request by DDJ.
THE EXCHANGE RESTRUCTURING AND PREPACKAGED RESTRUCTURING
Consideration Offered:
To Stockholders...............For each share of Old Common Stock,
Stockholders will be entitled to receive upon
exchange (i) a certificate for one-tenth of one
share of New Common Stock reflecting the
ten-to-one reverse stock split (the "Reverse
Split") and (ii) certificates for .14814815
Warrants. Each Warrant shall be exercisable
for one share of New Common Stock. The
Stockholders currently own 100% of the common
equity of the Company in the form of the Old
Common Stock. As of March 16, 1998, there were
14,964,608 shares of Old Common Stock issued
and outstanding. Assuming all of the
conditions to the Restructuring are fulfilled,
the Exchange Restructuring will result in the
Stockholders receiving, in exchange for their
shares of Old Common Stock, an aggregate of
1,496,461 shares of New Common Stock after
giving effect to the Reverse Split,
constituting 7.5% of the New Common Stock
issued and outstanding immediately following
consummation of the Exchange Restructuring
(subject to dilution for shares of New Common
Stock issued under the Stock Award and
Incentive Plan, the Warrant Shares, and in the
case of the Exchange Restructuring only, shares
of New Common Stock issued under the Old
Plans). In addition, the Stockholders will
receive, the Warrants, which represent the
right to purchase up to 10% of the New Common
Stock issued and outstanding immediately
following consummation of the Exchange
Restructuring (on a fully diluted basis). The
Warrants would be exercisable for seven years
from the date of the Exchange Restructuring and
would be issued with an exercise price of
$6.2648 per share, subject to adjustment.
Should the Prepackaged Restructuring be
consummated, the Stockholders will receive the
same consideration as the Stockholders would
receive in the Exchange Restructuring.
To Noteholders................For each $1,000 principal amount of Senior
Notes (plus accrued but unpaid interest),
Noteholders will receive 175.977555 shares of
New Common Stock. As a result of the Exchange
Restructuring, as of the Exchange Restructuring
Date, Noteholders will receive, in the
aggregate, shares of New Common Stock
equivalent to 92.5% of the New Common Stock
issued and outstanding immediately following
consummation of the Exchange Restructuring,
based on the number of outstanding shares of
Old Common Stock as of the Record Date, and
subject to dilution for shares of New Common
Stock issued under the Stock Award and
Incentive Plan, the Warrants Shares, and in the
case of the Exchange Restructuring only, shares
of New Common Stock issued under the Old
Plans. The allocations of distributions of the
New Common Stock under the Exchange
Restructuring to the Noteholders will be pro
rata based on the amount of the Noteholders'
respective claims relating to the Senior Notes
held by them. Noteholders will not be entitled
to receive Warrants. Should the Prepackaged
Restructuring be consummated, the Noteholders
will receive the same consideration as the
Noteholders would receive in the Exchange
Restructuring.
SUMMARY DISTRIBUTION TABLE
NEW
EXISTING COMMON
SECURITY STOCK WARRANTS
--------- ------- --------
To Stockholders:
Per 1,000 Shares......... 1,000 100 .14814815
In Aggregate............. 14,964,608 1,496,461 2,216,979
To Noteholders:
Per $1,000 Principal
Face Amount of, and all $1,000 175.977555 --
accrued and unpaid
interest through the
Exchange Restructuring
Date on, the Senior
Notes...................
In Aggregate............ $104,879,000 18,456,350 --
For more information on consideration offered pursuant to the
Restructuring, see the Exchange Restructuring Prospectus, attached hereto
as Annex IV.
Expiration Date...............With respect to the Exchange Restructuring and
the solicitation of acceptances of the
Prepackaged Plan, the term "Expiration Date"
shall mean 5:00 p.m., New York City time, on
________, 1998, unless the Company, in its sole
discretion, extends the Exchange Restructuring
or solicitation period, in which case the term
"Expiration Date" for the Exchange
Restructuring or solicitation period shall mean
the last time and date to which the Exchange
Offer or solicitation period is extended. See
"TENDERING AND VOTING PROCEDURES" in Part A to
the Exchange Restructuring Prospectus, attached
hereto as Annex IV, and "VOTING PROCEDURES AND
REQUIREMENTS" in Part B to the Exchange
Restructuring Prospectus, attached hereto as
Annex IV.
Old Common Stock..............As of the Record Date, there were 30,000,000
shares of Old Common Stock authorized for
issuance, of which 14,964,608 shares were
issued and outstanding (or 1,496,461 shares of
New Common Stock after the giving effect to the
Reverse Split). As part of the Exchange
Restructuring, Stockholders will be asked to
consider and approve the Charter Amendment, the
Issuance, the Stock Award and Incentive Plan
and to elect new directors pursuant to the
Election of the New Board. If the Stockholders
approve the Stock Award and Incentive Plan, the
Stock Award and Incentive Plan will become
effective regardless of whether the Exchange
Restructuring is implemented or any of the
Restructuring Proposals are approved. However,
the approval of the Stock Award and Incentive
Plan is not a condition to the consummation of
the Restructuring. If the Prepackaged
Restructuring is consummated, the Company
expects that each of the Restructuring
Proposals will be implemented pursuant to the
Prepackaged Plan. See "STOCKHOLDERS' MEETING"
and "DISCUSSION OF THE PROPOSALS."
Conditions to Exchange
Restructuring.................The Company's obligation to accept Senior
Notes tendered pursuant to the Exchange
Restructuring is conditioned, among other
things, on (a) the Minimum Tender Condition,
(b) approval by the Stockholders of each of
the Restructuring Proposals, and (c)
obtaining the waiver of certain provisions
under the Company's licensing agreements with
certain licensors to the Company, including,
but not limited to, the Walt Disney Company
and Perry Ellis International, Inc., and any
other consents or waivers that the Company
determines are necessary to effectuate the
terms and conditions of the Exchange
Restructuring. The Company has reserved the
right to waive or seek the waiver of any one
or more of these conditions but does not
currently intend to waive or seek the waiver
of any condition. Pursuant to the Letter
Agreement, Magten's prior written consent is
required for the Company to waive the Minimum
Tender Condition. If any or all of the
Restructuring Proposals are not approved by
the Stockholders at the Stockholders' Meeting
and/or the Minimum Tender Condition is not
satisfied or waived, but the Company receives
sufficient acceptances of the Prepackaged
Plan to obtain confirmation thereof by the
Bankruptcy Court, then the Company intends to
pursue confirmation of the Prepackaged Plan
under Chapter 11 of the Bankruptcy Code and
to attempt to use such acceptances to obtain
confirmation of the Prepackaged Plan. See
"TENDERING AND VOTING PROCEDURES" in Part A
to the Exchange Restructuring Prospectus,
attached hereto as Annex IV.
Conditions to Prepackaged
Restructuring.................The Bankruptcy Code requires that the
Bankruptcy Court determine that the Prepackaged
Plan complies with the requirements of Section
1129 of the Bankruptcy Code. Approval of
two-thirds of the principal amount and a
majority in number of the Noteholders voting on
the Prepackaged Plan is required for the
consummation of the Prepackaged Restructuring.
See "SUMMARY OF THE PLAN" in Part B to the
Exchange Restructuring Prospectus, attached
hereto as Annex IV.
Certain Federal Income Tax
Considerations................In general, the receipt of New Common Stock and
Warrants by Stockholders pursuant to the
Restructuring will not be a taxable event.
Subject to certain exceptions described herein
(see "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS"), the Company will realize
cancellation of indebtedness income for Federal
income tax purposes as a result of the
Restructuring if the fair market value of the
New Common Stock received by Noteholders
pursuant to the Restructuring is less than the
adjusted issue price (including any accrued but
unpaid interest) of the Senior Notes. The
Company has approximately $55 million of
operating losses and net operating loss
carryovers ("NOLs") which are available to
offset any such cancellation of indebtedness
income that may be recognized. In the event
that the Restructuring is consummated by means
of the Prepackaged Restructuring, such
cancellation of indebtedness income would not
be included in income for Federal income tax
purposes. As a result of the Restructuring,
the Company will undergo an "ownership change"
for Federal income tax purposes and will be
limited in its ability to use its NOLs and
certain tax credit carryforwards to offset
future taxable income. See "CERTAIN FEDERAL
INCOME TAX CONSIDERATIONS."
Shareholder Rights Plan.......The Rights Plan provides for a dividend
distribution of one right (collectively, the
"Rights") for each share of Old Common Stock to
holders of record of the Old Common Stock at
the close of business on December 23, 1997.
With certain exceptions, the Rights will become
exercisable only in the event that an acquiring
party accumulates 20% or more of the Company's
voting stock, or if a party announces an offer
to acquire 30% or more of such voting stock.
In order to effectuate the terms of the
Restructuring, on [__________], 1998, the
Rights Plan was amended to provide that the
Rights expire immediately prior to the
consummation of the Restructuring. See "RIGHTS
PLAN" in Part A to the Exchange Restructuring
Prospectus, attached hereto as Annex IV.
Market and Trading Information:
Senior Notes..................The Senior Notes are traded in the
over-the-counter market by certain dealers who
from time to time are willing to make a market
in such securities. Trading of the Senior
Notes is, however, limited, and prices and
trading volumes are not reported and are
difficult to monitor. See "MARKET PRICES OF
SENIOR NOTES" in Part A to the Exchange
Restructuring Prospectus, attached hereto as
Annex IV.
Old Common Stock..............The Old Common Stock is currently traded on the
NYSE and is quoted on the NYSE under the symbol
"SLT." See "MARKET PRICES OF OLD COMMON STOCK"
in Part A to the Exchange Restructuring
Prospectus, attached hereto as Annex IV.
New Common Stock..............The Company expects that the New Common Stock
will be eligible for listing and will be listed
for trading on the NYSE. However, there can be
no assurance that the New Common Stock will be
listed for trading on the NYSE. If the Company
is unable to have the New Common Stock listed
for trading on the NYSE upon consummation of
the Restructuring, the Company will use its
best efforts to cause all New Common Stock to
be quoted on the National Market System of
the NASDAQ Stock Market or to be listed on
another national securities exchange.
However, there is no assurance that the
Company would be successful in such efforts.
See "RISK FACTORS -- Lack of Trading Market
for Warrants and New Common Stock;
Volatility; Potential De-Listing of the New
Common Stock."
Warrants and Warrant Shares...Application will be made to list the Warrants
and the Warrant Shares for trading on the
NYSE. There can be no assurance that such
application will be approved or that an active
market for the Warrants or the Warrant Shares
will develop or as to the prices at which they
might be traded. If the Company is unable to
have the Warrants or the Warrant Shares listed
for trading on the NYSE upon consummation of
the Restructuring, the Company will use its
best efforts to cause the Warrants and/or the
Warrant Shares to be quoted on the National
Market System of NASDAQ or to be listed on
another national securities exchange. However,
there is no assurance that the Company would be
successful in such efforts. See "RISK
FACTORS -- Lack of Trading Market for Warrants
and New Common Stock; Volatility; Potential
De-Listing of the New Common Stock."
Post-Restructuring Board......Each of the existing members of the Board has
delivered to the Company a resignation letter
resigning from the Board effective as of the
Exchange Restructuring Date. In accordance
with the Company's Certificate of
Incorporation, by resolution of the Board, the
number of directors has been fixed at
[___________] effective as of the Exchange
Restructuring Date. As provided for in the
Letter Agreement, the new Board will consist
of: (i) Mr. Jerald Politzer, the Chairman of
the Board; (ii) between three and five members
to be nominated by Magten, subject to
consultation with the Company and other
Noteholders who may come forward prior to the
commencement of the Solicitation; and (iii) one
member designated by the current Board. As
described above, as contemplated by the Letter
Agreement, it is expected that Magten will
provide the Company with its Board nominees
prior to the commencement of the Solicitation.
In addition, the current Board has designated
Marvin Schiller to be the current Board's
nominee to the new Board. See "INFORMATION
REGARDING NOMINEES."
Depositary/Warrant
Agent.........................[ ] has been appointed as Depositary
with respect to the Old Common Stock for the
Restructuring (the "Depositary") and as voting
agent for the tabulation of proxies with
respect to the Stockholders' Meeting and
Ballots and Master Ballots from the
Stockholders with respect to the Prepackaged
Plan and as Warrant Agent with respect to the
Warrants. Questions and requests for
assistance may be directed to the Depositary at
one of its addresses and telephone numbers set
forth on the back cover of this Proxy
Statement/Prospectus. See "ADVISORS AND
REPRESENTATIVES."
Information Agent.............[ ] is serving as Information Agent
in connection with the Stockholders' Meeting
and the solicitation of acceptances of the
Prepackaged Plan (the "Information Agent").
Any questions regarding how to vote at the
Stockholders' Meeting and on the Prepackaged
Plan, and any requests for additional copies of
the Proxy Statement/Prospectus, Letters of
Transmittal, Proxies, Ballots or Master Ballots
should be directed to the Information Agent at
its address and telephone number set forth on
the back cover of this Proxy
Statement/Prospectus. See "ADVISORS AND
REPRESENTATIVES."
THE EXCHANGE OFFER AND PREPACKAGED PLAN
See "THE EXCHANGE OFFER AND PREPACKAGED PLAN" in Part A to the
Exchange Restructuring Prospectus, attached hereto as Annex IV.
COMPARISON OF EXCHANGE RESTRUCTURING
AND PREPACKAGED RESTRUCTURING
See "COMPARISON OF EXCHANGE RESTRUCTURING AND PREPACKAGED
RESTRUCTURING" in Part A to the Exchange Restructuring Prospectus, attached
hereto as Annex IV.
STOCKHOLDERS WHO COMPLETE A PROXY WITH RESPECT TO THE STOCKHOLDERS'
MEETING SHOULD ALSO DULY COMPLETE AND SIGN A BALLOT IN ORDER TO VOTE ON THE
PREPACKAGED PLAN.
PURPOSE OF THE RESTRUCTURING
The purpose of the Restructuring is to help ensure the long-term
viability and to contribute to the success of the Company by deleveraging
the Company's capital structure. Specifically, in accordance with the
Three-Year Business Plan developed by the Company, the Restructuring is
designed to recapitalize the Company by converting all of the Company's
long-term debt obligations under the Senior Notes (which, as of March 2,
1998, was $110.379 million, consisting of $104.879 million of principal
amount, and $5.5 million of accrued interest on, the Senior Notes) into New
Common Stock. Interest charges for the Company should be substantially
reduced and stockholders' equity should be substantially increased as a
result of the Restructuring. Upon consummation of the Restructuring, the
Company will not have any long-term debt, other than the term loan portion
of its working capital facility. This significantly lower debt-to-equity
ratio should help the Company to achieve the objectives as described in the
Three-Year Business Plan and make the Company more attractive to investors.
The Company believes that by reducing the uncertainty surrounding its
ability to pay or retire the Senior Notes which are due in their entirety
on December 31, 1998, the Restructuring should maximize liquidity for the
Company's business operations and thereby provide a platform for future
growth and enhance the Company's total enterprise value. The Company
further believes that by providing the Company with a deleveraged capital
structure, the company that results from the Restructuring should be
positioned favorably to withstand the normal market fluctuations in the
highly volatile apparel industry.
In addition, in contemplation of the Restructuring, the Company
elected not to pay the interest payment of approximately $5.5 million that
was due and payable under the Senior Notes on March 2, 1998, subject to a
30 day grace period. Because the Company elected not to pay the interest
due on the Senior Notes by the expiration of the applicable grace period,
an event of default has occurred with respect to the Senior Notes entitling
the Noteholders to accelerate the maturity thereof. Pursuant to the Letter
Agreement, Magten has, in accordance with Section 6.5 of the Indenture,
caused a written direction to be provided to the Trustee to forbear during
the term of the Letter Agreement from taking any action under the Indenture
in connection with the failure by the Company to make the interest payment
on the Senior Notes that was due and payable on March 2, 1998. On April 8,
1998, the Trustee issued a Notice of Default stating that as a result of
the Company's failure to make the interest payment due on the Senior Notes,
an event of default under the Indenture had occurred on April 1, 1998.
Holders of at least 25% in the aggregate principal face amount of the
Senior Notes may accelerate all outstanding indebtedness under the Senior
Notes pursuant to the terms of the Indenture. If such holders accelerate
the indebtedness under the Senior Notes, the Company may be required to
commence a proceeding under Federal bankruptcy law without having solicited
acceptances for the Prepackaged Plan prior to the commencement of such
proceeding. In addition, the Company's working capital lender, CIT, agreed
to forbear until July 1, 1998, subject to certain conditions, from
exercising any of its rights or remedies under the Credit Agreement,
arising by virtue of the Company's failure to pay such interest on the
Senior Notes. Failure to consummate the Restructuring could result in the
acceleration of all of the indebtedness under the Senior Notes and/or the
Credit Agreement.
ABSENT THE RESTRUCTURING, THE COMPANY DOES NOT BELIEVE IT WILL BE ABLE
TO SATISFY ITS OBLIGATIONS UNDER THE SENIOR NOTES WITHOUT A REFINANCING OF
THE COMPANY'S INDEBTEDNESS UNDER THE CREDIT AGREEMENT AND/OR THE SENIOR
NOTES OR AN ADDITIONAL CAPITAL INFUSION, AND IT IS UNLIKELY THAT THE
COMPANY WILL BE ABLE TO OBTAIN SUCH REFINANCING OR ADDITIONAL CAPITAL
INFUSION. IF THE COMPANY DETERMINES THAT IT IS OR WILL BE UNABLE TO
COMPLETE THE RESTRUCTURING, THE COMPANY WILL CONSIDER ALL OTHER AVAILABLE
FINANCIAL ALTERNATIVES, INCLUDING THE SALE OF ALL OR A PART OF THE
COMPANY'S BUSINESSES, THE IMPLEMENTATION OF AN ALTERNATIVE RESTRUCTURING
ARRANGEMENT OUTSIDE OF BANKRUPTCY, OR THE COMMENCEMENT OF A CHAPTER 11 CASE
WITHOUT A PRE-BANKRUPTCY ACCEPTED PLAN OF REORGANIZATION. THERE CAN BE NO
ASSURANCE, HOWEVER, THAT ANY ALTERNATIVE WOULD BE ON TERMS AS FAVORABLE TO
NOTEHOLDERS AND STOCKHOLDERS AS THE RESTRUCTURING.
For additional information on the purposes and effects of the
Restructuring, see "PURPOSE OF THE RESTRUCTURING."
RISK FACTORS
Under the Restructuring, the Stockholders would give up their shares
of Old Common Stock in exchange for New Common Stock and Warrants. There
are certain risks associated with the holding of New Common Stock and
Warrants. Prior to deciding whether to (a) vote on the Restructuring
Proposals and/or (b) vote on the Prepackaged Plan, each Stockholder should
carefully consider all of the information contained in this Proxy
Statement/Prospectus, especially the factors outlined below and described
under "RISK FACTORS."
RISK FACTORS RELATING TO THE EXCHANGE RESTRUCTURING
AND THE PREPACKAGED RESTRUCTURING
Stockholders should consider that (a) in the event that, for any
reason, the Restructuring is not consummated, the Noteholders may
accelerate the outstanding indebtedness under the Senior Notes, (b) upon
completion of the Restructuring, the issuance of the New Common Stock will
result in significant dilution of the existing equity interests of the
Stockholders represented by the Old Common Stock, (c) there can be no
assurances that an active market for the Warrants or the New Common Stock
will develop, continue to exist, or the price of the Warrants or the New
Common Stock will not be volatile, (d) the Company is currently highly
leveraged and, once the Restructuring is consummated, the Company will have
long-term indebtedness outstanding under the term loan portion of the
Company's working capital facility, (e) economic, market or other
conditions (including, but not limited to, the volatility of the men's
apparel industry) have affected the Company's historical performance and
may adversely affect cash flow, sales and profits in the future and there
can be no assurance that such conditions will not adversely affect the
Company's ability to meet its financial projections developed from the
Three-Year Business Plan, (f) market forces, such as interest rates, affect
the value of securities and are influenced by conditions beyond the
Company's control, (g) the Company's capital expenditure levels assumed in
preparation of the projected financial data contained herein may be
inadequate to maintain the Company's long-term competitive position, (h)
the Company is restricted in its ability, among other restrictions under
the Credit Agreement, to declare and pay cash dividends on its common
equity, and those and other restrictions should continue after consummation
of the Exchange Restructuring under the New Credit Agreement, (i) if
certain of the major suppliers, licensors, manufacturers and vendors that
the Company currently deals with were to change the terms or credit limits
or product availability that it currently extends to the Company, it could
have a significant negative impact on the Company's sales, cash position
and liquidity, (j) the Company is subject to the risk of increased
competition, which could affect its sales volume, pricing and margins, (k)
there are certain Federal income tax considerations with respect to the
Restructuring, including the Company's net operating loss carryovers being
reduced or subject to limitations on use, although such reduction or
limitation would be greater under the Exchange Restructuring than under the
Prepackaged Restructuring, and (l) the Company is not in compliance with
the continuing listing requirements of the NYSE, and de-listing from the
NYSE could adversely affect the liquidity of the market for their shares of
New Common Stock and the Warrants.
ADDITIONAL RISK FACTORS RELATING TO THE PREPACKAGED RESTRUCTURING
Stockholders should consider that (a) commencement of bankruptcy
proceedings, even if only to confirm the Prepackaged Plan, could adversely
affect the relationship between the Company and its subsidiaries,
licensors, licensees, employees, customers and suppliers which, in turn,
could adversely affect the Company's ability to complete the Solicitation
or obtain confirmation of the Prepackaged Plan, (b) the Prepackaged Plan
might not be confirmed by the Bankruptcy Court, even if all classes of
impaired creditors and equity interest holders accept the Prepackaged Plan,
and (c) there can be no assurance that the Bankruptcy Court will decide
that the Disclosure Statement meets the disclosure requirements of the
Bankruptcy Code.
For a discussion of certain additional risk factors that should be
considered in connection with voting on the Prepackaged Plan, see "RISK
FACTORS" in Part B to the Exchange Restructuring Prospectus, attached
hereto as Annex IV.
STOCKHOLDERS' MEETING
Date, Time and Place of
Stockholders' Meeting.........The Stockholders' Meeting will be held at
Fried, Frank, Harris, Shriver & Jacobson, One
New York Plaza, New York, New York 10004 on
________, 1998 at ____ __.m., New York City
time.
Record Date; Stockholders
Entitled to Vote; Quorum......Holders of record of Old Common Stock at the
close of business on the Record Date will be
entitled to vote at the Stockholders' Meeting.
Stockholders will be entitled to one vote per
share with respect to each of the Proposals.
On the Record Date there were 14,964,608 shares
of Old Common Stock outstanding, of which there
were [__] holders of record. The presence,
either in person or by properly executed proxy,
of the holders of a majority of the shares of
Old Common Stock outstanding and entitled to
vote is necessary to constitute a quorum at the
Stockholders' Meeting.
Purpose of Stockholders'
Meeting.......................The purpose of the Stockholders' Meeting is
for the Stockholders to consider and to vote
on various Proposals to implement the
Restructuring, including Proposals (i) to
approve the Charter Amendment, (ii) to
approve the Issuance, (iii) to approve the
Plan Proposal, (iv) to elect new directors
pursuant to the Election of the New Board;
(v) to ratify the appointment of Deloitte &
Touche as independent auditors to the
Company, and (vi) such other business as may
properly come before the Stockholders'
Meeting or any adjournments or postponements
thereof. See "STOCKHOLDER'S MEETING, VOTING
RIGHTS AND PROXIES." The Board has
unanimously adopted a resolution proposing
that the Company's Certificate of
Incorporation be amended pursuant to the
Charter Amendment to effect (i) a ten-to-one
reverse stock split of the Company's
outstanding shares of Old Common Stock, (ii)
an increase in the number of shares of New
Common Stock authorized. For the full text of
the Charter Amendment, see "Discussion of the
Proposals -- The Charter Amendment." The
Charter Amendment is necessary to permit the
Company to consummate the Exchange
Restructuring on the terms contemplated by
the Exchange Offer. In addition, assuming the
aggregate market capitalization of the
Company remains constant, the Reverse Split
as implemented pursuant to the Charter
Amendment should have the effect of
increasing the trading price of the common
stock of the Company from where it would
otherwise trade in the absence of the Reverse
Split. However, there can be no assurance
that such an increase in the trading price
will occur. The approval of the Stock Award
and Incentive Plan by the Stockholders is
necessary to provide appropriate incentives
for those eligible to participate thereunder.
The Board has also unanimously adopted
resolutions approving the Issuance, the Stock
Award and Incentive Plan and the election of
the New Board. In connection with its
consideration of the Restructuring, the Board
received the E&Y Fairness Opinion. See
"RESTRUCTURING FINANCIAL CONSIDERATIONS --
The Fairness Opinion." The approval of the
Issuance and the Stock Award and Incentive
Plan by the Stockholders may be required by
the applicable rules of the NYSE. Each of the
Restructuring Proposals is conditioned upon
the approval by the Stockholders of each of
the other Restructuring Proposals. The
Stockholder votes with respect to the
Issuance and the Election of the New Board
will not be effective unless and until the
Charter Amendment is approved at the
Stockholders' Meeting and filed with the
Secretary of State of Delaware and the
Exchange Restructuring has been consummated.
If the Stockholders approve the Stock Award
and Incentive Plan, the Stock Award and
Incentive Plan will be effective regardless
of whether the Exchange Restructuring is
implemented or any of the Restructuring
Proposals are approved. However, approval of
the Stock Award and Incentive Plan is not a
condition to the consummation of the
Restructuring. If the Prepackaged
Restructuring is required and a petition is
filed under the Bankruptcy Code, the Company
expects that the Restructuring Proposals will
be implemented pursuant to the Prepackaged
Plan. See "DISCUSSION OF THE PROPOSALS."
Votes Required................Under the Delaware General Corporation Law (the
"DGCL") and the Company's Certificate of
Incorporation, the Issuance, the Charter
Amendment and the Plan Proposal must be
approved by the affirmative vote of the holders
of a majority of the voting power of the Old
Common Stock represented at the Stockholders'
Meeting. If the Restructuring is effected by
means of the Exchange Restructuring, the new
members of the Board to be elected at the
Stockholders' Meeting must be elected by the
affirmative vote of the holders of a plurality
of the voting power of the Old Common Stock
represented at the Stockholders' Meeting.
Apollo, the beneficial owner of 5,924,352
shares, representing approximately 39.6% of the
issued and outstanding shares of Old Common
Stock, has entered into a Voting Agreement with
the Company, dated May __, 1998, wherein
Apollo has agreed to vote all of its shares of
Old Common Stock in favor of the Charter
Amendment, the Issuance, the Plan Proposal and
the Election of the New Board. See "BACKGROUND
OF THE RESTRUCTURING -- Voting Agreement." In
accordance with the terms of the Letter
Agreement, the Company also requested that DDJ,
the beneficial holder of approximately 10.8% of
the issued and outstanding shares of Old Common
Stock, enter into a voting agreement with the
Company similar to the Voting Agreement entered
into with Apollo. DDJ, however, has informed
the Company that it does not wish to enter into
such a voting agreement. In addition, on or
about March 3, 1998, DDJ requested that the
Company terminate the restrictions on DDJ's
ability to buy or sell shares of Old Common
Stock set forth in the DDJ Confidentiality
Agreement. On March 4, 1998, the Company
granted this request by DDJ. As of the Record
Date, the Company's executive officers and
directors, as a group, beneficially owned
approximately 492,721 shares of the outstanding
Old Common Stock (exclusive of the Apollo
Shares) representing 3.3% of the issued and
outstanding shares of Old Common Stock. Such
officers and directors have advised the Company
that they intend to vote in favor of each of
the Proposals. The Stockholder votes with
respect to the Issuance and the Election of the
New Board will not become effective unless and
until the Charter Amendment is approved at the
Stockholders' Meeting and filed with the
Secretary of State of Delaware and the Exchange
Restructuring has been consummated. If the
Stockholders approve the Stock Award and
Incentive Plan, the Stock Award and Incentive
Plan will become effective regardless of
whether the Exchange Restructuring is
implemented or any of the Restructuring
Proposals are approved. Even if each of the
Restructuring Proposals is approved by the
Stockholders, the Board has reserved the right
to abandon the Charter Amendment and each other
Restructuring Proposal in the event that any
other condition to the Restructuring is not
satisfied or waived, including, but not limited
to, the Minimum Tender Condition. However, the
Board intends to file the Charter Amendment
with the Secretary of State of Delaware if the
Exchange Restructuring is consummated.
Fairness Opinion..............On April 21, 1998, at the request of the
Board, E&Y delivered to the Board a
written opinion that, as of that date
and based upon and subject to the
factors and assumptions set forth therein,
the consideration to be received by public
Stockholders pursuant to the Restructuring
is fair to public Stockholders from a
financial point of view. E&Y subsequently
delivered to the Board their written opinion
that, as of the date of this Proxy
Statement/Prospectus and based upon and
subject to the factors and assumptions set
forth therein, the consideration to be
received by public Stockholders pursuant to
the Restructuring is fair to public
Stockholders from a financial point of view.
See "RESTRUCTURING FINANCIAL CONSIDERATIONS
-- The Fairness Opinion." A copy of the E&Y
Fairness Opinion is attached hereto as Annex
I.
Dissenters' Rights............Stockholders will not be entitled to
dissenters' rights or rights of appraisal in
connection with the Charter Amendment, the
Issuance, the Plan Proposal or the Election of
the New Board.
Dilution......................Assuming 100% acceptance of the Exchange Offer,
the Company expects to issue 18,456,350 shares
of New Common Stock directly to exchanging
Noteholders, 1,496,461 shares of New Common
Stock directly to existing Stockholders, and
Warrants to purchase 2,216,979 additional
shares of New Common Stock (subject to
adjustment) to existing Stockholders. Based on
the number of shares of outstanding Old Common
Stock as of the Record Date, the 18,456,350
shares issued directly to Noteholders will
represent 92.5% of the total outstanding shares
of New Common Stock immediately following
consummation of the Exchange Restructuring, but
subject to dilution for shares of New Common
Stock issued under the Stock Award and
Incentive Plan, the Warrant Shares, and in the
case of the Exchange Restructuring only, shares
of New Common Stock issued under the Old
Plans. The Stockholders currently own 100% of
the common equity of the Company in the form of
the Old Common Stock. As of March 16, 1998,
there were 14,964,608 of Old Common Stock
issued and outstanding. Assuming all of the
conditions to the Restructuring are fulfilled,
the Exchange Restructuring will result in the
Stockholders receiving, in exchange for their
shares of Old Common Stock, after giving effect
to the Reverse Split, an aggregate of 1,496,461
shares of New Common Stock, constituting 7.5%
of the New Common Stock issued and outstanding
immediately following consummation of the
Exchange Restructuring (subject to dilution for
shares of New Common Stock issued under the
Stock Award and Incentive Plan, the Warrant
Shares). As a result, upon consummation of the
Exchange Restructuring, the equity interests of
the Stockholders represented by the Old Common
Stock, as a percentage of the total number of
outstanding shares of the common stock of the
Company, will be significantly diluted from
100% of the Old Common Stock to 7.5% of the New
Common Stock (subject to further dilution as a
result of the issuance of Shares of New Common
Stock under the Stock Award and Incentive Plan,
the Warrant Shares, and in the case of the
Exchange Restructuring only, shares of New
Common Stock issued under the Old Plans).
Consummating the Prepackaged Plan will have the
same dilutive effect. See "PURPOSE OF THE
RESTRUCTURING" and "RISK FACTORS."
VOTING PROCEDURES FOR THE PREPACKAGED PLAN
For a description of the voting procedures for the Prepackaged Plan,
see "VOTING PROCEDURES AND REQUIREMENTS" in Part B to the Exchange
Restructuring Prospectus, attached hereto as Annex IV.
DESCRIPTION OF WARRANTS
The following is a brief description of certain provisions of the
Warrants. The Warrants will be issued under the Warrant Agreement, to be
dated on or about the Exchange Restructuring Date, between the Company and
the Warrant Agent (as defined herein). The following description of such
provisions does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the detailed provisions of the
Warrant Agreement, a copy of which is attached hereto as Annex II, pursuant
to which such securities will be issued. See "DESCRIPTION OF WARRANTS" in
Part A to the Exchange Restructuring Prospectus, attached hereto as Annex
IV, and the Form of Warrant Agreement, attached hereto as Annex II.
Issue.........................Upon consummation of the Exchange
Restructuring, up to 2,216,979 Warrants will be
issued to Stockholders which, after giving
effect to the Reverse Split, will represent the
right to purchase 10% of the issued and
outstanding shares of New Common Stock (on a
fully diluted basis). Each Warrant will be
exercisable for a period of seven years from
the Exchange Restructuring Date and shall be
exercisable for one share of New Common Stock,
subject to adjustment.
Exercise Price................Each Warrant will be exercisable at the
"Exercise Price" of $6.2648 per share of New
Common Stock. The Exercise Price and the
number of shares of new Common stock
purchasable upon exercise of the Warrants are
both subject to adjustment in certain cases
referred to below. Stockholders will receive,
for each share of Old Common Stock, .14814815
Warrants exercisable, in the aggregate and
based upon the number of shares of Old Common
Stock issued and outstanding as of the Record
Date, for 2,216,979 shares of New Common Stock,
constituting 10% of the issued and outstanding
shares of New Common Stock immediately after
giving effect to the Exchange Restructuring (on
a fully diluted basis).
No Rights Generally
as Stockholders...............No holder of Warrants will be entitled to any
rights generally as a Stockholder of the
Company unless and until such holder has
obtained shares of New Common Stock upon the
exercise of the Warrants for New Common
Stock. Stockholders will not be entitled to
receive Warrants unless and until they
exchange their Old Common Stock for New
Common Stock.
Adjustment of Exercise
Price and Number of Shares
of New Common Stock
Obtainable Upon Exercise......The number of shares of New Common Stock
obtainable upon exercise of each Warrant, and
correspondingly the Exercise Price, will be
proportionately adjusted pursuant to standard
antidilution provisions at any time the
Company pays stock dividends, subdivides,
combines or reclassifies its New Common
Stock; distributes evidences of indebtedness
or assets of the Company, or rights for such
assets; issues New Common Stock for less than
market value; issues options, warrants or
other securities convertible for New Common
Stock for less than market value; or effects
similar dilutive transactions.
DESCRIPTION OF NEW CREDIT AGREEMENT
The Company intends to enter into a New Credit Agreement, effective as
of the Exchange Restructuring Date, with either CIT or another working
capital lender, which will replace the Company's current working capital
facility under the Credit Agreement. The Company has received and is
currently reviewing proposals for a New Credit Agreement which have been
submitted by CIT as well as various other prospective lenders. Based upon
the proposals that have been received by the Company as of the date of this
Proxy Statement/Prospectus, the Company expects that it will be able to
obtain a new working capital facility under a New Credit Agreement as of
the Exchange Restructuring Date which contains terms and conditions
significantly more favorable than those currently existing under the Credit
Agreement with CIT.
The Company currently anticipates no difficulty in obtaining the
credit facility under a New Credit Agreement on satisfactory terms on or
prior to the Exchange Restructuring Date. The Company further believes that
the financing available pursuant to such facility should be adequate to
permit the Company to operate its business in accordance with the
Three-Year Business Plan. However, there is no assurance that such facility
will be obtained in light of, among other things, the possibility of the
occurrence of potentially materially adverse conditions in the private and
public capital and/or debt markets and potentially materially adverse
operating results for the Company. Under the Letter Agreement, the credit
facility under the New Credit Agreement must be on terms and conditions
reasonably satisfactory to Magten, Apollo and the Company.
DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT
In connection with the Restructuring, the Company will also enter
into, on the Exchange Restructuring Date, a registration rights agreement
in the form of Exhibit B to Appendix I to Part B of the Exchange
Restructuring Prospectus, attached hereto as Annex IV (the "Registration
Rights Agreement"). Under the terms and conditions of the Registration
Rights Agreement, the Company must use commercially reasonable efforts to
register the New Common Stock pursuant to a "shelf registration," and to
keep such shelf registration continuously effective for three years
(subject to a two-year extension of such period to the extent that a
registration statement on Form S-3 is available to the Company at the end
of such initial three year period), subject to the right to suspend the use
of the prospectus constituting part of such registration statement for
designated corporate purposes. Thereafter, holders who did not resell New
Common Stock during the three-year period, but whose resales would have
been covered by the registration statement, will be entitled to exercise,
over a two-year period, up to three demand registrations and will be
entitled to piggyback registration rights as well during such period. In
the event that the shelf registration does not become effective within one
hundred days after the date that the registration statement is filed,
holders of the New Common Stock whose resales would have been covered by
the registration statement will be entitled to exercise, over a two-year
period, up to four demand registrations and will be entitled to piggyback
registration rights as well during such period.
DESCRIPTION OF RIGHTS PLAN
The Company is a party to a shareholder rights plan, dated December 8,
1987, as amended on December 10, 1997 (the "Rights Plan"), which provides
for a dividend distribution of one right (collectively, the "Rights") for
each share of Old Common Stock to holders of record of the Old Common Stock
at the close of business on December 23, 1997. With certain exceptions, the
Rights will become exercisable only in the event that an acquiring party
accumulates 20 percent or more of the Company's voting stock, or if a party
announces an offer to acquire 30 percent or more of such voting stock. Each
Right, when exercisable, will entitle the holder to buy one-hundredth of a
share of the Company's Series A Preferred Stock at a price of $30 per right
or, upon the occurrence of certain events, to purchase either common stock
of the Company or shares in an Acquiring Entity (as defined in the Rights
Plan) at half the market value thereof. The Company will generally be
entitled to redeem the Rights at a redemption price of $0.03 per Right at
any time until the 10th day following the acquisition of a 20 percent
position in its shares of Old Common Stock. In July 1993, the Rights Plan
was amended to provide that an acquisition or offer by Apollo, or any of
Apollo's Subsidiaries (as defined in the Rights Plan), will not cause the
Rights to become exercisable. Pursuant to the December 10, 1997 amendment
to the Rights Plan, the expiration date of the Rights was extended to
December 23, 2002. On [__________], 1998, in connection with the
Restructuring, consistent with the terms of the Letter Agreement, the
Company amended the Rights Plan to provide, among other things, that the
Rights will expire under the Rights Plan immediately prior to the
consummation of the Restructuring.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(Amounts in thousands except share, per share and ratio data)
Set forth below are summary consolidated historical financial data of
the Company. The summary financial data for each of the years in the five
year period ended January 3, 1998 have been derived from the audited
Consolidated Financial Statements of the Company. The summary financial
data for the three month periods ended April 4, 1998 and March 29, 1997
have been derived from the unaudited financial statements of the Company
and include all adjustments of a normal recurring nature which are
necessary to present fairly such financial statements. The data presented
below is qualified by, and should be read in conjunction with, the
Consolidated Financial Statements and related notes thereto, and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" in Part A of the Exchange Restructuring Prospectus. The Company's
fiscal year ends on the Saturday closest to December 31.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE FISCAL YEAR ENDED
----------------------------------------------------------------------------------------------------
APRIL 4, MARCH 29, JAN. 03, DEC. 28, DEC. 30, DEC. 31, JAN. 1,
1998 1997 1998 1996 1995 1994 1994
(52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
---------- ---------- ----------- ---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS:
Net sales $ 84,887 $ 88,209 $396,832 $417,711 $485,825 $398,990 $379,012
Reversal of /(Provision
for) Restructuring costs
(a) 160 754 (2,066) (11,730) (3,550) - (5,500)
Income/(loss) from
continuing operations (3,297) (2,737) (10,722) (8,958) (362) 3,398 7,865
DISCONTINUED OPERATIONS: -
Loss from operations,
net of income taxes - (773) (8,136) (365) (136) (9,530) (638)
Estimated loss on
disposal, net of income
taxes - - (1,330) - - (1,796) -
Reversal of estimated
loss on disposal, net of
income taxes - - - - - - 11,772
Extraordinary gain (b) - - 2,100 - 1,000 63 24,707
Net income/(loss)(a) (3,297) (3,510) (18,088) (9,323) 502 (7,865) 43,706
BASIC EARNINGS/(LOSS) (PER
SHARE:
Earnings/(loss) per share
from continuing
operations before
extraordinary gain $ (.22) $ (.18) $ (0.71) $ (0.60) $ (0.02) $ (0.23) $ 1.18
Earnings/(loss) per share
from discontinued
operations - $ (.05) $ (0.62) (0.02) $ (0.01) $ (0.76) $ 1.68
Earnings per share from
extraordinary gain - - 0.14 - 0.06 - 3.72
Basic earnings/(loss) per
share (a) (.22) (.23) (1.19) (0.62) 0.03 (0.53) 6.58
DILUTED EARNINGS/(LOSS)
PER SHARE:
Earnings/(loss) per share
from continuing
operations before
extraordinary gain $ (.22) $ (.18) $ (0.71) $ (0.60) $ (0.02) $ 0.23 $ 1.10
Earnings/(loss) per share
from discontinued
operations - (.05) (0.62) (0.02) (0.01) (0.76) 1.57
Earnings per share from
extraordinary gain - - 0.14 - 0.06 - 3.48
Diluted earnings/(loss)
per share (a) (.22) (.23) (1.19) (0.62) 0.03 (0.53) 6.15
CASH DIVIDENDS PER SHARE - - - - - - -
WEIGHTED AVERAGE SHARES:
Shares used in computing
basic earnings per share 15,170 15,041 15,139 15,078 15,008 14,954 6,638
Add - Common stock
equivalents (d) (d) (d) (d) 110 (d) 465
Shares used in computing
diluted earnings
per share 15,170 15,041 15,139 15,078 15,118 14,954 7,103
AT END OF PERIOD:
Current assets $ 156,094 $ 167,325 $148,899 $150,986 $163,799 $172,234 $161,375
Total assets 238,990 253,473 233,377 235,251 253,970 266,157 251,946
Current liabilities (c) 194,627 82,365 185,692 59,566 61,704 71,104 44,427
Long-term debt (c) - 104,879 - 106,231 110,040 109,908 111,851
Deferred liabilities 5,354 9,114 5,382 8,863 11,373 13,479 16,766
Working capital/(deficiency) (38,533) 84,960 (36,793) 91,420 102,095 101,130 116,948
Current ratio 0.8:1 2.0:1 0.8:1 2.5:1 2.7:1 2.4:1 3.61:1
Shareholders' equity $ 39,009 $ 57,115 $ 42,303 $ 60,591 $ 70,853 $ 71,666 $ 78,902
Book value per share $ 2.57 $ 3.78 $ 2.79 $ 4.01 $ 4.71 $ 4.78 $ 5.34
Number of shares
outstanding 15,170 15,104 15,170 15,094 15,041 15,008 14,781
</TABLE>
- ----------------
(a) Includes, for the three month periods ended April 4, 1998 and March
29, 1997, a reversal of a previously recorded restructuring provision
of $160 and $754, respectively, related to the excess portion of net
liabilities set up for the closure of all retail outlet stores other
than Perry Ellis outlet stores and the closure of the JJ Farmer
sportswear product line, respectively; for the year ended January 3,
1998, a provision of $2,066 (14 cents per share; tax benefit not
available) for restructuring costs principally related to (i) $3,530
related to the decision in the fourth quarter to close all retail
outlet stores other than Perry Ellis outlet stores and (ii) the
reversal of previously recorded restructuring provisions of $1,464,
primarily resulting from the settlement of liabilities for less than
the carrying amount, resulting in the reversal of the excess portion
of the provision; for the year ended December 28, 1996, a provision
of $11,730 (78 cents per share; tax benefit not available) for
restructuring costs principally related to (i) the write-off of
goodwill and the write-down of other assets for a product line which
has been put up for sale, (ii) the write-off of certain assets and
accrual for future royalties for a licensed product line and (iii)
employee costs related to closing certain facilities; for the year
ended December 30, 1995, a provision of $3,550 (24 cents per share;
tax benefit not available) for restructuring costs principally
related to (i) fixed asset write-downs at locations to be closed and
(ii) inventory markdowns for discontinued product lines; and for the
year ended January 1, 1994, a provision of $5,500 (basic loss per
share of 83 cents; tax benefit not available) for restructuring costs
principally related to the costs incurred in connection with the
closure of certain unprofitable operations, including (i) inventory
markdowns associated with those product lines and (ii) fixed asset
write-downs at closed locations.
(b) Includes, for the year ended January 3, 1998, a gain of $2,100 (14
cents per share) related to the reversal of excess liabilities
previously provided for the anticipated settlement of claims arising
from the Chapter 11 proceeding; for the year ended December 30, 1995,
a gain of $1,000 (6 cents per share) related to the reversal of
excess liabilities previously provided for the anticipated settlement
of claims arising from the Chapter 11 proceeding; for the year ended
December 31, 1994, a gain of $63 (no per share effect) related to the
purchase and retirement of a portion of the Senior Notes at a price
below the principal amount thereof; and for the year ended January 1,
1994, a gain of $24,707 (basic earnings per share of $3.72) related
to the settlement and anticipated settlement of claims arising from
the Chapter 11 proceeding.
(c) At April 4, 1998 and January 3, 1998, long-term debt of $104,879 had
been classified as a current liability. See Note 1 to the Consolidated
Financial Statements at page F-6 and page F-26 to the Company's
Registration Statement on Form S-4 of which this Proxy
Statement/Prospectus is a part.
(d) Common stock equivalents have not been included in these periods as
their inclusion would be anti-dilutive to the calculation.
CAPITALIZATION
The following table sets forth the unaudited historical capitalization
of the Company as of April 4, 1998 and the unaudited pro forma consolidated
capitalization of the Company after giving effect to the Exchange
Restructuring as if the Exchange Restructuring had occurred on April 4,
1998. This table should be read in conjunction with the "SUMMARY HISTORICAL
CONSOLIDATED FINANCIAL INFORMATION," "UNAUDITED PRO FORMA FINANCIAL
STATEMENTS," the condensed consolidated interim unaudited financial
statements for the three months ended April 4, 1998 and the Consolidated
Financial Statements for the year ended January 3, 1998 and the notes
thereto included elsewhere in the Company's Registration Statement on
Form S-4 of which this Proxy Statement/Prospectus is a part.
(UNAUDITED)
APRIL 4, 1998
-------------------------
ACTUAL PRO FORMA
------------ ------------
($ IN THOUSANDS)
Cash and cash equivalents................................ $ 1,683 $ 1,683
======== ========
Long-term debt, including current portion:
Senior Notes........................................... $104,879 $ --
-------- --------
Total long-term debt................................ $104,879 --
Stockholder's equity:
Common stock........................................... 15,405 20,227
Additional paid-in capital............................. 107,249 208,135
Deficit................................................ (78,532) (79,912)
Accumulated other comprehensive income................. (3,499) (3,499)
Less-treasury stock, at cost-234 shares................ (1,614) --
-------- --------
Total stockholder's equity.......................... 39,009 144,951
-------- --------
Total capitalization............................. $143,888 $144,951
======== ========
RISK FACTORS
Investment in the New Common Stock and Warrants involves a high degree
of risk. Prior to deciding whether to (a) participate in the Exchange Offer
and/or (b) vote to accept the Prepackaged Plan, each Stockholder should
carefully consider all of the information contained in this Prospectus,
especially the factors described in the following paragraphs.
RISK OF NONCONSUMMATION OF THE RESTRUCTURING
If holders of at least 25% in aggregate principal face amount of the
Senior Notes accelerate all outstanding indebtedness under the Senior Notes
pursuant to the terms of the Indenture, such an acceleration of the
outstanding indebtedness under the Senior Notes could result in the Company
becoming subject to a proceeding under the Federal bankruptcy laws. As
contemplated by the terms of the Letter Agreement, Magten has, in
accordance with Section 6.5 of the Indenture, caused a written direction to
be provided to the Trustee to forbear during the term of the Letter
Agreement from taking any action under the Indenture in connection with the
failure by the Company to make the interest payment on the Senior Notes
that was due and payable on March 2, 1998. However, there is no assurance
that the holders of 25% or more in principal amount of the Senior Notes
will not decide to accelerate the outstanding indebtedness under the Senior
Notes prior to consummation of the Restructuring or if the Stockholders
fail to approve the Restructuring.
COMPANY RESULTS OF OPERATIONS SUBJECT TO VARIABLE INFLUENCES; INTENSE
COMPETITION
The Company's business is sensitive to changes in consumer spending
patterns, consumer preferences and overall economic conditions. The Company
is also subject to fashion trends affecting the desirability of its
merchandise. The apparel industry in the United States is highly
competitive and characterized by a relatively small number of multi-line
manufactures (such as the Company) and a large number of specialty
manufacturers. The Company faces substantial competition in its markets
from manufacturers in both categories. Many of the Company's competitors
have significantly greater financial resources than the Company. The
Company also competes for private label programs with the internal sourcing
organizations of its own customers. The Company's future performance will
be subject to such factors, most of which are beyond its control, and there
can be no assurance that such factors would not have a material adverse
effect on the Company's results of operations and financial condition.
DILUTION
Upon completion of the Exchange Offer or the Prepackaged Plan, as
applicable, the Company will issue 18,456,350 shares of New Common Stock
directly to exchanging Noteholders and 1,496,461 shares of New Common Stock
to Stockholders, and will reserve 2,216,979 shares of New Common Stock for
issuance upon exercise of the Warrants. The issuance of 18,456,350 shares
to Noteholders upon the Issuance will result in a significant dilution of
the existing equity interests of the Stockholders (as a percentage of
outstanding shares of common stock) which could adversely affect the market
price and the value of the New Common Stock. Immediately following the
consummation of the Exchange Restructuring or the Prepackaged
Restructuring, as applicable, the 18,456,350 shares issued directly to
Noteholders will, after giving effect to the Restructuring, represent 92.5%
of the total outstanding shares of New Common Stock, excluding the Warrant
Shares based on the number of shares of Old Common Stock outstanding as of
the Record Date. Upon consummation of the Restructuring, Stockholders will
receive, for each share of Old Common Stock held, .14814815 Warrants with
an exercise price of $6.2648 per share (subject to adjustment). Based upon
the current market price of the Old Common Stock (after giving effect to
the Reverse Split), the Warrants may be "out of the money" immediately
following the Restructuring, and no assurance can be made that the Warrants
will ever be "in the money." If all Warrants are exercised, the percentage
of New Common Stock held by exchanging Noteholders would be reduced from
92.5% to 83.25%, and the percentage of New Common Stock held by
Stockholders would be reduced from 7.5% to 6.75% (assuming that none of the
Warrants are held by the Stockholders at the time the Warrants are
exercised). See "PURPOSE OF THE RESTRUCTURING." In addition, there can be
no assurance that the Company will not need to issue additional Common
Stock in the future in order to achieve its business plan or if it does not
achieve its projected results, which could lead to further dilution to
holders of the Company's Common Stock.
LIMITATION ON USE OF NET OPERATING LOSSES
As a result of the receipt by Noteholders of New Common Stock in
exchange for the Senior Notes pursuant to the Restructuring, the Company
will undergo an "ownership change" for Federal income tax purposes.
Accordingly, the Company will be limited in its ability to use its net
operating loss carryovers and certain tax credit carryforwards to offset
future taxable income. Under the Exchange Restructuring, the limitation
imposed upon the Company's use of its net operating loss carryovers would
be more restrictive than under the Prepackaged Restructuring. See "CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS."
LACK OF TRADING MARKET FOR WARRANTS AND NEW COMMON STOCK; VOLATILITY;
POTENTIAL DE-LISTING OF THE NEW COMMON STOCK
There can be no assurance that an active market for the Warrants
and/or the New Common Stock will develop or, if any such market does
develop, that it will continue to exist. Further, the degree of price
volatility in any such market that does develop may be significant.
Accordingly, no assurance can be given as to the liquidity of the market
for any of the Warrants and/or the New Common Stock or the price at which
any sales may occur.
The Company has fallen below the continued listing criteria of the
NYSE for net tangible assets available to common stock together with
average net income after taxes for the past three years. The Company has
requested that the NYSE waive compliance with such test until consummation
of the Restructuring. There can be no assurance, however, that the NYSE
will waive compliance with such test. If the common stock of the Company
were de-listed, there could be an adverse effect on the liquidity of the
market for such common stock. Should the Restructuring be consummated, the
Company expects to be in full compliance with all of the NYSE's
requirements for continued listing on the NYSE. See "UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS."
The Company expects that the New Common Stock and the Warrants will be
eligible for listing and will be listed for trading on the NYSE. There can
be no assurances, however, that the New Common Stock and/or the Warrants
will be listed for trading on the NYSE. If the Company is unable to have
the New Common Stock and Warrants listed for trading on the NYSE upon
consummation of the Restructuring, the Company will use its best efforts to
cause all New Common Stock and Warrants to be quoted on the National Market
System of the NASDAQ or to be listed on another national securities
exchange. However, there is no assurance that the Company would be
successful in such efforts.
POSSIBLE VOLATILITY OF STOCK PRICE; EFFECT OF RESTRUCTURING ON STOCK PRICE
Since March 3, 1998, the market price of the Old Common Stock has
experienced some degree of volatility. There can be no assurance that such
volatility will not continue for the New Common Stock or become more
pronounced. In addition, the stock market has recently experienced, and is
likely to experience in the future, significant price and volume
fluctuations which could materially adversely effect the market price of
the New Common Stock without regard to the operating performance of the
Company. The Company believes that factors such as the Restructuring,
quarterly fluctuations in the financial results of the Company or its
competitors and general conditions in the industry, the overall economy,
the financial markets and other risks described herein could cause the
price of the New Common Stock to fluctuate substantially.
CONCENTRATED OWNERSHIP OF NEW COMMON STOCK
Following consummation of the Restructuring, the ownership of the New
Common Stock will likely be significantly more concentrated than was the
ownership of the Old Common Stock. Assuming that the current holders of the
Senior Notes do not significantly change prior to the consummation of the
Restructuring, the Company will be controlled by a few stockholders who are
the current holders of the Senior Notes. These holders of New Common Stock
may seek to influence the direction of the Company. For instance, following
consummation of the Restructuring, Magten will own in excess of 60% of the
issued and outstanding shares of New Common Stock. As a result, Magten may
have the ability to control the Company's management, policies and
financing decisions, to elect a majority of the members of the Company's
Board and to control the vote on all matters coming before the stockholders
of the Company. Pursuant to the Letter Agreement, the Company has agreed
that three to five out of seven to nine members of the initial new Board
members will be nominated by Magten, subject to consultation with the
Company and other Noteholders who may come forward, for election to the
Board following the Restructuring. See "INFORMATION REGARDING NOMINEES."
The Company does not have complete information regarding the beneficial
ownership of the Senior Notes and is not aware of any stated intention by
Magten or any agreement among Noteholders generally to seek to influence
the direction of the Company or to otherwise act in concert following the
Restructuring. There can be no assurance, however, that no such agreements
exist.
ABSENCE OF AND/OR RESTRICTION ON DIVIDENDS
The Company did not pay any dividends on the Old Common Stock in 1995,
1996 or 1997 and does not anticipate paying dividends on the New Common
Stock at any time in the foreseeable future. Moreover, the Credit Agreement
places restrictions on the Company's ability to declare or pay cash
dividends on the Old Common Stock and the Company believes that the New
Credit Agreement will similarly restrict the payment of dividends on the
New Common Stock. For a description of the limitations contained in the
Credit Agreement, see "DESCRIPTION OF INDEBTEDNESS OF THE COMPANY" in Part
B to the Exchange Restructuring Prospectus, attached hereto as Annex IV.
HISTORY OF LOSSES; EFFECT OF TRANSACTION
Although the Company was profitable for the fiscal year ended December
30, 1995, for the fiscal years ended December 31, 1994, December 28, 1996
and January 3, 1998, the Company reported net losses of $7,865,000,
$9,323,000 and $18,088,000, respectively. The net losses were primarily
attributable to the write-off of goodwill, the write-down of other assets,
facility shut-downs and the closure of certain unprofitable operations.
There can be no assurance that the Company will regain its profitability,
or have earnings or cash flow sufficient to cover its fixed charges. See
"SALANT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS"
at F-2 to the Company's Registration Statement on Form S-4 of which this
Proxy Statement/Prospectus is a part.
CASH FLOW FROM OPERATIONS
During the fiscal years ended December 28, 1996 and January 3, 1998,
the Company had positive cash flow from operating activities of $17.1
million and negative cash flow from operating activities of $9.8 million,
respectively. The fiscal 1996 figure reflects a $17.5 million reduction in
inventories due to improved inventory management, and the effects of the
implementation of a strategic business plan for the men's apparel group.
The lower inventory balance was partially offset by an increase in accounts
receivable, due to changes in the Company's factoring arrangements with CIT
which reduced the amount of accounts receivable sold to CIT and the related
factoring costs. The Fiscal 1997 figure reflects an operating loss of $10.7
million and an increase in accounts receivable of $5.7 million, offset by
non-cash charges, such as depreciation and amortization, of $8.9 million.
The Company's principal sources of liquidity, both on a short-term and
a long-term basis, are cash flow from operations and borrowings under the
Credit Agreement. Based upon its analysis of its consolidated financial
position, its cash flow during the past twelve months and the cash flow
anticipated from its future operations, the Company believes that its
future cash flows together with funds available under the Credit Agreement
should be adequate to meet the financing requirements it anticipates during
the next twelve months provided that the Company consummates the
Restructuring and secures a New Credit Agreement. See "DESCRIPTION OF NEW
CREDIT AGREEMENT." There can be no assurance, however, (i) that the Company
will consummate the Restructuring, (ii) that the Company will obtain a New
Credit Agreement on favorable terms, or (iii) that future developments and
general economic trends will not adversely affect the Company's operations
and, hence, its anticipated cash flow.
DECLINES IN NET SALES AND GROSS PROFITS
Sales of men's apparel decreased by $18.9 million, or 5.5%, in Fiscal
1997. This decrease resulted from (a) a $12.4 million reduction in sales of
men's slacks, of which $8.4 million reflected the elimination of
unprofitable programs and the balance was primarily due to operational
difficulties experienced in the first quarter of Fiscal 1997 related to the
move of manufacturing and distribution out of the Company's facilities in
Thomson, Georgia, (b) a $5.7 million reduction in sales of men's
sportswear, which included a $16.7 million reduction for the elimination of
the company's JJ. FARMER and MANHATTAN sportswear lines, as offset by an
$11.0 million increase in sales of PERRY ELLIS sportswear product, (c) a
$5.1 million decrease in sales of men's accessories, primarily due to the
slow-down of the novelty neckwear business and (d) a $4.7 million reduction
in sales of certain dress shirt lines, which reflected the elimination of
unprofitable businesses. These sales decreases were partially offset by a
$9.5 million increase in sales of PERRY ELLIS dress shirts due to the
addition of new distribution and the continued strong acceptance of these
products by consumers. The total sales reduction attributable to the
elimination of unprofitable programs was $29.8 million. Sales of children's
sleepwear, underwear and sportswear increased by $3.4 million, or 7.5%, in
Fiscal 1997. This increase was primarily a result of the continuing
expansion of the Joe Boxer children's product lines. Sales of the retail
outlet stores division decreased by $5.4 million, or 19.8%, in Fiscal 1997.
This decrease was due to (i) a decrease in the number of stores in the
first 10 months of Fiscal 1997 and (ii) the decision in November 1997 to
close all non-PERRY ELLIS outlet stores. The Company ceased to operate the
non-PERRY ELLIS outlet stores in November 1997.
The gross profit margin of the children's sleepwear and underwear
segment declined as a result of (i) slowdown in sales of certain licensed
products, requiring a greater percentage of off-price sales, as well as an
increase in discounts and allowances, (ii) an increase in reserves for
remaining inventory and (iii) higher distribution and product handling
costs. The gross profit of the retail outlet stores decreased primarily as
a result of inventory markdowns of $1.6 million (7.3% of net sales) related
to the closing of the non-PERRY ELLIS stores. Excluding these inventory
markdowns, the gross profit margin increased as a result of a decrease in
the transfer prices (from a negotiated rate to standard cost) charged to
the retail outlet stores for products made by other divisions of the
Company.
RETAIL ENVIRONMENT
The retail industry has experienced significant consolidation and
other ownership changes resulting in a decrease in the number of retailers.
In addition, various retailers, including some of the Company's customers,
have experienced declines in revenue and profits in recent periods and some
have been forced to file for protection under the federal bankruptcy laws.
In the future, other retailers in the United States and in foreign markets
may consolidate, undergo restructurings or reorganizations, or realign
their affiliations, any of which could decrease the number of stores that
carry the Company's products or increase the ownership concentration within
the retail industry. There can be no assurance that such changes would not
have a material adverse effect on the Company's results of operations and
financial condition.
APPAREL INDUSTRY CYCLES AND OTHER ECONOMIC FACTORS
The apparel industry historically has been subject to substantial
cyclical variations, with consumer spending on apparel tending to decline
during recessionary periods. A decline in the general economy or
uncertainties regarding future economic prospects may affect consumer
spending habits, which, in turn, could have a material adverse effect on
the Company's results of operations and financial condition.
SEASONALITY AND FASHION RISK
The Company's principal products are organized into seasonal lines for
resale at the retail level during the Spring, Fall and Holiday seasons.
Typically, the Company's products are designed as much as one year in
advance and manufactured approximately one season in advance of the related
retail selling season. Accordingly, the success of the Company's products
is often dependent on the ability of the Company to successfully anticipate
the needs of the Company's retail customers and the tastes of the ultimate
consumer up to a year prior to the relevant selling season. In addition,
the Company experiences seasonal fluctuations in its net sales and net
income, with a disproportional amount of the Company's net sales and a
majority of its net income typically realized during the fourth quarter.
Net sales and net income are generally weakest during the first quarter.
The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of other factors, including the
Company's ability to source, manufacture and distribute its products.
DEPENDENCE ON CERTAIN CUSTOMERS AND LICENSEES; EFFECT OF RESTRUCTURING ON
LICENSES
Certain of the Company's customers, including some under common
ownership, have accounted for significant portions of the Company's gross
revenues.
In Fiscal 1997, approximately 17% of the Company's net sales were made
to Sears, Roebuck & Co. ("Sears"), approximately 11% of the Company's net
sales were made to Federated Department Stores, Inc. ("Federated") and
approximately 10% of the Company's net sales were made to TJX Corporation
("TJX"). In 1996, approximately 13% of the Company's net sales were made to
Sears. In 1996 and 1995, net sales to Federated represented approximately
11% and 12% of the Company's net sales, respectively. In 1995,
approximately 11% of the Company's net sales were made to TJX. In 1995,
approximately 13% of the Company's Children's Group's net sales were made
to Dayton Hudson Corporation. No other customers accounted for more than
10% of the net sales of the Company or any of its business segments during
1995, 1996, or 1997.
A decision by the controlling owner of a group of stores or any
substantial customer, whether motivated by fashion concerns, financial
difficulties, or otherwise, to decrease the amount of merchandise purchased
from the Company or to cease carrying the Company's products could
materially adversely affect the Company.
In Fiscal 1997, approximately 44% of the Company's net sales was
attributable to products sold under the PERRY ELLIS Portfolio by PERRY
ELLIS and PERRY ELLIS America trademarks which are licensed to the Company
under a series of license agreements with Perry Ellis International, Inc.
("PEI"). The license agreements contain renewal options which, subject to
compliance with certain conditions contained therein, permit the Company to
extend the terms of such license agreements. Assuming the exercise by the
Company of all available renewal options, the license agreements covering
men's apparel and accessories will expire on December 31, 2015. If the
Company were unable to exercise its right to renew the agreements or the
agreements were terminated by their terms, the resulting inability to sell
products bearing a PERRY ELLIS trademark would have a material adverse
affect on the Company.
In addition to the license agreement with PEI, the Company is also a
party to several other license agreements. Certain of these license
agreements, including the license agreements with PEI and The Walt Disney
Company, contain "change of control" provisions which may be triggered by
the Restructuring, or otherwise contain provisions that enable the licensor
to terminate the license or exercise other remedies thereunder as a result
of the Restructuring. The Company intends to seek a waiver of any such
provisions from the applicable licensors. However, there can be no
assurance that any such waivers will be obtained, or to the extent such
waivers are obtained, on what terms they would be granted.
FOREIGN OPERATIONS AND SOURCING; IMPORT RESTRICTIONS
During Fiscal 1997, approximately 12% of the products produced by the
Company (measured in units) were manufactured in the United States, with
the balance manufactured in foreign countries. Facilities operated by the
Company accounted for approximately 75% of its domestic-made products and
37% of its foreign-made products; the balance in each case was attributable
to unaffiliated contract manufacturers. In Fiscal 1997, approximately 47%
of the Company's foreign production was manufactured in Mexico,
approximately 18% was manufactured in Guatemala and approximately 12% was
manufactured in the Dominican Republic.
Some of the Company's imported merchandise is subject to United States
customs duties. In addition, bilateral agreements between the major
exporting countries and the United States impose quotas which limit the
amount of certain categories of merchandise that may be imported into the
United States. As a result, the Company's operations would be significantly
adversely affected by political instability resulting in the disruption of
trade from the countries in which the Company's contractors or suppliers
are located, the imposition of additional regulations relating to imports,
the imposition of additional duties, taxes, and other charges on imports,
decreases in quota levels or available quota allocations, significant
fluctuations of the value of the dollar against foreign currencies
(although predominately all of the Company's contracts are designated in
U.S. dollars) or restrictions on the transfer of funds. The inability of a
contractor to ship orders of the Company's products in a timely manner
could cause the Company to miss the delivery date requirements of its
customers for those items, which could result in cancellation of orders,
refusal to accept deliveries, or a reduction in sales prices. Further,
since the Company is generally unable to return merchandise to its
suppliers, it could be faced with a significant amount of unsold
merchandise, which could have a material adverse effect on the Company.
There can be no assurance that such factors would not have a material
adverse effect on the Company's results of operations.
DEPENDENCE ON CONTRACT MANUFACTURING
In Fiscal 1997, the Company produced 59% of all of its products (in
units) through arrangements with independent contract manufacturers. The
use of such contractors and the resulting lack of direct control could
subject the Company to difficulty in obtaining timely delivery of products
of acceptable quality. In addition, as is customary in the industry, the
Company does not have any long-term contracts with its fabric suppliers or
product manufacturers. While the Company is not dependent on one particular
product manufacturer or raw materials supplier, the loss of several such
product manufacturers and/or raw material suppliers in a given season could
have a material adverse effect on the Company's performance.
INFORMATION SYSTEMS AND CONTROL PROCEDURES
The Company has completed an assessment of its information systems
("IS"), including its computer software and hardware, and the impact that
the year 2000 will have on such systems and the Company's overall
operations. The Company's current software systems, without modification,
will be adversely affected by the inability of the systems to appropriately
interpret date information after 1999. As part of the process of improving
the Company's IS to provide enhanced support to all operating areas, the
Company has entered into an interim working agreement with Electronic Data
Systems Corporation ("EDS"), which constitutes the initial phase of a
long-term contract to outsource its IS. Such long-term outsourcing contract
will provide for or eliminate any issues involving year 2000 compliance
because all software provided under the outsourcing contract will be year
2000 compliant. The Company anticipates that its cost for such outsourcing
will be approximately $9.0 million annually, which is consistent with the
Company's current IS expenditures. The Company anticipates that it will
complete its outsourcing and systems conversion in time to accommodate year
2000 issues. If the Company fails to complete such conversion in a timely
manner, such failure will have a material adverse effect on the business,
financial condition and results of operations of the Company.
While the Company believes its current IS is generally adequate to
support the Company's business operations, certain deficiencies relating to
the age and design of the systems, including, without limitation,
difficulties in planning, forecasting, allocating and measuring performance
through an integrated financial system, may adversely affect the business
operations of the Company in the near and long-term. There can be no
assurance that the Company's efforts to improve upon and enhance its
present IS will resolve or eliminate any such existing or potential
deficiencies.
As noted above, the Company has implemented a program designed to
ensure that all the Company's software will manage and manipulate data
involving the transition of dates from 1999 to 2000 without functional or
data abnormality and without inaccurate results to such dates. Any failure
on the part of the Company to ensure that any such software complies with
year 2000 requirements could have a material adverse effect on the
business, financial condition, and results of operations of the Company.
Likewise, any failure on the part of suppliers and customers of the Company
to implement a year 2000 compliance program could have a material adverse
effect on the business, financial condition and results of operations of
the Company if such lack of compliance interrupts the Company's daily
business interactions and relationships with such suppliers and customers.
LEVERAGE AND DEBT SERVICE
As of January 3, 1998, the Company had outstanding total interest
bearing indebtedness of approximately $151.9 million and a total
debt-to-total capital ratio of 0.761. The amount of indebtedness of the
Company will be reduced by the principal amount of Senior Notes as a result
of the Restructuring. The Company will continue to have annual fixed debt
service requirements under the term loan portion of the New Credit
Agreement. The Company expects that the New Credit Agreement will have a
term loan component in the maximum principal amount of $25 million. The
ability of the Company to make principal and interest payments under the
Company's working capital facility, including the term loan component, will
be dependent upon the Company's future performance, which is subject to
financial, economic and other factors affecting the Company, some of which
are beyond its control. There can be no assurance that the Company will be
able to meet its fixed charges as such charges become due.
RESTRICTIVE COVENANTS
The Credit Agreement contains certain restrictive covenants which
impose prohibitions or limitations on the Company with respect to, among
other things, (i) the incurrence of indebtedness, (ii) capital
expenditures, (iii) the creation or incurrence of liens, (iv) the
declaration or payment of dividends or other distributions on, or the
acquisition, redemption or retirement of, any shares of capital stock of
the Company, and (v) mergers, consolidations and sales or purchases of
substantial assets. The Credit Agreement also requires that the Company
satisfy certain financial tests, maintain certain financial ratios, and
satisfy a maximum net loss test. Failure to comply with such covenants
could result in a default under the Credit Agreement which could have a
material adverse effect on the financial condition and results of
operations of the Company. The Company anticipates that the New Credit
Agreement will contain restrictive covenants similar to those contained in
the Credit Agreement.
NEED FOR SUSTAINED TRADE SUPPORT
The Company's ability to achieve sales growth and profitability
includes significant reliance on continued support from its vendors. If the
Company's major vendors reduce their credit lines or product availability
to the Company, it could have a material adverse effect on the Company's
sales, cash position and liquidity.
FOR A DISCUSSION OF CERTAIN ADDITIONAL RISK FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH VOTING ON THE PREPACKAGED PLAN, SEE "RISK
FACTORS" IN PART B TO THE EXCHANGE RESTRUCTURING PROSPECTUS, ATTACHED
HERETO AS ANNEX IV.
BACKGROUND OF RESTRUCTURING
The following summary of the background of the Restructuring,
including the principal terms of the Letter Agreement, the Forbearance
Agreement and the Voting Agreement, does not purport to be complete and is
qualified in its entirety by reference to those documents, including the
definitions of certain terms contained therein. Copies of the Letter
Agreement and the Forbearance Agreement have been filed as Exhibits 10.42
and 10.43, respectively, to the Company's Registration Statement on Form
S-4 of which this Proxy Statement/Prospectus is a part. The form of Voting
Agreement is attached to the Company's Registration Statement on Form S-4,
of which this Proxy Statement/Prospectus is a part. Whenever particular
provisions of such documents are referred to herein, such provisions are
incorporated herein by reference, and the statements are qualified in their
entirety by such reference.
BACKGROUND OF THE RESTRUCTURING
On February 22, 1985, Salant NY and its two largest subsidiaries,
Thomson and Obion, filed with the Bankruptcy Court separate voluntary
petitions for relief under Chapter 11 of title 11 of the Bankruptcy Code
(Case Nos. 85-B-10229 (PBA) through 85-B-10231 (PBA), inclusive). Salant
NY's other United States, Canada and Mexico subsidiaries did not seek
relief under the Bankruptcy Code or other foreign insolvency laws,
respectively. On May 19, 1987, the Bankruptcy Court issued an order
confirming the 1987 Chapter 11 Plan. The 1987 Chapter 11 Plan was
consummated on June 2, 1987. On June 2, 1987, pursuant to the provisions of
the 1987 Chapter 11 Plan, the assets and liabilities of Salant NY, Thomson
and Obion were substantively consolidated, and Salant NY, Thomson and Obion
and the inactive subsidiaries of Salant NY merged with a wholly-owned
subsidiary of Salant NY. The Company is the surviving corporation of such
merger.
On June 27, 1990, the Company and its wholly-owned subsidiary, Denton
Mills, each filed with the Bankruptcy Court a separate voluntary petition
for relief under Chapter 11 of the Bankruptcy Code. On July 30, 1993, the
Bankruptcy Court issued an order confirming the 1993 Chapter 11 Plan. The
1993 Chapter 11 Plan was consummated on September 20, 1993. Pursuant to the
1993 Chapter 11 Plan, on September 20, 1993, the Company issued the Senior
Notes. While issuance of the Senior Notes facilitated the Company's
emergence from Chapter 11, the Company, as a result, was capitalized with a
significant amount of long-term debt. In connection with the formulation of
the 1993 Chapter 11 Plan, management of the Company believed that, based
upon projected operating results, the Company would be able to refinance
the Senior Notes prior to their final maturity. The entire aggregate
principal amount of the Senior Notes (which is currently in the aggregate
amount of $104.879 million) becomes due on December 31, 1998. Since
emerging from bankruptcy in September 1993, the Company has from time to
time explored various strategies regarding its overall business operations
and, in particular, various possible transactions that would result in a
refinancing of its long-term debt obligations. In this connection, during
the period from the beginning of Fiscal 1997 through the date of this Proxy
Statement/Prospectus, including since the announcement of the proposed
Restructuring on March 3, 1998, the Company has from time to time received
indications of interest from various third parties to purchase all or a
portion of the Company's businesses or assets. During this period, the
Company's refinancing efforts have been significantly hampered by its
inconsistent operating results and the fact that investors in the
marketplace generally do not look favorably upon investing in
highly-leveraged apparel companies.
In the latter half of Fiscal 1997, the Company, working with the
Company's various investment banking firms, the Board and management
analyzed and assessed its financial situation and explored with the Board
and management the availability of capital in both the private and public
debt and equity markets for the purpose of recapitalizing the Company. The
investment banking firms advised the Company that they did not believe that
the Company could recapitalize by use of the capital markets, in light of
the Company's past inconsistent operating performance, together with the
reluctance of investors to invest in apparel companies suffering from high
debt-to-equity ratios.
The Company's unfavorable operating results continued throughout the
fourth quarter of Fiscal 1997. Net sales for the fourth quarter of Fiscal
1997 were $116.4 million, a 1.1% increase from the comparable quarter in
1996, however, the Company's net losses amounted to $5.6 million (as
compared to a net income of $6.1 million in 1996) and the loss from
continuing operations before interest, income taxes and extraordinary gain
was $2.4 million (as compared to $10.6 million of income from continuing
operations before interest and income taxes for the same quarter of 1996).
These results heightened the Company's concern that, absent a restructuring
or other extraordinary transaction, it would be difficult for the Company
to make the principal payment under its Senior Notes due on December 31,
1998 of $104.879 million. Moreover, during the fourth quarter of Fiscal
1997, the Company closed 42 of its retail outlets (representing all retail
outlets other than the Perry Ellis outlet stores), determined to close one
of its distribution centers and changed the sourcing of a portion of its
Perry Ellis product line. While these changes were essential to streamline
the Company by eliminating non-core businesses and correcting certain
operational issues, these actions had a detrimental affect on the Company's
earnings and profitability in Fiscal 1997. As a result, heading into fiscal
year 1998, the Company was concerned that, in light of its inconsistent
operating performance and the Company's inability to access the capital
markets in order to refinance or retire its indebtedness under the Senior
Notes, the Company's ability to maintain the support and confidence of its
trade vendors was at risk. In that connection, the Company, in consultation
with its financial advisors, decided that it needed to immediately address
the Company's high level of indebtedness in order to avoid any permanent
adverse effects on its business operations, future productivity and growth
potential. In addition, as a result of the Company's performance during
Fiscal 1997, as of January 3, 1998, the Company had failed to meet certain
of the CIT Financial Covenants. In this connection, the Company reviewed
the advisability of making the $5.5 million interest payment on the Senior
Notes due and payable on March 2, 1998 with a view towards maximizing
liquidity in order to appropriately fund operations during the pendency of
the restructuring transactions. Commencing in December 1997, the Company
began discussions with CIT regarding a possible restructuring of the
Company's indebtedness under the Senior Notes (including various issues
relating to the Company's failure to meet the CIT Financial Covenants and
the upcoming March 1998 interest payment on the Senior Notes). The Company
believed that, given the potential instability that is associated with any
restructuring process, it would be most productive to adopt a strategy to
maximize liquidity and thereby protect the total enterprise value of the
Company. The Company also concluded that the Noteholders and the
Stockholders would best be served by converting the Senior Notes into
equity of the Company, thus allowing the Company to eliminate a significant
portion of its debt and substantially improve its balance sheet.
THE LETTER AGREEMENT
In furtherance of the Company's continuing efforts to deleverage, the
Company approached Magten to discuss the possible terms and conditions of a
restructuring of the indebtedness under the Senior Notes, including the
Magten Notes. In addition, in connection with the Company's efforts to
restructure, the Company developed the Three-Year Business Plan. See
"RESTRUCTURING FINANCIAL CONSIDERATIONS -- The Three-Year Business Plan."
During the months of January and February 1998 the Company continued to
actively discuss a restructuring of the Company with Magten and Apollo.
During this period, the Company continued its negotiations with CIT to
ensure its support of the Restructuring. The efforts culminated in the
Letter Agreement.
In connection with the discussions concerning the Restructuring by the
parties, and in order to determine the allocation of the equity of the
Company among the Stockholders and Noteholders upon the consummation of the
Restructuring, the parties assumed a total enterprise value for the Company
of $185 million. The parties also assumed that the average outstanding
balance under the Company's working capital facility for the
post-restructured Company would be $60 million. Thus, the total net equity
value of the Company, after giving effect to the Restructuring, was assumed
to be $125 million. Neither the Company, Magten nor Apollo has expressed
any opinion as to the accuracy of any of the foregoing assumptions,
including, without limitation, the total enterprise value of the Company.
Such assumptions were made solely for purposes of allocating the equity of
the Company post-Restructuring among the Noteholders and Stockholders
pursuant to the Restructuring and should not in any way be viewed as
indicative of any party's opinion as to the total enterprise value of the
Company.
As a result of the foregoing assumptions and calculations, the parties
agreed in the Letter Agreement that they would each support the
Restructuring (subject to certain conditions), pursuant to which (i)
Noteholders would receive 92.5% of the New Common Stock, which value would
imply a distribution of equity to Noteholders valued at $110 million after
giving effect to the conversion of the Senior Notes and after taking into
consideration the value of the Warrants as determined below (which is
approximately the aggregate outstanding amount under the Senior Notes -
i.e., $104.879 million in aggregate principal amount and $5.5 million in
accrued and unpaid interest as of March 2, 1998); and (ii) Stockholders
would receive (a) 7.5% of the New Common Stock, which value would imply a
distribution of equity to Stockholders valued at $8.9 million after taking
into consideration the value of the Warrants as determined below, and (b)
seven year Warrants representing the right to purchase 10% of the New
Common Stock (on a fully diluted basis). Using the Black-Scholes option
pricing formula which incorporates such factors as the relationship of the
underlying stock's price to the strike price of the Warrants and the time
remaining until the Warrants expire, a value of $6.1 million is implied for
the Warrants.
On March 2, 1998, Magten, Apollo and the Company entered into the
Letter Agreement setting forth the basic terms and conditions of the
Restructuring. Pursuant to the Letter Agreement, the parties agreed, among
other things, to support the Restructuring on the following terms: (i) the
entire long-term debt (which, as of March 2, 1998, was $110.379 million,
consisting of $104.879 million of principal amount, and $5.5 million of
accrued interest on, the Senior Notes) would be converted into 92.5% of the
Company's issued and outstanding New Common Stock, immediately following
consummation of the Exchange Restructuring, subject to dilution for shares
of New Common Stock issued under the Stock Award and Incentive Plan and the
Warrant Shares and, in the case of the Exchange Restructuring only, the
shares of New Common Stock issued under the Old Plans, and (ii) the Old
Common Stock would be converted into 7.5% of the Company's issued and
outstanding New Common Stock, immediately following consummation of the
Exchange Restructuring subject to dilution for shares of New Common Stock
issued under the Stock Award and Incentive Plan and the Warrant Shares and, in
the case of the Exchange Restructuring only, the shares of New Common Stock
issued under the Old Plans, plus Stockholders would receive seven year
Warrants to purchase up to 10% of the Company's New Common Stock, on a
fully diluted basis. In addition, pursuant to the Letter Agreement and in
order to effect the Restructuring, the Company agreed to (a) effectuate the
Reverse Split in order to "normalize" the post-restructuring trading of the
New Common Stock by reducing the number of outstanding shares and, thus,
increasing the per share stock price; (b) elect a new Board, consisting of
between five and seven members comprised of Mr. Jerald Politzer, as
Chairman, between three and five members nominated by Magten, subject to
consultation with the Company and other Noteholders who may come forward,
and one member nominated by the current Board; (c) enter into a
registration rights agreement for the benefit of Noteholders who will hold
10% or more of the New Common Stock immediately after occurrence of the
Exchange Restructuring Date, on terms and conditions reasonably acceptable
to Magten and the Company; (d) enter into a New Credit Agreement to replace
the Company's existing working capital facility under the Credit Agreement
on terms reasonably satisfactory to Magten and Apollo; (e) adjust all
existing stock options and other equity based plans to reflect the
Restructuring and/or adopt the Stock Award and Incentive Plan; and (f)
amend the Company's existing Rights Plan to permit the Restructuring to be
consummated without causing any rights thereunder to become exercisable as
a result. Pursuant to the Letter Agreement, Magten agreed, among other
things, to tender (or with respect to managed accounts, use its reasonable
best efforts to cause to be tendered) all of the Magten Notes in acceptance
of the Exchange Offer, provided that certain conditions are satisfied,
including that (i) all applicable federal and state securities laws are
complied with, and (ii) the terms of the Exchange Offer and the remaining
components of the Restructuring are consistent with the terms of the
Exchange Offer and Restructuring as described in the Letter Agreement. As
contemplated by the Letter Agreement, Magten has, in accordance with
Section 6.5 of the Indenture, caused a written direction to be provided to
the Trustee to forbear during the term of the Letter Agreement from taking
any action under the Indenture in connection with the failure by the
Company to make the interest payment on the Senior Notes that was due and
payable on March 2, 1998.
Each of the existing members of the Board has delivered to the Company
a resignation letter resigning from the Board effective as of the Exchange
Restructuring Date. In accordance with the Company's Certificate of
Incorporation, by resolution of the Board, the number of directors has been
fixed at [_________] effective as of the Exchange Restructuring Date. As
provided for in the Letter Agreement, the new Board will consist of: (i)
Mr. Jerald Politzer, as the Chairman of the Board; (ii) between three and
five members to be nominated by Magten, subject to consultation with the
Company and other Noteholders who may come forward prior to the
commencement of the Solicitation, and (iii) one member designated by the
current Board. As described above, as contemplated by the Letter Agreement,
it is expected that Magten will provide the Company with its Board nominees
prior to the commencement of the Solicitation. In addition, the current
Board has designated Marvin Schiller to be the current Board's nominee to
the new Board. If any nominee should be unavailable for election at the
Stockholders' Meeting, the proxies will be voted for the election of such
other person as may be recommended by the Board. See "INFORMATION REGARDING
NOMINEES."
Magten's obligations under the Letter Agreement will terminate upon
the occurrence of any of the following events (a "Magten Agreement
Termination Event") unless waived in writing by Magten:
(a) the Company has not obtained the requisite shareholder approval
for the Restructuring Proposals at the Stockholders' Meeting on
or before July 31, 1998;
(b) the Exchange Offer shall not have commenced on or before June 15,
1998;
(c) the Exchange Restructuring Date shall not have occurred on or
before July 31, 1998;
(d) the Company or Apollo shall have disclaimed publicly in writing
(or in a writing sent to Magten) its intention to pursue the
Restructuring;
(e) there occurs any material change in the terms or the feasibility
of the Restructuring that materially affects the Noteholders, not
previously consented to in writing by Magten;
(f) the Company shall be the subject of a voluntary or involuntary
petition under the Bankruptcy Code prior to the occurrence of the
Exchange Restructuring Date, other than the Prepackaged
Restructuring, provided, however, that the filing of an involuntary
petition will only be deemed to constitute a Magten Agreement
Termination Event when and if such involuntary petition for relief
has continued undismissed for 60 days or an order or decree
approving the involuntary petition has continued unstayed and in
effect for 60 days; and
(g) to the extent the right of Magten to vote or direct the
disposition of the Senior Notes results from an arrangement in
existence as of March 2, 1998 under which Magten has been engaged to
perform investment management services on behalf of a beneficial
owner of Senior Notes, (i) such engagement will be terminated by
such beneficial owner or as a result of any statutory, regulatory or
bona fide business requirement or condition not related to the
Letter Agreement, or (ii) such beneficial owner directs Magten to
dispose of some or all of the Senior Notes beneficially owned by
such beneficial owner; provided that, in any case, the Magten
Agreement Termination Event only applies to Senior Notes held by the
beneficial owner as to which engagement has been terminated or as to
which such disposal direction has been issued.
Apollo's obligations under the Letter Agreement will terminate upon
the occurrence of any of the following events (an "Apollo Agreement
Termination Event") unless waived in writing by Apollo:
(a) the Exchange Restructuring Date shall not have occurred on or
before July 31, 1998;
(b) there occurs any material change in the terms or the
feasibility of the Restructuring that materially and adversely
affects the Stockholders, not previously consented to by Apollo;
and
(c) the Company shall be the subject of a voluntary or
involuntarily petition under the Bankruptcy Code prior to the
occurrence of the Exchange Restructuring Date other than the
Prepackaged Restructuring, provided, however, that the filing of
an involuntary petition will only be deemed to constitute an
Apollo Agreement Termination Event when and if such involuntary
petition for relief has continued undismissed for 60 days or an
order or decree approving the involuntary petition has continued
unstayed and in effect for 60 days.
In addition, the respective obligations of Magten, Apollo and the
Company to consummate each of the transactions contemplated by the
Restructuring are also subject to the satisfaction of each of the following
conditions:
(a) neither Magten, the Company nor Apollo has failed to comply
with any of its obligations set forth in the Letter Agreement;
(b) negotiation, preparation and execution of mutually
satisfactory definitive transaction agreements and other
documents incorporating the terms and conditions of each of the
transactions contemplated by the Restructuring set forth in the
Letter Agreement and such other terms and conditions as the
parties may reasonably require;
(c) all authorizations, consents and regulatory approvals
required, if any, in connection with the consummation of the
transactions contemplated by the Restructuring and the
continuation of the Company's businesses as currently constituted
shall have been obtained; and
(d) the holders of 100% (or such lesser percentage as agreed upon
by Magten) of the Senior Notes shall have tendered their Senior
Notes in connection with the Exchange Offer.
In the event that less than 100% of the aggregate principal amount of
the Senior Notes are tendered in the Exchange Offer but at least two-thirds
in principal amount and a majority in number of the Noteholders voting and
at least two-thirds of the Stockholders voting have voted in favor of the
Prepackaged Plan, the Company intends to file the Prepackaged Plan under
Chapter 11 of the Bankruptcy Code. Pursuant to the Letter Agreement, Magten
has agreed to tender (or with respect to managed accounts, use its
reasonable best efforts to cause to be tendered), subject to certain
conditions, all of the Magten Notes pursuant to the Exchange Offer and, in
the event the Prepackaged Plan is pursued, to vote all of the Magten Notes
in favor of the Prepackaged Plan.
THE VOTING AGREEMENT
In accordance with the terms of the Letter Agreement, on May _,
1998, Apollo and the Company entered into the Voting Agreement. A form of
the Voting Agreement is filed as Exhibit 9.1 to the Company's Registration
Statement on Form S-4 of which this Proxy Statement/Prospectus is a part.
Pursuant to the Voting Agreement, Apollo agreed that, subject to Apollo's
receipt of proxy or other solicitation in respect of the Restructuring that
are consistent with the terms of the Letter Agreement, (A) at any meeting
of the Stockholders, however called, and in any action by consent of the
Stockholders, Apollo will vote all of the Apollo Shares in favor of each of
the transactions contemplated by the Restructuring with respect to which a
vote of the Stockholders is called, including, without limitation, each of
the Restructuring Proposals; (B) Apollo will vote all of the Apollo Shares
in favor of any plan of reorganization for which votes to accept or reject
such plan of reorganization have been solicited; provided, that, such plan
of reorganization is consistent with the terms of the Restructuring set
forth in the Letter Agreement; (C) so long as it is the beneficial owner of
the Apollo Shares, Apollo will not at any time prior to the termination of
the Letter Agreement, support or encourage, directly or indirectly, any
financial restructuring concerning the Company other than the Restructuring
or any transaction or other action that is inconsistent with the terms of
the Restructuring; and (D) Apollo will not sell, transfer or assign any of
the Apollo Shares or any voting interest therein during the term of the
Letter Agreement except to a purchaser who agrees in writing prior to such
acquisition to be bound by the terms of this Agreement and by all the terms
of the Letter Agreement with respect to the Apollo Shares being acquired by
such purchaser.
In addition, pursuant to the Voting Agreement, Apollo also agreed that
if it fails to comply with the provisions of the Letter Agreement, as
determined by the Company in its sole discretion, such failure will result,
without any further action by Apollo, in the irrevocable appointment of the
Company, until termination of the Voting Agreement, as Apollo's attorney
and proxy pursuant to the provisions of Section 212(c) of the DGCL, with
full power of substitution, to vote, and otherwise act (by written consent
or otherwise) with respect to the Apollo Shares which Apollo is entitled to
vote at any meeting of Stockholders (whether annual or special and whether
or not an adjourned or postponed meeting) or consent in lieu of any such
meeting or otherwise, on the matters and in the manner specified in the
Voting Agreement.
The Company's refinancing efforts during Fiscal 1997 included
discussions with DDJ regarding a possible refinancing transaction. As of
April 20, 1998, DDJ was the beneficial owner of 1,615,730 shares of Old
Common Stock, which represents approximately 10.8% of the issued and
outstanding shares of Old Common Stock. In connection with these
discussions, DDJ entered into the DDJ Confidentiality Agreement with the
Company relating to DDJ's review of various materials relative to such
proposed refinancing. The DDJ Confidentiality Agreement contained certain
restrictions on the ability of DDJ to buy or sell shares of Old Common
Stock. In accordance with the terms of the Letter Agreement, the Company
requested that DDJ enter into a voting agreement with the Company similar
to the Voting Agreement entered into with Apollo. DDJ, however, informed
the Company that it does not wish to enter into such a voting agreement. In
addition, on or about March 3, 1998, DDJ requested that the Company
terminate the restrictions on DDJ's ability to buy or sell shares of Old
Common Stock set forth in the DDJ Confidentiality Agreement. On March 4,
1998, the Company granted this request by DDJ.
THE WAIVER AND FORBEARANCE UNDER THE CREDIT AGREEMENT
CIT agreed to support the Company's restructuring efforts under the
Letter Agreement and, on March 2, 1998, the Company entered into the
Forbearance Agreement with CIT, wherein CIT (i) waived certain existing
financial covenant defaults under the Credit Agreement as of January 3,
1998, (ii) agreed to forbear (subject to certain conditions) from
exercising any of its rights or remedies arising under the Credit Agreement
arising from the Company's failure to make the interest payment on the
Senior Notes due and payable on March 2, 1998, (iii) agreed to continue
making loans, advances and other financial accommodations to the Company;
and (iv) agreed to amend certain provisions of the Credit Agreement,
including an increase in the advance rate for revolving loans made pursuant
to the Credit Agreement. Under the Forbearance Agreement, such agreement to
forbear by CIT will terminate on July 1, 1998 or earlier upon the happening
of (a) the occurrence of any Event of Default (as defined in the Credit
Agreement) other than a Payment Default (as defined in the Forbearance
Agreement) or (b) the failure of the Company to execute and deliver to CIT
before June 1, 1998, (i) a commitment letter executed by CIT providing for
the agreement between CIT and the Company to enter into a new $135 million
syndicated credit facility (in replacement of the financing and factoring
arrangements provided by CIT pursuant to the Credit Agreement) on terms and
conditions satisfactory to CIT or (ii) a copy of a commitment letter
executed between another lender and the Company providing for a credit
facility to the Company which by its terms provides for closing and funding
thereof on or before July 1, 1998, and enabling the Company upon such
closing and funding to simultaneously terminate the Credit Agreement and
all other Financing Agreements (as defined in the Credit Agreement) and to
satisfy in full all of its then existing Obligations (as defined in the
Credit Agreement) to CIT; or (c) the exercise of any right or remedy with
respect to any of the Collateral (as defined in the Credit Agreement) by
any holder of any Senior Notes or by the Trustee under the Indenture; or
(d) the payment of any interest on the Senior Notes in respect of the
Company's failure to make the March 2, 1998 interest payment or otherwise.
If the Company fails to execute and deliver to CIT, prior to June 1, 1998,
a commitment letter with CIT or another lender providing for an agreement
to enter into a New Credit Agreement, the Company intends to request an
extension of such deadline from CIT. However, there is no assurance that
such an extension would be granted. In addition, while the Company expects
that the Restructuring will be consummated prior to July 1, 1998, if the
Restructuring is not consummated by such date, the Company intends to
request an extension of the forbearance period referred to above from CIT.
However, there is no assurance that such an extension would be granted.
In consideration for CIT's agreement to enter into the Forbearance
Agreement, pursuant thereto, the Company agreed to pay CIT a forbearance
and waiver fee in the amount of $150,000. In addition, in consideration of
a New Credit Agreement proposed by CIT, the Company agreed to pay CIT a
non-refundable and fully earned fee of $1,050,000, payable in three equal
installments of $350,000 each on April 1, May 1 and June 1, 1998. This fee
is non-refundable in whole or in part, provided, however, that
notwithstanding the foregoing, (a) if the Company does execute a New Credit
Agreement with CIT, such fee will be applied to satisfy any and all closing
fees and facility fees under such New Credit Agreement, or (b) if CIT does
not extend a New Credit Agreement to the Company because CIT's Executive
Credit Committee fails to give credit approval for such facility, then
$600,000 of such fee shall be refunded to the Company. In the event that
CIT becomes the lender under the New Credit Agreement or under a
debtor-in-possession working capital facility, if the Prepackaged
Restructuring is pursued, the Forbearance Agreement provides that no other
closing fee or facility fee shall be due and payable in connection with any
such replacement credit facility provided by CIT.
PURPOSE OF THE RESTRUCTURING
The purpose of the Restructuring is to help ensure the long-term
viability and to contribute to the success of the Company by deleveraging
the Company's capital structure. Specifically, in accordance with the
Three-Year Business Plan developed by the Company, the Restructuring is
designed to recapitalize the Company by converting all of the Company's
long-term debt obligations under the Senior Notes (which, as of March 2,
1998, was $110.379 million, consisting of $104.879 million aggregate
principal amount of, and $5.5 million of accrued interest on, the Senior
Notes) into New Common Stock. Interest charges for the Company should be
substantially reduced and stockholders' equity should be substantially
increased as a result of the Restructuring. Upon consummation of the
Restructuring, the Company believes it will not have any long-term debt,
other than the term loan portion of its working capital facility. This
significantly lower debt-to-equity ratio should help the Company to achieve
the objectives as described in the Three-Year Business Plan and make the
Company more attractive to investors. The Company believes that by reducing
the uncertainty surrounding its ability to pay or retire the Senior Notes
which are due in their entirety, on December 31, 1998, at the end of the
fiscal year, the Restructuring should maximize liquidity for the Company's
business operations and thereby provide a platform for future growth and
enhance the Company's total enterprise value. The Company further believes
that by providing the Company with a deleveraged capital structure, the
company that results from the Restructuring should be positioned favorably
to withstand the normal market fluctuations in the highly volatile apparel
industry.
In contemplation of the Restructuring, the Company elected not to pay
the interest payment of approximately $5.5 million that was due and payable
under the Senior Notes on March 2, 1998, subject to a 30 day grace period.
Because the Company elected not to pay the interest due on the Senior Notes
by the expiration of the applicable grace period, an event of default has
occurred with respect to the Senior Notes entitling the Noteholders to
accelerate the maturity thereof. Pursuant to the Letter Agreement, Magten
has, in accordance with Section 6.5 of the Indenture, caused a written
direction to be provided to the Trustee to forbear during the term of the
Letter Agreement from taking any action under the Indenture in connection
with the failure by the Company to make the interest payment on the Senior
Notes that was due and payable on March 2, 1998. On April 8, 1998, the
Trustee issued a Notice of Default stating that as a result of the
Company's failure to make the interest payment on the Senior Notes, an
event of default under the Indenture had occurred on April 1, 1998. Holders
of at least 25% in the aggregate principal face amount of the Senior Notes
may accelerate all outstanding indebtedness under the Senior Notes pursuant
to the terms of the Indenture. If such holders accelerate the indebtedness
under the Senior Notes, the Company may be required to commence a
proceeding under the Federal bankruptcy laws without having solicited
acceptances for the Prepackaged Plan prior to the commencement of such
proceeding. In addition, the Company's working capital lender, CIT, agreed
to forbear until July 1, 1998, subject to certain conditions, from
exercising any of its rights or remedies under the Credit Agreement,
arising by virtue of the Company's failure to pay such interest on the
Senior Notes. Failure to consummate the Restructuring could result in the
acceleration of all of the indebtedness under the Senior Notes and/or the
Credit Agreement.
ABSENT THE RESTRUCTURING, THE COMPANY DOES NOT BELIEVE IT WILL BE ABLE
TO SATISFY ITS OBLIGATIONS UNDER THE SENIOR NOTES WITHOUT A REFINANCING OF
THE COMPANY'S INDEBTEDNESS UNDER THE CREDIT AGREEMENT AND/OR THE SENIOR
NOTES OR AN ADDITIONAL CAPITAL INFUSION, AND IT IS UNLIKELY THAT THE
COMPANY WILL BE ABLE TO OBTAIN SUCH REFINANCING OR ADDITIONAL CAPITAL
INFUSION. IF THE COMPANY DETERMINES THAT IT IS OR WILL BE UNABLE TO
COMPLETE THE RESTRUCTURING, THE COMPANY WILL CONSIDER ALL OTHER AVAILABLE
FINANCIAL ALTERNATIVES, INCLUDING THE SALE OF ALL OR A PART OF THE
COMPANY'S BUSINESSES, THE IMPLEMENTATION OF AN ALTERNATIVE RESTRUCTURING
ARRANGEMENT OUTSIDE OF BANKRUPTCY, OR THE COMMENCEMENT OF A CHAPTER 11 CASE
WITHOUT A PRE-BANKRUPTCY ACCEPTED PLAN OF REORGANIZATION. THERE CAN BE NO
ASSURANCE, HOWEVER, THAT ANY ALTERNATIVE WOULD BE ON TERMS AS FAVORABLE TO
NOTEHOLDERS AND STOCKHOLDERS AS THE RESTRUCTURING.
If any of the Restructuring Proposals are not approved by the
Stockholders and/or the Minimum Tender Condition is not satisfied or
waived, but the Company receives sufficient acceptances of the Prepackaged
Plan to obtain confirmation thereof by the Bankruptcy Court, then the
Company intends to pursue confirmation of the Prepackaged Plan under
Chapter 11 of the Bankruptcy Code and to attempt to use such acceptances to
obtain confirmation of the Prepackaged Plan. If the Company determines that
it is or will be unable to complete the Restructuring, the Company will
consider all financial alternatives available to it at such time, which may
include the sale of all or part of the Company's business, the
implementation of an alternative restructuring arrangement outside of
bankruptcy, or the commencement of a Chapter 11 case with or without a
preapproved plan of reorganization. There can be no assurance, however,
that any alternative restructuring would result in a reorganization of the
Company rather than a liquidation, or that any such reorganization would be
on terms as favorable to the Noteholders and Stockholders as the terms of
the Restructuring. If a liquidation or a protracted and non-orderly
reorganization were to occur, there is a risk that the ability of the
Noteholders and Stockholders to recover their investments would be even
more impaired than under the Restructuring and would be substantially
delayed. A non-consensual restructuring would likely have a material
adverse impact on the Company and its employees, suppliers and customers.
RESTRUCTURING FINANCIAL CONSIDERATIONS
BACKGROUND OF THE RESTRUCTURING FINANCIAL ANALYSIS
The Restructuring was designed to enable the Company to achieve the
Three-Year Business Plan by attempting to maximize liquidity for the
Company's business operations which should thereby provide a platform for
future growth and enhance the Company's total enterprise value. The Board
reviewed the Three-Year Business Plan and projections and the various
factors influencing the apparel industry which historically had affected
the Company's operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in Part A of the Exchange
Restructuring Prospectus, attached hereto as Annex IV.
FAIRNESS OPINION
Pursuant to an agreement effective as of December 18, 1997, between
E&Y and the Company (the "E&Y Agreement"), the Company engaged E&Y to act
as its financial advisor in connection with the Restructuring. In addition,
E&Y performed certain valuation services at the request of the Company
under the E&Y Agreement. For a more detailed description of the
arrangements pursuant to the E&Y Agreement, including the fees and expenses
payable to E&Y by the Company, see the description contained herein under
the heading "ADVISORS AND REPRESENTATIVES."
On March 25, 1998, the Company retained E&Y to render its opinion as
to whether or not the consideration to be received by public Stockholders
pursuant to the Restructuring is fair to the public Stockholders from a
financial point of view. On April 21, 1998, at the request of the Board,
E&Y delivered to the Board a written opinion that, as of that date
and based upon and subject to the factors and assumptions set forth
therein, the consideration to be received by public Stockholders pursuant
to the Restructuring is fair to the public Stockholders from a financial
point of view. E&Y subsequently delivered to the Board their written
opinion that, as of the date of this Proxy Statement/Prospectus and based
upon and subject to the factors and assumptions set forth therein, the
consideration to be received by public Stockholders pursuant to the
Restructuring is fair to the public Stockholders from a financial point of
view (the "E&Y Fairness Opinion").
THE FULL TEXT OF THE E&Y FAIRNESS OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON
THE REVIEW UNDERTAKEN BY E&Y, IS ATTACHED AS ANNEX I HERETO AND IS
INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF THE COMPANY ARE URGED TO
READ SUCH OPINION IN ITS ENTIRETY. THE E&Y FAIRNESS OPINION WAS PROVIDED TO
THE BOARD FOR ITS USE AND BENEFIT AND IS DIRECTED ONLY TO THE FAIRNESS FROM
A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED BY PUBLIC
STOCKHOLDERS PURSUANT TO THE RESTRUCTURING AND DOES NOT ADDRESS THE MERITS
OF THE UNDERLYING DECISION BY THE COMPANY TO ENGAGE IN THE RESTRUCTURING
NOR DOES IT CONSTITUTE A RECOMMENDATION TO THE COMPANY'S STOCKHOLDERS AS TO
HOW SUCH STOCKHOLDERS SHOULD VOTE ON THE PROPOSED RESTRUCTURING. THE
SUMMARY OF THE E&Y FAIRNESS OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
In arriving at the E&Y Fairness Opinion, E&Y, among other things: (i)
reviewed the terms of the Restructuring, as set forth in the Letter
Agreement included in the Company's Form 8-K filing dated March 2, 1998,
the Company's Annual Report, Form 10-K and related audited financial
information for the fiscal year ended January 3, 1998 and the Company's
Forms 10-Q and the related unaudited financial information for the
quarterly periods ending September 27, 1997 and June 28, 1997, unaudited
financial information for the two month period ending March 7, 1998 and a
draft copy of the Company's Registration Statement on Form S-4, dated April
17, 1998, to be filed in conjunction with the Restructuring; (ii) reviewed
and discussed with the Company's management certain information, including
financial forecasts (specifically the Three-Year Business Plan), relating
to the business, earnings, cash flow, assets, liabilities and prospects of
the Company, furnished to E&Y; (iii) conducted discussions with members of
senior management of the Company concerning their respective businesses and
prospects, before and after giving effect to the Restructuring; (iv)
reviewed the historical market prices and valuation multiples for the Old
Common Stock and considered the reasonableness of this information as it
related to fair market valuation of the Old Common Stock; (v) applied
commonly-accepted valuation procedures in determining the fair market value
of the Company's total invested capital ("TIC") on a going concern basis;
(vi) reviewed the Three-Year Business Plan; and (vii) reviewed such other
financial studies and analyses and took into account such other matters as
E&Y deemed necessary, including its assessment of general economic, market
and monetary conditions.
In preparing its opinion, E&Y assumed and relied on the accuracy and
completeness of all information supplied by the Company or others,
information otherwise made available to E&Y, information discussed with or
reviewed by or for E&Y, and any publicly available information. E&Y did not
assume any responsibility for independently verifying such information and
did not undertake an independent evaluation or appraisal of any of the
assets or liabilities of the Company. In addition, E&Y did not assume any
obligation to conduct, nor did E&Y conduct, any physical inspection of the
properties or facilities of the Company. With respect to the financial
forecast information furnished to or discussed with E&Y by the Company, E&Y
assumed that they were reasonably prepared and reflect the best currently
available estimates and judgments of the Company's management as to the
expected future financial performance of the Company, as the case may be.
E&Y also assumed that the final form of the Restructuring would be in the
form of the Restructuring as set forth in the draft copy of the Company's
Form S-4, dated April 17, 1998.
The E&Y Fairness Opinion is necessarily based upon market, economic
and other conditions as they existed and could be evaluated, and on the
information made available to E&Y as of, the date of such opinion. E&Y
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the Restructuring, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on
the contemplated benefits to Stockholders of the Restructuring. E&Y was not
authorized by the Company or the Board to solicit, nor did it solicit,
third-party indications of interest for the acquisition of all or any part
of the Company. E&Y did participate in discussions and negotiations among
representatives of the Company, Apollo and Magten, including each party's
financial and legal advisors, and it provided advisory services to the
Company in connection with the Restructuring including valuation and
assessment of the terms of the Restructuring, however, E&Y did not
determine the terms of the Restructuring. In addition, E&Y was not asked to
consider, and the E&Y Fairness Opinion does not in any manner address, the
price at which shares of the Company will trade following the announcement
or consummation of the Restructuring.
The following is a summary of the facts and circumstances observed by
E&Y and the material financial and comparative analyses performed by E&Y in
connection with the preparation of the E&Y Fairness Opinion.
REVIEW OF THE PROCESS BY WHICH THE TERMS OF THE RESTRUCTURING WERE
DETERMINED. E&Y reviewed the facts and circumstances surrounding the
Company leading to the Restructuring as well as the process by which the
Restructuring was negotiated to identify issues relating to fairness to
public Stockholders. The Company had advised E&Y that the following issues,
among others, occurring prior to the Restructuring, are important to
consider: (i) the severe financial distress of the Company caused by
decreasing sales volume in Fiscal 1997, (ii) the inability of the Company
to meet the CIT Financial Covenants as of January 3, 1998, (iii)
anticipated difficulty in meeting a semi-annual coupon payment on the
Senior Notes, (iv) anticipated difficulty in meeting funding requirements
for critical capital expenditures required to maintain the Company's
operations on a competitive footing, (v) anticipated difficulty in
refinancing the Senior Notes upon maturity at December 31, 1998, and (vi)
replacement of substantially all of the Company's senior management in 1997
including the Chief Executive Officer, Chief Financial Officer and other
members of senior management.
With regard to the facts and circumstances surrounding the negotiation
process in which the terms of the Restructuring were determined, E&Y
observed, among other things, that (i) the Company initiated negotiations
with the largest holders of the Senior Notes and Old Common Stock, Magten
and Apollo, respectively, (ii) under the Current Structure, Magten controls
approximately 67% of the Senior Notes, and Apollo controls approximately
40% of the Old Common Stock, (iii) at the time of the negotiations, DDJ, an
entity unrelated to either the Company, Magten or Apollo, held
approximately 12% of the Company's Old Common Stock and was not included in
negotiations regarding the Restructuring, (iv) the Company proposed a
restructuring plan under which holders of the Senior Notes would exchange
their claims against the Company for a percentage of the Company's common
stock, (v) in several negotiations taking place over the course of several
weeks, the Company, Magten and Apollo agreed to the terms of the
Restructuring, (vi) Magten and Apollo are unrelated entities and have no
interests in the Company other than those represented by their respective
claims against and interests in the Company, and (vii) based on publicly
available information, as of the date of its opinion, Magten owns none of
the Company's common equity, and Apollo owns none of the Company's Senior
Notes.
FAIR MARKET VALUATION OF THE COMPANY'S TOTAL INVESTED CAPITAL. In
conducting financial analyses to determine the fairness of the
Restructuring to the public Stockholders, E&Y employed commonly-accepted
valuation approaches to determine the fair market value of the Company's
total invested capital on a going concern basis. Such commonly accepted
valuation approaches include, but are not limited to the guideline company
approach, the comparable transaction approach and the discounted cash flow
approach described herein.
GUIDELINE COMPANY APPROACH. E&Y performed a guideline company analysis
to identify the fair market value of the Company's TIC on a going concern
basis pursuant to which it compared certain publicly available financial
and operating data, projections of future financial performance and market
statistics (based on closing stock prices on April 3, 1998) of nine
companies with those for the Company assuming implementation of the
Restructuring. These companies include Farah, Inc., Garan, Inc., Haggar
Corp., Hampton Industries, Hartmarx Corp., Oxford Industries, Inc.,
Phillips-Van Heusen, Premiumwear, Inc. and Supreme International Corp. E&Y
compared TIC as a multiple of, among other things, latest twelve months
("LTM") earnings before interest, taxes, depreciation and amortization
("EBITDA"), 1998 estimated EBITDA, LTM earnings before interest and taxes
("EBIT"), 1998 estimated EBIT, LTM sales and 1998 estimated sales. In each
case, financial performance of the Company assumed implementation of the
Restructuring. With respect to the nine guideline companies, E&Y's analysis
indicated median TIC as a multiple of LTM EBITDA of 8.0x, 1998 estimated
EBITDA of 5.7x, LTM EBIT of 10.5x , 1998 estimated EBIT of 9.6x, LTM sales
of 0.48x, 1998 estimated sales of 0.46x.
No company utilized in the guideline company approach analysis was
identical to the Company. Accordingly, an analysis of the results of such a
comparison is not purely mathematical; rather it involves complex
considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the comparable
companies and other factors that could affect the public trading value of
the comparable companies or company to which they are being compared.
COMPARABLE TRANSACTION APPROACH. E&Y reviewed certain publicly
available information regarding six selected apparel industry acquisitions
announced since February 1993 (the "Acquisition Comparables"), and for each
transaction calculated transaction value (defined as offer value plus total
debt) as a multiple of LTM EBITDA, LTM EBIT and LTM revenues. Such analysis
indicated that the transaction value as a multiple of LTM EBITDA ranged
from 6.2x to 7.9x, with a median of 7.6x, as a multiple of LTM EBIT ranged
from 5.9x to 16.1x, with a median of 8.6x, and as a multiple of LTM
revenues ranged from 0.44x to 0.92x, with a median of 0.76x.
There were a limited number of transactions in the apparel industry
which E&Y deemed to be relevant. No company utilized in the comparable
apparel industry acquisitions analysis was identical to the Company.
Accordingly, an analysis of the results of this comparison is not purely
mathematical; rather it involves complex considerations and judgments
concerning differences in historical and projected financial and operating
characteristics of the comparable acquired companies and other factors that
could affect the offer value of such companies and the Company.
DISCOUNTED CASH FLOW ANALYSIS. Using projections for the Company
prepared by its management for the fiscal years ending January 1, 1999
through December 30, 2000 (the "Company Projections"), E&Y calculated
ranges of implied TIC values for the Company based upon the sum of the
discounted present value of the Company's three year stream of projected
un-levered after-tax free cash flow (defined as tax-effected EBIT excluding
extraordinary and non-recurring items, plus depreciation and amortization,
minus capital expenditures, minus (plus) increases (decreases) in working
capital) and the discounted net present value of a terminal value based on
a range of multiples of its projected calendar year 2000 EBITDA. In
performing this analysis, E&Y utilized discount rates reflecting a weighted
average cost of capital.
COMPARISON OF ALLOCATION OF TIC ON A GOING CONCERN BASIS TO EXISTING
EQUITY. E&Y reviewed the proportion of TIC value, as calculated on a going
concern basis, that would be attributable to the current owners of the Old
Common Stock both under the current capital structure of the company (the
"Current Structure") as well as under the revised capital structure
described in the Restructuring. Value allocable to the owners of the Old
Common Stock under the Current Structure equals 100% of the Company's TIC
value after satisfying the Credit Agreement and the Senior Notes. Value
allocable to current owners of the Old Common Stock under the revised
capital structure described in the Restructuring equals the value of the
Warrants plus 7.5% of the Company's New Common Stock after satisfying the
Credit Agreement. E&Y has identified value of the Warrants by, among other
things, employing a Black-Scholes option pricing model.
By allocating the fair market value of the Company's TIC, as
calculated on a going concern basis, to holders of Senior Notes and Old
Common Stock under the Current Structure, E&Y has not quantified potential
decreases in the value of such securities due to the Company's current
financial distress and associated additional risk.
CONSIDERATION OF CONTROL STATUS AND MARKETABILITY. E&Y has considered
the issues of relative elements of control status and marketability faced
by holders of Old Common Stock under the Current Structure and as
anticipated under the revised structure as set forth in the Restructuring.
HISTORICAL STOCK PRICE ANALYSIS. E&Y reviewed and analyzed the history
of the trading price for the Company's common stock. Since emerging from
bankruptcy in 1993, the Company's stock price declined steadily, losing
approximately 85% of its value between the four-year high of $11.00 per
share in June of 1994 and the $1.6875 value per share as of the March 2,
1998, which is the date immediately prior to the public announcement of the
Restructuring. The price per share as of March 2, 1998 also represented
over a 40% decline since announcement of the Company's third quarter
results in early November of 1997. With the exception of an early December
announcement of a charge to be taken by the Company in connection with
closure of outlet stores, no information had been publicly disclosed prior
to the March 3, 1998 public announcement with regard to the Company's
failure to satisfy the covenants of its Credit Agreement nor on the
Company's potential difficulty in meeting a March, 1998 semi-annual coupon
payment due on the Senior Notes while also funding critical capital
expenditures. Following the March filing, the stock price further declined
from $1.69 as of February 27, 1998 to $0.63 as of March 13, 1998.
The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances. Therefore, such an opinion is not readily
susceptible to partial analysis or summary description. In arriving at its
opinion, E&Y did not attribute any particular weight to any analysis or
factor considered by it. Accordingly, E&Y's analyses must be considered as
a whole and selecting portions of its analyses, without considering all of
its analyses, would create an incomplete view of the process underlying the
E&Y Fairness Opinion.
In performing its analyses, numerous assumptions were made with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the
control of E&Y or the Company. Any estimates contained in the analyses
performed by E&Y are not necessarily indicative of future results, which
may be significantly more or less favorable than suggested by such
analyses. Additionally, estimates of the value of businesses or securities
do not purport to be appraisals or to reflect the prices at which such
businesses or securities might actually be sold. Accordingly, such analyses
and estimates are inherently subject to substantial uncertainty. In
addition, as described above, the E&Y Fairness Opinion was among several
factors taken into consideration by the Board in making its determination
to approve the Restructuring. Consequently, the E&Y analyses described
herein should not be viewed as determinative of the decision of the Board
or the Company's management with respect to the fairness of the
Restructuring.
E&Y'S FINANCIAL ADVISORY FEE. In connection with the E&Y Fairness
Opinion and pursuant to a letter agreement dated March 25, 1998 between the
Company and E&Y, the Company agreed to pay E&Y (i) a fee of $75,000 payable
in cash upon execution of the letter agreement and (ii) $75,000 payable in
cash on the date that E&Y informed the Company that they were prepared to
deliver the E&Y Fairness Opinion. Pursuant to such letter agreement the
Company also agreed to reimburse E&Y for its reasonable out-of-pocket
expenses and indemnify E&Y and certain related persons for certain
liabilities related to or arising out of its engagement, including
liabilities under Federal securities laws. To date, the Company has paid
$150,000 to E&Y in respect of it services pursuant to such letter
agreement. In addition to the letter agreement entered into in connection
with the E&Y Fairness Opinion, E&Y and the Company entered into the E&Y
Agreement effective as of December 18, 1997 pursuant to which the Company
engaged E&Y to act as its financial advisor in connection with the
Restructuring. Pursuant to the E&Y Agreement, the Company agreed to pay E&Y
a monthly advisory fee in the amount of $125,000, consisting of two
components (i) $95,000 per month, and (ii) $90,000 at the end of every
three month period (representing $30,000 per month for the prior three
months) and to reimburse E&Y for its reasonable out-of-pocket costs. To
date, the Company has paid approximately $500,000 to E&Y in respect of its
services under the E&Y Agreement. The E&Y Agreement may be terminated at
any time. At the request of the Company, E&Y performed certain valuation
services under the E&Y Agreement. In connection with those services, E&Y
has been paid $100,000 by the Company. See "ADVISORS AND REPRESENTATIVES."
E&Y is an internationally recognized financial services firm. E&Y,
through its Financial Advisory Service practice, is continuously engaged in
the valuation of businesses and securities in connection with
restructurings, mergers and acquisitions and other purposes. E&Y has in the
past provided financial advisory services to the Company, including having
acted as advisor to the Company and providing valuation services in
connection with the re-negotiation of its Credit Agreement and with
consideration of this Restructuring, and may continue to do so and has
received, and may receive, fees for the rendering of such services.
Although E&Y did not determine the terms of the Restructuring, E&Y did
provide financial advisory services to the Company including valuation
advisory services pertaining to the terms of the Restructuring.
THE THREE-YEAR BUSINESS PLAN
The summary that follows is not intended to be complete and is
qualified in its entirety by the actual terms of the Three-Year Business
Plan.
In the latter part of Fiscal 1997 and the beginning of 1998, the
Company developed the Three-Year Business Plan. Under the Three-Year
Business Plan, the Company intends to, among other things: (i) grow its
currently profitable branded businesses with its existing labels such as
PERRY ELLIS, JOHN HENRY and MANHATTAN; (ii) expand its branded menswear
business with new licensed labels; (iii) expand its private brand programs
such as Sear's CANYON RIVER BLUES denim and KHAKI programs; (iv) develop
strategies designed to return the Company's Children Group to historical
levels of profitability; (v) implement procedures designed to improve
operational efficiencies in distribution, manufacturing and information
systems; and (vi) leverage the overhead structure of the Company.
While the Three-Year Business Plan contemplates the Company
maintaining each business segment and major line of business through the
three year period, the Company will periodically review each such business
segment and major line of business in order to determine whether each
aspect of the Company's business is (i) performing as budgeted (ii)
consistent with the Company's strategic goals, and (iii) conducive to
creating operating profits in order to maximize shareholder value. As a
result of such periodic reviews the Company may determine to refocus
capital to different aspects of its business, sell assets and/or exit
certain businesses.
As part of the Three-Year Business Plan, the Company developed
projected financial information for each of fiscal years 1998, 1999 and
2000. See "PROJECTED CONSOLIDATED FINANCIAL INFORMATION."
LIQUIDATION ANALYSIS
The Company has prepared a liquidation analysis, which is included in
the Disclosure Statement. The Disclosure Statement is attached as Part B to
the Exchange Restructuring Prospectus, attached hereto as Annex IV. The
liquidation analysis estimates the gross value available for distribution
in such a liquidation to be between $122,541,000 and $149,167,000 less (i)
all indebtedness outstanding under the Credit Agreement with CIT estimated
to be $58,562,000, and (ii) administrative expenses including trustee and
professional fees estimated to be between $43,062,000 and $51,667,000.
Accordingly, under such analysis the net proceeds available to Noteholders
and Stockholders would be between $12,312,000 and $47,453,000. Based on the
Noteholders' claim of $104,879,000 plus accrued and unpaid interest to the
date of liquidation (which amounts are estimated to aggregate
$114,067,000), the liquidation would net the Noteholders' between a 10.8%
and a 41.7% recovery on their claims and leave existing Stockholders with
no consideration, assuming a strict priority distribution.
The liquidation analysis is an estimate of the proceeds that may be
generated as a result of a hypothetical Chapter 7 liquidation of the assets
of the Company. The liquidation analysis makes numerous assumptions with
respect to asset valuation, industry performance, business and economic
conditions, and other matters, many of which are beyond the Company's
control. Moreover, the methods and assumptions used in preparing the
liquidation analysis involve significant elements of subjective judgment on
the part of the Company and may or may not prove to be correct. The
liquidation analysis does not purport to be a valuation of the Company's
assets and is not necessarily indicative of the values that may be realized
in an actual liquidation, which may be significantly more or less favorable
than the estimates contained in the liquidation analysis. For a discussion
of the assumptions used in preparing the liquidation analysis, see "BEST
INTERESTS TEST" in Part B to the Exchange Restructuring Prospectus,
attached hereto as Annex IV.
STOCKHOLDERS' MEETING, VOTING RIGHTS AND PROXIES
DATE, TIME AND PLACE OF STOCKHOLDERS' MEETING
The Stockholders' Meeting will be held at Fried, Frank, Harris,
Shriver & Jacobson, One New York Plaza, New York, New York 10004, on
_________, 1998, at ____ __.m., New York City time. The Stockholder votes
with respect to the Issuance and the Election of the New Board will not be
effective unless and until the Charter Amendment is approved at the
Stockholders' Meeting and the Exchange Restructuring has been consummated
and the Charter Amendment has been filed with the Secretary of State of
Delaware. If the Stockholders approve the Stock Award and Incentive Plan,
the Stock Award and Incentive Plan will be effective regardless of whether
the Exchange Restructuring is implemented or any of the Restructuring
Proposals are approved. If each of the Restructuring Proposals is not
approved by the Stockholders and/or the Minimum Tender Condition is not
satisfied or waived, but the Company receives sufficient acceptances of the
Prepackaged Plan to obtain confirmation thereof by the Bankruptcy Court,
then the Company intends to pursue confirmation of the Prepackaged Plan
under Chapter 11 of the Bankruptcy Code and to attempt to use such
acceptances to obtain confirmation of the Prepackaged Plan. If the
Prepackaged Restructuring is consummated and a Chapter 11 petition is filed
under the Bankruptcy Code, the Company expects that each of the
Restructuring Proposals will be implemented pursuant to the Prepackaged
Plan. See "SUMMARY OF THE PLAN" in Part B to the Exchange Restructuring
Prospectus, attached hereto as Annex IV.
SOLICITATION OF PROXIES; RECORD DATE
This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of proxies to be voted at the Stockholders'
Meeting. In addition, this Proxy Statement/Prospectus is furnished in
connection with the solicitation by the Board of Ballots to be voted in
connection with the Prepackaged Plan.
YOU MUST COMPLETE AND RETURN BOTH THE PROXY AND THE BALLOT IN ORDER TO
VOTE ON BOTH THE PROPOSALS AND THE PREPACKAGED PLAN. THE BOARD RECOMMENDS A
VOTE "FOR" EACH OF THE PROPOSALS AND THE PREPACKAGED PLAN.
The Record Date for purposes of determining which Stockholders are
eligible to vote on the Prepackaged Plan and at the Stockholders' Meeting
is ________. On the Record Date there were 14,964,608 shares of Old Common
Stock outstanding, of which there were [ ] holders of record. Stockholders
are not required to vote at the Stockholders' Meeting in order to vote on
the Prepackaged Plan. It is important that all Stockholders vote to accept
or to reject the Prepackaged Plan because, under the Bankruptcy Code, for
purposes of determining whether the requisite acceptances have been
received, only Stockholders holders who vote will be counted. Failure by a
holder to send a duly completed and signed Ballot will be deemed to
constitute an abstention by such holder with respect to a vote on the
Prepackaged Plan. Abstentions as a result of not submitting a duly
completed and signed Ballot will not be counted as votes for or against the
Prepackaged Plan. Any Ballot which is executed by a holder but does not
indicate an acceptance or rejection of the Prepackaged Plan will not be
counted as a vote for or against the Prepackaged Plan. See "TENDERING AND
VOTING PROCEDURES" in Part A to the Exchange Restructuring Prospectus,
attached hereto as Annex IV, and "VOTING PROCEDURES AND REQUIREMENTS" in
Part B to the Exchange Restructuring Prospectus, attached hereto as Annex
IV.
WHETHER OR NOT YOU ARE ABLE TO ATTEND THE STOCKHOLDERS' MEETING, YOUR
VOTE BY PROXY IS VERY IMPORTANT. STOCKHOLDERS ARE ENCOURAGED TO MARK, SIGN
AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN
ENVELOPE. STOCKHOLDERS WHO COMPLETE A PROXY WITH RESPECT TO THE
STOCKHOLDERS' MEETING SHOULD ALSO DULY COMPLETE AND SIGN A BALLOT IN ORDER
TO VOTE ON THE PREPACKAGED PLAN.
Proxies and Ballots are being solicited by and on behalf of the Board.
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement/Prospectus, will be borne by the Company. In
addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of the Company in person or by telephone,
telegram or other means of communication. Such directors, officers and
employees will not be additionally compensated, but may be reimbursed for
out-of-pocket expenses in connection with such solicitation. Arrangements
will also be made with custodians, nominees and fiduciaries for forwarding
of proxy solicitation material to beneficial owners of Old Common Stock
held of record by such persons, and the Company may reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. To assure the presence in person or by proxy of the
largest number of Stockholders possible, [ ], the Information Agent, has
been engaged to solicit Proxies on behalf of the Company for a customary
fee plus reasonable out-of-pocket expenses.
PURPOSE OF STOCKHOLDERS' MEETING
The purpose of the Stockholders' Meeting is to consider the following
Proposals set forth in this Proxy Statement/Prospectus: (i) the Charter
Amendment, (ii) the Issuance, (iii) the Plan Proposal, (iv) the Election of
the New Board, (v) the appointment of Deloitte & Touche as independent
auditors to the Company, and (vi) such other business as may properly come
before the Stockholders' Meeting or any adjournments or postponements
thereof. Each of the Restructuring Proposals is conditioned upon the
approval by the Stockholders of each of the other Restructuring Proposals.
If any or all of the Restructuring Proposals are not approved by the
Stockholders at the Stockholders' Meeting, then none of the Restructuring
Proposals will become effective. Ratification of the appointment of
Deloitte & Touche and approval of the adoption of the Stock Award and
Incentive Plan are not, however, conditions to the consummation of the
Exchange Restructuring.
THE CHARTER AMENDMENT
The Board has unanimously adopted a resolution approving, subject to
consummation of the Exchange Restructuring, the amendment of the Company's
Certificate of Incorporation by the Charter Amendment. The purposes and
effects of the Charter Amendment are to effect (i) the Reverse Split and
(ii) an increase in the number of shares of New Common Stock authorized.
For the full text of the Charter Amendment, see "DISCUSSION OF THE
PROPOSALS -- The Charter Amendment." Magten has advised the Company that it
may request additional changes to the Company's Certificate of
Incorporation and, in such event, this Proxy Statement/Prospectus will,
upon approval of the Board, be amended to reflect such changes.
If the Reverse Split were not implemented pursuant to the Charter
Amendment as part of the Exchange Restructuring, there would be
approximately 221,697,896 million shares of New Common Stock issued and
outstanding after giving effect to the Exchange Restructuring, and the per
share stock price of the New Common Stock would be less than $1.00 per
share. Thus, the Reverse Split is necessary in order to "normalize" the
post-Restructuring trading of the New Common Stock by reducing the number
of outstanding shares and thereby increasing the trading price of the New
Common Stock from where it would otherwise trade in the absence of the
Reverse Split assuming the aggregate market capitalization of the Company
remains constant. Such increase of the trading price may, although there is
no assurance that it will, (i) enhance the attractiveness of the New Common
Stock to certain institutional investors whose investing guidelines require
that the securities that they purchase meet certain minimum trading price
criteria, (ii) permit investors to purchase New Common Stock from
broker/dealers on margin in accordance with applicable regulations, and
(iii) militate in favor of continued listing of the New Common Stock on the
NYSE. Pursuant to the Letter Agreement, the Reverse Split is required for
the Company to consummate the Exchange Restructuring.
The Charter Amendment also has the effect of amending Article Fourth
of the Certificate of Incorporation to increase the number of shares of New
Common Stock authorized and available for issuance from 30,000,000 to
45,000,000. Management believes that such Amendment would benefit the
Company by providing greater flexibility to the Board to issue additional
equity securities, for example, to raise additional capital, to facilitate
possible future acquisitions, to provide stock-related employee benefits
and to effect stock splits of the outstanding New Common Stock. If the
Charter Amendment is approved at the Stockholders' Meeting, generally, no
Stockholder approval would be necessary for the issuance of all or any
portion of the additional shares of New Common Stock unless required by law
or any rules or regulations to which the Company is subject. However, as
long as the New Common Stock is quoted for trading through the NYSE, the
flexibility that the Charter Amendment would provide the Board to issue
shares of New Common Stock will be limited by the rules of such exchange
which, as presently in effect, would generally require Stockholder approval
for the issuance of New Common Stock when: (i) a stock option or purchase
plan is to be established or other arrangements made pursuant to which New
Common Stock may be acquired by directors or officers, except for warrants
or rights issued generally to securityholders of the Company or
broadly-based plans or arrangements including other employees; (ii) a
business, a company, tangible or intangible assets, or property or
securities representing any such interest, are to be acquired, directly or
indirectly, from a director, officer or substantial securityholder of the
Company (including its subsidiaries, affiliates or other closely related
persons) or from any company or party in which one of such persons has a
substantial direct or indirect interest if the number of shares of New
Common Stock to be issued or the number of shares of New Common Stock into
which the securities may be convertible exceeds one percent of the number
of shares of New Common Stock, or one percent of the voting power,
outstanding before the issuance; (iii) New Common Stock or securities
convertible into or exercisable for New Common Stock are to be issued in
any transaction or series of related transactions, other than a public
offering for cash, if (a) the New Common Stock to be issued has, or will
have upon issuance, voting power equal to or in excess of 20% of the voting
power outstanding before the issuance of such New Common Stock or
securities convertible into or exercisable for New Common Stock, or (b) the
number of shares of New Common Stock to be issued is, or will be, equal to
or in excess of 20% of the number of shares of New Common Stock outstanding
before the issuance of the New Common Stock; or (iv) the issuance would
result in a change in control of the Company.
Although the Company considers from time to time mergers, acquisitions
and other transactions that may involve the issuance of additional shares
of New Common Stock (any one or more of which may be under consideration or
acted upon at any time), the Company is not a party to any agreements with
respect to any such transactions, nor does it have any agreements,
commitments or understandings with respect to such transactions or that
would involve the issuance of additional shares of New Common Stock in
amounts that would exceed the number of currently authorized and unissued
shares. See "BACKGROUND OF THE RESTRUCTURING."
Depending upon the consideration per share received by the Company for
any subsequent issuance of New Common Stock, such issuance could have a
dilutive effect on those Stockholders who paid a higher consideration per
share for their stock. Also, future issuances of New Common Stock will
increase the number of outstanding shares, thereby decreasing the
percentage ownership in the Company (for voting, distributions and all
other purposes) represented by existing shares of New Common Stock. The
availability for issuance of the additional shares of New Common Stock may
be viewed as having the effect of discouraging an unsolicited attempt by
another person or entity to acquire control of the Company. Although the
Board has no present intention of doing so, the Company's authorized but
unissued New Common Stock could be issued in one or more transactions that
would make a takeover of the Company more difficult or costly, and
therefore less likely. The Company is not aware of any person or entity who
is seeking to acquire control of the Company. Holders of New Common Stock
do not have any preemptive rights to acquire any additional securities
issued by the Company.
As of the Record Date, 14,964,608 shares of Old Common Stock were
outstanding and 1,823,443 shares of Old Common Stock were reserved for
issuance pursuant to the Company's employee benefit plans. Accordingly,
only an additional 18,211,949 unreserved shares of Old Common Stock were
available for issuance under the Certificate of Incorporation. If the
proposed Charter Amendment did not increase the number of shares of New
Common Stock authorized, it would be necessary to convene a special meeting
of Stockholders before the Company could consummate any transaction in
which the number of shares of New Common Stock that would be issued,
together with all other new issuances of New Common Stock after the Record
Date, would exceed approximately 8,000,000 shares. This could potentially
add to the costs of a proposed transaction, and the added time necessary to
prepare for and hold a stockholders' meeting could serve as a disincentive
for third parties otherwise interested in making an investment in, or
entering into other transactions with, the Company. It is for these similar
reasons that companies have a substantial number of authorized and unissued
shares available for issuance.
THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE OUTSTANDING SHARES OF OLD
COMMON STOCK ENTITLED TO VOTE ON THE RESTRUCTURING PROPOSALS IS REQUIRED
FOR APPROVAL OF THE CHARTER AMENDMENT. ACCORDINGLY, RESTRUCTURING
ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE EFFECT OF A VOTE AGAINST THE
PROPOSAL. UNLESS INSTRUCTED TO THE CONTRARY IN THE PROXY, THE SHARES
REPRESENTED BY THE PROXIES WILL BE VOTED FOR THE CHARTER AMENDMENT.
THE BOARD RECOMMENDS A VOTE "FOR" THE CHARTER AMENDMENT.
THE ISSUANCE
The Board has unanimously adopted a resolution approving, as part of
the Exchange Restructuring, the Issuance. The Stockholder vote with respect
to the Issuance will become effective at such time as the Charter Amendment
has been filed with the Secretary of State of Delaware and the Exchange
Restructuring has been consummated and will not be effective otherwise. The
approval of the Issuance by the Company's Stockholders may be required by
the applicable rules of the NYSE. For a more complete description of the
Issuance, see "DISCUSSION OF THE PROPOSALS -- The Issuance."
THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF OLD COMMON STOCK
REPRESENTED AT THE STOCKHOLDERS' MEETING AND ENTITLED TO VOTE ON THE
RESTRUCTURING PROPOSALS IS REQUIRED FOR APPROVAL OF THE ISSUANCE.
ACCORDINGLY, ABSTENTIONS WILL HAVE THE EFFECT OF A VOTE AGAINST THIS
RESTRUCTURING PROPOSAL WHILE BROKER NON-VOTES WILL NOT AFFECT THE OUTCOME
OF THE VOTE ON THE RESTRUCTURING PROPOSAL. UNLESS INSTRUCTED TO THE
CONTRARY IN THE PROXY, THE SHARES REPRESENTED BY THE PROXIES WILL BE VOTED
FOR THE RESTRUCTURING PROPOSAL TO APPROVE THE ISSUANCE.
THE BOARD RECOMMENDS A VOTE "FOR" THE ISSUANCE.
THE STOCK AWARD AND INCENTIVE PLAN
Should the Stock Award and Incentive Plan be approved by the
Stockholders, the Company would be permitted to grant options, stock
appreciation rights and other stock-based awards (together, "New Options")
for up to 2,463,310 shares of the Company's New Common Stock (10% of the
New Common Stock outstanding immediately following the Restructuring on a
fully diluted basis inclusive of the Warrants). The Letter Agreement
expressly provides that the Company will be authorized to reserve 10% of
the New Common Stock pursuant to the Stock Award and Incentive Plan
following consummation of the Restructuring. If the Stockholders approve
the Stock Award and Incentive Plan, the Stock Award and Incentive Plan will
become effective regardless of whether the Exchange Restructuring is
implemented or any of the Restructuring Proposals are approved. The purpose
of the Stock Award and Incentive Plan is to strengthen the Company by
providing an incentive to its directors, officers, employees and
consultants and thereby encouraging them to devote their abilities and
industry to the success of the Company.
The proposed details of such plan are set forth more fully in
"DISCUSSION OF THE PROPOSALS -- Stock Award and Incentive Plan."
THE AFFIRMATIVE VOTE OF THE MAJORITY OF THE SHARES OF OLD COMMON STOCK
REPRESENTED AT THE STOCKHOLDERS' MEETING AND ENTITLED TO VOTE IS REQUIRED
FOR APPROVAL OF THE STOCK AWARD AND INCENTIVE PLAN. ACCORDINGLY,
ABSTENTIONS WILL HAVE THE EFFECT OF A VOTE AGAINST THIS RESTRUCTURING
PROPOSAL WHILE BROKER NON-VOTES WILL NOT AFFECT THE OUTCOME OF THE VOTE ON
THE RESTRUCTURING PROPOSAL. UNLESS INSTRUCTED TO THE CONTRARY IN THE PROXY,
THE SHARES REPRESENTED BY THE PROXIES WILL BE VOTED TO APPROVE THE STOCK
AWARD AND INCENTIVE PLAN.
THE BOARD RECOMMENDS A VOTE "FOR" THE PLAN PROPOSAL.
ELECTION OF THE NEW BOARD
Each of the existing members of the Board has delivered to the Company
a resignation letter resigning from the Board effective as of the Exchange
Restructuring Date. In accordance with the terms and provisions of the
Company's Certificate of Incorporation, by resolution of the Board, the
number of directors has been fixed at [________] from and after the
Exchange Restructuring Date. As provided for in the Letter Agreement, the
new Board will consist of: (i) Mr. Jerald Politzer, the Chairman of the
Board and Chief Executive Officer, (ii) between three and five members to
be nominated by Magten, subject to consultation with the Company and other
Noteholders who may come forward prior to the commencement of the
Solicitation; and (iii) one member designated by the current Board. As
described above, as contemplated by the Letter Agreement, it is expected
that Magten will provide the Company with its Board nominees prior to the
commencement of the Solicitation. In addition, the current Board has
designated Marvin Schiller to be the current Board's nominee to the new
Board. If any nominee should be unavailable for election at the
Stockholders' Meeting, the proxies will be voted for the election of such
other person as may be recommended by the Board.
If the Restructuring is not consummated, the Restructuring Proposal
with respect to the Election of the New Board will not be deemed to have
been approved or implemented and the current Board will continue.
Information about the nominees for election as directors and incumbent
directors, including biographical and employment information, is set forth
more fully in "DISCUSSION OF THE PROPOSALS -- Election of the New Board."
THE AFFIRMATIVE VOTE OF A PLURALITY OF THE VOTES OF THE SHARES OF OLD
COMMON STOCK ENTITLED TO VOTE ON THE ELECTION OF DIRECTORS AND REPRESENTED
AT THE STOCKHOLDERS' MEETING IS REQUIRED FOR APPROVAL OF THIS RESTRUCTURING
PROPOSAL. ACCORDINGLY, ABSTENTIONS WILL HAVE THE EFFECT OF A VOTE AGAINST
THE RESTRUCTURING PROPOSAL WHILE BROKER NON-VOTES WILL NOT AFFECT THE
OUTCOME OF THE VOTE ON THE RESTRUCTURING PROPOSAL. UNLESS INSTRUCTED TO THE
CONTRARY IN THE PROXY, THE SHARES REPRESENTED BY THE PROXIES WILL BE VOTED
FOR THE RESTRUCTURING PROPOSAL TO APPROVE THE ELECTION OF EACH ONE OF THE
PROPOSED NEW DIRECTORS TO THE BOARD.
THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE DIRECTOR NOMINEES.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Deloitte & Touche currently serve as independent auditors for the
Company. Deloitte & Touche and its predecessors have served as independent
auditors for the Company since 1951. Upon the recommendation of the Audit
Committee (as defined below), the Board has appointed Deloitte & Touche to
serve as the Company's independent auditors to audit its financial
statements for Fiscal 1998. Such appointment is conditioned upon
ratification by the Stockholders, and the matter will be presented at the
Stockholders' Meeting. If the Stockholders do not ratify the appointment,
the selection will be reconsidered by the Board. A representative of
Deloitte & Touche will be present at the Stockholders' Meeting. The
representative will have an opportunity to make a statement and will be
available to respond to appropriate questions.
THE BOARD RECOMMENDS THAT THE APPOINTMENT OF DELOITTE & TOUCHE BE
RATIFIED.
VOTING OF PROXIES
All shares represented by a properly executed Proxy will be voted at
the Stockholders' Meeting in accordance with the directions on such Proxy.
If no direction is indicated on a properly executed Proxy, the shares
covered thereby will be voted in favor of each of the Proposals.
In the event that sufficient votes in favor of Restructuring Proposals
are not received by the time scheduled for the Stockholders' Meeting, or if
any of the other conditions to the consummation of the Exchange
Restructuring and the other elements of the Exchange Restructuring are not
satisfied, the persons named as proxies may propose one or more
adjournments of the Stockholders' Meeting to permit further solicitation of
Proxies with respect to such proposals or to permit the satisfaction of any
such condition. Any such adjournment will require the affirmative vote of a
majority of the voting power present or represented at the Stockholders'
Meeting.
VOTING RIGHTS; QUORUM
Pursuant to the Company's Certificate of Incorporation, Stockholders
will be entitled to one vote per share at the Stockholders' Meeting. The
presence, either in person or by properly executed Proxy, of the holders of
a majority of the shares of Old Common Stock outstanding and entitled to
vote is necessary to constitute a quorum at the Stockholders' Meeting.
There is no quorum or minimum number of votes required to be cast with
respect to the Prepackaged Plan.
NO DISSENTERS' RIGHTS
Stockholders have no appraisal or dissenters' rights with respect to
the Charter Amendment, the Issuance, the Plan Proposal or the Election of
the New Board.
REVOCATION OF PROXIES
A stockholder who has executed and returned a Proxy may revoke it at
any time before it is voted by executing and returning a Proxy bearing a
later date, by giving written notice of revocation to the Secretary of the
Company or by attending the Stockholders' Meeting and voting in person.
PREPACKAGED PLAN
The Exchange Restructuring is conditioned on, among other things, 100%
of the outstanding Senior Notes being validly tendered pursuant to the
Exchange Restructuring. The Letter Agreement contemplates that, if
consistent with the Company's obligations under applicable law (which the
Company believes includes its fiduciary obligations) and if 100% of the
Noteholders do not consent to the Restructuring, and/or the Stockholders do
not approve each of the Restructuring Proposals, the Company will take such
actions as are necessary to bind the Noteholders and/or the Stockholders,
as the case may be, to the terms of the Restructuring. If each of the
Restructuring Proposals is not approved by the Stockholders and/or the
Minimum Tender Condition is not satisfied or waived, but the Company
receives sufficient acceptances of the Prepackaged Plan to obtain
confirmation thereof by the Bankruptcy Court, then the Company intends to
pursue confirmation of the Prepackaged Plan under Chapter 11 of the
Bankruptcy Code and to attempt to use such acceptances to obtain
confirmation of the Prepackaged Plan. The Prepackaged Restructuring may be
effected with the approval of a minimum of two-thirds of the principal
amount and a majority in number of the Noteholders voting on the
Prepackaged Plan. If the Prepackaged Restructuring is consummated, the
Company expects that each of the Restructuring Proposals will be
implemented pursuant to the Prepackaged Plan. Accordingly, this Proxy
Statement/Prospectus also serves as a solicitation of acceptances by the
Company for the acceptance of the Prepackaged Plan. See "SUMMARY OF THE
PLAN" in Part B to the Exchange Restructuring Prospectus, attached hereto
as Annex IV and the Chapter 11 Plan of Reorganization of Salant
Corporation, attached as Appendix I to Part B of the Exchange Restructuring
Prospectus.
The Company has reserved the right to seek confirmation of the
Prepackaged Plan under the "cram-down" provisions of the Bankruptcy Code.
Consequently, the Company may decide to seek confirmation of the
Prepackaged Plan under the "cram-down" provisions of the Bankruptcy Code if
the Stockholders vote to reject the Prepackaged Plan.
DISCUSSION OF THE PROPOSALS
THE CHARTER AMENDMENT
The Board has unanimously adopted resolutions proposing that the
Company's Certificate of Incorporation be amended by the Charter Amendment.
The Charter Amendment will effect (i) the Reverse Split and (ii) an
increase in the number of shares of New Common Stock authorized. Should the
Exchange Restructuring be accepted by the Stockholders and the requisite
100% of Noteholders and thereafter consummated, an aggregate of 18,456,350
shares of New Common Stock will be issued to the Noteholders in exchange
for their Senior Notes and 1,496,461 shares of New Common Stock will be
issued to existing Stockholders. In addition, 2,216,979 Warrants,
exercisable for an aggregate of 2,216,979 shares of New Common Stock
(subject to adjustment), will be issued to Stockholders.
The Charter Amendment provides as follows:
FIRST: Article Fourth, Section A of the Corporation's Amended and
Restated Certificate of Incorporation is hereby amended to read in its
entirety as set forth below:
"A. AUTHORIZED SHARES. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is fifty million
(50,000,000) shares, of which forty-five million (45,000,000) shall be
common stock, par value $1.00 per share, and five million (5,000,000) shall
be preferred stock, par value $2.00 per share. The number of authorized
shares of preferred stock may be increased or decreased by the affirmative
vote of the holders of a majority of the stock of the Corporation entitled
to vote generally in the election of directors, voting together as a single
class, without a separate vote of holders of preferred stock as a class,
except to the extent that any such vote may be required by the resolution
providing for the issuance of any series of preferred stock.
At the time this amendment becomes effective, and without any further
action on the part of the Corporation or its stockholders, each ten shares
of common stock, par value $1.00 per share, then issued and outstanding,
shall be changed and reclassified into one fully paid and nonassessable
share of common stock, par value $1.00. The capital account of the
Corporation shall not be increased or decreased by such change and
reclassification. To reflect the said change and reclassification, each
certificate representing shares of common stock, par value $1.00 per share,
theretofore issued and outstanding, shall represent one-tenth the number of
shares of common stock, par value $1.00 per share, issued and outstanding
after such change and reclassification; and the holder of record of each
such certificate shall be entitled to receive a new certificate
representing a number of shares of common stock, par value $1.00, of the
kind authorized by this amendment, equal to one-tenth the number of shares
represented by said certificate for theretofore issued and outstanding
shares, so that upon this amendment becoming effective each holder of
record of ten shares of the common stock with a par value of $1.00 will
have, or be entitled to, a certificate representing one share of common
stock with par value $1.00 of the kind authorized by this amendment.
In lieu of the issuance of any fractional shares that would otherwise
result from the reverse split effected hereby, the Corporation shall issue
to any stockholder that would otherwise receive fractional shares of common
stock one (1) additional share of common stock."
SECOND: The foregoing amendment was duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware."
"The Charter Amendment will not be effective unless and until it is
filed with the Secretary of State of Delaware. Even if each of the
Restructuring Proposals is approved by the Stockholders, the Board has
reserved the right to abandon the Charter Amendment and each other
Restructuring Proposal in the event that any other condition to the
Restructuring is not satisfied, including, but not limited to, the Minimum
Tender Condition. However, the Board intends to file the Charter Amendment
with the Secretary of State of Delaware if the Exchange Restructuring is
consummated."
The Charter Amendment, if filed with the Secretary of State of
Delaware, would amend the Certificate of Incorporation to effect a
ten-to-one reverse stock split of the Company's outstanding shares of Old
Common Stock such that each share of Old Common Stock immediately prior to
the Exchange Restructuring Date will automatically convert into one-tenth
of one share of New Common Stock immediately thereafter. The Reverse Split
is necessary in order to "normalize" the post-Restructuring trading of the
New Common Stock by reducing the number of outstanding shares and thereby
increasing the trading price of the New Common Stock from where it would
otherwise trade in the absence of the Reverse Split assuming the aggregate
market capitalization of the Company remains constant.
No scrip or fractional certificates will be issued in the Reverse
Split. Instead, the Company will issue one additional share of New Common
Stock to each affected Stockholder at no cost to the Stockholder. The
ownership of a fractional interest will not give the holder thereof any
voting, dividend or other rights except the right to receive an additional
share therefor as described herein. The number of shares of New Common
Stock to be issued in connection with settling such fractional interests is
not expected to be material.
The Company currently has authorized 30,000,000 shares of common stock
(including 14,964,608 issued and outstanding shares of Old Common Stock),
par value $1.00 per share, and 5,000,000 shares of preferred stock, par
value $2.00 per share. As of the date of this Proxy Statement/Prospectus,
there were no shares of preferred stock issued and outstanding. If the
Charter Amendment is effected pursuant to the Exchange Restructuring, the
number of shares of New Common Stock authorized will be increased to
45,000,000 shares. The Board is authorized to fix the relative rights and
preferences of the shares of preferred stock, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion
privileges. Pursuant to a resolution adopted by the Board on December 8,
1987, in connection with the Company's implementation of the Rights Plan
the Company created a series of 50,000 shares of preferred stock designated
as "Series A Junior Participating Preferred Stock" (the "Series A Preferred
Stock") having the powers, preferences and rights described in the
Certificate of Incorporation of the Company. See "DESCRIPTION OF RIGHTS
PLAN." Without Stockholder approval, the Board could adversely affect the
voting power of the Stockholders and, by issuing shares of preferred stock
with certain voting, conversion and/or redemption rights, which could
discourage any attempt to obtain control of the Company. As of the date of
this Proxy Statement/Prospectus, no shares of Series A Preferred Stock were
issued and outstanding.
The final text of the Charter Amendment is subject to change in order
to meet the requirements as to form that may be requested or required by
the Secretary of State's Office of the State of Delaware.
If the requisite approval by the Stockholders is obtained, the Charter
Amendment will be effective upon the close of business on the date of
filing of the Charter Amendment with the Delaware Secretary of State. Each
certificate representing shares of Old Common Stock immediately prior to
the Exchange Restructuring will be deemed automatically, without any action
on the part of the Stockholders, to represent one-tenth the number of
shares of New Common Stock immediately after the Exchange Restructuring
Date. A Stockholder's proportionate ownership interest in the Company will
remain unchanged by the Charter Amendment. The New Common Stock issued
pursuant to the Charter Amendment will be fully paid and nonassessable. The
voting and other rights of the Old Common Stock will not be altered by the
Charter Amendment except that each share of the Old Common Stock will
represent one-tenth of a share of New Common Stock.
When the Charter Amendment becomes effective, Stockholders will be
asked to surrender certificates representing shares of Old Common Stock in
accordance with the procedures set forth in a Letter of Transmittal to be
sent by the Company. Upon such surrender, a certificate representing the
shares of New Common Stock and the Warrants will be issued and forwarded to
the Stockholders; however, each certificate representing shares of Old
Common Stock will continue to be valid and represent shares of New Common
Stock equal to one-tenth the number of shares of Old Common Stock (rounded
to the nearest whole number). Persons who hold their shares in brokerage
accounts or "street name" will not be required to take any further actions
to effect the exchange of their certificates.
The Charter Amendment will not be effective unless and until it is
filed with the Secretary of State of Delaware. Each of the Restructuring
Proposals is conditioned upon the approval by the Stockholders of each of
the other Restructuring Proposals. If any or all of the Restructuring
Proposals are not approved by the Stockholders at the Stockholders'
Meeting, then none of the Restructuring Proposals will become effective.
THE BOARD RECOMMENDS A VOTE "FOR" THE CHARTER AMENDMENT.
THE ISSUANCE
The Board has unanimously adopted a resolution approving, as part of
the Exchange Restructuring, the issuance of up to 22,169,790 shares of New
Common Stock (including the Warrant Shares) and up to 2,216,979 Warrants
pursuant to the Exchange Restructuring. Upon exchange of their Senior
Notes, the Noteholders, in the aggregate and as of the Exchange Date, would
receive 18,456,350 shares of New Common Stock, which would represent 92.5%
of the outstanding shares of New Common Stock following consummation of the
Exchange Restructuring (subject to dilution for shares of New Common Stock
issued under the Stock Award and Incentive Plan, the Warrant Shares, and in
the case of the Exchange Restructuring only, the shares of new Common Stock
issued under the Old Plans), based on the number of shares outstanding as
of the Record Date. The Stockholders currently own 100% of the common
equity of the Company in the form of the Old Common Stock. As of March 16,
1998, there were 14,964,608 shares of Old Common Stock issued and
outstanding. Assuming all of the conditions to the Restructuring are
fulfilled, the Exchange Restructuring will result in the Stockholders
receiving, in exchange for their shares of Old Common Stock, an aggregate
of 1,496,461 shares of New Common Stock, after giving effect to the Reverse
Split, constituting 7.5% of the New Common Stock issued and outstanding
immediately after giving effect to the Exchange Restructuring (subject to
dilution for the New Common Stock issued under the Stock Award and
Incentive Plan, the Warrant Shares, and in the case of the Exchange
Restructuring only, the shares of New Common Stock issued under the Old
Plans). In addition, the Stockholders will receive the Warrants to purchase
2,216,979 shares of New Common Stock, which represent the right to purchase
up to 10% of the New Common Stock issued and outstanding immediately
following consummation of the Exchange Restructuring (on a fully diluted
basis). The approval by the Stockholders of the Issuance may be required by
the applicable rules of the NYSE. See "BACKGROUND OF RESTRUCTURING,"
"PURPOSE OF RESTRUCTURING," and "RESTRUCTURING FINANCIAL CONSIDERATIONS."
Each of the Restructuring Proposals is conditioned upon the approval
by the Stockholders of each of the other Restructuring Proposals. If any or
all of the Restructuring Proposals are not approved by the Stockholders at
the Stockholders' Meeting, then none of the Restructuring Proposals will
become effective.
THE BOARD RECOMMENDS A VOTE "FOR" THE ISSUANCE.
STOCK AWARD AND INCENTIVE PLAN
Pursuant to a resolution of the Board, the Board has adopted the Stock
Award and Incentive Plan, which provides for the grant of various types of
stock-based compensation to directors, officers and employees of the
Company and its subsidiaries. The Stock Award and Incentive Plan has become
effective as of the date of such resolution, however, the Stock Award and
Incentive Plan and any grants thereunder are subject to subsequent approval
by the Company's stockholders. The Stock Award and Incentive Plan is
designed with the intention that compensation resulting from options, stock
appreciation rights and certain other awards may qualify as
"performance-based compensation" under Section 162(m) ("Section 162(m)") of
the Internal Revenue Code of 1986, as amended (the "Tax Code"), and to comply
with the conditions for exemption from the short-swing profit recovery
rules under Rule 16b-3 ("Rule 16b-3") of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The summary that follows is not
intended to be complete and is qualified in its entirety by the actual
terms of the Stock Award and Incentive Plan, a copy of which is attached
hereto as Annex III. Capitalized terms used but not otherwise defined in
the summary that follows shall have the respective meanings ascribed to
them in the Stock Award and Incentive Plan.
Purpose of the Stock Award and Incentive Plan
---------------------------------------------
The purpose of the Stock Award and Incentive Plan is to strengthen the
Company by providing an incentive to its directors, officers and employees
and thereby encouraging them to devote their abilities and industry to the
success of the Company's business enterprise.
Eligibility
-----------
Awards may be made by the Committee, in its discretion, to directors,
officers and employees of the Company and its subsidiaries. Directors of
the Company who are not also employees of the Company or any of its
subsidiaries are entitled to automatic option grants as provided in the
Stock Award and Incentive Plan and described below.
Plan Administration and Shares Subject to the Stock Award and
Incentive Plan
-------------------------------------------------------------
2,463,310 shares of New Common Stock (subject to adjustment as
provided in the Stock Award and Incentive Plan), representing, on a fully
diluted basis (inclusive of the Warrants), 10% of the aggregate shares of
New Common Stock to be issued and reserved on the Exchange Restructuring
Date, will be reserved for Awards to be granted under the Stock Award and
Incentive Plan. Subject to stockholder approval, these Awards will be
granted by a committee of the Board of Directors of the Company from and
after the Exchange Restructuring Date (the "Committee") comprised solely of
two or more "non-employee directors" within the meaning of Rule 16b-3(b)(3)
(or any successor rule) of the Exchange Act, and unless otherwise
determined by the Board of Directors of the Company, "outside directors"
within the meaning of Treasury Regulation Section 1.162-27(e)(3) and
Section 162(m) of the Tax Code, which will administer the Stock Award and
Incentive Plan. No individual may be granted Options or Awards with respect
to more than a total of 500,000 shares during any one calendar year period
under the Stock Award and Incentive Plan. In addition, the maximum dollar
amount of cash or the Fair Market Value of shares of New Common Stock that
any individual may receive in any calendar year in respect of Performance
Units denominated in dollars may not exceed $3,000,000. Shares of New
Common Stock subject to the Stock Award and Incentive Plan may either be
authorized and unissued shares or previously issued shares acquired or to
be acquired by the Company and held in its treasury. Subject to the terms
of the Stock Award and Incentive Plan, the Committee has the right to grant
Awards to eligible participants and to determine the terms and conditions
of Agreements evidencing Awards, including the vesting schedule and
exercise price of such Awards, and the effect, if any, of a Change in
Control (as defined in the Stock Award and Incentive Plan) on such Awards.
Upon the occurrence of a Change in Capitalization, the Stock Award and
Incentive Plan permits the Committee to make appropriate adjustments to the
type and aggregate number of shares subject to the Stock Award and
Incentive Plan or any Award, and to the purchase or exercise price to be
paid or the amount to be received in connection with the realization of any
Award.
Awards
------
STOCK OPTIONS. Stock options granted pursuant to the Stock Award and
Incentive Plan may either be incentive stock options within the meaning of
Section 422 of the Tax Code ("ISOs"), or non-qualified stock options
("NQSOs") as determined by the Committee. The exercise price for each share
of New Common Stock subject to an option will be determined by the
Committee at the time of grant and set forth in an Agreement, provided that
the exercise price may not be less than the Fair Market Value of the New
Common Stock on the date the option is granted. The option exercise price
may be paid in the discretion of the Committee on the date of the grant, in
cash or by the delivery of shares then owned by the participant or as
otherwise determined by the Committee. No option will be exercisable later
than ten years after the date on which it is granted, provided that the
Committee may (and in the case of a Formula Option shall) provide that an
NQSO may, upon the death of a participant, be exercised for up to one year
following the date of such participant's death, even if such period extends
beyond ten years from the date such option is granted. ISOs may not be
granted to any participant who owns stock possessing (after application of
the attribution rules of Section 424(d) of the Tax Code) more than 10% of
the total combined voting power of all outstanding classes of stock of the
Company, unless the option price is at least 110% of the Fair Market Value
at the date of grant and the option is not exercisable after five years
from the date of grant.
The Stock Award and Incentive Plan provides for automatic option
grants ("Formula Options") to certain directors of the Company who are not
also employees of the Company and its subsidiaries. Such directors will be
granted initial Formula Options in respect of [ ] Shares (on the date of
the consummation of the Restructuring or, if applicable, when becoming a
director for the first time) as well as annual Formula Options in respect
of [ ] shares at each subsequent annual stockholders meeting of the
Company. Formula Options will be granted with per share exercise prices
equal to the Fair Market Value on the date of grant, with ten year terms
and subject to the vesting schedule set forth in the Stock Award and
Incentive Plan.
STOCK APPRECIATION RIGHTS. Under the Stock Award and Incentive Plan, a
stock appreciation right in respect of a share of New Common Stock
represents the right to receive payment in cash and/or New Common Stock in
an amount equal to the excess of the Fair Market Value of such share of New
Common Stock on the date the right is exercised over the Fair Market Value
on the date the right is granted. The Committee may grant stock
appreciation rights to the holders of any options under the Stock Award and
Incentive Plan. Such rights may also be granted independently of options.
RESTRICTED STOCK. The Committee will determine the terms and
conditions applicable to Restricted Stock at the time of grant, including
the price, if any, to be paid by the grantee for the Restricted Stock, the
restrictions placed on the shares, and the time or times when the
restrictions will lapse. In addition, at the time of grant, the Committee,
in its discretion, may decide: (i) whether any deferred dividends will be
held for the account of the grantee or deferred until the restrictions
thereon lapse, (ii) whether any deferred dividends will be reinvested in
additional Shares or held in cash, (iii) whether interest will be accrued
on any dividends not reinvested in additional shares of Restricted Stock
and (iv) whether any stock dividends paid will be subject to the
restrictions applicable to the Restricted Stock Award.
PERFORMANCE UNITS AND PERFORMANCE SHARES. Performance Units and
Performance Shares will be awarded as the Committee may determine, and the
vesting of Performance Units and Performance Shares will be based upon the
Company's attainment within an established period of specified performance
objectives to be determined by the Committee. Upon granting Performance
Units or Performance Shares, the Committee may provide, to the extent
permitted under Section 162(m) of the Tax Code, the manner in which
performance will be measured against the performance objectives, or may
adjust the performance objectives to reflect the impact of specified
corporate transactions, accounting or tax law changes, and other similar
extraordinary and nonrecurring events. Performance Units may be denominated
in dollars or in Shares, and payments in respect of Performance Units will
be made in cash, Shares, shares of Restricted Stock or any combination of
the foregoing, as determined by the Committee. The Agreement evidencing
Performance Shares or Performance Units will set forth the terms and
conditions thereof. Unless otherwise determined by the Committee at the
time of grant, such awards that can be so granted, may be granted in a
manner which is intended to qualify for the performance based compensation
exemption of Section 162(m). In such event, either the granting or vesting
of such awards will be based upon one or more of the following factors:
earnings per share, New Common Stock share price, pre-tax profit, net
earnings, return on stockholders' equity or assets or any combination of
the foregoing.
Change In Control
-----------------
In the event of a Change in Control, the vesting of options and stock
appreciation rights will accelerate and, if so provided by the Committee in
an Agreement, the restrictions on Restricted Stock, Performance Units and
Performance Shares will lapse.
Transferability
---------------
Awards under the Stock Award and Incentive Plan will not be
transferable except by will or the laws of descent or distribution. Awards
will only be exercisable during the lifetime of a participant by such
participant only. However, at the discretion of the Committee, any option,
other than an ISO, may permit the transfer of such option by a participant
to certain family members or trusts for the benefit of such family members
by such persons.
Certain Federal Income Tax Considerations
-----------------------------------------
THE FOLLOWING DISCUSSION OF CERTAIN RELEVANT FEDERAL INCOME TAX
EFFECTS APPLICABLE TO CERTAIN AWARDS GRANTED UNDER THE STOCK AWARD AND
INCENTIVE PLAN IS A SUMMARY ONLY, AND REFERENCE IS MADE TO THE TAX CODE FOR
A COMPLETE STATEMENT OF ALL RELEVANT FEDERAL TAX PROVISIONS. HOLDERS OF
AWARDS SHOULD CONSULT THEIR TAX ADVISORS BEFORE REALIZATION OF ANY SUCH
AWARDS, AND HOLDERS OF COMMON STOCK PURSUANT TO AWARDS SHOULD CONSULT THEIR
TAX ADVISORS BEFORE DISPOSING OF ANY SUCH SHARES. SECTION 16 INDIVIDUALS
SHOULD NOTE THAT SOMEWHAT DIFFERENT RULES THAN THOSE DESCRIBED BELOW MAY
APPLY TO THEM.
ISOs. In general, a recipient will not recognize income upon the grant
or exercise of an ISO, and the Company will not be entitled to any business
expense deduction with respect to the grant or exercise of an ISO. However,
upon the exercise of an ISO, the excess of the fair market value on the
date of exercise of the shares received over the exercise price of the
option will be treated as an adjustment to alternative minimum taxable
income. In order for the exercise of an ISO to qualify as an ISO, a
recipient generally must be an employee of the Company or a subsidiary
(within the meaning of Section 422 of the Tax Code) from the date the ISO
is granted through the date three months before the date of exercise (one
year preceding the date of exercise in the case of a recipient whose
employment is terminated due to disability). The employment requirement
does not apply where a recipient's employment is terminated due to his or
her death.
If a recipient has held the shares acquired upon exercise of an ISO
for at least two years after the date of grant and for at least one year
after the date of exercise, when the recipient disposes of the shares, the
difference, if any, between the sales price of the shares and the exercise
price of the option will be treated as long-term capital gain or loss,
provided that any gain will be subject to reduced rates of tax if the
shares were held for more than twelve months and will be subject to further
reduced rates if the shares were held for more than eighteen months. If a
recipient disposes of the shares prior to satisfying these holding period
requirements (a "Disqualifying Disposition"), the recipient will recognize
ordinary income (treated as compensation) at the time of the Disqualifying
Disposition, generally in an amount equal to the excess of the fair market
value of the shares at the time the option was exercised over the exercise
price of the option. The balance of the gain realized, if any, will be
short-term or long-term capital gain, depending upon whether the shares
have been held for at least twelve months after the date of exercise. If
the recipient sells the shares in a Disqualifying Disposition at a price
below the fair market value of the shares at the time the option was
exercised, the amount of ordinary income (treated as compensation) will be
limited to the amount realized on the sale over the exercise price of the
option. In general, the Company will be allowed a business expense
deduction to the extent a recipient recognizes ordinary income.
NQSOs. In general, a recipient who receives a NQSO will not recognize
income at the time of the grant of the option. Upon exercise of a NQSO, a
recipient will recognize ordinary income (treated as compensation) in an
amount equal to the excess of the fair market value of the shares on the
date of exercise over the exercise price of the option. The basis in shares
acquired upon exercise of a NQSO will equal the fair market value of such
shares at the time of exercise, and the holding period of the shares (for
capital gain purposes) will begin on the date of exercise. In general, if
the Company complies with the applicable income reporting requirements, it
will be entitled to a business expense deduction in the same amount and at
the same time as the recipient recognizes ordinary income. In the event of
a sale of the shares received upon the exercise of a NQSO, any appreciation
or depreciation after the exercise date generally will be taxed as capital
gain or loss, provided that any gain will be subject to reduced rates of
tax if the shares were held for more than twelve months and will be subject
to further reduced rates if the shares were held for more than eighteen
months.
The foregoing discussion assumes that at the time of exercise, the
sale of the shares at a profit would not subject a recipient to liability
under Section 16(b) of the Exchange Act. Special rules may apply with
respect to persons who may be subject to Section 16(b) of the Exchange Act.
Participants who are or may become subject to Section 16 of the Exchange
Act should consult with their own tax advisors in this regard.
Excise Taxes. Under certain circumstances, the accelerated vesting or
exercise of options in connection with a change in control of the Company
might be deemed an "excess parachute payment" for purposes of the golden
parachute tax provisions of Section 280G of the Tax Code. To the extent it
is so considered, a recipient may be subject to a 20% excise tax and the
Company may be denied a tax deduction.
Section 162(m) Limitation. Section 162(m) generally disallows a
federal income tax deduction to any publicly held corporation for
compensation paid in excess of $1 million in any taxable year to each of
the chief executive officer and the four other most highly compensated
executive officers (other than the chief executive officer) who are
employed by such corporation on the last day of such corporation's taxable
year. The Company has structured the Stock Award and Incentive Plan with
the intention that compensation resulting from options, stock appreciation
rights, Performance Shares and Performance Units may qualify as
"performance-based compensation" and, if so qualified, would be deductible.
Options to purchase shares of Old Common Stock granted under the Old
Plans will be treated differently depending upon whether the Restructuring
is consummated by means of the Exchange Restructuring or the Prepackaged
Restructuring. For a discussion of such treatment, see "POST RESTRUCTURING
STOCK OPTION GRANTS."
The approval of the Stock Award and Incentive Plan by the Stockholders
may be required by the applicable rules of the NYSE.
THE BOARD OF DIRECTORS BELIEVES THAT THE IMPLEMENTATION OF THE STOCK
AWARD AND INCENTIVE PLAN IS IN THE BEST INTERESTS OF THE COMPANY'S
STOCKHOLDERS AND RECOMMENDS ITS APPROVAL BY THE STOCKHOLDERS.
If the Stockholders approve the Stock Award and Incentive Plan, the
Stock Award and Incentive Plan will become effective regardless of whether
the Exchange Restructuring is implemented or any of the Restructuring
Proposals are approved.
THE BOARD RECOMMENDS A VOTE "FOR" THE PLAN PROPOSAL.
ELECTION OF THE NEW BOARD
The Board currently consists of ten members, divided into three classes,
the first class consisting of three members, the second class consisting of
two members and the third class consisting of four members. Presently, there
is one vacancy on the Board. The Board currently consists of Jerald S.
Politzer (Chairman), Harold Leppo, Edward M. Yorke, Robert H. Falk, Ann
Dibble Jordan, Robert Katz, John S. Rodgers, Bruce F. Roberts and Marvin
Schiller.
Article Fifth of the Certificate of Incorporation divides the Board
into three classes, with each class serving a three year term. See
"MANAGEMENT." Any vacancies in the Board for any reason, and any
directorships resulting from any increase in the number of directors, may
be filled only by the affirmative vote of a majority of the Board, although
less than a quorum. Article Fifth may not be repealed or amended in any
respect except with the approval of 67% of the outstanding shares of New
Common Stock, and subject to the provisions of any preferred stock
outstanding.
Each of the existing members of the Board has delivered to the Company
a resignation letter resigning from the Board effective as of the Exchange
Restructuring Date. In accordance with the terms and provisions of the
Company's Certificate of Incorporation, by resolution of the Board, the
number of directors has been fixed at [_______] as of the Exchange
Restructuring Date. As provided for in the Letter Agreement, the new Board
is required to consist of: (i) Jerald Politzer, the Chairman of the Board,
(ii) between three and five members to be nominated by Magten, subject to
consultation with the Company and other Noteholders who may come forward
prior to the commencement of the Solicitation; and (iii) one member
designated by the current Board. As described above, as contemplated by the
Letter Agreement, it is expected that Magten will provide the Company with
its Board nominees prior to the commencement of the Solicitation. In
addition, the current Board has designated Marvin Schiller to be the
current Board's nominee to the new Board. If any nominee should be
unavailable for election at the Stockholders' Meeting, the proxies will be
voted for the election of such other person as may be recommended by the
Board.
The names, principal occupations and other information concerning
nominees proposed for election to the Board are presented below. Proxies
will be voted for all such nominees, unless marked to the contrary. The
Company believes that each nominee will serve as a director, but should any
such nominee be unable to serve as a director or withdraw from nomination,
Proxies will be voted for the election of such substitute nominee as the
Board may propose.
Jerald S. Politzer, age 52, joined the Company as a director on March
24, 1997 and Chief Executive Officer commencing April 1, 1997. From July
1989 to November 1996 he had been Executive Vice President of Melville
Corporation, a diversified retailer. Mr. Politzer is a director of Norton
McNaughton, Inc., a manufacturer of women's apparel.
Marvin Schiller, age 63, was Managing Director of A.T. Kearney, Inc.,
a management consulting firm, from May 1983 until his retirement as of
January 1995. Dr. Schiller is a director of LePercq-Istel Fund, Inc., a
mutual fund; Strategic Agricultural Management Corp., a software developer
and marketer; and Tutor Time Learning Systems Inc., a childcare and
educational company. Dr. Schiller has served as a director of the Company
since May 1983.
Information regarding the remaining Board nominees will be provided
once Magten has advised the Company of its Board nominees.
If the Restructuring is not consummated, the Board proposal will not
be deemed to have been approved or implemented and the current Board will
continue.
The term of office of the first class ("Class One") elected at the
Stockholders' Meeting will expire at the 2000 Annual Meeting; the term of
the second class ("Class Two") will expire at the 1999 Annual Meeting; and
the term of the third class ("Class Three") will expire at the 2001 Annual
Meeting.
THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE DIRECTOR NOMINEES.
CERTAIN CONSEQUENCES OF THE RESTRUCTURING
Stockholders should carefully consider the following possible material
disadvantages to the Restructuring:
(a) The Stockholders currently own 100% of the common equity of
the Company in the form of the Old Common Stock. As of March 16, 1998,
there were 14,964,608 shares of Old Common Stock issued and
outstanding. Assuming all of the conditions to the Restructuring are
fulfilled, the Exchange Restructuring will result in the Stockholders
receiving, in exchange for their shares of Old Common Stock, an
aggregate of 1,496,461 shares of New Common Stock after giving effect
to the Reverse Split, constituting 7.5% of the Old Common Stock issued
and outstanding immediately after giving effect to the Exchange
Restructuring (subject to dilution for the New Common Stock under the
Stock Award and Incentive Plan, the Warrants Shares, and in the case
of the Exchange Restructuring only, the shares of New Common Stock
issued under the Old Plans). In addition, the Stockholders will
receive the Warrants, which represent the right to purchase up to 10%
of the New Common Stock issued and outstanding immediately after
giving effect to the Exchange Restructuring (on a fully diluted
basis). The issuance of New Common Stock to the Noteholders pursuant
to the Exchange Restructuring or the Prepackaged Plan, as applicable,
will result in significant dilution of the equity interests of the
existing holders of Old Common Stock as a percentage of the total
number of outstanding shares of the common stock of the Company.
(b) Based upon the current market price of the Old Common Stock
(after giving effect to the Reverse Split), the Warrants may be "out
of the money" immediately following the Restructuring, and no
assurance can be made that the Warrants will ever be "in the money."
(c) There can be no assurance that an active market for the
Warrants or the New Common Stock will develop or, if any such market
does develop, that it will continue to exist. Further, the degree of
price volatility in any such market that does develop may be
significant. Accordingly, no assurance can be given as to the
liquidity of the market for any of the Warrants or the New Common
Stock or the price at which any sales may occur.
(d) There are certain Federal income tax considerations with
respect to the Restructuring, including the Company's net operating
loss carryovers being reduced or subject to limitations on use,
although such reduction or limitation would be greater under the
Exchange Restructuring than under the Prepackaged Restructuring.
(e) Commencement of bankruptcy proceedings, even if only to
confirm the Prepackaged Plan, could adversely affect the relationship
between the Company and its subsidiaries, employees, customers and
suppliers.
For additional information on the consequences of implementing the
Restructuring, see "RISK FACTORS."
DESCRIPTION OF THE EXCHANGE RESTRUCTURING AND THE PREPACKAGED PLAN
For a description of the Exchange Restructuring and the Prepackaged
Plan, see the Exchange Restructuring Prospectus attached hereto as Annex
IV. See also "Plan of Reorganization of Salant Corporation under Chapter 11
of the Bankruptcy Code," attached to the Exchange Restructuring Prospectus
as Appendix I thereto.
MARKET AND TRADING INFORMATION
The Old Common Stock is currently traded on the NYSE and is quoted
under the symbol "SLT." On March 2, 1998, the day immediately prior to the
date that the Company announced its intention to pursue the Restructuring,
the closing sale price for the Old Common Stock was $1.6875 per share. On
__________, the closing sale price for the Old Common Stock was $[ ] per
share. See "MARKET FOR OLD COMMON STOCK AND RELATED STOCKHOLDER MATTERS";
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATION--LIQUIDITY AND CAPITAL RESOURCES" in Part A to the
Exchange Restructuring Prospectus, attached hereto as Annex IV.
The Company intends to use its best efforts to maintain its status as
a reporting company under the Exchange Act and has filed its registration
on Form S-4 under the Securities Act with respect to the New Common Stock.
Such registration under the Securities Act will facilitate the trading of
the New Common Stock on the NYSE. Pursuant to the Restructuring, the
Company will use its best efforts to effectuate such a listing for the New
Common Stock on the NYSE as of the Exchange Restructuring Date. However,
there is no assurance that the Company will maintain its status as a
reporting company under the Exchange Act or that efforts to list the New
Common Stock on the NYSE will be successful. See "RISK FACTORS--Lack of
Trading Market for Warrants and New Common Stock; Volatility; Potential
De-Listing of New Common Stock."
Application will be made to list the Warrants and the Warrant Shares
for trading on the NYSE. There can be no assurance that such application
will be approved or that an active market for the Warrants will develop or
as to the prices at which they might be traded. If the Company is unable to
have the New Common Stock and Warrants listed for trading on the NYSE upon
consummation of the Restructuring, the Company will use its best efforts to
cause all New Common Stock and Warrants to be quoted on the National Market
System of NASDAQ or to be listed on another national securities exchange.
See "RISK FACTORS -- Lack of Trading Market for Warrants and New Common
Stock; Volatility; Potential De-Listing of New Common Stock."
DESCRIPTION OF NEW COMMON STOCK
The following summary description of the New Common Stock does not
purport to be complete and is qualified in its entirety by this reference
to the Company's Charter Amendment, a copy of which is attached hereto as
Annex I. The New Common Stock is identical in all material respects to the
Old Common Stock except for the effects of the Reverse Split.
Immediately after the Restructuring, the Company will have 50,000,000
authorized shares of stock, consisting of 45,000,000 shares of the Common
Stock, par value at $1.00 per share, and 5,000,000 authorized shares of
preferred stock, par value $2.00 per share. As of such time, 19,952,811
shares of New Common Stock will be issued and outstanding to approximately
[ ] holders of record, and no shares of preferred stock will be issued and
outstanding. 18,456,350 shares of New Common Stock will be issued to
Noteholders as of immediately prior to the Restructuring and 1,496,461
shares of New Common Stock will be issued to Stockholders as of immediately
prior to the Restructuring in connection with the Restructuring (not
including Warrant Shares and shares issuable upon the exercise of stock
options granted to the Company's employees and directors under the Stock
Award and Incentive Plan and, in the event the Exchange Restructuring is
consummated, the Old Plans). All of the New Common Stock issued and
outstanding as of the Exchange Restructuring Date will be fully paid and
nonassessable.
DISTRIBUTIONS
Subject to such preferential rights as may be granted by the Board in
connection with future issuances of preferred stock, holders of shares of
New Common Stock will be entitled to receive ratably such dividends as may
be declared by the Board in its discretion from funds legally available
therefor. The Credit Agreement contains negative covenants that restrict,
among other things, the ability of the Company to pay dividends and the
Company believes that the New Credit Agreement will contain similar
restrictions. In the event of a liquidation, dissolution or winding up of
the Company, the holders of New Common Stock will be entitled to share
ratably in all assets remaining after payment of liabilities and any
liquidation preference owed to holders of any preferred stock. Holders of
New Common Stock will have no preemptive rights and have no rights to
convert their New Common Stock into any other securities.
VOTING
Subject to any preferential rights of holders of preferred stock,
Stockholders are entitled to one vote per share on all matters to be voted
on by Stockholders. Matters submitted for Stockholder approval require a
majority vote of the shares, except where the vote of a greater number is
required by the DGCL. Article Sixth of the Certificate of Incorporation
provides that any action required or permitted to be taken by the
Stockholders of the Company must be effected at a duly called annual or
special meeting of such holders and may not be effected by written consent
of the Stockholders. Article Sixth may not be repealed or amended in any
respect except with the approval of 67% of the outstanding shares of New
Common Stock.
ELECTION OF DIRECTORS
Article Fifth of the Certificate of Incorporation divides the Board
into three classes, with each class serving a three year term. Any
vacancies in the Board, for any reason, and any directorships resulting
from any increase in the number of directors, may be filled only by the
affirmative vote of a majority of the Board, although less than a quorum.
Article Fifth may not be repealed or amended in any respect except with the
approval of 67% of the outstanding shares of New Common Stock and subject
to the provisions of any preferred stock outstanding.
SHARES RESERVED IN CONNECTION WITH THE 1993 CHAPTER 11 PLAN
In accordance with the 1993 Chapter 11 Plan, the Company reserved for
issuance a certain number of shares of Old Common Stock in order to satisfy
certain claims that had been asserted in the 1990 Chapter 11 Case pursuant
to the terms and conditions of the 1993 Chapter 11 Plan. As of the date
hereof, the Company continues to have 206,392 shares of Old Common Stock
reserved for such purpose. Upon the consummation of the Restructuring, such
shares will be canceled and the Company intends to reserve for issuance
approximately 20,639 shares of New Common Stock (reflecting the Reverse
Split) for the purpose of settling any remaining claims in the 1990 Chapter
11 Case for which a settlement of stock may be appropriate.
DESCRIPTION OF WARRANTS
The following is a summary of certain provisions of the Warrant
Agreement (the "Warrant Agreement"), and the Warrants (as defined below) to
be issued thereunder. For more complete information regarding the Warrant
Agreement and the Warrants, reference is made to the Warrant Agreement, a
copy of which is attached hereto as Annex II and which is incorporated
herein by reference. Capitalized terms used but not defined herein shall
have the meanings assigned to them in the Warrant Agreement.
This Proxy Statement/Prospectus constitutes the Company's Prospectus
with respect to the Warrants (and the New Common Stock issuable upon
exercise of the Warrants) to be issued to Stockholders immediately after
the consummation of the Restructuring.
GENERAL
Immediately after the consummation of the Restructuring and the
Reverse Split, the Company will issue to the Stockholders upon surrender of
such Stockholders' Old Common Stock certificates, shares of New Common
Stock and Warrant Shares at an Exercise Price of $6.2648 per share.
Stockholders will receive, for each share of Old Common Stock held,
one-tenth of a share of New Common Stock and .14814815 Warrants. The
Stockholders will receive, in the aggregate, 2,216,979 Warrants
exercisable, for 2,216,979 shares of New Common Stock or approximately 10%
of the New Common Stock after giving effect to the Restructuring, based on
14,964,608 outstanding shares of Old Common Stock as of the Record Date.
The Company, will not be required to issue any fractional shares of New
Common Stock or Warrants. Whenever any distribution of Warrants exercisable
into fractional shares of New Common Stock would otherwise be called for,
the actual distribution will reflect a rounding up or a rounding down to
the nearest share of New Common Stock, provided that, whenever any
distribution of a Warrant that is exercisable into exactly one-half of a
share of New Common Stock, the actual distribution will reflect a rounding
up to the nearest share of New Common Stock. The Exercise Price and the
number of Warrant Shares are both subject to adjustment in certain cases
referred to below. Following the consummation of the Exchange
Restructuring, holders of Old Common Stock will be issued Warrants upon
receipt by the Depositary of a duly completed Letter of Transmittal (to be
sent to the Stockholders by the Company promptly after consummation of the
Restructuring).
The Warrants will be exercisable immediately after the consummation of
the Restructuring and prior to 5:00 p.m., New York City time, on the
seventh anniversary of the date of issuance. The exercise and transfer of
the Warrants will be subject to applicable Federal and state securities
laws.
The Warrants may be exercised by surrendering warrant certificates
("Warrant Certificates") evidencing the Warrants to be exercised to the
Company at the Warrant Agent's principal office, (i) a written notice of
such holder's election to exercise such Warrant, which notice will include
the number of shares of New Common Stock to be purchased; (ii) payment of
the Warrant Price (as defined in the Warrant Agreement) for the account of
the Company and (iii) such Warrant. Payment of the aggregate Warrant Price
may be made by certified or official bank check or wire transfer payable to
the order of the Warrant Agent on account of the Company. Upon surrender of
the Warrant Certificate and payment of the Warrant Price, the Warrant Agent
will deliver or cause to be delivered, to or upon the written order of such
holder, an executed certificate or certificates representing the aggregate
number of full shares of New Common Stock issuable upon such exercise. If
any Warrant is exercised in part, the Warrant Agent will, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to the holder a new Warrant evidencing the rights of such holder to
purchase the unpurchased shares of New Common Stock called for by such
Warrant.
The holders of the Warrants will have no right to vote on matters
submitted to the stockholders of the Company and will have no right to
receive dividends. In the event of the liquidation, dissolution or winding
up of the affairs of the Company, the holders of the Warrants will be
entitled to receive, in lieu of each share of New Common Stock such holders
would otherwise be entitled to receive upon exercise of the Warrants, the
same kind and amount of any stock, securities or assets as may be issuable,
distributable or payable in such event with respect to each share of New
Common Stock. In the event a bankruptcy or reorganization subsequent to the
Restructuring is commenced by or against the Company, a bankruptcy court
may hold that unexercised Warrants are executory contracts which may be
subject to rejection by the Company with approval of the bankruptcy court,
and the holders of the Warrants may, even if sufficient funds are
available, receive nothing or a lesser amount as a result of any such
bankruptcy case than they would be entitled to if they had exercised their
Warrants prior to the commencement of any such case.
In the event of a taxable distribution to holders of New Common Stock
that results in an adjustment to the number of shares of New Common Stock
or other consideration for which a Warrant may be exercised, the holders of
the Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States Federal income tax as a dividend. See
"Certain Federal Income Tax Considerations."
ADJUSTMENTS
The number of shares of New Common Stock purchasable upon exercise of
Warrants and the Exercise Price will be subject to adjustment in certain
events including, among others, that if the Company: (i) pays a dividend or
makes a distribution on its New Common Stock in shares of its New Common
Stock, (ii) subdivides its New Common Stock into a greater number of
shares, (iii) combines its outstanding shares of New Common Stock into a
smaller number of shares, and (iv) makes a distribution on New Common Stock
in shares of its capital stock other than the New Common Stock; or (v)
issues by reclassification of New Common Stock any shares of its capital
stock.
AMENDMENT
No provision of the Warrant Agreement may be amended without the
consent of the Company, holders of 66 2/3% of the then issued and
outstanding New Common Stock, the Warrant Agent and a majority of the
holders of the Warrants; provided that no Warrant may be modified or
amended to reduce the number of shares of New Common Stock for which such
Warrant is exercisable or to increase the price at which such shares may be
purchased upon exercise of such Warrant without the prior written consent
of the holder thereof.
GOVERNING LAW
The Warrant Agreement and the Warrants will be governed by and
construed in accordance with, the laws of the State of New York, without
regard to the provisions thereof relating to conflicts of law.
DESCRIPTION OF NEW CREDIT AGREEMENT
The Company intends to enter into a New Credit Agreement, effective as
of the Exchange Restructuring Date, with either CIT or another working
capital lender, which will replace the Company's current working capital
facility under the Credit Agreement. The Company has received and is
currently reviewing proposals for a New Credit Agreement which have been
submitted by CIT as well as various other prospective lenders. Based upon
the proposals that have been received by the Company as of the date of this
Proxy Statement/Prospectus, the Company expects that it will be able to
obtain a new working capital facility under a New Credit Agreement as of
the Exchange Restructuring Date which contains terms and conditions
significantly more favorable than those currently existing under the Credit
Agreement with CIT.
The Company currently anticipates no difficulty in obtaining the
credit facility under a New Credit Agreement on satisfactory terms on or
prior to the Exchange Restructuring Date. The Company further believes that
the financing available pursuant to such facility should be adequate to
permit the Company to operate its business in accordance with the
Three-Year Business Plan. However, there is no assurance that such facility
will be obtained in light of, among other things, the possibility of the
occurrence of potentially materially adverse conditions in the private and
public capital and/or debt markets and potentially materially adverse
operating results for the Company. Under the Letter Agreement, the credit
facility under the New Credit Agreement must be on terms and conditions
reasonably satisfactory to Magten, Apollo and the Company.
DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT
In connection with the Restructuring, the Company will also enter
into, on the Exchange Restructuring Date, a registration rights agreement
in the form of Exhibit B to Appendix I to Part B of the Exchange
Restructuring Prospectus, attached hereto as Annex IV (the "Registration
Rights Agreement"). Under the terms and conditions of the Registration
Rights Agreement, the Company must use commercially reasonable efforts to
register the New Common Stock pursuant to a "shelf registration," and to
keep such shelf registration continuously effective for three years
(subject to a two-year extension of such period to the extent that a
registration statement filed on Form S-3 is available to the Company at the
end of such initial three-year period), subject to the right to suspend the
use of the prospectus constituting part of such registration statement for
designated corporate purposes. Thereafter, holders who did not resell New
Common Stock during the three-year period, but whose resales would have
been covered by the registration statement, will be entitled to exercise,
over a two-year period, up to three demand registrations and will be
entitled to piggyback registration rights as well during such period. In
the event that the shelf registration does not become effective within one
hundred days after the date that the registration statement is filed,
holders of the New Common Stock whose resales would have been covered by
the registration statement will be entitled to exercise, over a two-year
period, up to four demand registrations and will be entitled to piggyback
registration rights as well during such period.
DESCRIPTION OF CERTAIN EXISTING INDEBTEDNESS OF THE COMPANY
The following summary of the principal terms of certain of the
existing indebtedness of the Company does not purport to be complete and is
qualified in its entirety by reference to the documents governing such
indebtedness, including the definitions of certain terms therein, copies of
which have been filed or incorporated as exhibits to the Registration
Statement of which this Proxy Statement/Prospectus is a part. Whenever
particular provisions of such documents are referred to herein, such
provisions are incorporated by reference, and the statements are qualified
in their entirety by such reference.
GENERAL
The following is a summary of certain existing indebtedness and other
financing arrangements of the Company or its Subsidiaries. The descriptions
of the loans outstanding under the Credit Agreement and the Senior Notes
are qualified in their entirety by reference to the agreements and
instruments governing such financing arrangements. Noteholders are referred
to the Credit Agreement and the Indenture for a statement of their terms.
CREDIT AGREEMENT
The Company is a party to a Revolving Credit, Factoring and Security
Agreement, dated as of September 20, 1993, with CIT. The Credit Agreement
provides the Company with general working capital financing, in the form of
direct borrowings and letters of credit, up to the Maximum Credit (as
defined in the Credit Agreement), subject to an asset-based borrowing
formula. As collateral for borrowings under the Credit Agreement, the
Company has granted to CIT a security interest in substantially all of the
assets of the Company.
The Credit Agreement imposes a number of restrictive covenants that
affect the Company and its subsidiaries with respect to, among other
things: (i) creating liens; (ii) incurring indebtedness and contingent
obligations; (iii) paying dividends and redeeming capital stock; (iv)
merging and selling assets; (v) engaging in sale and lease back
transactions; (vi) making investments in other persons; (vii) engaging in
certain affiliate transactions; (viii) making capital expenditures; (ix)
selling accounts receivable; and (x) amending certain of its debt
instruments and making payment in respect of the obligations represented
thereby.
The Credit Agreement contains a number of events of default, including
the following: (i) failure to make payments of interest and principal when
due; (ii) material error in any representation or warranty or certificate
made under the Credit Agreement; (iii) failure of the Company to perform
any of its respective agreements under the Credit Agreement; (iv) a default
in the payment of any obligation of the Company or its subsidiaries on
indebtedness in excess of $750,000 owing to any one person other than CIT;
(v) entry of a judgment in excess of $500,000 in the aggregate and the same
remains undischarged for a period in excess of 30 days; (vi) certain events
of insolvency and bankruptcy of the Company or its subsidiaries; (vii)
certain events in respect of pension plans; (viii) the incurrence of
environmental liability; (ix) certain change of control events; and (x) a
material adverse change in the condition (financial or otherwise) of the
Company.
On March 2, 1998, the Company entered into the Forbearance Agreement
with CIT, wherein CIT (i) waived, as of January 3, 1998, the Company's
failure to meet the financial covenants related to Stockholders' equity and
maximum loss, as set forth in the Credit Agreement, (ii) agreed to forbear
(subject to certain conditions) from exercising any of its rights or
remedies arising under the Credit Agreement arising from the Company's
failure to make the interest payment on the Senior Notes due and payable on
March 2, 1998, (iii) agreed to continue making loans, advances and other
financial accommodations to the Company, subject to the terms and
conditions of the Forbearance Agreement; (iv) increased the borrowings
allowed against eligible inventory to 60%, (v) provided the Company with a
discretionary $3 million seasonal overadvance, and (vi) reduced the Maximum
Credit from $135 million to $120 million. Under the Forbearance Agreement,
to the extent that the Company fails to maintain certain levels of
borrowing under its asset-based borrowing formula, the Company is required
to maintain a certain minimum interest coverage ratio and is subject to a
covenant limiting the maximum loss the Company may incur over any twelve
consecutive calendar months. In consideration for CIT's entering into the
Forbearance Agreement, the Company agreed to pay CIT certain fees. See
"BACKGROUND TO THE RESTRUCTURING--The Waiver and Forbearance Under the
Credit Agreement." Under the Forbearance Agreement, such agreement to
forbear by CIT will terminate on July 1, 1998 or earlier upon the happening
of (a) the occurrence of any Event of Default (as defined in the Credit
Agreement) other than a Payment Default (as defined in the Forbearance
Agreement), or (b) the failure of the Company to execute and deliver to CIT
before June 1, 1998, (i) a commitment letter executed by CIT providing for
the agreement between CIT and the Company to enter into a new $135 million
syndicated credit facility (in replacement of the financing and factoring
arrangements provided by CIT pursuant to the Credit Agreement) on terms and
conditions satisfactory to CIT or (ii) a copy of a commitment letter
executed between another lender and the Company providing for a credit
facility to the Company which by its terms provides for closing and funding
thereof on or before July 1, 1998, and enabling the Company upon such
closing and funding to simultaneously terminate the Credit Agreement and
all other Financing Agreements (as defined in the Credit Agreement) and to
satisfy in full all of its then existing Obligations (as defined in the
Credit Agreement) to CIT; (c) the exercise of any right or remedy with
respect to any of the Collateral (as defined in the Credit Agreement) by
any holder of any Senior Notes or by the Trustee under the Indenture; or
(d) the payment of any interest on the Senior Notes in respect of the
Company's failure to make the March 2, 1998 interest payment or otherwise.
In addition, the Forbearance Agreement creates two new Events of
Default under the Credit Agreement: (i) the termination of E&Y as business
consultant to the Company and the failure to replace E&Y with another
business consultant satisfactory to CIT within 5 business days, and (ii)
any event occurring after March 2, 1998 which materially and adversely
affects the Company's businesses.
THE SENIOR NOTES
The Company is the obligor on the Senior Notes outstanding pursuant to
the Indenture, dated September 20, 1993, as amended, between the Company
and Bankers Trust Company, as Trustee. Pursuant to the Indenture, the
Senior Notes bear interest at a rate of 10-1/2% per annum. As of March 2,
1998, the aggregate principal face amount of Senior Notes outstanding was
$104,879,000.
The Indenture requires that 100% of the principal be repaid on
December 31, 1998. The Indenture also requires the Company to pay interest
semi-annually on the last day of February and August of each year,
commencing February 28, 1994. In addition, the Indenture also requires the
Company to use a portion of the proceeds from certain asset sales to pay
amounts outstanding under the Senior Notes.
The relative priority of liens in and upon the Company's collateral as
between CIT and the Noteholders is governed by the Intercreditor Agreement,
dated September 20, 1993 (the "Intercreditor Agreement"), by and between
CIT and Bankers Trust Company, as Trustee.
Pursuant to the Intercreditor Agreement, (i) CIT has a first priority
lien upon all of the Company's accounts, chattel paper, instruments,
documents (other than chattel paper, instruments and documents constituting
general intangibles), inventory, equipment, books and records and real
property (other than two parcels (the "Excepted Property")) and any
proceeds of the foregoing (collectively, the "CIT Priority Collateral"),
and (ii) the Noteholders have a first priority lien upon all of the
Company's general intangibles, certain pledged stock, the Excepted Property
and any proceeds of the foregoing (collectively, the "Noteholder Priority
Collateral"). In addition, CIT holds a junior lien on all of the Noteholder
Priority Collateral and the Noteholders hold a junior lien on all of the
CIT Priority Collateral. However, the Intercreditor Agreement provides that
upon a written declaration by CIT that an Event of Default under the Credit
Agreement has occurred and all obligations thereunder are due and payable
and an exercise by CIT of its rights and remedies, CIT is entitled to the
first $15 million of proceeds from the Company's general intangibles (the
"CIT Intangibles Limited Priority"). Under the agreement, the CIT
Intangibles Limited Priority is of no further force and effect (i) from and
after the release by CIT of its lien upon any of the CIT Priority
Collateral (other than any such release in consideration of the
contemporaneous delivery to CIT of all of the net proceeds arising from the
sale, transfer or other disposition of such released CIT Priority
Collateral and the application of such net Proceeds by CIT to payment to
such extent of the then outstanding CIT Obligations) or (ii) in the event
that the Company refinances the CIT Obligations without liens on all of the
CIT Priority Collateral. The Intercreditor Agreement also provides that,
except as set forth in the immediately preceding sentence with respect to
the CIT Intangibles Limited Priority, the priority of liens set forth in
that agreement "shall not be altered or otherwise affected by any
modification, renewal, restatement, extension or refinancing" of any
obligations owed to CIT or the Noteholders.
The Indenture imposes a number of restrictive covenants that affect
the Company and its subsidiaries with respect to, among other things: (i)
incurring indebtedness; (ii) creating liens; (iii) merging and selling
assets; (iv) engaging in certain intercompany transactions; (v) permitting
changes of control to occur; and (vi) engaging in transactions with
stockholders and affiliates.
The Indenture contains a number of events of default, including the
following: (i) failure to make payments of interest when due, and the
continuation of such failure for 30 days; (ii) failure to pay principal
when due; (iii) default in the payment of any obligation of the Company or
any of its Subsidiaries on indebtedness in the aggregate principal amount
of $3,000,000 or more; (iv) failure of the Company to comply with any of
its covenants or agreements under the Indenture; (v) entry of a judgment in
excess of $3,000,000; and (vi) certain events of insolvency and bankruptcy
of the Company or any and its Subsidiaries.
On March 2, 1998, the Company elected not to pay the interest payment
of $5.5 million that was due and payable under the Senior Notes, subject to
a 30 day grace period. Because the Company elected not to pay the interest
due on the Senior Notes by the expiration of the applicable grace period,
an event of default has occurred with respect to the Senior Notes entitling
the Noteholders to accelerate the maturity thereof. Pursuant to the Letter
Agreement, Magten has, in accordance with Section 6.5 of the Indenture,
caused a written direction to be provided to the Trustee, to forbear during
the term of the Letter Agreement from taking any action under the Indenture
in connection with the failure by the Company to make the interest payment
on the Senior Notes that was due and payable on March 2, 1998. On April 8,
1998, the Trustee issued a Notice of Default stating that as a result of
the Company's failure to make the interest payment on the Senior Notes, an
event of default under the Indenture had occurred on April 1, 1998.
DESCRIPTION OF RIGHTS PLAN
The Company is a party to a shareholder rights plan, dated December 8,
1987, as amended on December 10, 1997 (the "Rights Plan"), which provides
for a dividend distribution of one right (collectively, the "Rights") for
each share of Old Common Stock to holders of record of the Old Common Stock
at the close of business on December 23, 1997. With certain exceptions, the
Rights will become exercisable only in the event that an acquiring party
accumulates 20 percent or more of the Company's voting stock, or if a party
announces an offer to acquire 30 percent or more of such voting stock. Each
Right, when exercisable, will entitle the holder to buy one-hundredth of a
share of the Company's Series A Preferred Stock at a price of $30 per right
or, upon the occurrence of certain events, to purchase either common stock
of the Company or shares in an Acquiring Entity (as defined in the Rights
Plan) at half the market value thereof. The Company will generally be
entitled to redeem the Rights at a redemption price of $0.03 per Right at
any time until the 10th day following the acquisition of a 20 percent
position in its shares of Old Common Stock. In July 1993, the Rights Plan
was amended to provide that an acquisition or offer by Apollo, or any of
Apollo's Subsidiaries (as defined in the Rights Plan), will not cause the
Rights to become exercisable. Pursuant to the December 10, 1997 amendment
to the Rights Plan, the expiration date of the Rights was extended to
December 23, 2002. On [_________], 1998, in connection with the
Restructuring, consistent with the terms of the Letter Agreement, the
Company amended the Rights Plan to provide, among other things, that the
Rights will expire under the Rights Plan immediately prior to the
consummation of the Restructuring.
BUSINESS AND PROPERTIES OF THE COMPANY
For a description of the business and properties of the Company, see
"BUSINESS AND PROPERTIES OF THE COMPANY" in Part A to the Exchange
Restructuring Prospectus, attached hereto as Annex IV.
LEGAL PROCEEDINGS
For a description of material pending legal proceedings of the
Company, see "BUSINESS AND PROPERTIES OF THE COMPANY -- Bankruptcy Court
Cases; Litigation" in Part A to the Exchange Restructuring Prospectus,
attached hereto as Annex IV.
SELECTED HISTORICAL FINANCIAL DATA
See "SELECTED HISTORICAL FINANCIAL DATA," in Part A to the Exchange
Restructuring Prospectus attached hereto as Annex IV.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
See "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS," in Part A
to the Exchange Restructuring Prospectus, attached hereto as Annex IV.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
See "SELECTED HISTORICAL FINANCIAL INFORMATION" in Part A to the
Exchange Restructuring Prospectus, attached hereto as Annex IV.
PROJECTED CONSOLIDATED FINANCIAL INFORMATION
See "PROJECTED CONSOLIDATED FINANCIAL INFORMATION" in Part A to the
Exchange Restructuring Prospectus, attached hereto as Annex IV.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," in Part A to the Exchange Restructuring Prospectus,
attached hereto as Annex IV.
OTHER INFORMATION REGARDING THE EXISTING BOARD
During Fiscal 1997, there were eight meetings of the Board. Directors
who are not employees of the Company are paid an annual retainer of $13,000
and an additional fee of $600 for attendance at each meeting of the Board
or of a committee of the Board (other than the Executive Committee) as well
as $5,000 per year for service on the Executive Committee, $3,000 per year
for service on the Audit Committee, $2,000 per year for service on the
Compensation Committee, $2,000 per year for service on the Qualified Plan
Committee and $1,000 per year for service on the Nominating Committee. In
addition, the Chairman of each Committee is paid an annual fee of $1,000.
During Fiscal 1997, none of the directors attended fewer than 75 percent of
the aggregate number of meetings held by (i) the Board during the period
that he or she served as a director, with the exception of Messrs. Cogut
and Falk and (ii) the Committees of which he or she was a member during the
period that he or she served on these Committees.
The Board has established five standing committees to assist it in the
discharge of its responsibilities.
The Executive Committee met three times during Fiscal 1997. The
members of the Committee are Messrs. Politzer, Schiller and Yorke, and
prior to May 13, 1997, Mr. DiPaolo. The Committee, to the extent permitted
by law, may exercise all the power of the Board during intervals between
meetings of the Board.
The Audit Committee met two times during Fiscal 1997. The members of
the Committee are Messrs. Katz, Leppo and Roberts. The Committee meets
independently with the Director of the Internal Audit Department,
representatives of the Company's independent auditors and the Company's
Chief Financial Officer and reviews the general scope of the audit, the
annual financial statements of the Company and the related audit report,
the fees charged by the independent auditors and matters relating to
internal control systems. The Committee is responsible for reviewing and
monitoring the performance of non-audit services by the Company's
independent auditors and for recommending to the Board the selection of the
Company's independent auditors.
The Compensation and Stock Plan Committees met eight times during
Fiscal 1997. The members of the Committees are Messrs. Leppo, Schiller and
Yorke. The Committees are responsible for reviewing and recommending to the
Board compensation for officers and certain other management employees and
for administering and granting awards under the Company's stock plans.
The Nominating Committee met once during Fiscal 1997. The members of
the Committee were Ms. Dibble Jordan and Mr. Roberts and prior to November
24, 1997, Mr. Cogut. The Committee is responsible for proposing nominees
for director for election by the Stockholders at each Annual Meeting and
proposing candidates to fill any vacancies on the Board.
The Qualified Plan Committee met twice during Fiscal 1997. The members
of the Committee are Ms. Dibble Jordan and Messrs. Roberts, Rodgers and
Kahn. The Committee is responsible for overseeing the administration of the
Company's pension and savings plan.
EXECUTIVE OFFICERS
The following table sets forth certain information, as of January 3,
1998 with respect to the executive officers of Salant:
POSITIONS AND OFFICER OF SALANT
NAME AGE OFFICES SINCE
- ---- --- ------------- -----------------
Jerald S. Politzer.........52 Chief Executive April 1997
Officer
and Chairman of
the Board
Philip Franzel..............50 Executive Vice August 1997
President and
Chief Financial
Officer
Todd Kahn...................34 Executive Vice June 1993
President, General
Counsel and
Secretary
For a summary of the business experience for the past five years of
Messrs. Politzer, Franzel and Kahn, see "MANAGEMENT" herein.
Each of the executive officers of the Company was elected at a meeting
of the Board of Directors and will serve until the next Annual Meeting of
the Board or until his successor has been duly elected and qualified.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 20,
1998, with respect to each person who is known to the Company to be the
"beneficial owner" (as defined in regulations of the Commission) of more
than 5% of the outstanding shares of Common Stock.
BENEFICIAL OWNERS OF MORE THAN 5% OF THE
OUTSTANDING SHARES OF SALANT COMMON STOCK
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS(a)
- ------------------- -------------------- -------------------
Apollo Apparel Partners, 5,924,352 39.6%
L.P.
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, New York 10577
DDJ Capital Management, LLC 1,615,730 10.8%
141 Linden Street, Suite 4
Wellesley, MA 02181
- ----------------------------
(a) This percentage is calculated on the basis of 14,964,608 shares
outstanding as of March 16, 1998, excluding those shares held by or
for the account of the Company.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of March 16,
1998 with respect to the beneficial ownership of Old Common Stock by each
of the directors of the Company, the Chief Executive Officer and each of
the four most highly compensated other executives of the Company (the
"Named Executive Officers") and all directors and executive officers of the
Company as a group.
BENEFICIAL OWNERSHIP OF SALANT COMMON STOCK BY
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP (a) CLASS (b)
- ------------------------ -------------------- -----------
Nicholas P. DiPaolo............... 0 *
Robert H. Falk.................... 5,925,652 (c) 39.6%
Philip A. Franzel................. 1,000 (d) *
Ann Dibble Jordan.................. 2,200 (e) *
Todd Kahn.......................... 71,500 (f) *
Robert Katz........................ 5,925,952 (g) 39.6%
Harold Leppo....................... 2,200 (h) *
Michael A. Lubin.................. 0 *
Jerald S. Politzer................ 145,000 (i) 1.0%
Richard P. Randall................ 0 *
Bruce F. Roberts.................. 6,200 (j) *
John S. Rodgers................... 433,787 (k) 2.9%
Marvin Schiller.................... 16,134 (l) *
Edward M. Yorke................... 5,926,552 (m) 39.6%
All directors and executive
officers as a group
(14 persons).................... 6,607,773 (n) 43.6%
- ------------------------
* Represents less than one percent.
(a) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares of Old Common Stock which
such person has the right to acquire within 60 days following March
16, 1998.
(b) As of March 16, 1998, there were 14,964,608 shares outstanding,
excluding those shares held by or for the account of the Company. For
purposes of computing the percentage of outstanding shares of Old
Common Stock held by each person or group of persons named above, any
security which such person or persons has the right to acquire within
60 days following March 16, 1998 is deemed to be outstanding, but is
not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(c) This amount includes 5,924,352 shares beneficially owned by Apollo and
1,300 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing general partner of
which is Apollo Advisors, L.P. Mr. Falk is a principal of Apollo
Advisors, L.P. He disclaims beneficial ownership of any shares of Old
Common Stock held by Apollo.
(d) This amount represents 1,000 shares held directly by Mr. Franzel.
(e) This amount represents 2,200 shares issuable upon the exercise of
stock options.
(f) This amount includes 4,000 shares held directly and 67,500 shares
issuable upon the exercise of stock options.
(g) This amount includes 5,924,352 shares beneficially owned by Apollo and
1,600 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing general partner of
which is Apollo Advisors, L.P. Mr. Katz is an officer of Apollo
Advisors, L.P. He disclaims beneficial ownership of any shares of Old
Common Stock held by Apollo.
(h) This amount represents 2,200 shares issuable upon the exercise of
stock options.
(i) This amount includes 45,000 shares held directly and 100,000 shares
issuable upon the exercise of stock options.
(j) This amount includes 4,000 shares held directly and 2,200 shares
issuable upon the exercise of stock options.
(k) This amount includes 424,280 shares held directly by Mr. Rodgers,
1,300 shares issuable upon the exercise of stock options, 2,284 shares
held through the Company's Long Term Savings and Investment Plan (the
"Savings Plan") and 5,923 shares held by the Margaret S. Vickery
Trust, of which Mr. Rodgers is a co-trustee. As to the shares held by
the Margaret S. Vickery Trust, Mr. Rodgers shares voting and
investment power with a co-trustee. He disclaims beneficial ownership
with respect to the shares held by the Trust.
(l) This amount includes 11,234 shares held directly and 5,200 shares
issuable upon the exercise of stock options.
(m) This amount includes 5,924,352 shares beneficially owned by Apollo and
2,200 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing partner of which is
Apollo Advisors, L.P. Mr. Yorke is an officer of Apollo Advisors, L.P.
He disclaims beneficial ownership of any shares of Old Common Stock
held by Apollo.
(n) The 6,607,773 shares held by all directors and executive officers of
the Company as a group counts the 5,924,352 shares held by Apollo
(discussed in notes (c), (g) and (m) above) once. Such 6,607,773
shares include (i) 6,419,789 shares held directly by, or attributable
to, directors and executive officers, (ii) 2,284 shares held through
the Savings Plan by executive officers, and (iii) 185,700 shares
issuable upon the exercise of stock options held by all directors and
executive officers that are exercisable on, or may become exercisable
within sixty days of, March 16, 1997.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Each of the executive officers of the Company was elected at a meeting
of the Board and will serve until the next Annual Meeting of the Board or
until his successor has been duly elected and qualified. Section 16(a) of
the Exchange Act requires the Company's directors and executive officers
and holders or more than 10% of the Old Common Stock to file with the
Commission reports of ownership and changes in beneficial ownership of Old
Common Stock and other equity securities of the Company of Forms 3, 4 and
5. Based on written representations of the reporting persons, the Company
believes that during Fiscal 1997, such persons complied with all applicable
Section 16(a) filing requirements.
See "MANAGEMENT, EXECUTIVE OFFICERS AND DIRECTORS" in Part A to the
Exchange Restructuring Prospectus, attached hereto as Annex IV.
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid or accrued by the
Company for fiscal years 1995 through 1997 for services in all capacities
to the Company by the Chief Executive Officer and certain other of its
executive officers (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(a) Long Term Compensation
---------------------- ----------------------
Awards Payout
------ ------
NUMBER OF
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING LONG-TERM ALL OTHER
PRINCIPAL SALARY BONUS COMPEN- STOCK OPTIONS INCENTIVE COMPENSATION
NAME POSITION YEAR ($) ($) SATION AWARDS GRANTED PAYOUTS ($)
---- -------- ---- --- --- ------ ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jerald S. Chief
Politzer Executive
Officer (b) 1997 487,500 650,000(c) 0 0 400,000 0 29,644 (d)
Philip A. Executive
Franzel Vice
President
And Chief
Financial
Officer (e) 1997 109,615 150,000(c) 0 0 75,000 0 0
Todd Kahn Executive
Vice
President,
General
Counsel, and
Secretary (f) 1997 258,077 75,000 0 0 65,000 0 1,900 (g)
Vice
President,
General
Counsel and
Secretary 1996 201,923 0 0 0 0 0 792
Vice
President,
General
Counsel, and
Secretary 1995 167,827 0 0 0 15,000 0 762
Nicholas P. Chairman,
DiPaolo President
and Chief
Executive
Officer (h) 1997 632,211 0 0 0 0 0 22,339 (i)
Chairman,
President
and Chief
Executive
Officer 1996 625,000 0 0 0 0 0 22,339
Chairman,
President
and Chief
Executive
Officer 1995 602,885 0 0 0 0 0 22,339
Michael A. Executive
Lubin Vice
President
and Chief 236,923(k) 0 0 0
Operating
Officer (j) 1997 162,500 0 1,900(g)
Executive
Vice 1996 400,000 0 0 0 0 0 0
President
and Chief
Operating
Officer
Executive
Vice 1995 90,769 0 0 0 0 0 0
President
and Chief
Operating
Officer
Richard P. Senior Vice
Randall President 1997 240,000 0 0 0 0 0 1,900(g)
And Chief
Financial
Officer (l)
Senior Vice
President 1996 320,000 0 0 0 0 0 1,800
And Chief
Financial
Officer
Senior Vice
President, 1995 283,077 0 0 0 0 0 1,800
Treasurer
and Chief
Financial
Officer
</TABLE>
- ------------------------
(a) Includes amounts earned in fiscal year, whether or not deferred.
(b) Mr. Politzer joined the Company and was elected Chief Executive
Officer on April 1, 1997.
(c) Reflects a one-time minimum cash bonus for 1997 in lieu of a
sign-up bonus.
(d) Housing allowance of $21,000 and pre-employment expense
reimbursement of $8,644.
(e) Mr. Franzel joined the Company and was elected Chief Financial
Officer on August 18, 1997.
(f) Mr. Kahn was elected Executive Vice President on May 13, 1997,
(g) Matching contributions under the Company's Long Term Savings and
investment Plans.
(h) Effective May 13, 1997, Mr. DiPaolo resigned from his positions
with the Company.
(i) Consists of (i) premiums of $20,439 under a life insurance/salary
continuation plan and (ii) matching contributions of $1,900 under
the Savings Plan.
(j) Effective July 31, 1997, Mr. Lubin resigned from his positions
with the Company.
(k) Excludes monthly retainer to Lubin Delano of $8,333.33 and
one-time lump sum payment of $368,149 to Lubin Delano pursuant to
a letter agreement dated July 18, 1997 (the "Lubin Agreement").
For a summary of the Lubin Delano Consulting Agreement with the
Company, see "Certain Relationships and Related Transactions"
herein.
(l) Effective April 1, 1997, Mr. Randall resigned from his positions
with the Company.
OPTION GRANTS FOR FISCAL 1997
The following table sets forth information with respect to grants to
the Named Executive Officers of options to purchase Old Common Stock in the
last fiscal year.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term (a)
-------------------------------------------- --------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Option Expiration
Name Granted Fiscal Year Price Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Jerald 400,000 30.4298 $4.1250 03/24/07 $1,037,676 $2,629,675
Politzer
Philip A. 75,000 5.7056 $2.34 08/18/07 $110,829 $280,431
Franzel
Todd Kahn 65,000 4.9448 $4.00 04/14/07 $163,671 $414,625
Nicholas 0 0 0 - 0 0
P. DiPaolo
Michael 162,500 12.3621 $4.00 02/11/07 $408,781 $1,035,932
Lubin
Richard P. 0 0 0 - 0
Randall
</TABLE>
- ------------------------
(a) The dollar amounts under the 5% and 10% columns are the result of
calculations required under the Commission's rules and are not
intended to forecast future appreciation in the price of the Old
Common Stock.
OPTION EXERCISES AND VALUES FOR FISCAL 1997
The following table sets forth as of January 3, 1998 for each of the
Named Executive Officers certain information concerning the aggregate
number of options exercised and the number and value of all unexercised
options. The Company has not issued any stock appreciation rights.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Total Value of
Number of Securities Unexercised
Underlying In-the-Money Options
Unexercised Options Held at Fiscal
at Fiscal Year-End Year-End (a)
------------------ ------------
Number of
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jerald S. 0 0 0 400,000 0 0
Politzer
Philip A. 0 0 0 75,000 0 0
Franzel
Todd Kahn 0 0 30,000 70,000 0 0
Nicholas 65,000 $38,750 0 0 0 0
P. DiPaolo
Michael A. 0 0 0 0 0 0
Lubin
Richard P. 0 0 0 0 0 0
Randall
</TABLE>
- ------------------------
(a) The closing price of the Common Stock on January 2, 1998, the
last trading day of Fiscal 1997, was $1.75 per share.
THE COMPANY'S RETIREMENT PLAN
The Company sponsors the Salant Corporation Retirement Plan (the
"Retirement Plan"), a noncontributory, final average pay, defined benefit
plan. A participant becomes vested upon completion of 5 years of service.
The Retirement Plan provides pension benefits and benefits to surviving
spouses of participants who die prior to retirement. At normal retirement,
a member receives an annual pension benefit for life equal to the greater
of (a) the sum of 0.65% of his/her average final annual compensation for
the highest 5 consecutive years of last 15 years preceding retirement
("final average compensation") not in excess of 140% of the average Social
Security wage base for the 35-year period ending with retirement ("covered
compensation") plus 1.25% of final average compensation in excess of
covered compensation multiplied by the number of years of his/her credited
service not in excess of 35, or (b) $96 multiplied by the number of years
of his/her credited service, but not to exceed $2,880. A participant may
elect an actuarially reduced benefit at his/her early retirement. The
benefit formula of the Retirement Plan was amended in October 1991
effective as of December 1, 1989. A participant's benefit under the
Retirement Plan will never be less than the greater of his/her accrued
benefit under the terms of such plan prior to (a) the effective date of the
amendment or (b) January 1, 1994. The benefit formula prior to amendment
was 1 1/4% of a participant's average final annual compensation for the
highest 5 consecutive years of the last 15 years preceding retirement
multiplied by the number of years his/her credited service not in excess of
30, minus up to 50% of primary social security, prorated for fewer than 30
years of service. The following table shows the annual pension benefits
which would be payable to members of the Retirement Plan at normal
retirement after specific periods of service at selected salary levels,
assuming the continuance of the Retirement Plan.
NUMBER OF YEARS OF SERVICE (b)
AVERAGE ANNUAL
COMPENSATION IN HIGHEST
FIVE CONSECUTIVE YEARS
OF THE LAST 15 YEARS
PRECEDING RETIREMENT (a) 10 20 25 30 35
$ 60,000................ $ 5,038 $ 10,077 $ 12,596 $ 15,115 $ 17,635
80,000................ 7,538 15,077 18,846 22,615 26,385
100,000................ 10,038 20,077 25,096 30,115 35,135
120,000................ 12,538 25,077 31,346 37,615 43,885
150,000................ 16,288 32,577 40,721 48,865 57,010
180,000................ 17,538 35,077 43,846 52,615 61,385
200,000................ 17,538 35,077 43,846 52,615 61,385
- -------------------------
(a) Effective from 1989 through 1993, no more than $200,000 of
compensation (adjusted for inflation) may be recognized for the
purpose of computing average annual compensation. Subsequent to 1993,
no more than 150,000 of compensation (adjusted for inflation) may be
recognized for such purpose.
(b) Messrs. Kahn, DiPaolo, Lubin and Randall have, respectively, 4 years,
12 years, 1 year and 6 years of credited service under the Retirement
Plan.
Mr. DiPaolo was a participant in the Manhattan Industries, Inc.
Employees Benefit Plan (the "Manhattan Plan"), which was merged into the
Retirement Plan as of March 1, 1992. His years of service as a participant
in the Manhattan Plan will be considered in determining his benefits under
the Retirement Plan. Furthermore, his benefits under the Retirement Plan
will never be less than his accrued benefits under the terms of the
Manhattan Plan determined as of January 31, 1989. The benefit formula of
the Manhattan Plan was the product of (a) the sum of (i) 0.50% of the
participant's average annual compensation for any 36-consecutive month
period of his employment ("final average compensation") in excess of his
covered compensation plus (ii) 1.00% of his final average compensation in
excess of covered compensation multiplied by (b) the number of his years of
service.
PERFORMANCE GRAPH
The following table compares the cumulative total shareholder return
on Old Common Stock with the cumulative total shareholder returns of (x)
the S&P 500 Textile - Apparel Manufacturers Index and (y) the Wilshire 5000
index from December 1992 to December 1997. The return on the indices is
calculated assuming the investment of $100 on December 31, 1992 and the
reinvestment of dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN*
SALANT CORPORATION, WILSHIRE 5000, AND S&P TEXTILE INDUSTRY INDEX
===============================================================================
[OBJECT OMITTED]
DATE SALANT WILSHIRE S&P TEXTILE
5000
- -------------------------------------------------
December 1992 $100.00 $100.00 $100.00
December 1993 $ 80.78 $111.29 $ 75.61
December 1994 $ 62.98 $111.22 $ 74.08
December 1995 $ 42.45 $151.77 $ 83.15
December 1996 $ 34.23 $183.97 $114.23
December 1997 $ 19.17 $241.53 $123.17
- -------------------------------------------------
*Total return assumes reinvestment of dividends on a quarterly basis.
MANAGEMENT
The following table sets forth certain information with respect to the
persons who are members of the Board or executive officers of the Company.
The Board consists of ten members, divided into three classes, the first
class consists of three members, the second class consists of two members
and the third class consists of four members.
DIRECTORS
Presently there is one vacancy on the Board. The term of office of
Class One will expire at the 2000 Annual Meeting; the term of office of
Class Two will expire at the 1999 Annual Meeting; and the term of office of
Class Three will expire at the 2001 Annual Meeting.
DIRECTOR/OFFICER
NAME AGE POSITIONS AND OFFICES OF SALANT SINCE
---- --- --------------------- ---------------
Jerald S. Politzer... 52 Director - Class One, Chairman April 1997
of the Board and
Chief Executive Officer
Harold Leppo......... 61 Director - Class One September 1993
Edward M. Yorke...... 39 Director - Class One September 1993
Bruce F. Roberts..... 74 Director - Class Two September 1993
Marvin Schiller...... 64 Director - Class Two May 1983
Robert H. Falk....... 59 Director - Class Three May 1996
Ann Dibble Jordan.... 63 Director - Class Three September 1993
Robert Katz.......... 31 Director - Class Three August 1995
John S. Rodgers...... 68 Director - Class Three March 1973
Philip A. Franzel.... 50 Executive Vice President and August 1997
Chief Financial Officer
Todd Kahn............ 34 Executive Vice President, June 1993
General Counsel and
Secretary
No arrangement or understanding exists between any director or officer
and any other person or persons pursuant to which any such person was or is
to be selected as a director or officer. None of the directors or officers
has any family relationship between them.
The business experience, principal occupations and employment during
the past five years of each of the directors, together with their periods
of service as directors and executive officers of the Company, as
applicable, are set forth below.
Jerald S. Politzer, age 52, joined the Company as a director on March
24, 1997, Chief Executive Officer commencing April 1, 1997 and Chairman of
the Board on May 13, 1997. From July 1989 to November 1996 he had been
Executive Vice President of Melville Corporation, a diversified retailer.
Mr. Politzer is a director of Norton McNaughton, Inc., a manufacturer of
women's apparel.
Harold Leppo, age 61, has been an independent retail consultant for
more than the past five years. Mr. Leppo is a director of Filene's
Basement, an operator of retail clothing stores; Napier Co., a jewelry
manufacturer; and Royce Hosiery Mills, Inc., a hosiery manufacturer. Mr.
Leppo has served as a director of the Company since September 1993.
Edward M. Yorke, age 39, has been an officer, since 1992, of Apollo
Advisors, L.P., which, together with an affiliate, serves as managing
general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo
Investment Fund III, L.P., private securities investment funds. AIF II,
L.P. is the general partner of Apollo, the largest stockholder of the
Company. From 1990 to 1992, Mr. Yorke was a vice president in the high
yield capital markets group of BT Securities Corp. Mr. Yorke is a director
of Aris Industries, Inc., an apparel manufacturer; Big Flower Press, Inc.,
a commercial printer; and Telemundo Group, Inc., an operator of television
stations. Mr. Yorke has served as a director of the Company since September
1993.
Robert H. Falk, age 59, has been a principal, since April 1992, of
Apollo Advisors, L.P., which, together with an affiliate, serves as
managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and
Apollo Investment Fund III, L.P., private securities investment funds. AIF
II, L.P. is the general partner of Apollo, the largest stockholder of the
Company. Mr. Falk is a director of Converse, Inc., a manufacturer of
athletic and leisure footwear; Culligan Water Technologies, Inc., a
manufacturer of water purification and treatment products; and Samsonite
Corporation, a luggage manufacturer. Mr. Falk has served as a director of
the Company since May 1996.
Ann Dibble Jordan, age 63, has been an independent consultant for the
last five years. Ms. Dibble Jordan is a director of Johnson & Johnson
Corporation, a manufacturer and marketer of consumer healthcare products;
The Travelers Corporation, a financial services and insurance firm; The
Hechinger Company, a retailer of home improvement products; and Automatic
Data Processing, Inc., a computer services company. Ms. Dibble Jordan has
served as a director of the Company since September 1993.
Robert Katz, age 31, has been associated since 1990 with and is an
officer of Apollo Advisors, L.P., which, together with an affiliate, serves
as managing general partner of Apollo Investment Fund, L.P., AIF II, L.P.
and Apollo Investment Fund III, L.P., private securities investment funds.
AIF II, L.P. is the general partner of Apollo, the largest stockholder of
the Company. Mr. Katz is a director of Alliance Imaging, Inc., a medical
imaging company; Aris Industries, Inc., an apparel manufacturer; and Vail
Resorts Inc., a resort operator. Mr. Katz has served as a director of the
Company since August 1995.
John S. Rodgers, age 68, is an independent consultant. From September
1993 until July 1995, Mr. Rodgers was Executive Vice President, Secretary
and Senior Counsel of the Company. Prior to that time, Mr. Rodgers was
Chairman of the Board of the Company since March 1991. Prior to June 1993,
Mr. Rodgers had been General Counsel for more than the previous five years
and prior to August 1995 he had been Secretary for more than the previous
five years. Mr. Rodgers has served as a director of the Company since 1973.
Bruce F. Roberts, age 74, has been Executive Director of the Textile
Distributors Association, a trade association, from September 1990. Prior
to that time, Mr. Roberts was Senior Vice President--Corporate Relations at
Spring Industries, a textile manufacturer. Mr. Roberts has served as a
director of the Company since September 1993.
Marvin Schiller, age 64, was Managing Director of A.T. Kearney, Inc.,
a management consulting firm, from May 1983 until his retirement as of
January 1995. Dr. Schiller is a director of LePercq-Istel Fund, Inc., a
mutual fund; Strategic Agricultural Management Corp., a software developer
and marketer; and Tutor Time Learning Systems Inc., a childcare and
educational company. Dr. Schiller has served as a director of the Company
since May 1983.
Mr. Franzel, age 50, was elected Executive Vice President and Chief
Financial Officer on August 18, 1997. From June 1993 until joining the
Company, Mr. Franzel was Executive Vice President and Chief Financial
Officer for Ermenegildo Zegna Corp., a leading international manufacturer
and marketer of men's apparel. Prior to June 1993, Mr. Franzel was Group
Chief Financial Officer for GJM International, Inc.
Mr. Kahn, age 34, was elected Vice President and General Counsel on
June 1, 1993, Assistant Secretary on September 22, 1993, Secretary on
August 15, 1995 and Executive Vice President on May 13, 1997. Prior to June
1993, Mr. Kahn was an attorney with the law firm of Fried, Frank, Harris,
Shriver & Jacobson, outside counsel to the Company.
EXECUTIVE OFFICERS
Executive officers of the Company are elected by and serve at the
discretion of the Board. For a brief description of the business experience
for the previous five years of all executive officers who are directors see
"Directors" above.
MANAGEMENT COMPENSATION
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
Mr. Politzer is a party to an agreement (the "Politzer Agreement"),
dated as of March 24, 1997, which provides for his employment as Chief
Executive Officer of the Company effective April 1, 1997 through March 31,
2000. The Politzer Agreement provides for the payment of a base salary in
the amount of $650,000 per annum for the first twelve months of his
employment, $700,000 per annum for the second twelve months of his
employment and $750,000 for the third twelve months of his employment.
Under the terms of the Politzer Agreement, Mr. Politzer is paid a cash
bonus equal to 50% of his then current base salary if the Company generates
actual pre-tax income for a year equal to at least 90% of the pre-tax
income provided in the Company's annual business plan for such year. If the
Company's actual pre-tax income for a year equals 100% of its annual
business plan, then he receives a cash bonus equal to 100% of his then
current base salary. Actual pre-tax income in excess of the annual business
plan for such year increases Mr. Politzer's incentive bonus by 1% of his
then current base salary for each 1% increment of increased actual pre-tax
income for the year. Pursuant to the Politzer Agreement, Mr. Politzer will
receive a minimum cash bonus for Fiscal 1997, and no other fiscal year
thereafter, in the amount of $650,000.
If Mr. Politzer's employment is terminated by him for "good reason"
(as defined in the Politzer Agreement) or by the Company without cause, Mr.
Politzer will receive (i) his base salary at the annualized rate on the
date his employment ends for a period ending on the later of (x) the
Employment Period (as defined in the Politzer Agreement) or (y) twelve
months following termination, (ii) any pro-rata bonus earned in the year
his employment ends and (iii) the right to exercise any stock options
(whether or not then vested) for six months from the date his employment
ends. If Mr. Politzer's employment ends as a result of death or Disability
(as defined in the Politzer Agreement) he will receive (i) his base salary
through the date of death or Disability and any bonus for any fiscal year
earned but not yet paid, (ii) any pro-rata bonus earned in the year his
employment ends, (iii) in the case of death only, a lump sum payment equal
to three months base salary and (iv) the right to exercise any stock option
(whether or not then vested) for a one year period.
Mr. Franzel is a party to an agreement (the "Franzel Agreement"),
dated as of August 18, 1997, which provides for his employment as Executive
Vice President, and Chief Financial Officer of the Company effective August
18, 1997 through December 31, 1999. The Franzel Agreement provides for the
payment of a base salary in the amount of $300,000 per year. Commencing in
August of 1998, Mr. Franzel's base salary will be reviewed for increase,
and in no event shall the base salary be less than $300,000 per year. Under
the terms of the Franzel Agreement, Mr. Franzel shall receive a minimum
cash bonus of $150,000 for Fiscal 1997 payable to Mr. Franzel within ninety
(90) days after the end of the fiscal year. Under the terms of the Franzel
Agreement, Mr. Franzel is entitled to receive a cash bonus equal to 40% of
his then current base salary if the Company generates actual pre-tax income
for a year equal to or greater than 90% and less than 100% of the pre-tax
income provided in the Company's annual business plan for such year. If the
Company's actual pre-tax income for a year is equal to or greater than 100%
of its annual business plan for such year, then he receives a cash bonus
equal to 50% of his then current base salary. Actual pre-tax income in
excess of the annual business plan increases Mr. Franzel's incentive bonus
by 5% of his then current base salary for each 5% increment of increased
pre-tax income for the year. If Mr. Franzel's employment is terminated by
him for "good reason" (as defined in the Franzel Agreement) or by the
Company without cause, Mr. Franzel will receive (i) his base salary at the
annualized rate on the date his employment ends for a period ending on the
later of (x) the Employment Period (as defined in the Franzel Agreement) or
(y) twelve months following termination, (ii) any pro-rata bonus earned in
the year his employment ends and (iii) the right to exercise any stock
options (whether or not then vested) for six months from the date his
employment ends. If Mr. Franzel's employment ends as a result of death or
Disability (as defined in the Franzel Agreement) he will receive (i) his
base salary through the date of death or Disability and any bonus for any
fiscal year earned but not yet paid, (ii) any pro-rata bonus earned through
the date of death or Disability, (iii) in the case of death only, a lump
sum payment equal to three months salary, and (iv) the right to exercise
any stock option (whether or not vested) for a one year period. Pursuant to
the Franzel Agreement, all stock options outstanding will immediately vest
upon a "Change of Control" (as defined in the Franzel Agreement).
Mr. Kahn is a party to an agreement (the "Kahn Agreement"), dated as
of May 1, 1997, which provides for his employment as Executive Vice
President, General Counsel and Secretary of the Company, effective May 1,
1997 through December 31, 1999. The Kahn Agreement provides for the payment
of a base salary in the amount of $275,000 per year. Commencing in March of
1998, Mr. Kahn's base salary will be reviewed for increase, and in no event
shall his base salary be less than $275,000 per year. Under the terms of
the Kahn Agreement, Mr. Kahn is entitled to receive a cash bonus equal to
40% of his then current base salary if the Company generates actual pre-tax
income for a year equal to or greater than 90% and less than 100% of the
pre-tax income provided in the Company's annual business plan for such
year. If the Company's actual pre-tax income for a year is equal to or
greater than 100% of its annual business plan, then he receives a cash
bonus equal to 50% of his then current annual salary. Actual pre-tax income
in excess of the annual business plan for a year increases Mr. Kahn's
incentive bonus by 5% of his then current base salary for each 5% increment
of increased actual pre-tax income for the year. If Mr. Kahn's employment
is terminated by him for "good reason" (as defined in the Kahn Agreement)
or by the Company without cause, Mr. Kahn will receive (i) his base salary
at the annualized rate on the date his employment ends for a period ending
on the later of (x) the Employment Period (as defined in the Kahn
Agreement) or (y) twelve months following termination, (ii) any pro-rata
bonus earned in the year his employment ends, and (iii) the right to
exercise any stock options (whether or not then vested) for six months from
the date his employment ends. If Mr. Kahn's employment ends as a result of
death or Disability (as defined in the Kahn Agreement) he will receive (i)
his base salary through the date of death or Disability and any bonus for
any fiscal year earned but not yet paid, (ii) any pro-rata bonus earned
through the date of death or Disability, and (iii) in the case of death
only, a lump sum payment equal to three months salary and (iv) the right to
exercise any stock option (whether or not vested) for a one year period.
Pursuant to the Kahn Agreement, all stock options outstanding will
immediately vest upon a "Change of Control" (as defined in the Kahn
Agreement).
Mr. DiPaolo is party to an agreement (the "DiPaolo Agreement"), dated
as of January 1, 1997, which provided for his employment as Chairman of the
Board, President and Chief Executive Officer of the Company through
December 31, 1997. The DiPaolo Agreement provided for the payment of a base
salary in the amount of $625,000 from January 1, 1997 to December 31, 1997.
If Mr. DiPaolo's employment is terminated by him for "good reason" (as
defined in the DiPaolo Agreement) or by the Company without cause, Mr.
DiPaolo will receive (i) a lump sum amount equal to his monthly salary
multiplied by the number of full months in the Separation Period (as
defined in the DiPaolo Agreement) up to six months and if the Separation
Period is greater than six months, bi-weekly payments of $24,038.16
commencing at the end of the first six months of the Separation Period and
continuing until the end of the Separation Period and (ii) any pro-rata
bonus earned in the year his employment ends. On May 13, 1997, Mr. DiPaolo
exercised his right to terminate the agreement for "good reason."
In addition to the foregoing, pursuant to the DiPaolo Agreement, the
Company assigned to Mr. DiPaolo three insurance policies on his life owned
by the Company, with an aggregate current cash surrender value of
approximately $228,253.
Mr. Lubin is party to an agreement (the "Lubin Agreement"), dated as
of July 18, 1997. Pursuant to the Lubin Agreement, effective as of July 31,
1997, Mr. Lubin resigned as President and Chief Operating Officer of the
Company and his employment with the Company ended as of that date. The
Lubin Agreement provided for salary continuation and payment to Lubin
Delano of its consulting fee pursuant to the Lubin Delano Agreement through
July 31, 1997 (For a discussion of the Lubin Delano Agreement, see "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" below). Additionally, the Lubin
Agreement provided for a one-time lump sum payment of $368,149.00 to Lubin
Delano.
Mr. Randall is party to an agreement (the "Randall Agreement"), dated
as of February 24, 1997. Pursuant to the Randall Agreement, effective as of
April 1, 1997, Mr. Randall resigned as Senior Vice President and Chief
Financial Officer of the Company and his employment with the Company ended
as of that date. The Randall Agreement provided for a severance period
beginning April 1, 1997 and ending on the earlier of (i) the day Mr.
Randall commences Full Time Employment (as defined in the Randall
Agreement) or (ii) six (6) months from April 1, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation and Stock Plan Committee are
Messrs. Leppo, Schiller and Yorke, none of whom were (i) during Fiscal
1997, an officer of the Company or any of its subsidiaries or (ii) formerly
an officer of the Company or any of its subsidiaries.
JOINT REPORT OF THE COMPENSATION AND
STOCK PLAN COMMITTEES ON EXECUTIVE COMPENSATION
This report sets forth the compensation policies that guide decisions
of the Compensation and Stock Plan Committees with respect to the
compensation of the Company's executive officers. This report also reviews
the rationale for pay decisions that affected Mr. Politzer during Fiscal
1997, and, in that regard, offers additional insight into the figures that
appear in the compensation tables which are an integral part of the overall
disclosure of executive compensation. Any consideration of pay-related
actions that may become effective in future fiscal years are not reported
in this statement.
COMMITTEE RESPONSIBILITY. The central responsibility of the
Compensation Committee is to oversee compensation practices for the
Company's executive officers. In this capacity, it reviews salaries,
benefits, and other compensation paid to the Company's executive officers
and recommends actions to the full Board with respect to these matters. The
Stock Plan Committees administer the Company's 1987, 1988, 1993 and 1996
Stock Plans and, in this role, are responsible for granting stock options
to all of the company's eligible employees, including its officers.
STATEMENT OF COMPENSATION POLICY. In the context of their oversight
roles, the Compensation and Stock Plan Committees are dedicated to ensuring
that the Company's financial resources are used effectively to support the
achievement of its short-term and long-term business objectives. In
general, it is the policy of the Company that executive compensation (a)
reflect relevant market standards for individuals with superior
capabilities so as to ensure that the Company is effectively positioned to
recruit and retain high-performing management talent; (b) be driven
substantially by the Company's performance as measured by the achievement
of internally generated earnings targets; and (c) correlate with share
price appreciation, thereby coordinating the interests of management and
shareholders. Percentile objectives are not specified in setting executive
compensation.
The members of the Compensation and Stock Plan Committees believes
that the Company's executive compensation program is well structured to
achieve its objectives. These objectives are satisfied within the context
of an overall executive pay system that is comprised of a market driven
base salary, variable incentive compensation and options to purchase the
Company's Common Stock.
DESCRIPTION OF COMPENSATION PRACTICES. It is the Company's practice to
enter into employment agreements with its executive officers. These
agreements specify the various components of compensation, including, among
others, base salary and incentive compensation.
BASE SALARY. Base salaries for the Company's executive officers are
defined in their respective employment agreements, and, in the view of the
Compensation Committee, reflect base pay levels that generally are being
commanded by high-quality management in the marketplace. The Compensation
Committee's normal practice is to review each executive officer's salary at
the time of contract renewal, at which point adjustments are recommended to
ensure consistency with pay expectations in the apparel industry and to
reflect the extent of the executive's contribution to corporate performance
over time. Mr. Politzer's base salary for 1997 was established pursuant to
an agreement, dated as of March 24, 1997. Mr. Politzer's compensation
represents a negotiated rate that reflects market prices for executives of
his caliber and experience.
INCENTIVE COMPENSATION. Incentive compensation payments to executive
officers are based on the Company's performance and are intended to
motivate the Company's executive officers to maximize their efforts to meet
and exceed key earnings goals. The specific terms of each incentive
arrangement are individually negotiated, but, in general, executive
officers can earn incremental cash compensation based on the extent to
which the Company achieves and exceeds annual earnings targets. Ordinarily,
executive officers are paid a fixed cash award in years when actual pre-tax
income (before amortization of intangibles and after any reserve for
contingencies) equals 100% of the annual business plan. Smaller awards are
paid when earnings fall below plan levels, and greater payments are made
when results exceed plan. There is no limit on the overall incentive
opportunity; however, in a year in which operating income falls below 90%
of the annual business plan, no incentive compensation payments are made.
Mr. Politzer's incentive compensation is designed to align his bonus, if
any, with the performance of the Company.
STOCK PLANS. The Company reinforces the importance of producing
attractive returns to shareholders over the long term through the operation
of its 1987, 1988, 1993 and 1996 Stock Plans. Stock options granted
pursuant to the Stock Plans provide recipients with the opportunity to
acquire an equity interest in the Company and to participate in the
increase in shareholder value reflected in an increase in the price of
Company shares. Exercise prices of options are ordinarily equal to 100% of
the fair market value of the Company's shares on the date of grant of the
option. This ensures that executives will derive benefits as shareholders
realize corresponding gains. To encourage a long-term perspective, options
are assigned a 10-year term, and most options become exercisable in equal
installments on the first, second and third anniversaries of the date of
grant. Stock options granted to executive officers typically are considered
when employment agreements are initiated or renewed. In recent years, the
Stock Plan Committees have based their decisions to grant stock options on
competitive factors, their understanding of current industry compensation
practices and their assessment of individual potential and performance. By
granting stock options, the Committees are not only addressing market
demands with respect to total compensation opportunities, but are also
effectively reinforcing the Company's policy of encouraging executive stock
ownership in support of building shareholder value. Mr. Politzer has been
granted stock options which vest at the rate of 25% on the first and second
anniversaries of the grant date and 50% on the third anniversary of the
grant date to incentivize Mr. Politzer to promote long-term shareholder
value.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION. Section 162(m) of the
Internal Revenue Code ("Section 162(m)") generally disallows a federal
income tax deduction to any publicly-held corporation for compensation paid
in excess of $1 million in any taxable year to the chief executive officer
or any of the four other most highly compensated executive officers who are
employed by the Company on the last day of the taxable year. In Fiscal
1997, Section 162(m) will only affect the tax deductibility of a portion of
the compensation paid to Mr. Politzer, the Company's current chief
executive officer.
SUMMARY. The Compensation and Stock Plan Committees are responsible
for a variety of compensation recommendations and decisions affecting the
Company's executive officers. By conducting their decision-making within
the context of a highly integrated, multicomponent framework, the
Committees ensure that the overall compensation offered to executive
officers is consistent with the Company's interest in providing competitive
pay opportunities which reflect its pay-for-performance orientation and
support its short-term and long-term business mission. The Compensation and
Stock Plan Committees will continue to actively monitor the effectiveness
of the Company's executive compensation plans and assess the
appropriateness of executive pay levels to assure prudent application of
the Company's resources.
Marvin Schiller, Chairman
Harold Leppo
Edward M. Yorke
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as described below, no transactions have occurred since
December 31, 1996 to which Salant was or is to be a party and in which
directors, executive officers or control persons of Salant, or their
associates, had or are to have a direct or indirect material interest.
Pursuant to an agreement, dated December 1, 1995 (the "Lubin Delano
Agreement"), the Company has retained Lubin Delano to render certain
financial advisory and investment banking services to the Company for a
monthly retainer of $8,333.33. Under the Lubin Delano Agreement, Lubin
Delano may receive a bonus equal to 100% of its annual retainer if the
company's pre-tax income for the year equals 100% of the pre-tax income
provided in the Company's annual business plan. Actual pre-tax income in
excess of the annual business plan increases Lubin Delano's bonus by 20% of
its retainer for each full five percentage point increment of increased
pre-tax income for the year. The term of Lubin Delano's engagement is
coterminous with the employment of Michael A. Lubin by the Company.
Effective with Mr. Lubin's resignation on July 31, 1997 the Lubin Delano
Agreement was terminated, and pursuant to the Lubin Agreement, a one-time
lump sum payment of $368,149 was made to Lubin Delano.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain Federal income tax consequences
of the Restructuring to the Stockholders and the Company and is for general
information purposes only. This summary is based on the Federal income tax
law now in effect, which is subject to change, possibly retroactively. This
summary does not discuss all aspects of Federal income taxation which may
be important to particular Stockholders in light of their individual
investment circumstances or to Stockholders subject to special tax rules
(e.g., financial institutions, broker-dealers, insurance companies,
tax-exempt organizations and foreign taxpayers). In addition, this summary
does not address state, local or foreign tax consequences. This summary
assumes that Stockholders hold their Old Common Stock, as "capital assets"
(generally, property held for investment) under the Tax Code. No rulings
have been or will be requested from the Internal Revenue Service with
respect to any of the matters discussed herein, and no opinion of counsel
has been sought or obtained by the Company with respect thereto.
Stockholders are urged to consult their tax advisors regarding the specific
Federal, state, local and foreign income and other tax consequences of the
Restructuring.
FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS
General. In general, the receipt of New Common Stock and Warrants by
Stockholders pursuant to the Restructuring will not be a taxable event,
except that Stockholders will recognize gain or loss to the extent of any
cash received in lieu of a fractional share or fractional warrant.
Stockholders will generally be required to allocate the tax basis in their
Old Common Stock (reduced by any basis apportionable to any fractional
share or fractional warrant settled in cash as described above) between the
New Common Stock and the Warrants on the basis of their respective fair
market values on the date of distribution. The holding period of the New
Common Stock and the Warrants will include the holding period of the Old
Common Stock.
Disposition. Upon a sale, exchange, or other disposition of the New
Common Stock or Warrants, a Stockholder will recognize a capital gain or
loss in an amount equal to the difference between the amount realized and
the Stockholder's adjusted tax basis in such stock or Warrants. Such gain
or loss will be long-term (and subject to tax at a lower rate) if the stock
or Warrants have been held for more than one year, and will be eligible for
a further rate reduction if held for more than 18 months.
Exercise or Lapse of Warrants. Upon the exercise of a Warrant, a
Stockholder will not recognize gain or loss and will have a tax basis in
the Warrant Shares received equal to the tax basis in such holder's Warrant
plus the exercise price thereof. The holding period for the Warrant Shares
received pursuant to the exercise of the Warrant will begin on the day
following the date of exercise and will not include the period that the
holder held such Warrant.
In the event that a Warrant lapses unexercised, a Stockholder will
recognize a long-term capital loss in an amount equal to the tax basis in
the Warrant.
Adjustment to Exercise Price. If at any time the Company makes a
distribution of property to shareholders that would be taxable to such
shareholders as a dividend for Federal income tax purposes and, in
accordance with the antidilution provisions of the Warrants, the Exercise
Price is decreased, the amount of such decrease may be deemed to be the
payment of a taxable dividend to holders of the Warrants. For example, a
decrease in the Exercise Price in the event of distributions of cash or
indebtedness of the Company will generally result in deemed dividend
treatment to holders, but generally a decrease in the event of stock
dividends or the distribution of rights to subscribe for shares of New
Common Stock will not.
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY
Cancellation of Indebtedness Income. The Company will realize
cancellation of indebtedness ("COI") income, for Federal income tax
purposes, in an amount equal to the excess, if any, of the adjusted issue
price of the Senior Notes (including any accrued but unpaid interest) over
the fair market value of the New Common Stock received by Noteholders
pursuant to the Restructuring. The Company has approximately $55 million of
operating losses and net operating loss carryovers ("NOLs") which are
available to offset any COI income that may be recognized. If (i) COI
income is realized in a case under the Bankruptcy Code (i.e., pursuant to
the Prepackaged Restructuring), or (ii) if the Company is insolvent on the
Exchange Restructuring Date, to the extent of the insolvency, under section
108 of the Tax Code such COI income would not be included in the Company's
gross income. In such event, the Company would be required, however, to
reduce certain of its tax attributes, such as its NOLs, certain tax
credits, and the basis of its assets, by the amount of the COI income that
is not recognized.
Limitation on Net Operating Loss Carryovers. As a result of the
receipt by Noteholders of New Common Stock in exchange for the Senior Notes
pursuant to the Restructuring, the Company will undergo an "ownership
change" (generally, a 50% change in ownership) for purposes of Section 382
of the Tax Code and, accordingly, the Company will be limited in its
ability to use its NOLs and certain tax credit carryforwards (the "Section
382 Limitation") to offset future taxable income. The Section 382
Limitation will generally be determined by multiplying the value of the
Company's equity before the ownership change by the long-term tax-exempt
rate (currently 5.04%). This is likely to limit significantly the Company's
use of its NOLs in any one year. If an ownership change occurs in a case
under the Bankruptcy Code, the value of a corporation's equity for purposes
of determining the Section 382 Limitation would be adjusted to reflect any
increase in such value arising from the cancellation of debt as a result of
the ownership change. Because the Company anticipates that the value of its
equity would be increased as a result of the cancellation of the Senior
Notes, the Company's ability to use its NOLs would be significantly greater
under the Prepackaged Restructuring than under the Exchange Restructuring.
POST RESTRUCTURING STOCK OPTION GRANTS
EXCHANGE RESTRUCTURING
In the event that each of the Restructuring Proposals is approved by
the Stockholders, the Minimum Tender Condition is satisfied and the
Exchange Restructuring is consummated, all options to purchase shares of
Old Common Stock outstanding granted under the Old Plans and held by
directors, officers, and employees of the Company (the "Old Options") will
not be terminated but will continue to remain outstanding, subject to
adjustment (the "Adjustment") as provided for in each of the Old Plans.
Such Adjustment is intended to reflect the effect of the Reverse Split on
the Old Options. As of April 9, 1998, there were outstanding Old Options
which, in the aggregate, related to 1,823,443 shares of Old Common Stock
(or 12% of the issued and outstanding shares of Old Common Stock as of such
date). Pursuant to the Exchange Restructuring, after giving effect to the
Adjustment, all of the outstanding Old Options, in the aggregate, will
relate to 182,344 shares of New Common Stock (or approximately1% of the
issued and outstanding shares of New Common Stock as of the Exchange
Restructuring Date, exclusive of the Warrant Shares). In connection with
the Adjustment, the exercise price applicable to the Old Options will be
appropriately adjusted.
In addition, under the Stock Award and Incentive Plan, directors,
officers and employees of the Company will become eligible to receive
additional options to purchase shares of New Common Stock as determined by
the new Board after the Exchange Restructuring Date, subject to the
approval by the stockholders of the Company. See "DISCUSSION OF THE
PROPOSALS--Stock Award And Incentive Plan."
PREPACKAGED RESTRUCTURING
In the event that each of the Restructuring Proposals is not approved
by the Stockholders or the Minimum Tender Condition is not satisfied or
waived, but the Company receives sufficient acceptances of the Prepackaged
Plan to obtain confirmation thereof by the Bankruptcy Court and the Company
files the Prepackaged Plan with the Bankruptcy Court, pursuant to the
Prepackaged Plan all Old Options held by directors, officers and employees
of the Company to purchase shares of Old Common Stock outstanding as of the
commencement of the Chapter 11 case granted under the Old Plans will be
terminated and of no further force or effect as of the consummation of the
Prepackaged Plan. In addition, each of the Old Plans shall be terminated
and of no further force or effect as of the consummation of the Prepackaged
Plan. The Stock Award and Incentive Plan will remain in effect after the
consummation of the Prepackaged Plan; provided, that, if the Stock Award
and Incentive Plan has not been approved by the Stockholders prior to the
commencement of the Chapter 11 Case, any awards granted thereunder shall be
subject to the subsequent approval of the stockholders of the Company. It
is the Company's intention that certain directors, officers and employees
of the Company will be granted new options to purchase shares of New Common
Stock under the Stock Award and Incentive Plan. The persons to receive such
grants, the number of shares of New Common Stock subject to such grants,
and such other terms and conditions applicable to such grants, shall be
determined by the Board of Reorganized Salant in its sole discretion,
except for automatic stock option grant to certain non-employee directors
of the Company.
PAYMENTS TO MANAGEMENT
In accordance with the terms and conditions of the Letter Agreement,
no payments will be made to the members of management under existing
severance, employment and/or change-in-control agreements or any other
arrangements solely by reason of the consummation of the Restructuring.
ADVISORS AND REPRESENTATIVES
Pursuant to an agreement effective as of December 18, 1997, between
E&Y and the Company (the "E&Y Agreement"), the Company has engaged E&Y to
act as its financial advisor in connection with the Restructuring.
Pursuant to the E&Y Agreement, the Company has agreed to pay E&Y a
monthly advisory fee in the amount of $125,000, consisting of two
components: (i) $95,000 per month, and (ii) $90,000 at the end of every
three month period (representing $30,000 per month for the prior three
months). The Company has also agreed to pay E&Y its reasonable
out-of-pocket costs. To date, the Company has paid approximately $600,000
to E&Y in respect of its services under the E&Y Agreement. The E&Y
Agreement may be terminated by either party at any time. Pursuant to the
E&Y Agreement, E&Y performed certain valuation services in connection with
the Restructuring at the request of the Company. In connection with those
services, E&Y has been paid $100,000 by the Company. Since E&Y's retention
by the Company, Michael Gries has served as the individual at E&Y
principally involved in this matter. On April 1, 1998, Mr. Gries withdrew
as a partner at E&Y and is currently a member of the financial advisory
firm of Conway, Delgenio, Gries & Co., LLC ("CDG"). Since that time, Mr.
Gries has continued to advise the Company and is being compensated for such
services pursuant to an agreement between E&Y and CDG.
In connection with the rendering the E&Y Fairness Opinion, the Company
separately engaged E&Y pursuant to a letter agreement, dated March 25, 1998
(the "E&Y Opinion Agreement"). Pursuant to the E&Y Opinion Agreement, the
Company agreed to pay E&Y: (i) a fee of $75,000 payable in cash upon
execution of the E&Y Opinion Agreement; and (ii) $75,000 payable in cash on
the date that E&Y informs the Company that they were prepared to deliver
the E&Y Fairness Opinion. The Company also agreed to reimburse E&Y for its
reasonable out-of-pocket expenses. Payment of such fees and expenses are in
no way contingent or dependent upon the results of E&Y analyses or any
conclusions it may reach or the consummation of the Restructuring.
Additionally, the Company agreed to indemnify E&Y and certain related
persons for certain liabilities related to or arising out of its
engagement, including liabilities under Federal securities laws. To date,
the Company has paid $150,000 to E&Y in respect of its services pursuant to
the E&Y Opinion Agreement.
Pursuant to a fee agreement (the "H & G Agreement") effective as of
January 6, 1998, between the Company and Hebb & Gitlin, a Professional
Corporation ("H & G"), the Company agreed to retain H & G as special legal
counsel to Magten in connection with the Restructuring. Pursuant to the H &
G Agreement, the Company agreed to pay H & G's fees (based on certain
hourly rates) and disbursements incurred in rendering services in
connection with the Restructuring. Pursuant to the H & G Agreement, the
Company also paid H & G a $100,000 fee reserve. For services rendered
through March 31, 1998, the Company has paid $37,013.66 to H & G in respect
of its services under the H & G Agreement,
Pursuant to a fee agreement (the "Allen Agreement") effective as of
January 1, 1998, between the Company, Allen and Company Incorporated
("Allen & Co."), Magten and H & G, Allen & Co. was retained as financial
advisor to H & G in connection with the Restructuring until consummation of
the Restructuring unless otherwise earlier terminated by any party.
Pursuant to the Allen Agreement, the Company agreed to pay Allen & Co.
financial advisory fees of $100,000 per month until the Allen Agreement is
terminated. Pursuant to the Allen Agreement, the Company also paid Allen &
Co. a $100,000 retainer fee, and has agreed to pay its reasonable
out-of-pocket costs. To date, the Company has paid $[_____] to Allen & Co.
in respect of its services under the Allen Agreement.
Under the Allen Agreement, the Company agreed to indemnify Allen & Co.
and its affiliates from and against all claims, liabilities, losses,
damages, and expenses relating to its services to H & G as set forth in the
Allen Agreement, except, among other things, for any claims, liabilities,
losses, damages or expenses that result from Allen & Co.'s willful
misconduct or gross negligence or lack of good faith.
If the Company proceeds with the Prepackaged Restructuring, the
Company intends to assume the H&G Agreement and the Allen Agreement
pursuant to the Prepackaged Plan.
[ ] has been appointed as Information Agent in connection with the
Exchange Offer and the solicitation of acceptances of the Prepackaged Plan.
Any questions regarding how to tender in the Exchange Offer or how to vote
on the Prepackaged Plan and any requests for additional copies of this
Proxy Statement/Prospectus, Letters of Transmittal, Proxies, Ballots or
Master Ballots should be directed to the Information Agent at its address
and telephone number set forth on the back cover of this Proxy
Statement/Prospectus. See "ADVISORS AND REPRESENTATIVES" in Part A to the
Exchange Restructuring Prospectus, attached hereto as Annex IV. [ ] has
been appointed as Depositary with respect to the Old Common Stock for the
Restructuring and as Voting Agent for the tabulation of Proxies with
respect to the Stockholders' Meeting and Ballots and Master Ballots from
the Stockholders with respect to the Prepackaged Plan and as Warrant Agent
with respect to Warrants. Questions and requests for assistance may be
directed to the Depositary at one of its addresses and telephone numbers
set forth on the back cover of this Proxy Statement/Prospectus.
ESTIMATED FEES AND EXPENSES
See "ESTIMATED FEES AND EXPENSES" in Part A to the Exchange
Restructuring Prospectus attached hereto as Annex IV.
LEGAL MATTERS
Certain legal matters in connection with the New Common Stock
(including the Warrant Shares) and the Warrants offered hereby will be
passed upon by Fried, Frank, Harris, Shriver & Jacobson, special counsel to
the Company.
EXPERTS
See "EXPERTS," in Part A to the Exchange Restructuring Prospectus
attached hereto as Annex IV.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any proposal of a stockholder to be presented at the Stockholders'
Meeting must be received by the Secretary of the Company at its principal
offices, prior to 5:00 p.m., New York City time, on ________, 1998, in
order to be considered for inclusion in the Company's proxy materials. Any
such proposal must be in writing and signed by the stockholder.
OTHER MATTERS
The Board does not know of any other matters which may properly be
presented for consideration at the Stockholders' Meeting. If any business
not described herein should come before the Stockholders' Meeting, the
persons named in the enclosed Proxy will vote on those matters in
accordance with their best judgment.
<PAGE>
FINANCIAL INFORMATION
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Salant Corporation:
We have audited the accompanying consolidated balance sheets of
Salant Corporation and subsidiaries as of January 3, 1998 and
December 28, 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for the years
ended January 3, 1998, December 28, 1996 and December 30, 1995.
Our audits also included the financial statement schedule listed
in the index at Item 14. These financial statements and
financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of Salant
Corporation and subsidiaries as of January 3, 1998 and December
28, 1996, the results of their operations and their cash flows
for the years ended January 3, 1998, December 28, 1996 and
December 30, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, the 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.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, as
of January 3, 1998, the Company had a working capital deficiency
of approximately $37 million, resulting from the classification
of the Company's $104.9 million of 10 1/2% Senior Secured Notes,
due December 31, 1998, as a current liability. This matter
raises substantial doubt about the Company's ability to continue
as a going concern. See Note 1 to the consolidated financial
statements for a discussion of the Company's agreement with the
largest holders of its Senior Secured Notes and its 39.6%
shareholder, whereby such holders of the Senior Secured Notes
will convert their Senior Secured Notes to common equity, subject
to, among other things, the remaining noteholders agreeing to
convert their holdings to common equity and the approval by the
holders of a majority of common equity. The consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Deloitte & Touche LLP
March 6, 1998 (April 8, 1998, as to Notes 1 and 9)
New York, New York
<TABLE>
<CAPTION>
SALANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended
----------
Jan. 3, 1998 Dec. 28, 1996 Dec. 30, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 396,832 $ 417,711 $ 485,825
Cost of goods sold 312,358 322,798 385,196
------------- ------------- -------------
Gross profit 84,474 94,913 100,629
Selling, general and administrative expenses (80,593) (83,148) (82,578)
Royalty income 5,596 6,154 6,606
Goodwill amortization (1,881) (2,227) (2,430)
Other income, net 575 2,642 244
Division restructuring costs (Note 3) (2,066) (11,730) (3,550)
------------- ------------- -------------
Income from continuing operations before interest,
income taxes and extraordinary gain 6,105 6,604 18,921
Interest expense, net (Notes 9 and 10) 16,660 15,459 18,965
------------- ------------- -------------
Income/(loss) from continuing operations
before income taxes and extraordinary gain (10,555) (8,855) (44)
Income taxes (Note 12) 167 103 318
------------- ------------- -------------
Income/(loss) from continuing operations
before extraordinary gain (10,722) (8,958) (362)
Discontinued operations (Note 17):
Loss from operations (8,136) (365) (136)
Estimated loss on disposal (1,330) -- --
Extraordinary gain (Note 4) 2,100 -- 1,000
------------- ------------- -------------
Net income/(loss) $ (18,088) $ (9,323) $ 502
============= ============= =============
Basic earnings/(loss) per share:
Earnings/(loss) per share from continuing
operations before extraordinary gain $ (0.71) $ (0.60) $ (0.02)
Loss per share from discontinued operations (0.62) (0.02) (0.01)
Extraordinary gain 0.14 -- 0.06
------------- ------------- -------------
Basic earnings/(loss) per share $ (1.19) $ (0.62) $ 0.03
============= ============= =============
Weighted average common stock outstanding 15,139 15,078 15,008
============= ============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
SALANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Jan. 3, 1998 Dec. 28, 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,215 $ 1,498
Accounts receivable - net of allowance for doubtful accounts
of $2,094 in 1997 and $2,806 in 1996 (Notes 9 and 10) 45,828 40,133
Inventories (Notes 5 and 9) 96,638 98,497
Prepaid expenses and other current assets 4,218 3,869
Net assets of discontinued operations (Note 17) -- 6,989
------------- -------------
Total current assets 148,899 150,986
Property, plant and equipment, net (Notes 6 and 9) 26,439 25,173
Other assets (Notes 7, 10 and 12) 58,039 59,092
------------- -------------
$ 233,377 $ 235,251
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable (Note 9) $ 33,800 $ 7,677
Accounts payable 27,746 27,562
Reserve for business restructuring (Note 3) 2,764 2,969
Accrued salaries, wages and other liabilities (Note 8) 16,503 17,986
Current portion of long term debt (Note 10) 104,879 3,372
------------- -------------
Total current liabilities 185,692 59,566
Long term debt (Note 10) -- 106,231
Deferred liabilities (Note 15) 5,382 8,863
Commitments and contingencies (Notes 9, 10, 13, 14 and 16)
Shareholders' equity (Note 14):
Preferred stock, par value $2 per share:
Authorized 5,000 shares; none issued -- --
Common stock, par value $1 per share:
Authorized 30,000 shares; 15,405 15,328
issued and issuable - 15,405 shares in 1997;
issued and issuable - 15,328 shares in 1996
Additional paid-in capital 107,249 107,130
Deficit (75,235) (57,147)
Excess of additional pension liability over
unrecognized prior service cost adjustment (Note 13) (3,508) (3,182)
Accumulated foreign currency translation adjustment 6 76
Less - treasury stock, at cost - 234 shares (1,614) (1,614)
------------- -------------
Total shareholders' equity 42,303 60,591
------------- -------------
$ 233,377 $ 235,251
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
SALANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
Excess of
Additional
Pension
Liability
Over
Unrecog- Cumulative
Common Stock nized Foreign Treasury Stock Total
============== Add'l Prior Currency ============== Share-
Number Paid-In Service Translation Number holders'
of Shares Amount Capital Deficit Cost Adjustment of Shares Amount Equity
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 15,242 $15,242 $107,017 $(48,326) $(773) $120 234 $(1,614) $71,666
Stock options exercised 33 33 54 87
Net income 502 502
Excess of additional pension
liability over unrecognized
prior service cost adjustment (1,412) (1,412)
Foreign currency translation
adjustments 10 10
-------- -------- -------- -------- -------- -------- -------- -------- --------
Balance at December 30, 1995 15,275 15,275 107,071 (47,824) (2,185) 130 234 (1,614) 70,853
Stock options exercised 53 53 59 112
Net loss (9,323) (9,323)
Excess of additional pension
liability over unrecognized
prior service cost adjustment (997) (997)
Foreign currency translation
adjustments (54) (54)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Balance at December 28, 1996 15,328 15,328 107,130 (57,147) (3,182) 76 234 (1,614) 60,591
Stock options exercised 77 77 119 196
Net loss (18,088) (18,088)
Excess of additional pension
liability over unrecognized
prior service cost adjustment (326) (326)
Foreign currency translation
adjustments (70) (70)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Balance at January 3, 1998 15,405 $15,405 $107,249 $(75,235) $(3,508) $ 6 234 $(1,614) $42,303
======== ======== ======== ======== ======== ======== ======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<TABLE>
<CAPTION>
SALANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
Year Ended
----------
Jan. 3, 1998 Dec. 28, 1996 Dec. 30, 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Income/(loss) from continuing operations $ (10,722) $ (8,958) $ (362)
Adjustments to reconcile income from continuing operations to
net cash (used in)/provided by operating activities:
Depreciation 6,402 5,975 5,528
Amortization of intangibles 2,512 2,228 2,430
Write-down of fixed assets 1,274 263 1,850
Write-down of other assets -- 6,264 --
Loss on sale of fixed assets -- 17 132
Changes in operating assets and liabilities:
Accounts receivable (5,695) (5,256) 1,364
Inventories 1,859 16,868 6,747
Prepaid expenses and other current assets 539 1,038 257
Other assets (242) (760) 916
Accounts payable 184 2,529 (2,653)
Accrued salaries, wages and other liabilities (3,463) (2,403) (66)
Reserve for business restructuring (205) 1,400 1,569
Deferred liabilities (2,203) (2,148) (598)
------------- ------------- -------------
Net cash (used in)/provided by continuing operating activities (9,760) 17,057 17,114
Cash used in discontinued operations (2,217) (469) (1,138)
------------- ------------- -------------
Net cash (used in)/provided by operations (11,977) 16,588 15,976
------------- ------------- -------------
Cash Flows from Investing Activities
Capital expenditures, net of disposals (7,061) (7,103) (4,286)
Store fixture expenditures (3,122) (3,855) (2,988)
Acquisition -- (694) --
Proceeds from sale of assets -- 1,854 122
------------- ------------- -------------
Net cash used in investing activities (10,183) (9,798) (7,152)
------------- ------------- -------------
Cash Flows from Financing Activities
Net short-term borrowings/(repayments) 26,123 (6,745) (9,484)
Retirement of long-term debt (3,372) -- --
Exercise of stock options 196 112 87
Other, net (70) (54) 10
------------- ------------- -------------
Net cash provided by/(used in) financing activities 22,877 (6,687) (9,387)
------------- ------------- -------------
Net increase/(decrease) in cash and cash equivalents 717 103 (563)
Cash and cash equivalents - beginning of year 1,498 1,395 1,958
------------- ------------- -------------
Cash and cash equivalents - end of year $ 2,215 $ 1,498 $ 1,395
============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 16,479 $ 16,307 $ 20,280
============= ============= =============
Income taxes $ 201 $ 189 $ 331
============= ============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
SALANT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. FINANCIAL RESTRUCTURING
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business.
At January 3, 1998, the 10 1/2% Senior Secured Notes due
December 31, 1998 (the "Senior Secured Notes") in the amount of
$104,879 have been classified as a current liability and the
Company's current liabilities exceeded its current assets by
$36,793. This factor may indicate that the Compa will be unable
to continue as a going concern for a reasonable period of time.
On March 3, 1998, the Company announced that it had reached an
agreement in principle (the "Restructuring Agreement") with its
major note and equity holders to convert its existing
indebtedness under the Senior Secured Notes into common equity
(the "Debt Restructuring"), as further described in Note 10.
This agreement is subject to the approval of the remaining
noteholders and stockholders. However, there can be no assurance
that such transaction will be consummated. If the Company is not
able to consummate this transaction, it will be unable to
continue its normal operations without pursuing alternative
financing or restructuring strategies. In contemplation of the
Debt Restructuring, the Company elected not to pay the interest
payment of approximately $5,500 that was due and payable under
the Senior Secured Notes on March 2, 1998, subject to a 30 day
grace period. Because the Company elected not to pay the
interest due on the Senior Secured Notes by the expiration of the
applicable grace period, an event of default has occurred with
respect to the Senior Secured Notes entitling the holders to
accelerate the maturity thereof. On April 8, 1998, the Trustee
under the indenture governing the Senior Secured Notes (the
"Indenture") issued a Notice of Default stating that as a result
of the Company's failure to make the interest payment due on the
Senior Secured Notes, an event of default under the Indenture had
occurred on April 1, 1998. If holders of at least 25% in
aggregate principal face amount of the Senior Secured Notes
accelerate all outstanding indebtedness under the Senior Secured
Notes pursuant to the terms of the Indenture, such an
acceleration of the outstanding indebtedness under the Senior
Secured Notes, or the failure of the Debt Restructuring to be
consummated for any other reason, could result in the Company
becoming subject to a proceeding under the Federal bankruptcy
laws.
The financial statements do not include any adjustments
relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities
that might be necessary should the Company be unable to continue
as a going concern.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
- ---------------------------------------
The Consolidated Financial Statements include the accounts of
Salant Corporation ("Salant") and subsidiaries. (As used herein,
the "Company" includes Salant and its subsidiaries but excludes
Salant's Made in the Shade and Vera Scarf divisions.) In June
1997, the Company discontinued the operations of the Made in the
Shade division, which produced and marketed women's junior
sportswear. In February 1995, Salant discontinued its Vera Scarf
division. As further described in Note 17, the Consolidated
Financial Statements and the Notes thereto reflect the Made in
the Shade and Vera Scarf divisions as discontinued operations.
Significant intercompany balances and transactions are eliminated
in consolidation.
The Company's principal business is the designing,
manufacturing, importing and marketing of apparel. The Company
sells its products to retailers, including department and
specialty stores, national chains, major discounters and mass
volume retailers, throughout the United States.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities (such as accounts receivable,
inventories, restructuring reserves and valuation allowances for
income taxes), disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
On June 27, 1990 (the "Filing Date"), Salant and one of its
subsidiaries, Denton Mills, Inc. ("Denton Mills"), filed separate
voluntary petitions for relief under chapter 11 of title 11 of
the United States Code (the "Bankruptcy Code") with the United
States Bankruptcy Court for the Southern District of New York
(the "Bankruptcy Court"). On July 30, 1993, the Bankruptcy Court
issued an order confirming the Third Amended Joint Plan of
Reorganization of Salant and Denton Mills, Inc. (the
"Reorganization Plan"). The Reorganization Plan was consummated
on September 20, 1993 (the "Consummation Date"), as further
described in Note 18.
Fiscal Year
- -----------
The Company's fiscal year ends on the Saturday closest to
December 31. The 1997 fiscal year was comprised of 53 weeks.
The 1995 and 1996 fiscal years were each comprised of 52 weeks.
Reclassifications
- -----------------
Certain reclassifications were made to the 1995 and 1996
Consolidated Financial Statements to conform with the 1997
presentation.
Cash and Cash Equivalents
- -------------------------
The Company treats cash on hand, deposits in banks and
certificates of deposit with original maturities of less than 3
months as cash and cash equivalents for the purposes of the
statements of cash flows.
Accounts Receivable
- -------------------
The Company is a party to an agreement with a factor, as
further described in Note 9, whereby it sells, without recourse,
certain eligible accounts receivable. The credit risk for such
accounts is thereby transferred to the factor. The amounts due
from the factor have been offset against advances from the factor
in the accompanying balance sheets. The amounts which have been
offset were $12,827 at January 3, 1998 and $16,355 at December
28, 1996.
Inventories
- -----------
Inventories are stated at the lower of cost (principally
determined on a first-in, first-out basis for apparel operations
and the retail inventory method on a first-in, first-out basis
for outlet store operations) or market.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost and are
depreciated or amortized over their estimated useful lives, or
for leasehold improvements, the lease term, if shorter.
Depreciation and amortization are computed principally by the
straight-line method for financial reporting purposes and by
accelerated methods for income tax purposes.
The annual depreciation rates used are as follows:
Buildings and improvements 2.5% - 10.0%
Machinery, equipment and autos 6.7% - 33.3%
Furniture and fixtures 10.0% - 50.0%
Leasehold improvements Over the life of the asset
or the term of the lease,
whichever is shorter
Other Assets
- ------------
Intangible assets are being amortized on a straight-line basis
over their respective useful lives, ranging from 25 to 40 years.
Costs in excess of fair value of net assets acquired, which
relate to the acquisition of the net assets of Manhattan
Industries, Inc. ("Manhattan") are assessed for recoverability on
a periodic basis. In evaluating the value and future benefits of
these intangible assets, their carrying value would be reduced by
the excess, if any, of the intangibles over management's best
estimate of undiscounted future operating income of the acquired
businesses before amortization of the related intangible assets
over the remaining amortization period.
Income Taxes
- ------------
Deferred income taxes are provided to reflect the tax effect of
temporary differences between financial statement income and
taxable income in accordance with the provisions of Statement of
Financial Accounting Standard No. 109, "Accounting for Income
Taxes".
Fair Value of Financial Instruments
- -----------------------------------
For financial instruments, including cash and cash equivalents,
accounts receivable and payable, and accruals, the carrying
amounts approximated fair value because of their short maturity.
Long-term debt, which was issued at a market rate of interest,
currently trades at approximately 80% of principal amount. In
addition, deferred liabilities have carrying amounts
approximating fair value.
Earnings/(Loss) Per Share
- -------------------------
The Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share", for the period
ended January 3, 1998, which establishes standards for computing
and presenting earnings per share ("EPS") and simplifies the
standards for computing EPS currently found in Accounting
Principles Board ("APB") Opinion No. 15 ("Earnings Per Share").
Common stock equivalents under APB No. 15 are no longer included
in the calculation of primary, or basic, EPS. Under SFAS No.
128, contingently issuable shares (shares issuable for little or
no cash consideration) are still included in the calculation of
basic EPS.
Earnings/(loss) per share is based on the weighted average
number of common shares (including, as of January 3, 1998 and
December 28, 1996, 205,854 and 324,810 shares, respectively,
anticipated to be issued pursuant to the Reorganization Plan) and
common stock equivalents outstanding, if applicable. Loss per
share for 1997 and 1996 did not include common stock equivalents,
inasmuch as their effect would have been anti-dilutive. In 1997,
1996 and 1995, earnings per share did not include 1,343,393,
837,240 and 969,073 stock options, respectively, which would not
have had a dilutive effect.
Foreign Currency
- ----------------
The Company entered into forward foreign exchange contracts,
relating to 80% of its projected 1998 Mexican peso needs, to fix
its cost of acquiring pesos and diminish the risk of currency
fluctuations. Gains and losses on foreign currency contracts are
included in income and offset the gains and losses on the
underlying transactions. On January 3, 1998, the outstanding
foreign currency contracts had a cost of approximately $8,900 and
a year end market value of approximately $10,000.
Revenue Recognition
- -------------------
Revenue is recognized at the time the merchandise is shipped.
Retail outlet store revenues are recognized at the time of sale.
New Accounting Standards
- ------------------------
The Company is required to adopt SFAS No. 130, "Reporting
Comprehensive Income", during the year ending January 2, 1999.
SFAS 130 establishes standards for reporting comprehensive income
and its components in a full set of general-purpose financial
statements. This Statement requires that an enterprise (a)
classify items of other comprehensive income by their nature in a
financial statements, and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement
of financial position. Adoption of this statement will require
the Company to report changes in the excess of additional pension
liability over unrecognized prior service cost and foreign
currency translation adjustment accounts, currently shown in the
stockholder's equity section of the balance sheet, as an increase
or decrease to reported net income in arriving at comprehensive
income.
The Company is required to adopt SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information" during
the year ending January 2, 1999. The Statement establishes
standards for the way that public business enterprises report
information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic
areas, and major customers. This Statement supersedes FASB
Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise", but retains the requirement to report information
about major customers. It amends FASB Statement No. 94,
"Consolidation of All Majority-Owned Subsidiaries", to remove the
special disclosure requirements for previously unconsolidated
subsidiaries. The Company is currently considering what effect
adoption of this statement will have on the Company.
The Company is required to adopt SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits",
for the period ended January 2, 1999. This statement revises
employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition
of those plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the
benefit obligations and fair values of plan assets that will
facilitate financial analysis, and eliminates certain disclosures
that are no longer as useful. The statement is effective for
fiscal year ending January 2, 1999. Restatement of disclosures
for earlier periods provided for comparative purposes is
required. The Company has not yet determined the impact the
adoption of this statement will have on the Company's financial
statements.
NOTE 3. RESTRUCTURING COSTS
In 1997, the Company recorded a provision for restructuring of
$2,066, consisting of (i) $3,530 related to the decision in the
fourth quarter to close all retail outlet stores other than Perry
Ellis outlet stores consisting primarily of asset write-offs and
future payments related to non-cancelable operating leases,
offset by a $1,464 reversal of previously recorded restructuring
reserves, including $300 in the fourth quarter, primarily
resulting from the settlement of liabilities for less than the
carrying amount. As of January 3, 1998, $1,579 remained in the
restructuring reserve, all related to the retail outlet store
closings.
In 1996, the Company recorded a provision for restructuring of
$11,730, consisting of (i) $5,718 in connection with the decision
to sell or license the JJ. Farmer sportswear product line, which
charge is primarily related to the write-off of goodwill and
write-down of other assets, (ii) $2,858 related to the write-off
of certain assets related to the licensing of the Gant dress
shirt and accessories product lines, and the accrual of a portion
of the future minimum royalties under the Gant licenses, which
are not expected to be covered by future sales, (iii) $1,837
primarily related to employee costs in connection with the
closing of a manufacturing and distribution facility in Thomson,
Georgia, (iv) $714 primarily related to employee costs in
connection with the closing of a manufacturing facility in
Americus, Georgia and (v) $603 related primarily to other
severance costs. As of January 3, 1998, $1,185 of the above
amounts remained in the restructuring reserves related to future
minimum royalties and future carrying costs for a closed facility.
In the fourth quarter of 1995, the Company recorded a $3,550
restructuring provision, which included (i) $2,400 related to
fixed asset write-downs at locations to be closed and (ii) $1,150
related to inventory markdowns for discontinued product lines.
NOTE 4. EXTRAORDINARY GAINS
In 1997, the Company recorded an extraordinary gain of $2,100,
including $1,500 in the fourth quarter. In the fourth quarter of
1995, the Company recorded an extraordinary gain of $1,000.
These gains related to the reversal of excess liabilities
previously provided for the anticipated settlement of claims
arising from the chapter 11 proceeding.
NOTE 5. INVENTORIES
JAN.3,1998 DEC.28,1996
---------- -----------
Finished goods $ 52,010 $ 57,826
Work-in-process 21,405 14,801
Raw materials and supplies 23,223 25,870
--------- ---------
$ 96,638 $ 98,497
========= =========
Finished goods inventory includes in transit merchandise of
$4,428 and $5,400 at January 3, 1998 and December 28, 1996,
respectively.
NOTE 6. PROPERTY, PLANT AND EQUIPMENT
JAN.3,1998 DEC.28,1996
---------- -----------
Land and buildings $16,574 $14,975
Machinery, equipment, furniture
and fixtures 32,197 30,551
Leasehold improvements 7,505 6,852
Property held under capital leases 583 117
--------- --------
56,859 52,495
Less accumulated depreciation
and amortization 30,420 27,322
--------- --------
$26,439 $25,173
========= ========
NOTE 7. OTHER ASSETS
JAN.3,1998 DEC.28,1996
---------- -----------
Excess of cost over net assets acquired,
net of accumulated amortization of
$13,240 in 1997 and $11,805 in 1996 $39,042 $40,477
Trademarks and license agreements,
net of accumulated amortization of
$4,064 in 1997 and $3,619 in 1996 13,498 13,943
Other 5,499 4,672
-------- --------
$58,039 $59,092
In June 1996, the company wrote-off other assets of $4,325
which consisted of $4,075 for the unamortized portion of the
excess of cost over net assets acquired related to the JJ. Farmer
division and $250 related to the license agreements for the Gant
product lines.
In November 1996, the Company sold its leasehold interest in a
closed facility in Glen Rock, New Jersey, resulting in a gain of
$2,712, which is included in other income.
NOTE 8. ACCRUED SALARIES, WAGES AND OTHER LIABILITIES
JAN.3,1998 DEC.28,1996
---------- -----------
Accrued salaries and wages $ 4,002 $ 1,765
Accrued pension and retirement benefits 2,757 4,080
Accrued royalties 482 1,959
Accrued interest 3,897 3,716
Other accrued liabilities 5,365 6,466
--------- ---------
$16,503 $17,986
NOTE 9. FINANCING AND FACTORING AGREEMENTS
The Company is a party to a Revolving Credit, Factoring and
Security Agreement, dated September 20, 1993, as amended (the
"Credit Agreement"), with The CIT Group/Commercial Services, Inc.
("CIT") which provides the Company with seasonal working capital
financing, consisting of direct borrowings and letters of credit,
of up to $120,000 (the "Maximum Credit"), subject to an asset
based borrowing formula. As collateral for borrowings under the
Credit Agreement, the Company has granted to CIT a security
interest in substantially all of the assets of the Company.
On March 2, 1998, in connection with the Debt Restructuring (as
defined in Note 10), the Company and CIT executed the Twelfth
Amendment and Forbearance Agreement (the "Amendment") to the
Credit Agreement. The Amendment (i) provides a waiver, as of
January 3, 1998, to the Company for not meeting the financial
covenants for stockholders equity and maximum loss, as set forth
in the Credit Agreement, (ii) provides for CIT to forbear from
exercising any of its rights and remedies arising from the
Company's decision not to pay interest on the Senior Secured
Notes, payable on March 2, 1998, as further discussed in Note 10,
(iii) provides that, subject to the terms and conditions of the
Credit Agreement, as modified by the Amendment, CIT will continue
making loans, advances and other financial accommodations to the
Company, (iv) increases the borrowings allowed against eligible
inventory to 60%, (v) provides the Company with a discretionary
$3,000 seasonal overadvance, (vi) reduces the Maximum Credit from
$135,000 to $120,000 and (vii) modifies the financial covenants
the Company is required to maintain. Under the Amendment, to the
extent that the Company fails to maintain certain levels of
borrowing availability under its asset-based borrowing formula,
the Company is required to maintain a certain minimum interest
coverage ratio and is subject to a covenant limiting the maximum
loss the Company may incur over any twelve consecutive calendar
months.
In consideration for CIT's agreement to enter into the
Forbearance Agreement, pursuant thereto, the Company agreed to
pay CIT a forbearance and waiver fee in the amount of $150,000.
In addition, in consideration of a New Credit Agreement proposed
by CIT, the Company agreed to pay CIT a non-refundable and fully
earned fee of $1,050,000, payable in three equal installments of
$350,000 each on April 1, May 1 and June 1, 1998. This fee is
non-refundable in whole or in part, provided, however, that
notwithstanding the foregoing, (a) if the Company does execute a
New Credit Agreement with CIT, such fee will be applied to
satisfy any and all closing fees and facility fees under such New
Credit Agreement, or (b) if CIT does not extend a New Credit
Agreement to the Company because CIT's Executive Credit Committee
fails to give credit approval for such facility, then $600,000 of
such fee shall be refunded to the Company. In the event that CIT
becomes the lender under the New Credit Agreement or under a
debtor-in-possession working capital facility, if the Prepackaged
Restructuring is pursued, no other closing fee or facility fee
shall be due and payable in connection with any such replacement
credit facility provided by CIT.
On January 3, 1998, direct borrowings and letters of credit
outstanding under the Credit Agreement were $33,800 and $23,239,
respectively, and the Company had unused availability of
$17,486. On December 28, 1996, direct borrowings and letters of
credit outstanding under the Credit Agreement were $7,677 and
$33,640, and the Company had unused availability of $23,561. The
weighted average interest rate on borrowings under the Credit
Agreement for the years ended January 3, 1998 and December 28,
1996 was 9.3% and 9.4%, respectively.
In addition to the financial covenants discussed above, the
Credit Agreement contains a number of other covenants, including
restrictions on incurring indebtedness and liens, making
investments in or purchasing the stock, or all or a substantial
part of the assets of another person, selling property and paying
cash dividends.
NOTE 10. LONG-TERM DEBT
On September 20, 1993, Salant issued $111,851 principal amount
of Senior Secured Notes. The Senior Secured Notes may be
redeemed at any time prior to maturity, in whole or in part, at
the option of the Company, at a premium to the principal amount
thereof plus accrued interest. The Senior Secured Notes are
secured by a first lien (subordinated to the lien securing
borrowings under the Credit Agreement to the extent of $15,000)
on certain accounts receivable, certain intangible assets, the
capital stock of Salant's subsidiaries and certain real property
of the Company, and by a second lien on substantially all of the
other assets of the Company.
Under the Restructuring Agreement, as discussed in Note 1, the
Company will convert the entire $104,879 outstanding aggregate
principal amount of, and all accrued and unpaid interest on, its
Senior Secured Notes into the Company's common stock.
The Restructuring Agreement was entered into by the Company and
Magten Asset Management Corp. ("Magten"), the beneficial owner
of, or the investment manager on behalf of the beneficial owners
of, approximately 67% of the aggregate principal amount of the
Senior Secured Notes. Apollo Apparel Partners, L.P. ("Apollo"),
the beneficial owner of approximately 39.6% of the Company's
issued and outstanding common stock, is also a party to the
Restructuring Agreement and has agreed to vote all of its shares
of common stock in favor of the Debt Restructuring. The
Restructuring Agreement provides, among other things, that (i)
the entire principal amount of the Senior Secured Notes, plus all
accrued and unpaid interest thereon, will be converted into 92.5%
of the Company's common stock, and (ii) the Company's existing
stockholders will retain 7.5% of the Company's common stock and
will receive seven-year warrants to purchase up to 10% of the
Company's common stock on a fully diluted basis. Stockholder and
noteholder approval will be required in order to consummate the
Debt Restructuring. The Restructuring Agreement also provides
for a reverse stock split, which will require the approval of the
Company's stockholders. Because of the treatment of accrued
interest on the Senior Secured Notes under the proposed
restructuring agreement, the Company did not pay the $5,500 of
interest on the Senior Secured Notes that became payable on March
2, 1998, subject to a 30 day grace period. Consummation of the
Debt Restructuring is subject to the satisfaction of a number of
conditions precedent, including stockholder and noteholder
approval and the negotiation and execution of definitive
documentation. However, there can be no assurances that the Debt
Restructuring will be consummated. Implementation of the Debt
Restructuring will result in the elimination of $11,000 of annual
interest expense to the Company.
The Indenture contains various restrictions pertaining to the
incurrence of indebtedness, the purchase of capital stock and the
payment of dividends. Under the most restrictive of these
provisions, the Company currently may not purchase or redeem any
shares of its capital stock, or declare or pay cash dividends.
In contemplation of the Debt Restructuring, the Company elected
not to pay the interest payment of approximately $5,500 that was
due and payable under the Senior Secured Notes on March 2, 1998,
subject to a 30 day grace period. Because the Company did not
pay the interest due on the Senior Secured Notes by the
expiration of the applicable grace period, an event of default
occurred with respect to the Senior Secured Notes, entitling the
holders to accelerate the maturity thereof. In accordance with
the terms of the Restructuring Agreement, Magten has provided a
written direction to the trustee to forbear during the term of
the Restructuring Agreement from taking any action under the
Indenture in connection with the failure by the Company to make
the interest payment on the Senior Secured Notes that was due and
payable on March 2, 1998. However, there is no assurance that
the holders of 25% or more of the principal amount of the Senior
Secured Notes will not decide to accelerate the outstanding
indebtedness under the Senior Secured Notes prior to consummation
of the Debt Restructuring. In addition, the Company's working
capital lender, CIT, agreed to forbear until July 1, 1998,
subject to certain conditions, from exercising any of its rights
or remedies under the Credit Agreement, arising by virtue of the
Company's failure to pay such interest on the Senior Secured
Notes. Failure to consummate the Debt Restructuring could result
in the acceleration of all of the indebtedness under the Senior
Secured Notes and/or the Credit Agreement.
On October 28, 1996, the Company completed the sale of a
leasehold interest in a facility located in Glen Rock, New
Jersey. The cash proceeds, net of certain expenses, of such sale
were $3,372. Such amount was included in current liabilities at
December 28, 1996. Pursuant to the Indenture, on December 30,
1996, the Company repurchased Senior Secured Notes in a principal
amount equal to the net cash proceeds at 100% of the principal
amount thereof.
NOTE 11. SEGMENT INFORMATION AND SIGNIFICANT CUSTOMERS
The Company's principal business is the designing,
manufacturing, importing and marketing of apparel. The Company
sells its products to retailers, including department and
specialty stores, national chains, major discounters and mass
volume retailers, throughout the United States. As an adjunct to
its apparel manufacturing operations, the Company operates 17
factory outlet stores in various parts of the United States.
Foreign operations, other than sourcing, are not significant.
The Company's products have been classified in the following
industry segments: (i) men's apparel, (ii) children's sleepwear
and underwear and (iii) retail factory outlet store operations.
Information concerning the Company's business segments in 1997,
1996 and 1995 is as follows:
1997 1996 1995
---- ---- ----
NET SALES
Men's $325,845 $344,763 $416,659
Children's 49,165 45,754 39,936
Retail Outlet Stores 21,822 27,194 29,230
---------- ---------- ----------
Total net sales $396,832 $417,711 $485,825
======== ======== ========
OPERATING INCOME
Men's $ 19,483 $ 6,197 $ 19,596
Children's (278) 5,401 5,177
Retail Outlet Stores (8,381) (4,195) (2,674)
------------ ----------- -----------
10,824 7,403 22,099
Corporate expenses (9,269) (5,790) (8,801)
Licensing division income 4,550 4,991 5,623
Interest expense, net (16,660) (15,459) (18,965)
----------- ---------- ----------
Income/(loss) from
continuing operations
before income taxes
and extraordinary gain $ (10,555) $ (8,855) $ (44)
========== ========== ==========
IDENTIFIABLE ASSETS
Men's $150,177 $137,968 $170,203
Children's 22,284 20,709 16,349
Retail Outlet Stores 3,694 10,176 11,991
Corporate 57,222 66,398 55,427
--------- ---------- ----------
Total identifiable assets $233,377 $235,251 $253,970
======== ======== ========
CAPITAL EXPENDITURES
Men's $ 2,972 $ 4,046 $ 1,389
Children's 1,959 546 492
Retail Outlet Stores 252 439 584
Corporate 1,878 2,072 1,821
---------- ----------- ----------
Total capital
expenditures $ 7,061 $ 7,103 $ 4,286
========== ========== ==========
DEPRECIATION AND
AMORTIZATION
Men's $ 4,640 $ 3,669 $ 2,961
Children's 455 399 345
Retail Outlet Stores 321 478 459
Corporate 3,498 3,657 4,193
--------- ---------- ----------
Total depreciation
and amortization $ 8,914 $ 8,203 $ 7,958
========= ========== ==========
In 1997, approximately 17% of the Company's net sales were made
to Sears, approximately 11% of the Company's net sales were made
to Federated Department Stores, Inc. ("Federated") and
approximately 10% of the Company's net sales were made to TJX
Corporation ("TJX"). In 1996, approximately 13% of the Company's
net sales were made to Sears. In 1996 and 1995, net sales to
Federated represented approximately 11% and 12% of the Company's
net sales, respectively. In 1995, approximately 11% of the
Company's net sales were made to TJX. In 1995, approximately 13%
of the Children's Group's net sales were made to Dayton Hudson
Corporation.
No other customer accounted for more than 10% of the net sales
of the Company or any of its business segments during 1997, 1996
or 1995.
NOTE 12. INCOME TAXES
The provision for income taxes consists of the following:
JAN.3,1998 DEC.28,1996 DEC.30,1995
---------- ----------- -----------
Current:
Federal $ (34) $(106) $100
State -- -- --
Foreign 201 209 218
----- ------ -----
$ 167 $ 103 $318
===== ===== ====
The following is a reconciliation of the tax provision/(benefit)
at the statutory Federal income tax rate to the actual income tax
provision:
1997 1996 1995
-------- -------- ------
Income tax benefit, at 34% $(3,589) $(3,135) $ (61)
Loss producing no current
tax benefit 3,589 3,135 61
Alternative minimum tax 100
Tax refunds from prior years (34) (106)
Foreign taxes 201 209 218
-------- -------- -------
Income tax provision $ 167 $ 103 $ 318
======== ======== =======
The following are the tax effects of significant items comprising
the Company's net deferred tax asset:
JAN.3,1998 DEC.28,1996
----------- -----------
Deferred tax liabilities:
Differences between book and tax
basis of property $ (3,575) $ (3,659)
Deferred tax assets:
Reserves not currently deductible 12,700 13,983
Operating loss carryforwards 51,844 45,041
Tax credit carryforwards 2,958 2,958
Expenses capitalized into inventory 4,925 4,657
----------- -----------
72,427 66,639
----------- -----------
Net deferred asset 68,852 62,980
Valuation allowance (68,852) (62,980)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
At January 3, 1998, the Company had net operating loss
carryforwards ("NOLs") for income tax purposes of approximately
$133,000, expiring from 1999 to the year 2012, which can be used
to offset future taxable income. Approximately $51,000 of these
NOLs arose from the acquisition of Manhattan in April 1988, and
will offset goodwill when utilized. The implementation of the
Reorganization Plan and transactions that have occurred within
the three-year period preceding the Consummation Date have caused
an "ownership change" for federal income tax purposes as of the
Consummation Date. As a result of such ownership change, the use
of the NOLs to offset future taxable income is limited by the
requirements of section 382 of the Internal Revenue Code of 1986,
as amended ("Section 382"). The $133,000 of NOLs reflected above
is the maximum the Company may use to offset future taxable
income. Of the $133,000 of NOLs, $102,000 is subject to annual
usage limitations under Section 382 of approximately $7,200.
In addition, at January 3, 1998, the Company had available tax
credit carryforwards of $2,958 which expire between 1998 and
1999. Of these tax credits, $1,986 will reduce goodwill and the
balance will reduce income tax expense when utilized.
Utilization of these credits may be limited in the same manner as
the NOLs, as described above.
Additionally, if the Debt Restructuring, as outlined in the
Restructuring Agreement, is consummated, a second ownership
change under Section 382 will occur. As a result, the
utilization of the NOLs and tax credit carryforwards would likely
be subject to additional limitations, which could significantly
reduce their use.
NOTE 13. EMPLOYEE BENEFIT PLANS
Pension and Retirement Plans
- ----------------------------
The Company has several defined benefit plans for virtually all
full-time salaried employees and certain nonunion hourly
employees. The Company's funding policy for its plans is to fund
the minimum annual contribution required by applicable
regulations.
The Company also has a nonqualified supplemental retirement and
death benefit plan covering certain employees. The funding for
this plan is based on premium costs of related insurance
contracts.
Pension expense includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
<S> <C> <C> <C>
Service cost-benefit earned
during the period $1,050 $1,270 $1,029
Interest cost on projected benefit obligation 3,272 2,912 2,714
Loss/(return) on assets (4,435) (4,126) (4,697)
Net amortization 1,602 1,564 2,286
------- ------- -----
Net periodic pension cost $1,489 $1,620 $1,332
====== ====== ======
</TABLE>
The reconciliation of the funded status of the plans at January 3, 1998 and
December 28, 1996 is as follows:
<TABLE>
<CAPTION>
Jan. 3, 1998 Dec. 28, 1996
Accumulated Accumulated
Plan Plan
Benefits Benefits
Exceed Exceed
Plan Assets Plan Assets
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation
Vested benefit obligation $ (45,503) $ (41,578)
Nonvested benefit obligation (539) (661)
---------- -----------
Accumulated benefit obligation $ (46,042) $ (42,239)
========== ===========
Projected benefit obligation $ (49,862) $ (46,811)
Plan assets at fair value 42,295 35,980
---------- ----------
Projected benefit obligation in
excess of plan assets (7,567) (10,831)
Unrecognized net obligation at date of
initial application, amortized over 15 years 552 624
Unrecognized net loss 7,307 7,188
Unrecognized prior service cost (1,111) (1,222)
Recognition of minimum liability
under SFAS No. 87 (3,633) (3,332)
----------- ----------
Accrued pension cost $ (4,452) $ (7,573)
========== ==========
</TABLE>
Assumptions used in accounting for defined benefit pension plans are as
follows:
<TABLE>
<CAPTION>
1997 1997 1996 1996 1995 1995
---- ---- ---- ---- ---- ----
Non- Qualified Non- Qualified Non- Qualified
Qualified Plans Qualified Plans Qualified Plans
Plan Plan Plan
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.0% 7.0% 7.25% 7.25% 7.0% 7.0%
Rate of increase in compensation levels N/A 5.0% N/A 5.0% N/A 5.0%
Expected long-term rate of return on assets 8.0% 8.5% 8.0% 8.5% 8.0% 8.5%
</TABLE>
Assets of the Company's qualified plans are invested in
directed trusts. Assets in the directed trusts are invested in
common and preferred stocks, corporate bonds, money market funds
and U.S. government obligations. The nonqualified supplemental
plan assets consist of the cash surrender value of certain
insurance contracts.
The Company also contributes to certain union retirement and
insurance funds established to provide retirement benefits and
group life, health and accident insurance for eligible
employees. The total cost of these contributions was $3,839,
$4,095 and $4,263 in 1997, 1996 and 1995, respectively. The
actuarial present value of accumulated plan benefits and net
assets available for benefits for employees in the union
administered plans are not determinable from information
available to the Company.
Long Term Savings and Investment Plan
- -------------------------------------
Salant sponsors the Long Term Savings and Investment Plan,
under which eligible salaried employees may contribute up to 15%
of their annual compensation, subject to certain limitations, to
a money market mutual fund, a fixed income fund and/or three
equity mutual funds. Salant contributes a minimum matching
amount of 20% of the first 6% of a participant's annual
compensation and may contribute an additional discretionary
amount in cash or in the Company's common stock. In 1997, 1996
and 1995 Salant's aggregate contributions to the Long Term
Savings and Investment Plan amounted to $218, $229 and $239,
respectively.
NOTE 14. STOCK OPTIONS AND SHAREHOLDER RIGHTS
The Company's stock plans provide for grants of stock options
or stock awards aggregating 2,400,000 shares of Salant common
stock to officers, key employees and, in certain cases, to
directors.
The Company's stock plans authorized such grants (subject to
certain restrictions applicable to certain stock options granted
to directors) at such prices and pursuant to such other terms and
conditions as the Stock Plan Committee may determine. Options
may be nonqualified stock options or incentive stock options and
may include stock appreciation rights. Exercise prices of
options are equal to 100% of the fair market value of the
Company's shares on the date of grant of the options. Options
expire no later than ten years from the date of grant and become
exercisable in varying amounts over periods ranging from the date
of grant to five years from the date of grant.
The Restructuring Agreement provides that Salant will reserve
10% of the outstanding common stock, on a fully diluted basis, as
of the consummation of the Debt Restructuring, (the "Effective
Date"), in order to create new employee stock and stock option
plans for the benefit of the members of management and the other
employees of Salant. In addition, the Restructuring Agreement
provides that, on the Effective Date, a management stock option
plan will be authorized pursuant to which options to acquire a
certain percentage of such 10% reserve will be granted to (i) the
directors of Salant and (ii) those members of management of
Salant selected by management and approved by the non-management
members of the board of directors of Salant. The Restructuring
Agreement also provides that the decision to grant any additional
stock options from the balance of the 10% reserve referred to
above, and the administration of the stock plans, will be at the
discretion of the non-management members of the board of
directors of Salant. In addition, the Restructuring Agreement
provides that by agreement between Salant and its employees, all
existing employee stock options and other equity based plans will
be adjusted so that such options and equity based plans will be
part of the above-referenced new employee stock and/or stock
option plans (i.e., subsumed within the 10%) as agreed upon
between Apollo and Salant, subject to consultation with Magten.
The following table summarizes stock option transactions during
1995, 1996 and 1997:
The following table summarizes stock option transactions during 1995, 1996 and
1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE RANGE PRICE
------ ----------- -----
<S> <C> <C> <C>
Options outstanding at December 31, 1994 1,157,208 $1.00-15.125
Options granted during 1995 205,300 $3.3125-5.1875
Options exercised during 1995 (33,334) $2.625
Options surrendered or canceled during 1995 (65,601) $3.00-12.00
-----------
Options outstanding at December 30, 1995 1,263,573 $1.00-15.125 $6.50
Options granted during 1996 51,600 $3.32-3.94 $3.42
Options exercised during 1996 (53,000) $1.00-2.00 $1.94
Options surrendered or canceled during 1996 (228,433) $2.75-12.00 $6.63
----------
Options outstanding at December 28, 1996 1,033,740 $1.625-15.125 $6.56
Options granted during 1997 1,316,900 $2.0625-4.125 $3.65
Options exercised during 1997 (76,500) $1.625-2.625 $2.56
Options surrendered or cancelled during 1997 (930,747) $2.625-15.125 $6.54
---------
Options outstanding at January 3, 1998 1,343,393 $2.0625-12.875 $3.95
=========
Options exercisable at January 3, 1998 191,392 $2.41-12.875 $6.02
==========
Options exercisable at December 28, 1996 910,028 $1.625-15.125 $6.88
==========
</TABLE>
The following tables summarize information about outstanding stock options as
of January 3, 1998 and December 28, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Exercisable at Average
Exercise Price 1/3/98 Contractual Life Exercise Price 1/3/98 Exercise Price
-------------- ------ ---------------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C>
$2.0625 -$2.75 305,300 9.55 $2.508 5,300 $2.731
$2.813 - $4.00 492,900 9.13 3.861 40,899 3.588
$4.125 400,000 9.22 4.125 0 0
$4.25 - $8.19 131,567 5.43 6.346 131,567 6.346
$9.82 - $12.875 13,626 2.33 11.393 13,626 11.393
$2.0625 - $12.875 1,343,393 8.82 3.952 191,392 6.016
</TABLE>
<TABLE>
<CAPTION>
Weighted
Number Average Weighted Number Weighted
Range of Exercise Outstanding at Remaining Average Exercisable at Average
Price 12/28/96 Contractual Life Exercise Price 12/28/96 Exercise Price
----- -------- ---------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
$1.625 - $2.625 191,500 4.43 2.598 191,500 2.598
$2.75 - $4.94 129,150 8.77 3.923 45,064 4.159
$5.125 - $5.875 279,884 6.96 5.370 243,592 5.397
$6.32 - $8.82 232,113 6.57 7.615 228,779 7.634
$9.82 - $15.125 201,093 1.90 12.484 201,093 12.484
$1.625 - $15.125 1,033,740 5.65 6.564 910,028 6.875
</TABLE>
The Company has a shareholder rights plan (the "Rights Plan"),
which provides for a dividend distribution of one right for each
share of Salant common stock to holders of record of the
Company's common stock at the close of business on December 23,
1987. The rights will expire on December 23, 2002. With certain
exceptions, the rights will become exercisable only in the event
that an acquiring party accumulates 20 percent or more of the
Company's voting stock, or if a party announces an offer to
acquire 30 percent or more of such voting stock. Each right,
when exercisable, will entitle the holder to buy one
one-hundredth of a share of a new series of cumulative preferred
stock at a price of $30 per right or, upon the occurrence of
certain events, to purchase either Salant common stock or shares
in an "acquiring entity" at half the market value thereof. The
Company will generally be entitled to redeem the rights at three
cents per right at any time until the 10th day following the
acquisition of a 20 percent position in its voting stock. In
July 1993, the Rights Plan was amended to provide that an
acquisition or offer by Apollo, or any of its subsidiaries will
not cause the rights to become exercisable. The Restructuring
Agreement provides that Salant's Rights Plan will be amended to
permit the consummation of the Debt Restructuring without causing
any of the Rights to become exercisable.
In summary, as of January 3, 1998, there were 1,343,392 shares
of Common Stock reserved for the exercise of stock options and
567,022 shares of Common Stock reserved for future grants of
stock options or awards.
All stock options are granted at fair market value of the
Common Stock at the grant date. The weighted average fair value
of the stock options granted during 1997 and 1996 was $3.65 and
$3.42, respectively. The fair value of each stock option grant
is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions
used for grants in 1997: risk-free interest rate of 5.75%;
expected dividend yield of 0%; expected life of 4.46 years; and
expected volatility of 211%. The outstanding stock options at
January 3, 1998 have a weighted average contractual life of 8.82
years.
The Company accounts for the stock plans in accordance with
Accounting Principles Board Opinion No. 25, under which no
compensation cost is recognized for stock option awards. Had
compensation cost been determined consistent with Statement of
Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), the Company's pro forma net
income/(loss) for 1997, 1996 and 1995 would have been $(19,951),
$(9,692) and $192, respectively. The Company's pro forma net
income/(loss) per share for 1997, 1996 and 1995 would have been
$(1.32), $(0.64) and $0.01, respectively. Because the SFAS 123
method of accounting has not been applied to options granted
prior to 1995, the resulting pro forma compensation cost may not
be representative of that to be expected in future years.
NOTE 15. DEFERRED LIABILITIES
JAN. 3, 1998 DEC. 28, 1996
------------ -------------
Lease obligations $ 196 $ 93
Deferred pension obligations 3,634 4,865
Liability for settlement of chapter 11 claims 1,552 3,905
------- -------
$5,382 $8,863
NOTE 16. COMMITMENTS AND CONTINGENCIES
(a) Lease Commitments
The Company conducts a portion of its operations in premises
occupied under leases expiring at various dates through 2012.
Certain of the leases contain renewal options. Rental payments
under certain leases may be adjusted for increases in taxes and
operating expenses above specified amounts. In addition, certain
of the leases for outlet stores contain provisions for additional
rent based upon sales.
In 1997, 1996 and 1995, rental expense was $7,689, $7,563 and
$7,265, respectively. As of January 3, 1998, future minimum
rental payments under noncancelable operating leases (exclusive
of renewal options, percentage rentals, and adjustments for
property taxes and operating expenses) were as follows:
FISCAL YEAR
1998 $5,144
1999 4,210
2000 3,759
2001 3,475
2002 2,805
Thereafter 27,967
--------
Total $47,360
(b) Employment Agreements
The Company has employment agreements with certain executives,
which provide for the payment of compensation aggregating
approximately $2,500 in 1998, $2,300 in 1999 and $400 in 2000.
In addition, such employment agreements provide for incentive
compensation based on various performance criteria.
NOTE 17. DISCONTINUED OPERATIONS
In June 1997, the Company discontinued the operations of the
Made in the Shade division, which produced and marketed women's
junior sportswear. The loss from operations of the division in
1997 was $8,136, which included a charge of $4,459 for the
write-off of goodwill. Net sales of the division were $2,822,
$20,408 and $15,696 in 1997, 1996 and 1995, respectively.
Additionally, in 1997, the Company recorded a charge of $1,330 to
accrue for expected operating losses during the phase-out
period. No income tax benefits have been allocated to the
division's 1997, 1996 and 1995 losses.
In February 1995, the Company discontinued the operations of
the Vera Scarf division, which imported and marketed women's
scarves. The loss from operations of the division in 1994 was
$9,639, which included a fourth quarter charge of $9,004 for the
write-off of goodwill and other intangible assets. Net sales of
the division were $1,673 and $5,087 in 1995 and 1994,
respectively. Additionally, in 1994 the Company recorded a
fourth quarter charge of $1,796 to accrue for expected operating
losses during the phase-out period through June 1995. No income
tax benefits have been allocated to the division's 1994 loss.
In 1997, the net liabilities of discontinued operations have
been included in accrued liabilities. In 1996, the net assets of
the discontinued operations consist principally of accounts
receivable, inventory, goodwill and accounts payable.
NOTE 18. CONSUMMATION OF THE PLAN OF REORGANIZATION
From the Consummation Date through January 3, 1998, pursuant to
the Reorganization Plan, the Company made cash payments of
$9,656, issued $111,851 of new 10-1/2% senior secured notes and
issued 11.1 million shares of common stock to creditors in
settlement of certain claims in the chapter 11 proceedings.
Salant anticipates that an additional $1,805 in cash and an
additional 206 thousand shares of common stock ultimately will
have been distributed to creditors upon the final resolution of
all remaining claims. Provisions for such distributions had
previously been made in the consolidated financial statements.
NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 3, 1998
TOTAL 4TH QTR. 3RD QTR. 2ND QTR. 1ST QTR.
----- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $396,832 $116,360 $110,871 $81,391 $88,210
Gross profit 84,474 20,886 27,236 16,567 19,785
Net income/(loss) (18,088) (5,646) 5,212 (14,144) (3,510)
Basic earnings/(loss) per share (a) $(1.19) $(0.37) $0.34 $(0.94) $(0.23)
FISCAL YEAR ENDED DECEMBER 28, 1996
TOTAL 4TH QTR. 3RD QTR. 2ND QTR. 1ST QTR.
Net sales $417,711 $115,117 $117,159 $91,889 $93,546
Gross profit 94,913 27,048 29,059 17,164 21,642
Net income/(loss) (9,323) 6,116 6,335 (18,862) (2,912)
Basic earnings/(loss) per share (a) $(0.62) $0.40 $0.42 $(1.25) $(0.19)
</TABLE>
Reference is made to Notes 3, 4 and 5 concerning fourth quarter
adjustments during the years ended January 3, 1998 and December
28, 1996.
(a) Income/(loss) per share of common stock is computed
separately for each period. The sum of the amounts of
income/(loss) per share reported in each period differs from
the total for the year due to the issuance of shares and,
when appropriate, the inclusion of common stock equivalents.
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
------------------
April 4, March 29,
1998 1997
-------- ---------
Net sales $ 84,887 $ 88,209
Cost of goods sold 67,977 68,422
--------- ---------
Gross profit 16,910 19,787
Selling, general and
administrative expenses (17,116) (20,555)
Royalty income 1,121 1,107
Goodwill amortization (470) (470)
Reversal of provision for restructuring (Note 5) 160 754
Other income 61 117
--------- ---------
Income from continuing operations before
interest and income taxes 666 740
Interest expense, net 3,960 3,435
--------- ---------
Loss from continuing operations
before income taxes (3,294) (2,695)
Income taxes 3 42
--------- ---------
Loss from continuing operations (3,297) (2,737)
Loss from discontinued operations -- (773)
--------- ---------
Net loss $ (3,297) $ (3,510)
========= =========
Basic loss per share:
Loss per share from continuing operations $ (0.22) $ (0.18)
Loss per share from discontinued operations -- (0.05)
--------- ---------
Basic loss per share $ (0.22) $ (0.23)
========= =========
Weighted average common stock outstanding 15,170 15,041
========= =========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Three Months Ended
----------------------
April 4, March 29,
1998 1997
-------- ---------
Net loss $ (3,297) $ (3,510)
Other comprehensive income, net of tax:
Foreign currency translation adjustments 3 11
-------- --------
Comprehensive income $ (3,294) $ (3,499)
======== ========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
April 4, January 3, March 29,
1998 1998 1997
(Unaudited) (*) (Unaudited)
----------- ---------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,683 $ 2,215 $ 1,259
Accounts receivable, net 51,329 45,828 45,201
Inventories (Note 3) 97,274 96,638 109,900
Prepaid expenses and other current assets 5,808 4,218 3,494
Net assets of discontinued operations -- -- 7,471
---------- ---------- ----------
Total current assets 156,094 148,899 167,325
Property, plant and equipment, net 25,743 26,439 26,959
Other assets 57,153 58,039 59,189
---------- ---------- ----------
Total assets $ 238,990 $ 233,377 $ 253,473
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 44,625 $ 33,800 $ 32,921
Accounts payable 24,973 27,746 32,963
Accrued liabilities 18,568 16,503 14,432
Current portion of long term debt 104,879 104,879 --
Reserve for business restructuring
(Note 5) 1,582 2,764 2,049
---------- ---------- ----------
Total current liabilities 194,627 185,692 82,365
Long term debt -- -- 104,879
Deferred liabilities 5,354 5,382 9,114
Shareholders' equity
Common stock 15,405 15,405 15,339
Additional paid-in capital 107,249 107,249 107,142
Deficit (78,532) (75,235) (60,657)
Accumulated other comprehensive income
(Note 4) (3,499) (3,502) (3,095)
Less - treasury stock, at cost (1,614) (1,614) (1,614)
---------- ---------- ----------
Total shareholders' equity 39,009 42,303 57,115
---------- ---------- ----------
Total liabilities and shareholders' equity $ 238,990 $ 233,377 $ 253,473
========== ========== ==========
</TABLE>
(*) Derived from the audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Three Months Ended
April 4, March 29,
1998 1997
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations $ (3,297) $ (2,737)
Adjustments to reconcile loss from continuing
operations to net cash used in operating
activities:
Depreciation 1,158 1,140
Amortization of intangibles 1,227 1,013
Change in operating assets and liabilities:
Accounts receivable (5,501) (5,068)
Inventories (636) (11,403)
Prepaid expenses and other current assets (1,590) 375
Other assets 6 (18)
Accounts payable (2,773) 5,401
Accrued liabilities and reserve for
business restructuring 1,002 (4,429)
Deferred liabilities (28) (1,101)
-------- --------
Net cash used in continuing operating
activities (10,432) (16,827)
Cash used in discontinued operations (119) (1,255)
-------- --------
Net cash used in operations (10,551) (18,082)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (462) (2,970)
Store fixture expenditures (347) (1,093)
-------- --------
Net cash used in investing activities (809) (4,063)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings 10,825 25,244
Retirement of long-term debt -- (3,372)
Exercise of stock options -- 23
Other, net 3 11
-------- --------
Net cash provided by financing activities 10,828 21,906
-------- --------
Net decrease in cash and cash equivalents (532) (239)
Cash and cash equivalents - beginning of year 2,215 1,498
-------- --------
Cash and cash equivalents - end of quarter $ 1,683 $ 1,259
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,195 $ 6,493
======== ========
Income taxes $ 3 $ 42
======== ========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
SALANT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Amounts in Thousands of Dollars, Except Share Data)
(Unaudited)
NOTE 1. FINANCIAL RESTRUCTURING
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
At April 4, 1998 and January 3, 1998, the 10 1/2% Senior Secured Notes due
December 31, 1998 (the "Senior Secured Notes") in the amount of $104,879
have been classified as a current liability. At April 4, 1998, the
Company's current liabilities exceeded its current assets by $38,693. This
factor may indicate that the Company will be unable to continue as a going
concern for a reasonable period of time.
On March 3, 1998, the Company announced that it had reached an agreement in
principle (the "Restructuring Agreement") with its major note and equity
holders to convert its existing indebtedness under the Senior Secured Notes
into common equity (the "Debt Restructuring"), as further described in the
1997 Annual Report on Form 10-K and the Registration Statement on Form S-4,
filed on April 22, 1998. Consummation of the Debt Restructuring is subject
to various conditions. There can be no assurance that the Debt
Restructuring will be consummated. If the Company is not able to consummate
the Debt Restructuring, it will be unable to continue its normal operations
without obtaining additional financing or pursuing alternative
restructuring strategies. In contemplation of the Debt Restructuring, the
Company elected not to pay the interest payment of approximately $5,500
that was due and payable under the Senior Secured Notes on March 2, 1998,
subject to a 30 day grace period. Because the Company elected not to pay
the interest due on the Senior Secured Notes by the expiration of the
applicable grace period, an event of default occurred with respect to the
Senior Secured Notes, entitling the holders to accelerate the maturity
thereof. On April 8, 1998, the Trustee under the indenture governing the
Senior Secured Notes (the "Indenture") issued a Notice of Default stating
that as a result of the Company's failure to make the interest payment due
on the Senior Secured Notes, an event of default under the Indenture had
occurred on April 1, 1998. If holders of at least 25% in aggregate
principal face amount of the Senior Secured Notes accelerate all
outstanding indebtedness under the Senior Secured Notes pursuant to the
terms of the Indenture, such an acceleration of the outstanding
indebtedness under the Senior Secured Notes could result in the Company
becoming subject to a proceeding under the Federal bankruptcy laws.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
NOTE 2. BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying unaudited Condensed Consolidated Financial Statements
include the accounts of Salant Corporation ("Salant") and subsidiaries
(collectively, the "Company").
The Company's principal business is the designing, manufacturing, importing
and marketing of apparel. The Company sells its products to retailers,
including department and specialty stores, national chains, major
discounters and mass volume retailers, throughout the United States.
The results of operations for the three months ended April 4, 1998 and
March 29, 1997 are not necessarily indicative of a full year's operations.
In the opinion of management, the accompanying financial statements include
all adjustments of a normal recurring nature which are necessary to present
fairly such financial statements. Significant intercompany balances and
transactions have been eliminated in consolidation. Certain information and
footnote disclosures normally included in the financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements
should be read in conjunction with the audited financial statements and
notes thereto included in the Company's annual report to shareholders for
the year ended January 3, 1998.
Loss per share is based on the weighted average number of common shares
(including, as of April 4, 1998 and March 29, 1997, 205,854 and 323,878
shares, respectively, anticipated to be issued pursuant to the Company's
1993 bankruptcy plan of reorganization). Loss per share for the first
quarters of 1998 and 1997 did not include common stock equivalents,
including 1,319,393 and 1,430,140 stock options, respectively, inasmuch as
their effect would have been anti-dilutive.
NOTE 3. INVENTORIES
April 4, January 3, March 29,
1998 1998 1997
-------- ---------- ---------
Finished goods $ 57,859 $ 52,010 $ 65,752
Work-in-Process 21,344 21,405 17,516
Raw materials and supplies 18,071 23,223 26,632
--------- --------- ---------
$ 97,274 $ 96,638 $ 109,900
========= ========= =========
NOTE 4. ACCUMULATED OTHER COMPREHENSIVE INCOME
Foreign Currency Minimum Pension Accumulated
Translation Liability other Comprehensive
Adjustments Adjustment Income
---------------- --------------- -------------------
1998
- ----
Beginning of year balance $ 6 $(3,508) $(3,502)
Current period charge 3 -- 3
--- -------- --------
$ 9 $(3,508) $(3,499)
=== ======== ========
1997
- ----
Beginning of year balance $76 $(3,182) $(3,106)
Current period charge 11 -- 11
--- -------- --------
End of quarter balance $87 $(3,182) $(3,095)
=== ======== ========
NOTE 5. DIVISION RESTRUCTURING COSTS
In the first quarter of 1997, the Company reversed a previously recorded
restructuring provision of $754. The provision was for net liabilities
related to the closure of the JJ. Farmer sportswear product line. These net
liabilities were settled for less than the carrying amount, resulting in
the reversal of the excess portion of the provision.
<PAGE>
Attachment I to Proxy Statement/Prospectus
SALANT CORPORATION
ANNUAL MEETING OF STOCKHOLDERS, ___________, 1998
THIS PROXY IS BEING SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned stockholder of Salant Corporation, a Delaware
corporation (the "Company"), hereby appoints ____________________ and
___________________, and each of them, proxies and attorneys-in-fact of the
undersigned, each with full power of substitution, to attend and act for
the undersigned at the Annual Meeting of Stockholders to be held on ______
__, 1998 at _______ _.m., New York City time, at Fried, Frank, Harris,
Shriver & Jacobson, One New York Plaza, New York, New York 10004, and at
any adjournments or postponements thereof, and in connection therewith to
vote and represent all of the shares of the issued and outstanding shares
of the common stock, par value $1.00 per share of said corporation, which
the undersigned would be entitled to vote. The stockholder votes with
respect to the Issuance and the Election of the New Board will not be
effective unless and until the Charter Amendment has been filed with the
Secretary of State of the State of Delaware and the Exchange Restructuring
has been consummated, in which event they will become effective either
immediately prior to or contemporaneously with the consummation of the
Exchange Restructuring. The proposals for the Charter Amendment, the
Issuance and the Election of the New Board are conditioned upon the
approval by stockholders of all of these Restructuring Proposals. If any or
all of the Restructuring Proposals are not approved at the Annual Meeting,
then none of these proposals will become effective. If the Stockholders
vote to approve the Stock Award and Incentive Plan, the Stock Award and
Incentive Plan will become effective regardless of whether the Exchange
Restructuring is implemented or any of the Restructuring Proposals are
approved. The Board has reserved the right to abandon the Charter Amendment
in the event that any other condition to the Restructuring is not
satisfied. However, the Board intends to file the Charter Amendment with
the Secretary of State of Delaware if the Exchange Restructuring is
consummated. Capitalized terms not otherwise defined herein shall have the
meanings given thereto in the Proxy Statement/Prospectus.
Said proxies and attorneys, and each of them, shall have all the
powers which the undersigned would have if voting in person. The
undersigned hereby revokes any other proxies to vote at such meeting and
hereby ratifies, and confirms all that said proxies and attorneys, and each
of them, may lawfully do by virtue hereof. Said proxies and attorneys,
without hereby limiting their general authority, are specifically
authorized to vote in accordance with their best judgment with respect to
all matters incident to the conduct of the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
APPROVAL OF EACH OF THE FOLLOWING PROPOSALS:
ITEM 1. PROPOSAL TO ELECT THE FOLLOWING MEMBERS TO THE BOARD OF
DIRECTORS OF THE COMPANY (WHICH MEMBERS WILL BE DIVIDED INTO THREE CLASSES)
TO SERVE FOR A ___ YEAR TERM.
Nominees:
Jerald S. Politzer
Marvin Schiller
[NAMES OF OTHER NOMINEES TO BE PROVIDED]
_____ FOR ALL _____ WITHHOLD FOR ALL
ITEM 2. PROPOSAL TO APPROVE THE SALANT CORPORATION 1998 STOCK
AWARD AND INCENTIVE PLAN.
____FOR ____AGAINST ____ABSTAIN
ITEM 3. PROPOSAL TO APPROVE THE ISSUANCE OF (i) SHARES OF NEW
COMMON STOCK TO THE NOTEHOLDERS AND STOCKHOLDERS UPON CONSUMMATION OF THE
EXCHANGE RESTRUCTURING, (ii) THE WARRANTS UPON CONSUMMATION OF THE EXCHANGE
RESTRUCTURING, AND (III) SHARES OF NEW COMMON STOCK UPON EXERCISE OF THE
WARRANTS.
____FOR ____AGAINST ____ABSTAIN
ITEM 4. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A TEN-TO-ONE REVERSE
STOCK SPLIT OF EACH SHARE OF OLD COMMON STOCK AND AN INCREASE IN THE NUMBER
OF SHARES OF NEW COMMON STOCK AUTHORIZED FROM 30,000,000 SHARES TO
45,000,000 SHARES.
____FOR ____AGAINST ____ABSTAIN
ITEM 5. PROPOSAL TO RATIFY THE APPOINTMENT OF DELOITTE & TOUCHE
LLP TO SERVE AS THE COMPANY'S INDEPENDENT AUDITORS TO AUDIT ITS FINANCIAL
STATEMENTS FOR FISCAL 1998.
____FOR ____AGAINST ____ABSTAIN
ITEM 6. UPON ALL SUCH OTHER MATTERS THAT MAY PROPERLY BE BROUGHT
BEFORE SUCH ANNUAL MEETING, OR ANY ADJOURNMENTS THEREOF, AS TO WHICH THE
UNDERSIGNED HEREBY CONFERS DISCRETIONARY AUTHORITY UPON SAID PROXIES.
Each of the above-named proxies and attorneys present at the
meeting, either in person or by substitute, shall have and exercise all the
powers of said proxies and attorneys hereunder. This proxy when properly
executed will be voted in the manner directed herein by the undersigned
stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" EACH
OF THE PROPOSALS AND IN THE DISCRETION OF THE PROXY HOLDER AS TO ANY OTHER
MATTER THAT MAY COME BEFORE THE ANNUAL MEETING OF STOCKHOLDERS OR ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF, EXCEPT WITH RESPECT TO BROKER
NON-VOTES.
Please sign exactly as name appears below. When shares are held
by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
The undersigned acknowledges receipt of
the copy of the Notice of Annual Meeting
and Proxy Statement (with all enclosures
and attachments) dated ______ ___, 1998,
relating to the meeting.
Dated: , 1998
----------------------------
----------------------------------------
Signature
----------------------------------------
Signature (If applicable)
PLEASE VOTE, SIGN, DATE AND PROMPTLY
RETURN THIS CARD.
<PAGE>
Attachment II to Proxy Statement/Prospectus
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ----------------------------
IN RE CHAPTER 11 CASE
NO. 98-
SALANT CORPORATION,
DEBTOR.
TAX ID
1114 AVENUE OF THE AMERICAS NO.
NEW YORK, NY 10036 ------------
- ----------------------------
BALLOT FOR ACCEPTING OR REJECTING PLAN OF REORGANIZATION OF
SALANT CORPORATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
BALLOT FOR VOTING OLD COMMON STOCK
(CLASS 6: OLD COMMON STOCK INTERESTS)
If you are a beneficial owner of common stock, par value $1.00 per share
(the "Old Common Stock") issued by Salant Corporation ("Salant"), please use
this Ballot to cast your vote to accept or reject the Chapter 11 Plan of
Reorganization (the "Prepackaged Plan") which is being proposed by Salant.
The Prepackaged Plan is Appendix I to the Disclosure Statement, dated
____________, 1998 (the "Disclosure Statement"), which accompanies this
Ballot. The Prepackaged Plan can be confirmed by the Bankruptcy Court and
thereby made binding upon you if it is accepted by the holders of two-thirds
in amount and more than one-half in number of claims in each class that vote
on the Prepackaged Plan, and by the holders of two-thirds in amount of
equity security interests in each class that vote on the Prepackaged Plan,
and if it otherwise satisfies the requirements of section 1129(a) of the
Bankruptcy Code. If the requisite acceptances are not obtained, the
Bankruptcy Court may nonetheless confirm the Prepackaged Plan if it finds
that the Prepackaged Plan provides fair and equitable treatment to, and does
not discriminate unfairly against, the class or classes voting not to accept
the Prepackaged Plan, and otherwise satisfies the requirements of section
1129(b) of the Bankruptcy Code.
All capitalized terms used herein (unless otherwise defined) shall have the
meanings set forth in the Disclosure Statement.
- -------------------------------------------------------------------------------
IMPORTANT
VOTING DEADLINE: __:__ P.M. NEW YORK CITY TIME ON _______ __, 1998.
REVIEW THE ACCOMPANYING DISCLOSURE STATEMENT FOR THE PREPACKAGED PLAN.
BALLOTS WILL NOT BE ACCEPTED BY FACSIMILE TRANSMISSION.
DO NOT RETURN ANY SECURITIES WITH THIS BALLOT. This Ballot is not a letter of
transmittal and may not be used for any purpose other than to cast votes to
accept or reject the Prepackaged Plan.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
HOW TO VOTE
1. COMPLETE ITEM 1 (if not already filled out by your nominee) AND ITEM 2.
2. REVIEW THE CERTIFICATIONS CONTAINED IN ITEM 3.
3. SIGN THE BALLOT (unless your Ballot has already been signed or
"prevalidated" by your nominee).
4. RETURN THE BALLOT IN THE PRE-ADDRESSED POSTAGE-PAID ENVELOPE (if the
enclosed envelope is addressed to your nominee, make sure your
nominee receives your Ballot in time to submit it before the voting
deadline).
5. YOU WILL RECEIVE A SEPARATE BALLOT FOR EACH SALANT SECURITY YOU OWN WHICH
IS ENTITLED TO BE VOTED UNDER THE PREPACKAGED PLAN.
6. YOU MUST VOTE ALL OLD COMMON STOCK EITHER TO ACCEPT OR TO REJECT THE
PREPACKAGED PLAN AND MAY NOT SPLIT YOUR VOTE.
- -------------------------------------------------------------------------------
ITEM 1. NUMBER OF SHARES OF OLD COMMON STOCK VOTED. The undersigned
certifies that as of ____________, 1998, the undersigned was
either the beneficial owner, or the nominee of a beneficial
owner, of the following number of shares of Old Common Stock
(insert number in the box below). If your shares of Old Common
Stock are held by a nominee on your behalf and you do not know
the number of shares, please contact your nominee immediately.
---------------------------------------------------------
---------------------------------------------------------
ITEM 2. VOTE. The beneficial owner of the number of shares of Old Common
Stock identified in Item I votes as follows (check one box
only--if you do not check a box your vote will not be counted):
[ ] to ACCEPT the Prepackaged Plan. [ ] to REJECT the Prepackaged Plan.
ITEM 3. AUTHORIZATION. By returning this Ballot, the beneficial owner of
the shares of Old Common Stock identified in Item 1 certifies that it
(a) has full power and authority to vote to accept or reject the
Prepackaged Plan with respect to the shares of Old Common Stock listed
in Item 1, (b) was the beneficial owner of the shares of Old Common
Stock described in Item 1 on ______ __, 1998, and (c) has received a
copy of the Disclosure Statement (including the exhibits thereto) and
understands that the solicitation of votes for the Prepackaged Plan is
subject to all the terms and conditions set forth in the Disclosure
Statement.
Name:
--------------------------------------------
(Print or Type)
Social Security or Federal Tax I.D. No.:
----------
(Optional)
Signature:
---------------------------------------
By:
----------------------------------------------
(If Appropriate)
Title:
-------------------------------------------
(If Appropriate)
Street Address:
----------------------------------
City, State, Zip Code:
---------------------------
Telephone Number: ( )
--------------------------------
Date Completed:
----------------------------------
No fees, commissions, or other remuneration will be payable to any broker,
dealer, or other person for soliciting votes on the Prepackaged Plan. This
Ballot shall not constitute or be deemed a proof of claim or equity interest
or an assertion of a claim or equity interest.
- ------------------------------------------------------------------------------
YOUR VOTE MUST BE FORWARDED IN AMPLE TIME FOR YOUR VOTE TO BE RECEIVED BY
THE VOTING AGENT, [NAME OF VOTING AGENT], BY __:__ P.M., NEW YORK CITY TIME,
ON ________ __, 1998, OR YOUR VOTE WILL NOT BE COUNTED.
- ------------------------------------------------------------------------------
IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE VOTING PROCEDURES, OR
IF YOU NEED A BALLOT OR ADDITIONAL COPIES OF THE DISCLOSURE STATEMENT OR
OTHER ENCLOSED MATERIALS, PLEASE CALL THE VOTING AGENT, [NAME OF VOTING
AGENT], AT (___) ___-____.
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ------------------------------
IN RE CHAPTER 11 CASE
NO. 98-
SALANT CORPORATION,
DEBTOR.
TAX ID
1114 AVENUE OF THE AMERICAS NO. _____________
NEW YORK, NY 10036
- ------------------------------
MASTER BALLOT FOR ACCEPTING OR REJECTING
PLAN OF REORGANIZATION OF SALANT CORPORATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
MASTER BALLOT FOR VOTING OLD COMMON STOCK
(CLASS 6: OLD COMMON STOCK INTERESTS)
- -------------------------------------------------------------------
THE VOTING DEADLINE BY WHICH YOUR MASTER BALLOT MUST BE RECEIVED
BY THE VOTING AGENT IS __:__ P.M. NEW YORK CITY TIME ON
____________, 1998 OR THE VOTES REPRESENTED BY YOUR BALLOT WILL
NOT BE COUNTED.
- -------------------------------------------------------------------
This Master Ballot is to be used by you, as a broker, bank, or
other nominee (or as their proxy holder or agent) (each of the
foregoing, a "Nominee"), for beneficial owners of common stock,
par value $1.00 per share (the "Old Common Stock") issued by
Salant Corporation ("Salant"), to transmit the votes of such
holders in respect of their shares of Old Common Stock to accept
or reject the Chapter 11 Plan of Reorganization of Salant (the
"Prepackaged Plan") described in, and attached as Appendix I to,
the Disclosure Statement, dated ____________, 1998 (the
"Disclosure Statement") provided to you. Before you transmit such
votes, please review the Disclosure Statement carefully,
including the Voting and Confirmation of the Prepackaged Plan in
Section XXV of the Disclosure Statement. THIS MASTER BALLOT
RELATES ONLY TO VOTES CAST ON OLD COMMON STOCK BALLOTS.
The Prepackaged Plan can be confirmed by the Bankruptcy Court and
thereby made binding upon you if it is accepted by the holders of
two-thirds in amount and more than one-half in number of claims
in each class that vote on the Prepackaged Plan, and by the
holders of two-thirds in amount of equity security interests in
each class that vote on the Prepackaged Plan, and if it otherwise
satisfies the requirements of section 1129(a) of the Bankruptcy
Code. If the requisite acceptances are not obtained, the
Bankruptcy Court may nonetheless confirm the Prepackaged Plan if
it finds that the Prepackaged Plan provides fair and equitable
treatment to, and does not discriminate unfairly against, the
class or classes voting not to accept the Prepackaged Plan, and
otherwise satisfies the requirements of section 1129(b) of the
Bankruptcy Code.
All capitalized terms used herein (unless otherwise defined)
shall have the meanings set forth in the Disclosure Statement.
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY.
COMPLETE, SIGN, AND DATE THIS MASTER BALLOT, AND RETURN IT SO
THAT IT IS RECEIVED BY THE VOTING AGENT BEFORE THE VOTING
DEADLINE OF __:__ P.M., NEW YORK CITY TIME, ON ____________,
1998. IF THIS MASTER BALLOT IS NOT COMPLETED, SIGNED, AND TIMELY
RECEIVED, THE VOTES TRANSMITTED BY THIS MASTER BALLOT WILL NOT BE
COUNTED.
ITEM 1. CERTIFICATION OF AUTHORITY TO VOTE. The undersigned
certifies that as of the [_____, 1998] record date, the
undersigned (please check the applicable box):
[ ] Is a broker, bank, or other nominee, for the beneficial
owners of the aggregate number of shares of Old Common
Stock listed in Item 2 below, and is the registered
holder of such securities, or
[ ] Is acting under a power of attorney and/or agency (a
copy of which will be provided upon request) granted by
a broker, bank, or other nominee that is the registered
holder of the aggregate number of shares of Old Common
Stock listed in Item 2 below, or
[ ] Has been granted a proxy (an original of which is
attached hereto) from a broker, bank, or other nominee
that is the registered holder of the aggregate number
of shares of Old Common Stock listed in Item 2 below.
and accordingly, has full power and authority to vote to accept
or reject the Prepackaged Plan on behalf of the beneficial owners
of the shares of Old Common Stock described in Item 2 below.
ITEM 2. CLASS 6 (OLD COMMON STOCK INTERESTS) VOTE. The
undersigned transmits the following votes of beneficial
owners in respect of their shares of Old Common Stock,
and certifies that the following beneficial owners of
Old Common Stock, as identified by their respective
customer account numbers set forth below, are
beneficial owners of such securities as of the [_____,
1998] record date and have delivered to the
undersigned, as Nominee, Ballots casting such votes
(Indicate in the appropriate column the aggregate
number of shares of Old Common Stock principal amount
voted for each account, or attach such information to
this Master Ballot in the form of the following table.
Please note: Each beneficial owner must vote all his,
her, or its Class 6 Old Common Stock interests either
to accept or reject the Prepackaged Plan, and may not
split such vote.)
----------------------------------------------------------------
YOUR CUSTOMER NUMBER OF SHARES NUMBER OF SHARES
ACCOUNT NUMBER FOR OF OLD COMMON OF OLD COMMON
EACH BENEFICIAL STOCK VOTED TO STOCK VOTED TO
OWNER OF OLD ACCEPT THE REJECT THE
COMMON STOCK PREPACKAGED PLAN PREPACKAGED PLAN
----------------------------------------------------------------
----------------------------------------------------------------
1. OR
----------------------------------------------------------------
----------------------------------------------------------------
2. OR
----------------------------------------------------------------
----------------------------------------------------------------
3. OR
----------------------------------------------------------------
----------------------------------------------------------------
4. OR
----------------------------------------------------------------
----------------------------------------------------------------
5. OR
----------------------------------------------------------------
----------------------------------------------------------------
6. OR
----------------------------------------------------------------
----------------------------------------------------------------
7. OR
----------------------------------------------------------------
----------------------------------------------------------------
8. OR
----------------------------------------------------------------
----------------------------------------------------------------
9. OR
----------------------------------------------------------------
----------------------------------------------------------------
10. OR
----------------------------------------------------------------
----------------------------------------------------------------
TOTALS: OR
----------------------------------------------------------------
ITEM 3. CERTIFICATION. By signing this Master Ballot, the
undersigned certifies that each beneficial owner of Old
Common Stock listed in Item 2, above, has been provided
with a copy of the Disclosure Statement, including the
exhibits thereto, and acknowledges that the
solicitation of votes is subject to all the terms and
conditions set forth in the Disclosure Statement.
Name of Broker, Bank, or Other
Nominee:
---------------------------------
(Print or Type)
Name of Proxy Holder or Agent
for Broker, Bank, or Other
Nominee (if applicable):
---------------------------------
(Print or Type)
Social Security or Federal Tax
I.D. No.:
---------------------------------
(If Applicable)
Signature:_______________________
By:______________________________
(If Appropriate)
Title:___________________________
(If Appropriate)
Street Address:__________________
City, State, Zip Code:___________
Telephone Number: ( )
---------------
Date Completed:__________________
- --------------------------------------------------------------------
THIS MASTER BALLOT MUST BE RECEIVED BY THE VOTING AGENT, [NAME OF
VOTING AGENT], BEFORE __:__ P.M., NEW YORK CITY TIME, ON
____________, 1998, OR THE VOTES TRANSMITTED HEREBY WILL NOT BE
COUNTED.
PLEASE NOTE: THE VOTING AGENT WILL NOT ACCEPT BALLOTS OR MASTER
BALLOTS BY FACSIMILE TRANSMISSION
- --------------------------------------------------------------------
- --------------------------------------------------------------------
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR THE
VOTING PROCEDURES, OR IF YOU NEED ADDITIONAL COPIES OF THE MASTER
BALLOT, BALLOTS, DISCLOSURE STATEMENT, OR OTHER RELATED MATERIALS,
PLEASE CALL THE VOTING AGENT, [NAME OF VOTING AGENT], AT (___)
___-____.
- --------------------------------------------------------------------
INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT
VOTING DEADLINE/VOTING AGENT:
The Voting Deadline is __:__ p.m., New York City Time, on
____________, 1998, unless extended by Salant. To have the vote
of your customers count, you must complete, sign, and return this
Master Ballot so that it is received by the Voting Agent: [Name
of Voting Agent / Address of Voting Agent ((___) ___-____)],
before the Voting Deadline.
HOW TO VOTE:
IF YOU ARE BOTH THE REGISTERED OWNER AND BENEFICIAL OWNER OF
ANY SHARES OF OLD COMMON STOCK AND YOU WISH TO VOTE SUCH SHARES
OF OLD COMMON STOCK: You may complete, execute, and return to
the Voting Agent either an Old Common Stock Ballot or an Old
Common Stock Master Ballot.
IF YOU ARE TRANSMITTING THE VOTES OF ANY BENEFICIAL OWNERS
OF OLD COMMON STOCK OTHER THAN YOURSELF, YOU MAY EITHER:
1. Complete and execute the Old Common Stock Ballot (other
than Item 2) and deliver to the beneficial owner such
"prevalidated" Old Common Stock Ballot, along with the
Disclosure Statement and other materials requested to
be forwarded. The beneficial owner should complete Item
2 of that Ballot and to return the completed Ballot to
the Voting Agent so as to be received before the Voting
Deadline;
OR
2. For any Old Common Stock Ballots you do not
"prevalidate":
Deliver the Old Common Stock Ballot to the beneficial
owner, along with the Disclosure Statement and other
materials requested to be forwarded, and take the
necessary actions to enable such beneficial owner to
(i) complete and execute such Ballot voting to accept
or reject the Prepackaged Plan, and (ii) return the
complete, executed Ballot to you in sufficient time to
enable you to complete the Master Ballot and deliver it
to the Voting Agent before the Voting Deadline; and
With respect to all Old Common Stock Ballots returned
to you, you must properly complete the Master Ballot,
as follows:
a. Check the appropriate box in Item 1 on the Master
Ballot;
b. Indicate the votes to accept or reject the
Prepackaged Plan in Item 2 of this Master Ballot,
as transmitted to you by the beneficial owners of
Old Common Stock. To identify such beneficial
owners without disclosing their names, please use
the customer account number assigned by you to
each such beneficial owner, or if no such customer
account number exists, please assign a number to
each account (making sure to retain a separate
list of each beneficial owner and the assigned
number). IMPORTANT: BENEFICIAL OWNERS MAY NOT
SPLIT THEIR VOTES. EACH BENEFICIAL OWNER MUST VOTE
ALL HIS, HER, OR ITS SHARES OF OLD COMMON STOCK
EITHER TO ACCEPT OR REJECT THE PREPACKAGED PLAN.
IF ANY BENEFICIAL OWNER HAS ATTEMPTED TO SPLIT
SUCH VOTE, PLEASE CONTACT THE VOTING AGENT
IMMEDIATELY. Any Ballot or Master Ballot which is
validly executed but which does not indicate
acceptance or rejection of the Prepackaged Plan by
the indicated beneficial owner will not be counted
as to such beneficial owner;
c. Review the certification in Item 3 of the Master
Ballot;
d. Sign and date the Master Ballot, and provide the
remaining information requested:
e. If additional space is required to respond to any
item on the Master Ballot, please use additional
sheets of paper clearly marked to indicate the
applicable Item of the Master Ballot to which you
are responding;
f. Contact the Voting Agent to arrange for delivery
of the completed Master Ballot to its offices; and
g. Deliver the completed, executed Master Ballot so
as to be received by the Voting Agent before the
Voting Deadline. For each completed, executed Old
Common Stock Ballot returned to you by a
beneficial owner, either forward such Ballot
(along with your Master Ballot) to the Voting
Agent or retain such Old Common Stock Ballot in
your files for one year from the Voting Deadline.
PLEASE NOTE:
THIS MASTER BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY
NOT BE USED FOR ANY PURPOSE OTHER THAN TO CAST VOTES TO ACCEPT OR
REJECT THE PREPACKAGED PLAN. Holders should not surrender, at
this time, certificates representing their securities. Neither
Salant nor the Voting Agent will accept delivery of any such
certificates surrendered together with this Master Ballot.
Surrender of securities for exchange pursuant to the Prepackaged
Plan may only be made by you, and will only be accepted pursuant
to a letter of transmittal which will be furnished to you by
Salant following confirmation of the Prepackaged Plan by the
United States Bankruptcy Court.
No Ballot or Master Ballot shall constitute or be deemed a
proof of claim or equity interest or an assertion of a claim or
equity interest.
No fees or commissions or other remuneration will be payable
to any broker, dealer, or other person for soliciting votes on
the Prepackaged Plan. We will, however, upon request, reimburse
you for customary mailing and handling expenses incurred by you
in forwarding the Ballots and other enclosed materials to the
beneficial owners of Old Common Stock held by you as a nominee or
in a fiduciary capacity. We will also pay all transfer taxes, if
any, applicable to the transfer and exchange of your securities
pursuant to and following confirmation of the Prepackaged Plan.
- -------------------------------------------------------------------
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER
YOU OR ANY OTHER PERSON THE AGENT OF SALANT OR THE VOTING AGENT,
OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE
ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE
PREPACKAGED PLAN, EXCEPT FOR THE STATEMENTS CONTAINED IN THE
ENCLOSED DOCUMENTS.
- -------------------------------------------------------------------
- --------------------------------------------------------------------
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR THE
VOTING PROCEDURES, OR IF YOU NEED ADDITIONAL COPIES OF THE MASTER
BALLOT, BALLOTS, DISCLOSURE STATEMENT, OR OTHER RELATED MATERIALS,
PLEASE CALL THE VOTING AGENT, [NAME OF VOTING AGENT], AT (___)
___-____.
- --------------------------------------------------------------------
<PAGE>
Annex I to Proxy Statement/Prospectus
[Ernst & Young LLP Letterhead]
April 21, 1998
Board of Directors
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
Ladies and Gentlemen:
We understand that Salant Corporation (the "Company" or "Salant") intends to
adopt a restructuring plan (the "Restructuring Plan" or the "Plan") under
which owners (the "Note Holders") of the Company's 10 1/2% Senior Secured
Notes due December 31, 1998 (the "Notes") will exchange the Notes for newly
issued shares of the company's common stock representing 92.5% of the
Company's outstanding equity following consummation of the Restructuring Plan
(the "Restructured Equity"). Holders of the Company's outstanding equity prior
to consummation of the Restructuring Plan ("Existing Equity Holders") will
receive seven-year warrants (the "Warrants") to purchase up to an additional
10% of the Restructured Equity on a fully diluted basis in addition to
retaining their existing equity ("Existing Equity") which will represent 7.5%
of the Restructured Equity. We also understand that Apollo Apparel Partners,
L.P., the beneficial owner of 5,924,352 shares of Existing Equity, Magten
Asset Management Corp., the beneficial owner, or the investment manager on
behalf of the beneficial owners of not less than $70 million in aggregate
principal face amount of the Notes and Salant have entered into an agreement
in principle (the "Agreement") as of March 2, 1998 to support the
Restructuring Plan.
You have requested that Ernst & Young LLP ("E&Y") render an opinion
("Opinion") to the Board of directors of Salant as to the fairness of the
consideration to be received by public holders of Existing Equity pursuant to
the Restructuring Plan as set forth in the draft copy of the Company's
Registration Statement on Form S-4, dated April 17, 1998, from a financial
point of view, to the public holders of Existing Equity.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. Reviewed the Restructuring Plan, as set forth in the Letter Agreement
included in Salant's Form 8-K filing dated March 2, 1998, Salant's
Annual Report, Form 10-K and related audited financial information for
the fiscal year ended January 3, 1998 and Salant's Forms 10-Q and the
related un-audited financial information for the quarterly periods
ending September 27, 1997 and June 28, 1997, un-audited financial
information for the two month period ending March 7, 1998 and a draft
copy of Salant's Registration Statement on Form S-4, dated April 17,
1998 to be filed in conjunction with the Restructuring Plan;
2. Reviewed and discussed with Salant management certain information
furnished to us, including financial forecasts, relating to the
business, earnings, cash flow, assets, liabilities and prospects of
Salant;
3. Conducted discussions with members of senior management of Salant
concerning their respective businesses and prospects, before and after
giving effect to the Restructuring Plan;
4. Reviewed the historical market prices and valuation multiples for the
Salant common stock and considered the reasonableness of this
information as it related to fair market valuation of Existing Equity;
5. Applied commonly-accepted valuation procedures in determining the fair
market value of Salant's total invested capital ("TIC") on a going
concern basis;
6. Reviewed the potential pro forma impact of the three-year operating
plan; and
7. Reviewed such other financial studies and analyses and took into
account such other matters as E&Y deemed necessary, including its
assessment of general economic, market and monetary conditions.
We have not considered, and the Opinion does not address, the underlying
business decision to effect the Restructuring Plan. Furthermore, although E&Y
has provided services to Salant in connection with the Restructuring Plan
including valuation analysis of the terms of the Restructuring Plan, we have
not determined the terms of the Restructuring Plan. No fees received by E&Y in
connection with the Restructuring Plan are contingent upon its ultimate
consummation. E&Y has provided services to other participants in the
Restructuring Plan in matters not relating to the Restructuring Plan.
We have not been requested to, and did not, solicit third party indications of
interest in acquiring all or any part of Salant. We have not undertaken a
review or analysis of possible alternatives to the Restructuring Plan.
We have relied upon and assumed, without independent verification, that any
financial forecasts and projections prepared by the Company have been
reasonably prepared and reflect the best currently available estimates of the
future financial results and condition of Salant. We have relied upon and
assumed, without independent verification, the accuracy and completeness of
all information that was publicly available or was furnished to us by the
Company or otherwise reviewed by us, and do not assume any responsibility with
respect thereto. We have not made any physical inspection of the assets of
Salant. We have relied upon and assumed that the final form of the
Restructuring Plan will be in the form of the Restructuring Plan as set forth
in the draft copy of the Company's Registration Statement on Form S-4, dated
April 17, 1998 and that the Restructuring Plan will be consummated in
accordance with the terms set forth therein. We have also relied upon and
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals for the Restructuring Plan, no restrictions including
any divestiture requirements or amendments or modifications will be imposed
that will have a materially adverse effect on the contemplated benefits of the
Restructuring Plan to holders of Existing Equity.
Our Opinion is necessarily based on business, economic, market and other
conditions as they exist as of the date hereof and can be evaluated by us at
the date of this letter. It should be understood that subsequent developments
may affect this Opinion and that we do not have any obligation to update,
revise or reaffirm this Opinion.
This Opinion is provided to the Board of Directors of Salant in connection
with its evaluation of the Restructuring Plan, and may not be disclosed,
referred to, or communicated, in whole or in part, to any third party for any
purpose whatsoever except with the prior written consent in each instance of
E&Y. The above notwithstanding, we understand that the Company intends to
include this document and supporting text with a filing of a Registration
Statement on Form S-4 that it intends to submit to the SEC within two weeks of
this Opinion. The inclusion of the Opinion and supporting text will only be
permissible after E&Y's review and approval of the public filing.
On the basis of, and subject to the foregoing, as of the date hereof, we are
of the opinion that the consideration to be received by public holders of
Existing Equity pursuant to the Restructuring Plan as set forth in the draft
copy of the Company's Registration Statement on Form S-4, dated April 17, 1998
is fair from a financial point of view to the public holders of Existing
Equity.
Very truly yours,
/s/ Ernst & Young LLP
<PAGE>
Annex II to Proxy Statement/Prospectus
SALANT CORPORATION
---------------------------------
as Warrant Agent
---------------------------------
Warrants to Purchase 2,216,979 Shares of Common Stock
---------------------------------
WARRANT AGREEMENT
Dated as of ________ __, 1998
TABLE OF CONTENTS
Page
1. DEFINITIONS...............................................................1
2. APPOINTMENT OF WARRANT AGENT..............................................3
2.1. Appointment.......................................................3
3. REGISTRATION, FORM AND EXECUTION OF WARRANTS..............................4
3.1. Registration......................................................4
3.2. Form of the Warrant...............................................4
3.3. Countersignature of the Warrants..................................4
4. EXERCISE OF WARRANTS......................................................5
4.1. Manner of Exercise................................................5
4.2. Payment of Taxes..................................................6
4.3. Fractional Shares.................................................6
5. TRANSFER, DIVISION AND COMBINATION........................................6
5.1. Transfer..........................................................6
5.2. Division and Combination..........................................7
5.3. Maintenance of Books..............................................7
6. ADJUSTMENTS...............................................................7
6.1. Adjustment for Change in Capital Stock............................7
6.2. Adjustment for Rights Issue.......................................8
6.3. Adjustment for Other Distributions................................9
6.4. Adjustment for New Common Stock Issue............................10
6.5. Adjustment for Convertible Securities Issue......................11
6.6. Market Price.....................................................13
6.7. Consideration Received...........................................14
6.8. When Adjustment May Be Deferred..................................14
6.9. When No Adjustment Required......................................15
6.10. Notice of Adjustment............................................15
6.11. Voluntary Reduction.............................................15
6.12. Notice of Certain Transactions..................................15
6.13. Preservation of Purchase Rights Upon
Reclassification, Consolidation, etc............................15
6.14. Adjustment to the Number of Shares Purchasable Upon
Exercise of Warrants; Exercise Price Not Less than
Par Value.......................................................16
6.15. Other Dilutive Events...........................................16
6.16. Company Determination Final.....................................17
6.17. Form of Warrants................................................17
7. NOTICES TO HOLDERS.......................................................17
7.1. Notice of Adjustments............................................17
7.2. Notice of Corporate Action.......................................17
8. COVENANTS................................................................18
9. RESERVATION AND AUTHORIZATION OF NEW COMMON STOCK:
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY...........18
10. STOCK AND WARRANT TRANSFER BOOKS........................................19
11. LOSS OR MUTILATION......................................................19
12. OFFICE OF COMPANY.......................................................19
13. WARRANT AGENT...........................................................19
13.1. Merger or Consolidation or Change of Name of Warrant
Agent...........................................................19
13.2. Certain Terms and Conditions Concerning the Warrant
Agent...........................................................20
13.3. Change of Warrant Agent.........................................22
13.4. Disposition of Proceeds on Exercise of Warrants,
Inspection of Warrant Agreement.................................23
14. MISCELLANEOUS...........................................................23
14.1. Notice Generally................................................24
14.2. Successors and Assigns..........................................24
14.3. Amendment.......................................................25
14.4. Severability....................................................25
14.5. Headings........................................................25
14.6. Governing Law...................................................25
14.7. Counterparts....................................................25
EXHIBITS
Exhibit A - Form of Warrant Certificate
Exhibit B - Warrant Agent Fees
THIS WARRANT AGREEMENT (this "Warrant Agreement"), dated as of
________ __, 1998, is made by and between Salant Corporation, a Delaware
corporation (the "Company"), and _______________, a _______________
corporation, as warrant agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, the Company will issue to holders of its issued and
outstanding common stock, par value $1.00 per share, of the Company (the
"Old Common Stock"), warrants, as hereinafter described (the "Warrants"),
to purchase up to an aggregate of 2,216,979 shares of its common stock (the
"New Common Stock") to be issued and outstanding immediately after giving
effect to the Restructuring (as defined below); and
WHEREAS, the purpose of this Warrant Agreement is to set forth
the terms and conditions which shall govern the issuance of all of the
Warrants, the purchase of New Common Stock of the Company upon the exercise
thereof, the adjustments in the terms and price of such Warrants pursuant
to the anti-dilution provisions hereof and such other terms and conditions
as hereinafter set forth;
WHEREAS, the Company has requested the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing so to act, in
connection with the issuance, division, transfer, exchange and exercise of
the Warrants;
NOW, THEREFORE, in consideration of the foregoing and for the
purpose of defining the terms and provisions of the Warrants and the
respective rights and obligations thereunder and hereunder of the Company,
the Warrant Agent, and the Holders (as defined below), and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and affirmed, the Company and the Warrant Agent hereby agree
as follows:
1. DEFINITIONS.
-----------
As used in this Warrant Agreement, the following terms have the
respective meanings set forth below:
"Additional Shares of New Common Stock" shall mean all shares of
New Common Stock issued by the Company after the Restructuring Date, other
than Warrant Shares.
"Affiliate" shall mean any Person that is an Affiliate (as
defined in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934).
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in
the State of New York.
"Company" shall have the meaning assigned to such term in the
first paragraph of this Warrant Agreement.
"Exercise Price" shall mean, in respect of a share of New Common
Stock at any date herein specified, $6.2648 per share of Common Stock,
subject to adjustment in accordance with Section 6.1.
"Expiration Date" shall mean __________ __, 2005 [the date which
is the 7-year anniversary date of the Restructuring Date].
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name a Warrant is
registered in the warrant register of the Company maintained by or on
behalf of the Company for such purpose.
"Majority Holders" shall mean the Holders of Warrants exercisable
for in excess of 50% of the aggregate number of shares of New Common Stock
then purchasable upon exercise of all Warrants.
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"New Common Stock" shall mean shares of common stock, par value
$1.00 per share, of the Company to be issued pursuant to the Restructuring,
and any capital stock into which such New Common Stock may thereafter be
changed, and shall also include shares of common stock of any successor or
acquiring corporation received by or distributed to the holders of New
Common Stock of the Company in the circumstances contemplated by Section
6.2.
"Other Property" shall have the meaning set forth in Section 6.2.
"Outstanding" shall mean, when used with reference to the New
Common Stock, at any date as of which the number of shares thereof is to be
determined, all issued shares of New Common Stock, except shares then owned
or held by or for the account of the Company or any subsidiary thereof, and
shall include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of New Common
Stock.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, limited liability company, limited liability partnership,
institution, public benefit corporation, entity or government (whether
federal, state, county, city, municipal or otherwise, including, without
limitation, any instrumentality, division, agency, body or department
thereof).
"Registration Statement" shall mean the Company's registration
statement on Form S-4, dated as of _______, 1998 and filed with the
Securities and Exchange Commission.
"Restructuring" shall mean the financial restructuring of the
Company pursuant to either the Exchange Restructuring or the Prepackaged
Restructuring (as each such term is defined in the Registration Statement).
"Restructuring Date" shall mean the date of consummation of the
Restructuring.
"Warrant Agent" shall have the meaning assigned to such term in
the first paragraph of this Warrant Agreement and shall include any
successor Warrant Agent hereunder.
"Warrant Agent's Principal Office" shall mean the principal
office of the Warrant Agent in [ ] (or such other office of the Warrant
Agent or any successor thereto hereunder acceptable to the Company as set
forth in a written notice provided to the Company and the Holders).
"Warrant Agreement" shall have the meaning assigned to such term
in the first paragraph of this Warrant Agreement.
"Warrant Price" shall mean an amount equal to (1) the number of
shares of New Common Stock being purchased upon exercise of a Warrant
pursuant to Section 4.1, MULTIPLIED by (2) the Exercise Price as of the
date of such exercise.
"Warrant Shares" shall mean the shares of New Common Stock
purchased by the Holders of the Warrants upon the exercise thereof.
"Warrants" shall have the meaning assigned to such term in the
recitals to this Warrant Agreement, and shall include all warrants issued
upon transfer, division or combination of, or in substitution for, any
thereof. All Warrants shall at all times be identical as to terms and
conditions and date, except as to the number of shares of New Common Stock
for which they may be exercised.
2. APPOINTMENT OF WARRANT AGENT.
----------------------------
2.1. Appointment. The Company hereby appoints the Warrant Agent
to act as agent for the Company in accordance with the instructions set
forth in this Warrant Agreement, and the Warrant Agent hereby accepts such
appointment.
3. REGISTRATION, FORM AND EXECUTION OF WARRANTS.
--------------------------------------------
3.1. Registration. All Warrants shall be numbered and shall be
registered in a warrant register maintained at the Warrant Agent's
Principal Office by the Warrant Agent as they are issued. The Company and
the Warrant Agent shall be entitled to treat a Holder as the owner in fact
for all purposes whatsoever of each Warrant registered in such Holder's
name.
3.2. Form of the Warrant. The text of each Warrant and of the
Election to Purchase Form and Assignment Form shall be substantially as set
forth in Exhibit A attached hereto. Each Warrant shall be executed on
behalf of the Company by its President or one of its Vice Presidents, under
its corporate seal reproduced thereon or facsimile thereof attested by its
Secretary or an Assistant Secretary. The signature of any of such officers
on the Warrants may be manual or facsimile.
Warrants bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall
bind the Company, notwithstanding that such individuals or any one of them
shall have ceased to hold such offices prior to the delivery of such
Warrants or did not hold such offices on the date of this Warrant
Agreement.
The Warrants shall be dated as of the date of countersignature
thereof by the Warrant Agent either upon initial issuance or upon division,
exchange, substitution or transfer.
3.3. Countersignature of the Warrants. Each Warrant shall be
manually countersigned by the Warrant Agent (or any successor to the
Warrant Agent then acting as warrant agent under this Warrant Agreement)
and shall not be valid for any purpose unless so countersigned. The
Warrants may be countersigned, however, by the Warrant Agent (or by its
successor as warrant agent hereunder) and may be delivered by the Warrant
Agent, notwithstanding that the persons whose manual signatures appear
thereon as proper officers of the Company shall have ceased to be such
officers at the time of such countersignature, issuance or delivery. The
Warrant Agent shall, upon written instructions of the President, a Vice
President, the Secretary, or an Assistant Secretary of the Company,
countersign, issue and deliver the Warrants entitling the Holders thereof
to purchase not more than 2,216,979 shares of New Common Stock (subject to
adjustment as set forth herein) and shall countersign and deliver such
Warrants as otherwise provided in this Warrant Agreement.
4. EXERCISE OF WARRANTS.
--------------------
4.1. Manner of Exercise. From and after the Effective Date and
until 5:00 p.m., New York City time, on the Expiration Date, a Holder may
exercise any of its Warrants, on any Business Day, for all or any part of
the number of shares of New Common Stock purchasable thereunder.
In order to exercise a Warrant, in whole or in part, a Holder
shall deliver to the Company at the Warrant Agent's Principal Office, (1) a
written notice of such Holder's election to exercise such Warrant, which
notice shall include the number of shares of New Common Stock to be
purchased, (2) payment of the Warrant Price for the account of the Company
and (3) such Warrant. Such notice shall be substantially in the form of the
Election to Purchase Form set forth on the reverse side of the form of
Warrant Certificate attached as Exhibit A hereto, duly executed by such
Holder or its agent or attorney. Upon receipt thereof, the Warrant Agent
shall, as promptly as practicable, and in any event within five Business
Days thereafter, deliver or cause to be delivered to such Holder an
executed certificate or certificates representing the aggregate number of
full shares of New Common Stock issuable upon such exercise. The stock
certificate or certificates so delivered shall be, to the extent possible,
in such denomination or denominations as such Holder shall request in the
notice and shall be registered in the name of such Holder or, subject to
Section 11 hereof, such other name as shall be designated in such notice.
Each Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and such Holder or any
other Person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date
such notice, together with the check or checks for payment of the Warrant
Price and such Warrant, is received by the Warrant Agent as described above
and all taxes required to be paid by such Holder, if any, pursuant to
Section 4.2 prior to the issuance of such shares have been paid. If any
Warrant shall have been exercised in part, the Warrant Agent shall, at the
time of delivery of the certificate or certificates representing Warrant
Shares, deliver to the Holder a new Warrant evidencing the rights of such
Holder to purchase the unpurchased shares of New Common Stock called for by
such Warrant, which new Warrant shall in all other respects be identical
with the Warrant exercised in part, or, at the request of such Holder,
appropriate notation may be made on such exercised Warrant and the same
returned to such Holder. Notwithstanding any provision herein to the
contrary, the Warrant Agent shall not be required to register shares in the
name of any Person who acquired a Warrant (or part thereof) or any Warrant
Shares otherwise than in accordance with such Warrant and this Warrant
Agreement.
Payment of the Warrant Price shall be made at the option of the
Holder by certified or official bank check or wire transfer or any
combination thereof, duly executed by such Holder or by such Holder's
attorney duly authorized in writing.
4.2. Payment of Taxes. All shares of New Common Stock issuable
upon the exercise of any Warrant pursuant to the terms hereof shall be
validly issued, fully paid and nonassessable and without any preemptive
rights. The Company shall pay any documentary stamp taxes attributable to
the initial issuance of Warrant Shares upon the exercise of Warrants;
provided that the Company shall not be required to pay any tax or taxes
that may be payable in respect of any transfer involved in the issuance of
any Warrant certificates or any certificates for Warrant Shares in a name
other than that of the registered holder of a Warrant certificate
surrendered upon the exercise of a Warrant, and the Company shall not be
required to issue or deliver such Warrant certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid or is not due.
4.3. Fractional Shares. The Company shall not be required to
issue a fractional share of New Common Stock upon exercise of any Warrant.
Whenever any distribution of warrants exercisable into fractional shares of
New Common Stock would otherwise be called for, the actual distribution
thereof will reflect a rounding up or down to the nearest share of Common
Stock, PROVIDED THAT, whenever any distribution of a Warrant that is
exercisable into exactly one-half of a share of New Common Stock would
otherwise be called for, the actual distribution will reflect a rounding up
to the nearest share of New Common Stock.
5. TRANSFER, DIVISION AND COMBINATION.
----------------------------------
5.1. Transfer. Transfer of any Warrant and all rights hereunder,
in whole or in part, shall be registered in the warrant register of the
Company to be maintained for such purpose at the Warrant Agent's Principal
Office, upon surrender of such Warrant at the Warrant Agent's Principal
Office, together with a written assignment of such Warrant substantially in
the form set forth on the reverse side of the form of Warrant Certificate
attached as Exhibit A hereto duly executed by the Holder or its agent or
attorney and payment of all funds sufficient to pay any taxes payable upon
the making of such transfer. Upon such surrender and, if required, such
payment, and subject to Section 9 hereof, the Company shall execute and the
Warrant Agent shall countersign and deliver a new Warrant or Warrants in
the name of the assignee or assignees and in the denomination specified in
such instrument of assignment, and shall issue to the assignor a new
Warrant evidencing the portion of such Warrant not so assigned, and the
surrendered Warrant shall promptly be cancelled. A Warrant, if properly
assigned, may be exercised by a new Holder for the purchase of shares of
New Common Stock without having a new warrant issued.
5.2. Division and Combination. Any Warrant may be divided or
combined with other Warrants upon presentation thereof at the Warrant
Agent's Principal Office, together with a written notice specifying the
names and denominations in which new Warrants are to be issued, signed by
the Holder or its agent or attorney. Subject to compliance with Section
5.1, as to any transfer which may be involved in such division or
combination, the Company shall execute and the Warrant Agent shall
countersign and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such
notice.
5.3. Maintenance of Books. The Warrant Agent agrees to maintain,
at the Warrant Agent's Principal Office, the warrant register for the
registration of Warrants and the registration of transfer of the Warrants.
6. ADJUSTMENTS.
-----------
The Exercise Price and the number of Warrant Shares issuable upon
the exercise of each Warrant, are subject to adjustment from time to time
upon occurrence of the events enumerated this Section 6.
6.1. Adjustment for Change in Capital Stock.
--------------------------------------
If the Company:
(a) pays a dividend or makes a distribution on its New Common
Stock in shares of its New Common Stock;
(b) subdivides its outstanding shares of New Common Stock into
a greater number of shares;
(c) combines its outstanding shares of New Common Stock into a
smaller number of shares;
(d) makes a distribution on New Common Stock in shares of its
capital stock other than the New Common Stock; or
(e) issues by reclassification of New Common Stock any shares
of its capital stock;
then the exercise right and the Exercise Price in effect immediately prior to
such action shall be adjusted so that the holder of Warrants may receive upon
exercise of the Warrants the number of shares of capital stock of the Company
which it would have owned immediately following such action if it had
exercised the Warrants immediately prior to such action. The adjustment
shall become effective immediately after the record date in the case of a
distribution and immediately after the effective date in the case of a
combination or reclassification.
If, after an adjustment, the holder of Warrants may receive
shares of two or more classes of capital stock of the Company, the Company
and the holders of a majority of the Warrants shall mutually agree upon the
allocation of the adjusted exercise price between the classes of capital
stock. After such allocation, the exercise privilege and the Exercise Price
of each class of capital stock shall thereafter be subject to adjustment on
terms comparable to those applicable to New Common Stock in this Section 6.
6.2. Adjustment for Rights Issue. If the Company distributes any
rights, options or warrants to all holders of New Common Stock entitling
them for a period expiring within 60 days after the record date mentioned
below to purchase shares of New Common Stock at a price per share less than
the current market price per share on that record date, the Exercise Price
shall be adjusted in accordance with the formula:
( N x P )
-------
O + M
-------------------
W' = W x O + N
where
W' = the adjusted Exercise Price.
W = the then current Exercise Price.
O = the number of shares of New Common Stock outstanding on the
record date.
N = the number of additional shares of New Common Stock offered
or issuable on the exercise of the rights, options or
warrants.
P = the offering price per share of the additional shares
subject to the rights or warrants.
M = the current market price per share of New Common Stock on
the record date.
The adjustment shall be made successively whenever any such
rights, options or warrants are issued and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive the rights, options or warrants.
If at the end of the period during which such warrants or rights
are exercisable, which such period shall not exceed 60 days, not all
warrants or rights shall have been exercised, the Exercise Price shall be
immediately readjusted to what it would have been if "N" in the above
formula had been the number of shares actually issued.
This Section 6.2 does not apply to:
(a) the Warrants issued by the Company pursuant to the
Restructuring, or
(b) options issued pursuant to the Company's Stock Award and
Incentive Plan or any similar plan.
6.3. Adjustment for Other Distributions. If the Company
distributes to all holders of New Common Stock any of its assets (other
than any cash dividends periodically paid to holders of New Common Stock
from profits or retained earnings of the Company, but only to the extent
such distributions are (i) on a per share basis, not in excess of [__]% of
the per share market price of the New Common Stock on the date such
distributions are made and (ii) made pursuant to a policy of quarterly cash
dividends adopted by the Company and publicly announced) or debt securities
or any rights or warrants to purchase assets, debt securities or other
securities of the Company, the Exercise Price shall be adjusted in
accordance with the formula:
M - F
-----
W' = W x M
where:
W' = the adjusted Exercise Price.
W = the then current Exercise Price.
M = the current market price per share of New Common Stock on
the record date mentioned below.
F = the aggregate fair market value (as determined by an
Appraiser chosen in accordance with Section 6.6), on the
record date, of the assets (including cash), securities,
rights or warrants so distributed divided by the number of
outstanding shares of New Common Stock on the record date;
provided, that, in the event that the value of F exceeds the value of M, or
in the event that the value of M exceeds the value of F by less than 10%, in
lieu of the foregoing adjustment, adequate provision shall be made so that
the holders of the Warrants shall receive, upon exercise of the Warrants and
payment of the exercise price therefor, a PRO RATA share of the aggregate
distribution based upon the maximum number of shares of New Common Stock at
the time issuable to such holders (determined without regard to whether the
Warrants are exercisable at such time).
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
distribution.
If at the end of the period during which any such warrants or
rights are exercisable, which such period shall not exceed 90 days, not all
of such warrants or rights shall have been exercised, the Exercise Price
shall be immediately readjusted to what it would have been if "F" in the
above formula had not included the fair market value on the record date of
the expired warrants or rights, but were still divided by the same number
of outstanding shares of New Common Stock.
This Section 6.3 does not apply to distributions of rights,
options or warrants referred to in Section 6.2.
6.4. Adjustment for New Common Stock Issue. If the Company issues
shares of New Common Stock for consideration per share less than the
current market price per share on the date the Company fixes the offering
price of such additional shares, the Exercise Price shall be adjusted in
accordance with the formula:
P
-
O + M
-----
W' = W x A
where:
W' = the adjusted Exercise Price.
W = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such additional shares.
P = the aggregate consideration received for the issuance of
such additional shares.
M = the current market price per share on the date of issuance
of such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such
issuance.
This Section 6.4 does not apply to:
(a) any of the transactions or distributions described in
Sections 6.2, 6.3 or 6.5,
(b) the exercise of the Warrants issued by the Company pursuant
to the Restructuring,
(c) the conversion or exchange of securities convertible or
exchangeable for New Common Stock and the exercise of
rights or warrants issued to the holders of New Common
Stock, in each case only if the issuance of such
securities, rights or warrants were subject to or expressly
exempted from the provisions of this Section 6,
(d) New Common Stock issued to directors, consultants, officers
or employees of the Company and its subsidiaries pursuant
to the Company's Stock Award and Incentive Plan or any
similar plans,
(e) issuances of New Common Stock pursuant to a BONA FIDE
public offering pursuant to a firm commitment underwriting,
or
(f) a transaction (including, without limitation, a
stock-for-stock merger) involving an arms-length purchase
(whether for cash or other consideration) of shares of New
Common Stock by a BONA FIDE third-party purchaser that is
not an Affiliate of the Company.
6.5. Adjustment for Convertible Securities Issue. If the Company
issues any securities convertible into or exchangeable or exercisable for
New Common Stock (other than the securities issued in transactions
described in Sections 6.2 and 6.3) for consideration per share of New
Common Stock initially deliverable upon conversion, exchange or exercise of
such securities less than the current market price per share on the date of
issuance of such securities, the Exercise Price shall be adjusted in
accordance with the formula:
P
-
O + M
-----
W' = W x O + D
where:
W' = the adjusted Exercise Price.
W = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such securities which are convertible into or
exchangeable or exercisable for New Common Stock.
P = the aggregate consideration received for the issuance of
such securities.
M = the current market price per share of New Common Stock on
the date of issuance of such securities.
D = the maximum number of shares deliverable upon conversion,
exchange or exercise of such securities at the initial
conversion, exchange or exercise rate.
The adjustment shall be made successively whenever any such
issuance is made, and shall become effective immediately after such issuance.
If all of the New Common Stock deliverable upon conversion,
exchange or exercise of such securities has not been issued when such
securities are no longer outstanding, then the Exercise Price shall
immediately be readjusted to the Exercise Price which would then be in effect
had the adjustment upon the issuance of such securities been made on the
basis of the actual number of shares of New Common Stock issued upon
conversion, exchange or exercise of such securities.
This Section 6.5 does not apply to:
(1) any of the transactions or distributions described in
Sections 6.2 and 6.3;
(2) issuances of securities convertible into or exchangeable
or exercisable for New Common Stock pursuant to a BONA
FIDE public offering pursuant to a firm commitment
underwriting;
(3) options to purchase shares of New Common Stock issued to
directors, consultants, officers or employees of the
Company and its subsidiaries pursuant to the Company's
Stock Award and Incentive Plan or any similar plans; or
(4) a transaction (including, without limitation, a
stock-for-stock merger) involving an arms-length purchase
(whether for cash or other consideration) of securities
convertible into or exchangeable or exerciseable for
shares of New Common Stock by a BONA FIDE third-party
purchaser that is not an Affiliate of the Company.
6.6. Market Price. The "current market price" per share of New
Common Stock on any date is the average of the Quoted Prices of the New
Common Stock for 15 consecutive trading days commencing 16 days before the
date in question. The "Quoted Price" of the New Common Stock is the last
reported sales price of the New Common Stock as reported by the New York
Stock Exchange, Inc., or if the New Common Stock is listed on another
national securities exchange, the last reported sales price of the New
Common Stock on such exchange which shall be for consolidated trading if
applicable to such exchange, or if neither so reported or listed, the last
reported bid price of the New Common Stock. In the absence of one or more
such quotations, the current market price shall be determined by mutual
agreement of the Company and the holders of a majority of the Warrants or,
in the absence of such mutual agreement, shall be determined in good faith
by a nationally recognized investment banking firm that is a member firm of
the NASD and independent of the Company and chosen in accordance with the
following sentence (an "Appraiser"). The Appraiser shall be chosen by
mutual agreement of the holders of a majority of the Warrants and the
Company; PROVIDED, that if there shall be a disagreement as to the
selection of any Appraiser, then each of the Company and the holders of a
majority of the Warrants shall choose one investment banking firm
satisfying the foregoing criteria and those two firms then shall agree upon
a third such investment banking firm who shall act as the Appraiser. If
applicable, in connection with the sale of units consisting of New Common
Stock and other securities, such investment bank shall take into
consideration the value of each component of such unit. If there shall be
more than one class of New Common Stock outstanding, the "current market
price" per share of New Common Stock shall be the highest of the "current
market prices" per share of such classes of New Common Stock.
6.7. Consideration Received. For purposes of any computation with
respect to consideration received pursuant to Sections 6.4 and 6.5, the
following shall apply:
(a) in the case of the issuance of shares of New Common Stock
for cash, the consideration shall be the amount of such
cash (provided that in no case shall any deduction be made
for any commissions, discounts or other expenses incurred
by the Company for any underwriting of the issue or
otherwise in connection therewith) plus, where the issuance
is pursuant to the exercise of an option, warrant or right,
all cash amounts paid to the Company for such option,
warrant or right at its issue, including without
limitation, any amount allocable to such option, warrant,
or right if issued together with other securities in a unit;
(b) in the case of the issuance of shares of New Common Stock
for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the
fair market value thereof as determined by an Appraiser,
whose determination shall be given to the holders of the
Warrants; and
(c) in the case of the issuance of securities convertible into
or exchangeable for shares of New Common Stock, the
aggregate consideration received therefor shall be deemed
to be the consideration received by the Company for the
issuance of such securities plus the additional minimum
consideration, if any, to be received by the Company upon
the conversion or exchange thereof (the consideration in
each case to be determined in the same manner as provided
in clauses (a) and (b) of this Section 6.7).
6.8. When Adjustment May Be Deferred. If the amount of any
adjustment of the Exercise Price required pursuant to this Section 6 would
be less than one percent (1%) of the Exercise Price in effect at the time
such adjustment is otherwise so required to be made, such amount shall be
carried forward and adjustment with respect thereto made at the time of and
together with any subsequent adjustment which, together with such amount
and any other amount or amounts so carried forward, shall aggregate at
least one percent (1%) of such Exercise Price. All calculations under this
Section 6 shall be made to the nearest cent or to the nearest share, as the
case may be.
6.9. When No Adjustment Required. No adjustment need be made for
(a) rights to purchase New Common Stock pursuant to a Company plan for
reinvestment of dividends, the Company's Stock Award and Incentive Plan any
similar plans, and (b) a change in the par value or no par value of Common
Stock; PROVIDED, that the Company shall not increase the par value to
exceed the Exercise Price. To the extent the Warrants become exercisable
into cash, no adjustment need be made thereafter as to the cash. Interest
will not accrue on the cash.
6.10. Notice of Adjustment. Whenever an event occurs which
requires an adjustment to the Exercise Price or number of shares of Warrant
Shares, the Company shall promptly mail (first class) to the holders of the
Warrants a notice of such event and the computation of the adjustment. The
Company shall provide the holders of the Warrants with a certificate from
the Company's chief financial officer briefly stating the facts requiring
the adjustment and the manner of computing it.
6.11. Voluntary Reduction. The Company from time to time may
reduce the Exercise Price by any amount for any period of time if the
period is at least 20 days and if the reduction is irrevocable during the
period. A reduction of the Exercise Price pursuant to this Section 6.11
does not change or adjust the Exercise Price otherwise in effect for
purposes of Sections 6.1, 6.2, 6.3, 6.4 or 6.5. The Company in its
discretion may make such reductions in the Exercise Price in addition to
those required by this Section 6 as it considers to be advisable in order
that any event treated for federal income tax purposes as a dividend of
stock or stock rights shall not be taxable to the recipients.
6.12. Notice of Certain Transactions. If the Company takes any
action that would require an adjustment pursuant to Sections 6.1, 6.2, 6.3,
6.4 or 6.5, the Company shall mail (first class) to the holders of the
Warrants a notice stating the proposed record date for a dividend or
distribution or the proposed effective date of a subdivision, combination,
reclassification, consolidation, merger, transfer, lease, liquidation or
dissolution or any other transaction or event requiring an adjustment in
the Exercise Price. The Company shall mail the notice at least 15 days
before such date; PROVIDED, HOWEVER, that in no event must the Company give
the holders of the Warrants notice prior to the public announcement of the
event requiring such adjustment. Failure to mail the notice or any defect
in it shall not affect the validity of the transaction.
6.13. Preservation of Purchase Rights Upon Reclassification,
Consolidation, etc. If the Company consolidates or merges with or into, or
transfers or leases all or substantially all its assets to, any person,
upon consummation of such transaction, the Warrants shall automatically
become exercisable for the kind and amount of securities, cash or other
assets that the holder of a Warrant would have owned immediately after the
consolidation, merger or transfer or lease if the holder had exercised the
Warrant immediately before the effective date of the transaction. Without
limiting the foregoing, to the extent that the holders of New Common Stock
are allowed to make an election in connection with any such transaction in
order to select the form of consideration into which their shares of New
Common Stock would be converted, upon the exercise by any holder of
Warrants of any of such holder's Warrants, such holder shall be entitled to
make a similar election. Concurrently with the consummation of such
transaction, the corporation formed by or surviving any such consolidation
or merger if other than the Company, or the person to which such sale or
conveyance shall have been made, shall enter into a supplemental Warrant
Agreement so providing and further providing for adjustments which shall be
as nearly equivalent as may be practical to the adjustments provided for in
this Section. The successor Company shall mail to Warrant holders a notice
describing the supplemental Warrant Agreement.
If the issuer of securities deliverable upon exercise of Warrants
under the supplemental Warrant Agreement is an affiliate of the formed,
surviving, transferee or lessee corporation, that issuer shall join in the
supplemental Warrant Agreement.
If this Section 6.13 applies to any transaction, Sections 6.1,
6.2, 6.3, 6.4 and 6.5 shall not apply to such transaction. The provisions
of this Section 6.13 shall similarly apply to successive consolidations,
mergers, sales or conveyances.
6.14. Adjustment to the Number of Shares Purchasable Upon
Exercise of Warrants; Exercise Price Not Less than Par Value. Upon each
adjustment of the Exercise Price pursuant to this Section 6, each Warrant
shall thereupon evidence the right to purchase that number of shares of New
Common Stock (calculated to the nearest hundredth of a share) obtained by
multiplying the number of shares of New Common Stock purchasable
immediately prior to such adjustment upon exercise of the Warrant by the
Exercise Price in effect immediately prior to such adjustment and dividing
the product so obtained by the Exercise Price in effect immediately after
such adjustment. The adjustment pursuant to this Section 6.14 to the number
of shares of New Common Stock purchasable upon exercise of a Warrant shall
be made each time an adjustment of the Exercise Price is made pursuant to
this Section 6 (or would be made but for the proviso in Section 6.3). In no
event shall the Exercise Price be adjusted below the par value per share of
the New Common Stock; PROVIDED, HOWEVER, that in the event such adjustment
would have been made but for this sentence, the number of shares issuable
upon exercise of a Warrant shall be adjusted in accordance with the
remainder of this Section 6.14 as though such adjustment in the Exercise
Price had been made.
6.15. Other Dilutive Events. In case any event shall occur as to
which the provisions of this Section 6 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by the Warrants in accordance with the essential intent and
principles of such sections, then, in each such case, the Company shall
make a good faith adjustment to the Exercise Price and number of shares of
Warrant Shares into which each Warrant is exercisable in accordance with
the intent of this Section 6.
6.16. Company Determination Final. Absent manifest error, any
determination that the Company or the Board of Directors of the Company
must make in good faith pursuant to Sections 6.3, 6.6 or 6.8, shall be
conclusive, if reasonable.
6.17. Form of Warrants. The Company may, at its option, issue new
warrant certificates evidencing Warrants in such form as may be approved by
its Board of Directors to reflect any adjustment or change in the Exercise
Price per Warrant Shares and the number or kind or class of shares or other
securities or property purchasable under the Warrant Certificates made in
accordance with the provisions of this Agreement.
7. NOTICES TO HOLDERS.
------------------
7.1. Notice of Adjustments. Whenever the number of shares of New
Common Stock for which a Warrant is exercisable, or whenever the price at
which a share of such New Common Stock may be purchased upon exercise of
the Warrants, shall be adjusted pursuant to Section 6, the Company shall
forthwith prepare a certificate to be executed by the chief financial
officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was
calculated, specifying the number of shares of New Common Stock for which a
Warrant is exercisable and describing the number and kind of any other
shares of stock or Other Property for which a Warrant is exercisable, and
any change in the purchase price or prices thereof, after giving effect to
such adjustment or change. The Company shall promptly cause a signed copy
of such certificate to be delivered to each Holder in accordance with
Section 14.1.
7.2. Notice of Corporate Action.
In case:
(a) of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or of
the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of New
Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from no par value, or as a result of a subdivision or
combination); or
(b) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then, the Company shall cause to be given to each of the Holders at his or
her address appearing on the Warrant register, at least 10 days prior to the
applicable record date hereinafter specified, or promptly in the case of
events for which there is no record date, in accordance with Section 14.1, a
written notice stating the date on which any such consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up is expected to
become effective or consummated, and the date as of which it is expected that
holders of record of shares of New Common Stock shall be entitled to exchange
such shares for securities or other property, if any, deliverable upon,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up. The failure to give the notice required by this
Section 7.2 or any defect therein shall not affect the legality or validity
of any consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up, or the vote upon any action.
8. COVENANTS.
---------
The Company will (1) not increase the par value of any shares of
New Common Stock receivable upon the exercise of a Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in
par value and (2) take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of New Common Stock upon the exercise of any Warrant.
9. RESERVATION AND AUTHORIZATION OF NEW COMMON STOCK: PAR VALUE.
------------------------------------------------------------
From and after the Restructuring Date, the Company shall at all
times reserve and keep available for issue upon the exercise of Warrants
such number of its authorized but unissued shares of New Common Stock as
will be sufficient to permit the exercise in full of all outstanding
Warrants. All shares of New Common Stock which shall be so issuable, when
issued upon exercise of any Warrant and payment therefor in accordance with
the terms of this Warrant Agreement and such Warrant, shall be duly and
validly issued and fully paid and nonassessable, and not subject to
preemptive rights.
Before taking any action which would cause an adjustment reducing
the Exercise Price below the then par value, if any, of the shares of New
Common Stock issuable upon exercise of the Warrants, the Company shall take
any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of such
Common Stock at such adjusted Exercise Price.
10. STOCK AND WARRANT TRANSFER BOOKS
--------------------------------
The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
11. LOSS OR MUTILATION.
------------------
Upon receipt by the Company and the Warrant Agent from any Holder
of evidence reasonably satisfactory to them of the ownership of and the
loss, theft, destruction or mutilation of such Holder's Warrant and
indemnity reasonably satisfactory to them, and in case of mutilation upon
surrender and cancellation thereof, the Company will execute and the
Warrant Agent will countersign and deliver in lieu thereof a new Warrant of
like tenor to such Holder.
12. OFFICE OF COMPANY.
-----------------
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive
offices of the Company) where the Warrants may be presented for exercise,
registration of transfer, division or combination as provided in this
Warrant Agreement. The Company shall initially maintain such an agency at
the Warrant Agent's Principal Offices.
13. WARRANT AGENT.
-------------
13.1. Merger or Consolidation or Change of Name of Warrant Agent.
Any corporation into which the Warrant Agent may be merged or with which it
may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant
Agent, shall be the successor to the Warrant Agent hereunder without the
execution or filing of any paper or any further act on the part of any of
the parties hereto; PROVIDED that such corporation must be eligible for
appointment as a successor Warrant Agent under the provisions of Section
13.3 hereof. If at the time such successor to the Warrant Agent shall
succeed to the agency created by this Warrant Agreement any of the Warrants
shall have been countersigned but not delivered, any such successor to the
Warrant Agent may adopt the countersignature of the predecessor Warrant
Agent and deliver such Warrants so countersigned; and if at that time any
of the Warrants shall not have been countersigned, any successor to the
Warrant Agent may countersign such Warrants either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant Agent;
and in all such cases the Warrants shall have the full force provided in
the Warrants and in this Warrant Agreement. If at any time the name of the
Warrant Agent shall be changed and at such time Warrants shall have been
countersigned but not delivered, the Warrant Agent may adopt the
countersignatures under its prior name and deliver such Warrants so
countersigned; and if at that time any of the Warrants shall not have been
countersigned, the Warrant Agent may countersign such Warrants either in
its prior name or in its changed name; and in all such cases such Warrants
shall have the full force provided in the Warrants and in this Warrant
Agreement.
13.2. Certain Terms and Conditions Concerning the Warrant Agent.
The Warrant Agent undertakes the duties and obligations imposed by this
Warrant Agreement upon the following terms and conditions, by all of which
the Company and the Holders, by their acceptance of the Warrants, shall be
bound:
(a) Correctness of Statements. The statements contained herein
and in the Warrants shall be taken as statements of the Company and the
Warrant Agent assumes no responsibility for the correctness of any of the
same except such as describe the Warrant Agent or action taken by it. The
Warrant Agent assumes no responsibility with respect to the distribution of
the Warrants except as herein otherwise provided.
(b) Breach of Covenants. The Warrant Agent shall not be
responsible for any failure of the Company to comply with any of the
covenants contained in this Warrant Agreement or in the Warrants to be
complied with specifically by the Company.
(c) Performance of Duties. The Warrant Agent may execute and
exercise any of the rights or powers hereby vested in it or perform any
duty hereunder either itself or by or through its attorneys or agents
(which shall not include its employees) and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) Reliance on Counsel. The Warrant Agent may consult at any
time with legal counsel satisfactory to it (who may be counsel for the
Company) and the Warrant Agent shall incur no liability or responsibility
to the Company or to any Holder in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with the opinion or
the advice of such counsel provided that such counsel shall have been
selected with due care.
(e) Proof of Actions Taken. Whenever in the performance of its
duties under this Warrant Agreement the Warrant Agent shall deem it
necessary or desirable that any fact or matter be proved or established by
the Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed conclusively to be proved and established by a
certificate signed by the President, a Vice President, the Secretary or an
Assistant Secretary of the Company and delivered to the Warrant Agent; and
such certificate shall be full authorization to the Warrant Agent for any
action taken or suffered in good faith by it under the provisions of this
Warrant Agreement in reliance upon such certificate.
(f) Compensation. The Company agrees to pay the Warrant Agent
compensation as set forth in the fee schedule attached hereto as Exhibit B
for all services rendered by the Warrant Agent in the performance of its
duties under this Warrant Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature incurred by the Warrant Agent in the performance of its duties under
this Warrant Agreement, and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments, costs and
counsel fees, for anything done or omitted by the Warrant Agent in the
performance of its duties under this Warrant Agreement except as a result
of the Warrant Agent's gross negligence, willful misconduct, unlawful
conduct or bad faith.
(g) Legal Proceedings. The Warrant Agent shall be under no
obligation to institute any action, suit or legal proceeding or to take any
other action likely to involve expense unless the Company or one or more
Holders shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses that may be incurred, but this
provision shall not affect the power of the Warrant Agent to take such
action as the Warrant Agent may consider proper, whether with or without
any such security or indemnity. All rights of action under this Warrant
Agreement or under any of the Warrants may be enforced by the Warrant Agent
without the possession of any of the Warrants or the production thereof at
any trial or other proceeding relative thereto, and any such action, suit
or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable
benefit of the Holders, as their respective rights or interests may appear.
(h) Other Transactions in Securities of the Company. The Warrant
Agent and any stockholder, director, officer or employee of the Warrant
Agent may buy, sell or deal in any of the Warrants or other securities of
the Company or become pecuniarily interested in any transaction in which
the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Warrant
Agent under this Warrant Agreement. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.
(i) Liability of Warrant Agent. The Warrant Agent shall act
hereunder solely as agent, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything that
it may do or refrain from doing in connection with this Warrant Agreement
except for its own gross negligence, willful misconduct, unlawful conduct
or bad faith.
(j) Reliance on Documents. The Warrant Agent will not incur any
liability or responsibility to the Company or to any Holder for any action
taken in reliance on any notice, resolution, waiver, consent, order,
certificate, or other paper, document or instrument reasonably believed by
it to be genuine and to have been signed, sent or presented by the proper
party or parties.
(k) Validity of Agreements. The Warrant Agent shall not be under
any responsibility in respect of the validity of this Warrant Agreement or
the execution and delivery hereof (except the due execution and delivery
hereof by the Warrant Agent) or in respect of the validity or execution of
any Warrant (except its countersignature and delivery thereof); nor shall
the Warrant Agent by any act hereunder be deemed to make any representation
or warranty as to the authorization or reservation of any Warrant Shares
(or other shares) to be issued pursuant to this Warrant Agreement or any
Warrant, or as to whether any Warrant Shares (or other shares) will, when
issued, be validly issued, fully paid and nonassessable, or as to the
Warrant Price or the number or amount of Warrant Shares or other securities
or other property issued upon exercise of any Warrant.
(l) Instructions from Company. The Warrant Agent is hereby
authorized and directed to accept instructions with respect to the
performance of its duties hereunder from the President, a Vice President,
the Secretary or any Assistant Secretary of the Company, and to apply to
such officers for advice or instructions in connection with its duties, and
shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officer or officers.
13.3. Change of Warrant Agent. The Warrant Agent may resign and
be discharged from its duties under this Warrant Agreement by giving to the
Company 30 days advance notice in writing. The Warrant Agent may be removed
by like notice to the Warrant Agent from the Company. If the Warrant Agent
shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor to the Warrant Agent. If the Company
shall fail to make such appointment within a period of 30 days after such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Warrant Agent, then any Holder
may apply to the Court for the appointment of a successor to the Warrant
Agent. Pending the appointment of the successor warrant agent, the Company
shall perform the duties of the Warrant Agent. Any successor warrant agent,
whether appointed by the Company or the Court, shall be a bank or trust
company, in good standing, incorporated under the laws of the United States
of America or any state thereof and having at the time of its appointment
as warrant agent a combined capital and surplus of at least $50,000,000.
After appointment, the successor warrant agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been
originally named as Warrant Agent without further act or deed; but the
former Warrant Agent shall deliver and transfer to the successor warrant
agent any property at the time held by it hereunder, and execute and
deliver any further assurance, conveyance, act or deed necessary for the
purpose. Failure to file any notice provided for in this Section 13.3,
however, or any defect therein, shall not affect the legality or validity
of the resignation or removal of the Warrant Agent or the appointment of
the successor warrant agent, as the case may be. In the event of such
resignation or removal, the successor warrant agent shall mail, first
class, to each Holder, written notice of such removal or resignation and
the name and address of such successor warrant agent.
13.4. Disposition of Proceeds on Exercise of Warrants, Inspection
of Warrant Agreement. The Warrant Agent shall account promptly to the
Company with respect to Warrants exercised and concurrently pay to the
Company all immediately available funds received by the Warrant Agent for
the purchase of the Warrant Shares through the exercise of such Warrants.
The Warrant Agent shall, upon request of the Company from time to time,
deliver to the Company such complete reports of registered ownership of the
Warrants and such complete records or transactions with respect to the
Warrants and the shares of New Common Stock as the Company may request. The
Warrant Agent shall also make available to the Company for inspection by
the Company's agents or employees, from time to time as the Company may
request, such original books of accounts and records maintained by the
Warrant Agent in connection with the issuance and exercise of Warrants
hereunder, such inspections to occur at the Warrant Agent's Principal
Office. The Warrant Agent shall keep copies of this Warrant Agreement and
any notices given or received hereunder available for inspection by the
Company or the Holders at the Warrant Agent's Principal Office. The Company
shall supply the Warrant Agent from time to time with such numbers of
copies of this Warrant Agreement as the Warrant Agent may request.
14. MISCELLANEOUS.
-------------
14.1. Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant Agreement shall be sufficiently
given or made if in writing and either delivered in person with receipt
acknowledged or sent by registered or certified mail, return receipt
requested, postage prepaid or by telecopy and confirmed by telecopy
answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Shares, at its last
known address appearing on the warrant register of the Company
maintained for such purpose.
(b) If to the Company, at:
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
Attention: Todd Kahn, Esq.
Telecopy Number: (212) 354-3614
(c) If to the Warrant Agent, at:
[Insert]
Attention:
--------------------
Telecopy Number:
--------------
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration, delivery or other communication
hereunder shall be deemed to have been duly given or served on the date on
which personally delivered, with receipt acknowledged, telecopied and
confirmed by telecopy answerback or three Business Days after the same shall
have been deposited in the United States mail, certified with return receipt
requested, whichever is earlier. Failure or delay in delivering copies of
any notice, demand, request, approval, declaration, delivery or other
communication to the Person designated above to receive a copy shall in no
way adversely affect the effectiveness of such notice, demand, request,
approval, declaration, delivery or other communication.
14.2. Successors and Assigns. All covenants and provisions of
this Warrant Agreement by or for the benefit of the Company or the Warrant
Agent shall bind and inure to the benefit of their respective successors
and assigns hereunder.
14.3. Amendment. This Warrant Agreement and the Warrants may only
be modified or amended or the provisions hereof and thereof waived with the
written consent of the Company, holders of 66-2/3% of the then issued and
outstanding New Common Stock, the Warrant Agent and the Majority Holders;
PROVIDED, that no Warrant may be modified or amended to reduce the number
of shares of New Common Stock for which such Warrant is exercisable or to
increase the price at which such shares may be purchased upon exercise of
such Warrant (other than giving effect to any adjustment as provided herein
and therein) without the prior written consent of the Holder thereof.
14.4. Third-Party Beneficiaries. All covenants and provisions of
this Warrant Agreement shall inure to the benefit of each holder from time
to time of New Common Stock.
14.5. Severability. Wherever possible, each provision of this
Warrant Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Warrant
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Warrant Agreement.
14.6. Headings. The headings used in this Warrant Agreement are
for the convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant Agreement.
14.7. Governing Law. This Warrant Agreement and the Warrants
shall be governed by the laws of the State of New York, without regard to
the provisions thereof relating to conflict of laws.
14.8. Counterparts. This Warrant Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the Company and the Warrant Agent has
caused this Warrant Agreement to be duly executed by its duly authorized
officers as of the date first above written.
SALANT CORPORATION
By:_________________________________
Name:
Title:
_______________________, as
Warrant Agent
By:_________________________________
Name:
Title:
205531.05
EXHIBIT A
---------
[FORM OF FACE OF WARRANT CERTIFICATE]
WARRANT TO PURCHASE NEW COMMON STOCK
OF SALANT CORPORATION
- --------------------------------------------------------------------------------
Warrant Certificate No.: Number of Warrants:
CUSIP No.
- --------------------------------------------------------------------------------
See Reverse for Certain Definitions
Exercisable from and after __________ __, __________ until 5:00
p.m., New York City time on __________ __, 2005.
This Warrant Certificate certifies that [ ] or registered
assigns, is the registered holder of the number of Warrants set forth above
expiring at 5:00 p.m., New York City time, on __________ __, __________ or,
if such date is not a business day, the next succeeding business day (the
"Warrants") to purchase Common Stock, par value $1.00 per share (the "New
Common Stock"), of Salant Corporation, a Delaware corporation (the
"Company"). The New Common Stock issuable upon exercise of Warrants is
hereinafter referred to as the "Warrant Shares." Subject to the immediately
succeeding paragraph, each Warrant entitles the holder upon exercise to
purchase from the Company on or before 5:00 p.m., New York City time, on
__________ __, 2005 or, if such date is not a business day, the next
succeeding business day, one share of New Common Stock, at the purchase
price of $6.2648 per share, each subject to adjustment as set forth herein
and in the Warrant Agreement dated as of _________, 1998 (the "Warrant
Agreement") by and between the Company and __________, a ___________
corporation, as warrant agent (the "Warrant Agent") in whole or in part on
and subject to the terms and conditions set forth herein and in the Warrant
Agreement. Such purchase shall be payable in lawful money of the United
States of America by certified or official bank check or any combination
thereof to the order of the Warrant Agent for the account of the Company at
the principal office of the Warrant Agent, but only subject to the
conditions set forth herein and in the Warrant Agreement. The number of
shares of New Common Stock for which each Warrant is exercisable, and the
price at which such shares may be purchased upon exercise of each Warrant,
are subject to adjustment upon the occurrence of certain events as set
forth in the Warrant Agreement. Whenever the number of shares of New Common
Stock for which a Warrant is exercisable, or the price at which a share of
such New Common Stock may be purchased upon exercise of the Warrants, is
adjusted pursuant to the Warrant Agreement, the Company shall cause to be
given to each of the registered holders of the Warrants at such holders'
addresses appearing on the warrant register written notice of such
adjustment by first class mail postage pre-paid.
No Warrant may be exercised before __________ p.m., New York City
time, on __________ __, 1998 or after 5:00 p.m., New York City time, on
__________ __, 2005 or, if such date is not a business day, the next
succeeding business day, and to the extent not exercised by such time such
Warrants shall become void.
Reference is hereby made to the further provisions of this
Warrant Certificate set forth on the reverse side hereof and such further
provisions shall for all purposes have the same effect as though fully set
forth at this place.
This Warrant Certificate shall not be valid unless countersigned
by the Warrant Agent.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO THE PROVISIONS THEREOF RELATING TO
CONFLICT OF LAWS.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be signed by its President and has caused its corporate seal
to be affixed hereunto or imprinted hereon.
Dated:
(Seal)
Attest: SALANT CORPORATION
___________________________________ By:___________________________________
Name:
Name:______________________________ Title:
Title: Secretary
COUNTERSIGNED:
_____________________, as Warrant Agent
By:____________________________________
Name:
Title:
[Authorized Signature]
205531.05
[FORM OF REVERSE OF WARRANT CERTIFICATE]
The Warrants evidenced by this Warrant Certificate are part of a
duly authorized issue of up to 2,216,979 Warrants expiring at 5:00 p.m.,
New York City time, on __________ __, 2005 or, if such date is not a
business day, the next succeeding business day, entitling the holder on
exercise to purchase shares of New Common Stock, par value $1.00 per share,
of the Company, and are issued or to be issued pursuant to the Warrant
Agreement, which Warrant Agreement is hereby incorporated by reference in
and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Warrant Agent, the Company and the Holders
(the words "Holders" or "Holder" meaning the registered holders or
registered holder of the Warrants). A copy of the Warrant Agreement may be
obtained by the Holder hereof upon written request to the Company.
Warrants may be exercised at any time on and after _____ p.m.,
New York City time, on __________ __, 1998 and on or before 5:00 p.m., New
York City time, on __________ __, 2005 or, if such date is not a business
day, the next succeeding business day. The Holder of Warrants evidenced by
this Warrant Certificate may exercise them by surrendering this Warrant
Certificate, with the form of election to purchase set forth hereon
properly completed and executed, together with payment of the purchase
price by certified or official bank check or wire transfer or any
combination thereof to the order of the Warrant Agent for the account of
the Company and the other required documentation. In the event that upon
any exercise of Warrants evidenced hereby the number of Warrants exercised
shall be less than the total number of Warrants evidenced hereby, there
shall be issued to the Holder hereof or his assignee a new Warrant
Certificate evidencing the number of Warrants not exercised.
The Warrant Agreement provides that the number of shares of New
Common Stock for which each Warrant is exercisable, and the price at which
such shares may be purchased upon exercise of each Warrant, are subject to
adjustment upon the occurrence of certain events as set forth in the
Warrant Agreement. The Company shall not be required to issue any
fractional share of Common Stock upon the exercise of any Warrant, but the
Company shall round up or down to the nearest share of New Common Stock as
provided in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the
Warrant Agent by the registered Holder thereof in person or by such
Holder's legal representative or attorney duly authorized in writing, may
be exchanged, in the manner and subject to the limitations provided in the
Warrant Agreement, but without payment of any service charge, for another
Warrant Certificate or Warrant Certificates of like tenor evidencing in the
aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this
Warrant Certificate at the office of the Warrant Agent a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee in
exchange for this Warrant Certificate, subject to the limitations provided
in the Warrant Agreement without charge except for any tax imposed in
connection therewith.
[ELECTION TO PURCHASE FORM]
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of __________ Shares of New Common
Stock of SALANT CORPORATION and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and the
Warrant Agreement and requests that certificates for the shares of New
Common Stock hereby purchased (and any securities or other property
issuable upon such exercise) be issued in the name of and delivered to
____________________ whose address is ____________________ and, if such
shares of New Common Stock shall not include all of the shares of New
Common Stock issuable as provided in this Warrant, that a new Warrant of
like tenor and date for the balance of the shares of New Common Stock
issuable hereunder be delivered to the undersigned.
______________________________________
(Name of Registered Owner)
______________________________________
(Signature of Registered Owner)
______________________________________
(Street Address)
______________________________________
(City) (State) (Zip Code)
NOTICE: The signature on this election to purchase must correspond with
the name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
[ASSIGNMENT FORM]
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below
all of the rights of the undersigned under this Warrant, with respect to
the number of shares of New Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
- ---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ____________________
attorney-in-fact to register such transfer on the books of SALANT CORPORATION
maintained for the purpose, with full power of substitution in the premises.
Dated:______________________________ Print Name:_____________________________
Signature:______________________________
Witness:________________________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
EXHIBIT B
--------------------------------------------,
as Warrant Agent
Schedule of Fees
----------------
[To be inserted]
<PAGE>
Annex III to Proxy Statement/Prospectus
FORM OF
SALANT CORPORATION
1998 STOCK AWARD AND INCENTIVE PLAN
1. Purpose.
--------
The purpose of this Plan is to strengthen Salant Corporation, a
Delaware corporation (the "Company"), by providing an incentive to its
employees, officers and directors and thereby encouraging them to devote
their abilities and industry to the success of the Company's business
enterprise. It is intended that this purpose be achieved by extending to
employees, officers and directors of the Company and its Subsidiaries an
added long-term incentive for high levels of performance and unusual efforts
through the grant of Incentive Stock Options, Nonqualified Stock Options,
Stock Appreciation Rights, Dividend Equivalent Rights, Performance Awards and
Restricted Stock (as each term is herein defined).
2. Definitions.
------------
For purposes of the Plan:
2.1 "Adjusted Fair Market Value" means, in the event of a
Change in Control, the greater of (i) the highest price per Share paid to
holders of the Shares in any transaction (or series of transactions)
constituting or resulting in a Change in Control or (ii) the highest Fair
Market Value of a Share during the ninety (90) day period ending on the date
of a Change in Control.
2.2 "Affiliate" means any entity, directly or indirectly,
controlled by, controlling or under common control with the Company or any
corporation or other entity acquiring, directly or indirectly, all or
substantially all the assets and business of the Company, whether by
operation of law or otherwise.
2.3 "Agreement" means the written agreement between the Company
and an Optionee or Grantee evidencing the grant of an Option or Award and
setting forth the terms and conditions thereof.
2.4 "Award" means a grant of Restricted Stock, a Stock
Appreciation Right, a Performance Award, a Dividend Equivalent Right or any
or all of them.
2.5 "Board" means the Board of Directors of the Company.
2.6 "Cause" means, unless otherwise provided in an
Agreement:
(a) in the case of an Optionee or Grantee whose
employment with the Company or a Subsidiary is subject to the terms of an
employment agreement between such Optionee or Grantee and the Company or
Subsidiary, which employment agreement includes a definition of "Cause", the
term "Cause" as used in this Plan or any Agreement shall have the meaning set
forth in such employment agreement during the period that such employment
agreement remains in effect;
(b) subject to (a) above, for purposes of Section 6.4,
the commission of an act of fraud or intentional misrepresentation or an act
of embezzlement, misappropriation or conversion of assets or opportunities of
the Company or any of its Subsidiaries; and
(c) in all other cases, (i) intentional failure to
perform reasonably assigned duties, (ii) dishonesty or willful misconduct in
the performance of duties, (iii) involvement in a transaction in connection
with the performance of duties to the Company or any of its Subsidiaries
which transaction is adverse to the interests of the Company or any of its
Subsidiaries and which is engaged in for personal profit or (iv) willful
violation of any law, rule or regulation in connection with the performance
of duties (other than traffic violations or similar offenses).
2.7 "Change in Capitalization" means any increase or reduction
in the number of Shares, or any change (including, but not limited to, in the
case of a spin-off, dividend or other distribution in respect of Shares, a
change in value) in the Shares or exchange of Shares for a different number
or kind of shares or other securities of the Company or another corporation,
by reason of a reclassification, recapitalization, merger, consolidation,
reorganization, spin-off, split-up, issuance of warrants or rights or
debentures, stock dividend, stock split or reverse stock split, cash
dividend, property dividend, combination or exchange of shares, repurchase of
shares, change in corporate structure or otherwise.
2.8 A "Change in Control" shall mean the occurrence during the
term of the Plan of:
(a) An acquisition (other than directly from the Company
or pursuant to the Restructuring) of any voting securities of the Company
(the "Voting Securities") by any "Person" (as such term is used for purposes
of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of fifty percent (50%) or more of the then outstanding Shares or the
combined voting power of the Company's then outstanding Voting Securities;
PROVIDED, HOWEVER, in determining whether a Change in Control has occurred,
Shares or Voting Securities which are acquired in a "Non-Control Acquisition"
(as hereinafter defined) shall not constitute an acquisition which would
cause a Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (i) Magten Asset Management Corp., in its capacity as the
beneficial owner, or the investment manager on behalf of the beneficial
owners, of the issued and outstanding Shares from and after the consummation
of the Restructuring ("Magten"), (ii) an employee benefit plan (or a trust
forming a part thereof) maintained by (A) the Company or (B) any corporation
or other Person of which a majority of its voting power or its voting equity
securities or equity interest is owned, directly or indirectly, by the
Company (for purposes of this definition, a "Subsidiary"), (iii) the Company
or its Subsidiaries, or (iv) any Person in connection with a "Non-Control
Transaction" (as hereinafter defined);
(b) The individuals who, as of the Effective Date are
members of the Board (the "Incumbent Board"), cease for any reason to
constitute at least two-thirds of the members of the Board; PROVIDED,
HOWEVER, that if the election, or nomination for election by the Company's
common stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of
this Plan, be considered as a member of the Incumbent Board; PROVIDED
FURTHER, HOWEVER, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule
14a-11 promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization with
or into the Company or in which securities of the Company
are issued, unless such merger, consolidation or
reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger,
consolidation or reorganization with or into the Company or
in which securities of the Company are issued where:
(A) the stockholders of the Company,
immediately before such merger, consolidation or
reorganization, own directly or indirectly
immediately following such merger, consolidation or
reorganization, at least fifty percent (50%) of the
combined voting power of the outstanding voting
securities of the corporation resulting from such
merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same
proportion as their ownership of the Voting
Securities immediately before such merger,
consolidation or reorganization,
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger,
consolidation or reorganization constitute at least
two-thirds of the members of the board of directors
of the Surviving Corporation, or a corporation
beneficially directly or indirectly owning a majority
of the Voting Securities of the Surviving
Corporation, and
(C) no Person other than (i) Magten, (ii) the
Company, (iii) any Subsidiary, (iv) any employee
benefit plan (or any trust forming a part thereof)
that, immediately prior to such merger, consolidation
or reorganization, was maintained by the Company or
any Subsidiary, or (v) any Person who, immediately
prior to such merger, consolidation or reorganization
had Beneficial Ownership of fifty percent (50%) or
more of the then outstanding Voting Securities or
Shares, has Beneficial Ownership of fifty percent
(50%) or more of the combined voting power of the
Surviving Corporation's then outstanding voting
securities or its common stock, other than as a
result of the consummation of the transactions
contemplated under the Restructuring.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) The sale or other disposition of all or
substantially all of the assets of the Company to any
Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then
outstanding Shares or Voting Securities as a result of the acquisition of
Shares or Voting Securities by the Company which, by reducing the number of
Shares or Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Persons, provided that if
a Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Shares or Voting Securities by the Company, and
after such share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Shares or Voting Securities which
increases the percentage of the then outstanding Shares or Voting Securities
Beneficially Owned by the Subject Person, then a Change in Control shall
occur.
2.9 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.10 "Committee" means a committee, as described in Section 3.1,
appointed by the Board from time to time to administer the Plan and to
perform the functions set forth herein.
2.11 "Company" means Salant Corporation.
2.12 "Director" means a director of the Company.
2.13 "Disability" means, unless otherwise provided in an
Agreement:
(a) in the case of an Optionee or Grantee whose
employment with the Company or a Subsidiary is subject to the terms of an
employment agreement between such Optionee or Grantee and the Company or
Subsidiary, which employment agreement includes a definition of "Disability",
the term "Disability" as used in this Plan or any Agreement shall have the
meaning set forth in such employment agreement during the period that such
employment agreement remains in effect; and
(b) in all other cases, the term "Disability" as used in
this Plan or any Agreement shall mean a physical or mental infirmity which
impairs the Optionee's or Grantee's ability to perform substantially his or
her duties for a period of one hundred eighty (180) consecutive days.
2.14 "Division" means any of the operating units or divisions of
the Company designated as a Division by the Committee.
2.15 "Dividend Equivalent Right" means a right to receive all or
some portion of the cash dividends that are or would be payable with respect
to Shares.
2.16 "Effective Date" has the meaning given such term in Section
21.3 hereof.
2.17 "Eligible Director" means a director of the Company who is
not an officer or employee of the Company or any Subsidiary.
2.18 "Eligible Individual" means any director (other than an
Eligible Director), officer or employee of the Company or a Subsidiary,
designated by the Committee as eligible to receive Options or Awards subject
to the conditions set forth herein.
2.19 "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time.
2.20 "Fair Market Value" on any date means the average of the
high and low sales prices of the Shares on such date on the principal
national securities exchange on which such Shares are listed or admitted to
trading, or, if such Shares are not so listed or admitted to trading, the
average of the per Share closing bid price and per Share closing asked price
on such date as quoted on the National Association of Securities Dealers
Automated Quotation System or such other market in which such prices are
regularly quoted, or, if there have been no published bid or asked quotations
with respect to Shares on such date, the Fair Market Value shall be the value
established by the Board in good faith and, in the case of an Incentive Stock
Option, in accordance with Section 422 of the Code.
2.21 "Formula Option" means an Option granted pursuant to
Section 6.
2.22 "Grantee" means a person to whom an Award has been granted
under the Plan.
2.23 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee in an
Agreement as an Incentive Stock Option.
2.24 "Nonemployee Director" means a Director who is a
"nonemployee director" within the meaning of Rule 16b-3 promulgated under the
Exchange Act.
2.25 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.26 "Option" means a Nonqualified Stock Option, an Incentive
Stock Option and/or a Formula Option.
2.27 "Optionee" means a person to whom an Option has been
granted under the Plan.
2.28 "Outside Director" means a director of the Company who is
an "outside director" within the meaning of Section 162(m) of the Code and
the regulations promulgated thereunder.
2.29 "Parent" means any corporation which is a parent
corporation (within the meaning of Section 424(e) of the Code) with respect
to the Company.
2.30 "Performance Awards" means Performance Units, Performance
Shares or either or both of them.
2.31 "Performance Cycle" means the time period specified by the
Committee at the time Performance Awards are granted during which the
performance of the Company, a Subsidiary or a Division will be measured.
2.32 "Performance Objectives" has the meaning set forth in
Section 11.
2.33 "Performance Shares" means Shares issued or transferred to
an Eligible Individual under Section 11.
2.34 "Performance Units" means Performance Units granted to an
Eligible Individual under Section 11.
2.35 "Plan" means the Salant Corporation 1998 Stock Award and
Incentive Plan, as amended and restated from time to time.
2.36 "Pooling Transaction" means an acquisition of the Company
in a transaction which is intended to be treated as a "pooling of interests"
under generally accepted accounting principles.
2.37 "Registration Statement" means the Company's registration
statement on Form S-4, dated as of [ _____, 1998] and filed with the
Securities and Exchange Commission.
2.38 "Restricted Stock" means Shares issued or transferred to an
Eligible Individual pursuant to Section 10.
2.39 "Restructuring" has the meaning set forth in the
Registration Statement.
2.40 "Restructuring Date" means the date of the consummation of
the Restructuring.
2.41 "Shares" means the shares of New Common Stock, as defined
in the Registration Statement, par value $1.00 per share, of the Company.*
- --------
* Gives effect to the consummation of the Restructuring.
2.42 "Stock Appreciation Right" means a right to receive all or
some portion of the increase in the value of the Shares as provided in
Section 8 hereof.
2.43 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect
to the Company.
2.44 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a) of
the Code applies.
2.45 "Ten-Percent Stockholder" means an Eligible Individual,
who, at the time an Incentive Stock Option is to be granted to him or her,
owns (within the meaning of Section 422(b)(6) of the Code) stock possessing
more than ten percent (10%) of the total combined voting power of all classes
of stock of the Company, or of a Parent or a Subsidiary.
3. Administration.
---------------
3.1 The Plan shall be administered by the Committee, which
shall hold meetings at such times as may be necessary for the proper
administration of the Plan. The Committee shall keep minutes of its
meetings. A quorum shall consist of not fewer than two (2) members of the
Committee and a majority of a quorum may authorize any action. Any decision
or determination reduced to writing and signed by a majority of all of the
members of the Committee shall be as fully effective as if made by a majority
vote at a meeting duly called and held. The Committee shall consist of at
least two (2) directors of the Company and may consist of the entire Board;
PROVIDED, HOWEVER, that (A) if the Committee consists of less than the entire
Board, each member shall be a Nonemployee Director and (B) to the extent
necessary for any Option or Award intended to qualify as performance-based
compensation under Section 162(m) of the Code to so qualify, each member of
the Committee, whether or not it consists of the entire Board, shall be an
Outside Director. For purposes of the preceding sentence, if one or more
members of the Committee is not a Nonemployee Director and an Outside
Director but recuses himself or herself or abstains from voting with respect
to a particular action taken by the Committee, then the Committee, with
respect to that action, shall be deemed to consist only of the members of the
Committee who have not recused themselves or abstained from voting.
3.2 No member of the Committee shall be liable for any action,
failure to act, determination or interpretation made in good faith with
respect to this Plan or any transaction hereunder. The Company hereby agrees
to indemnify each member of the Committee for all costs and expenses and, to
the extent permitted by applicable law, any liability incurred in connection
with defending against, responding to, negotiating for the settlement of or
otherwise dealing with any claim, cause of action or dispute of any kind
arising in connection with any actions in administering this Plan or in
authorizing or denying authorization to any transaction hereunder.
3.3 Subject to the express terms and conditions set forth
herein, the Committee shall have the power from time to time to:
(a) determine those Eligible Individuals to whom Options
shall be granted under the Plan and the number of such Options to be granted
and to prescribe the terms and conditions (which need not be identical) of
each such Option, including the exercise price per Share subject to each
Option, and make any amendment or modification to any Option Agreement
consistent with the terms of the Plan;
(b) select those Eligible Individuals to whom Awards
shall be granted under the Plan and to determine the number of Stock
Appreciation Rights, Performance Awards, Shares of Restricted Stock and/or
Dividend Equivalent Rights to be granted pursuant to each Award, the terms
and conditions (which need not be identical) of such Award, including the
restrictions or Performance Objectives relating to Shares, the maximum value
of each Performance Share and make any amendment or modification to any Award
Agreement consistent with the terms of the Plan;
(c) to construe and interpret the Plan and the Options
and Awards granted hereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including, but not limited
to, correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Agreement, in the manner and to the
extent it shall deem necessary or advisable, including so that the Plan
complies with Rule 16b-3 under the Exchange Act, the Code, and other
applicable law, and otherwise to make the Plan fully effective. All
decisions and determinations by the Committee in the exercise of this power
shall be final, binding and conclusive upon the Company, its Subsidiaries,
the Optionees and Grantees, and all other persons having any interest therein;
(d) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee or Grantee on an individual basis
without constituting a termination of employment or service for purposes of
the Plan;
(e) to exercise its discretion with respect to the powers
and rights granted to it as set forth in the Plan; and
(f) generally, to exercise such powers and to perform
such acts as are deemed necessary or advisable to promote the best interests
of the Company with respect to the Plan.
4. Stock Subject to the Plan.
--------------------------
4.1 The maximum number of Shares that may be made the subject
of Options and Awards granted under the Plan is [ ].* No Eligible
Individual may be granted Options and Awards in the aggregate in respect of
more than [ ]* Shares in any one calendar year period. The maximum dollar
amount of cash or the Fair Market Value of Shares that any Eligible
Individual may receive in any calendar year during the term of the Plan in
respect of Performance Units denominated in dollars may not exceed
[$ ]. Upon a Change in Capitalization, the maximum number of
Shares referred to in the first two sentences of this Section 4.1 shall be
adjusted in number and kind pursuant to Section 13. The Company shall
reserve for the purposes of the Plan, out of its authorized but unissued
Shares or out of Shares held in the Company's treasury, or partly out of
each, such number of Shares as shall be determined by the Board.
- --------
* Such number gives effect to the consummation of the
Restructuring, including the Reverse Split and the Issuance (as such terms
are defined in the Registration Statement).
4.2 Upon the granting of an Option or an Award, the number of
Shares available under Section 4.1 for the granting of further Options and
Awards shall be reduced as follows; PROVIDED, HOWEVER, that if any Option is
exercised by tendering Shares, either actually or by attestation, to the
Company as full or partial payment of the exercise price, the maximum number
of Shares available under Section 4.1 shall be increased by the number of
Shares so tendered.
(a) In connection with the granting of an Option or an
Award (other than the granting of a Performance Unit denominated in dollars),
the number of Shares shall be reduced by the number of Shares in respect of
which the Option or Award is granted or denominated.
(b) In connection with the granting of a Performance Unit
denominated in dollars, the number of Shares shall be reduced by an amount
equal to the quotient of (i) the dollar amount in which the Performance Unit
is denominated, divided by (ii) the Fair Market Value of a Share on the date
the Performance Unit is granted.
4.3 Whenever any outstanding Option or Award or portion thereof
expires, is canceled or is otherwise terminated for any reason without having
been exercised or payment having been made in respect of the entire Option or
Award, the Shares allocable to the expired, canceled or otherwise terminated
portion of the Option or Award may again be the subject of Options or Awards
granted hereunder.
5. Option Grants for Eligible Individuals.
---------------------------------------
5.1 Authority of Committee. Subject to the provisions of the
Plan, the Committee shall have full and final authority to select those
Eligible Individuals who will receive Options, and the terms and conditions
of the grant to such Eligible Individuals shall be set forth in an Agreement.
5.2 Purchase Price. The purchase price or the manner in which
the purchase price is to be determined for Shares under each Option shall be
determined by the Committee and set forth in the Agreement; PROVIDED,
HOWEVER, that the purchase price per Share under each Option shall not be
less than 100% of the Fair Market Value of a Share on the date the Option is
granted (110% in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder).
5.3 Maximum Duration. Options granted hereunder shall be for
such term as the Committee shall determine and set forth in the Agreement,
provided that an Incentive Stock Option shall not be exercisable after the
expiration of ten (10) years from the date it is granted (five (5) years in
the case of an Incentive Stock Option granted to a Ten-Percent Stockholder)
and a Nonqualified Stock Option shall not be exercisable after the expiration
of ten (10) years from the date it is granted; PROVIDED, HOWEVER, that the
Committee may provide that an Option (other than an Incentive Stock Option)
may, upon the death of the Optionee, be exercised for up to one (1) year
following the date of the Optionee's death even if such period extends beyond
ten (10) years from the date the Option is granted. The Committee may,
subsequent to the granting of any Option, extend the term thereof, but in no
event shall the term as so extended exceed the maximum term provided for in
the preceding sentence.
5.4 Vesting. Subject to Section 7.4, each Option shall become
exercisable in such installments (which need not be equal) and at such times
as may be designated by the Committee and set forth in the Agreement. To the
extent not exercised, installments shall accumulate and be exercisable, in
whole or in part, at any time after becoming exercisable, but not later than
the date the Option expires. The Committee may accelerate the exercisability
of any Option or portion thereof at any time.
5.5 Limitations on Incentive Stock Options. To the extent
that the aggregate Fair Market Value (determined as of the date of the grant)
of Shares with respect to which Incentive Stock Options granted under the
Plan and "incentive stock options" (within the meaning of Section 422 of the
Code) granted under all other plans of the Company or its Subsidiaries (in
either case determined without regard to this Section 5.6) are exercisable by
an Optionee for the first time during any calendar year exceeds $100,000,
such Incentive Stock Options shall be treated as Nonqualified Stock Options.
In applying the limitation in the preceding sentence in the case of multiple
grants of Options, Options which were intended to be Incentive Stock Options
shall be treated as Nonqualified Stock Options according to the order in
which they were granted such that the most recently granted Options are first
treated as Nonqualified Stock Options.
6. Option Grants for Nonemployee Directors.
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6.1 Grant.
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(a) Each Eligible Director who is a Director on the
Restructuring Date shall be granted a Formula Option in respect of
[ ]* Shares on the Restructuring Date.
(b) Each Eligible Director who becomes a Director for the
first time after the Restructuring Date shall, upon becoming a Director, be
granted a Formula Option in respect of [ ]* Shares.
(c) Each Eligible Director shall be granted a Formula
Option in respect of [ ]* Shares on the first business day after
the annual meeting of the stockholders of the Company (other than any annual
meeting pursuant to which such Eligible Director receives a grant pursuant to
paragraph (a) or (b) of this Section 6.1) in each year that the Plan is in
effect provided that the Eligible Director is a Director on such date.
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* Such number gives effect to the consummation of the
Restructuring, including the Reverse Split and the Issuance (as such terms
are defined in the Registration Statement).
All Formula Options shall be evidenced by an Agreement
containing such other terms and conditions not inconsistent with the
provisions of this Plan as determined by the Board; PROVIDED, HOWEVER, that
such terms shall not vary the price, amount or timing of Formula Options
provided under this Section 6, including provisions dealing with vesting,
forfeiture and termination of such Formula Options.
6.2 Purchase Price. The purchase price for Shares under each
Formula Option shall be equal to 100% of the Fair Market Value of such Shares
on the date the Formula Option is granted.
6.3 Vesting. Subject to Sections 6.4 and 7.4, each Formula
Option shall become fully vested and exercisable with respect to [ ]% of
the Shares subject thereto on the date of grant and on each of the first
through [ ] anniversaries of the date of grant; PROVIDED, that the
Optionee continues to serve as a Director as of such date. If an Optionee
ceases to serve as a Director for any reason, the Optionee shall have no
rights with respect to any Formula Option (or portion thereof) which has not
then vested pursuant to the preceding sentence and the Optionee shall
automatically forfeit any Formula Option which remains unvested.
6.4 Duration. Subject to Section 7.4, each Formula Option (or
portion thereof) shall terminate on the date which is the tenth anniversary
of the date of grant (or if later, the first anniversary of the Director's
death if such death occurs prior to such tenth anniversary), unless
terminated earlier as follows:
(a) If an Optionee's service as a Director terminates for
any reason other than Disability, death or Cause, the Optionee may for a
period of three (3) months after such termination exercise his or her Option
to the extent, and only to the extent, that such Option or portion thereof
was vested and exercisable as of the date the Optionee's service as a
Director terminated, after which time the Option shall automatically
terminate in full.
(b) If an Optionee's service as a Director terminates by
reason of the Optionee's resignation or removal from the Board due to
Disability, the Optionee may, for a period of one (1) year after such
termination, exercise his or her Option to the extent, and only to the
extent, that such Option or portion thereof was vested and exercisable, as of
the date the Optionee's service as Director terminated, after which time the
Option shall automatically terminate in full.
(c) If an Optionee's service as a Director terminates for
Cause, the Option granted to the Optionee hereunder shall immediately
terminate in full and no rights thereunder may be exercised.
(d) If an Optionee dies while a Director or within three
(3) months after termination of service as a Director as described in clause
(a) of this Section 6.4 or within twelve (12) months after termination of
service as a Director as described in clause (b) of this Section 6.4, the
Option granted to the Optionee may be exercised at any time within twelve
(12) months after the Optionee's death by the person or persons to whom such
rights under the Option shall pass by will, or by the laws of descent or
distribution, after which time the Option shall terminate in full; PROVIDED,
HOWEVER, that an Option may be exercised to the extent, and only to the
extent, that the Option or portion thereof was exercisable on the date of
death or earlier termination of the Optionee's services as a Director.
(e) The Formula Option (or portion thereof), to the
extent not yet vested and exercisable as of the date the Director's service
as a Director terminates for any reason shall terminate immediately upon such
date.
7. Terms and Conditions Applicable to All Options.
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7.1 Non-Transferability. No Option shall be transferable by
the Optionee otherwise than by will or by the laws of descent and
distribution or, in the case of an Option other than an Incentive Stock
Option, pursuant to a domestic relations order (within the meaning of Rule
16a-12 promulgated under the Exchange Act), and an Option shall be
exercisable during the lifetime of such Optionee only by the Optionee or his
or her guardian or legal representative. Notwithstanding the foregoing, the
Committee may set forth in the Agreement evidencing an Option (other than an
Incentive Stock Option) at the time of grant or thereafter, that the Option
may be transferred to members of the Optionee's immediate family, to trusts
solely for the benefit of such immediate family members and to partnerships
in which such family members and/or trusts are the only partners, and for
purposes of this Plan, a transferee of an Option shall be deemed to be the
Optionee. For this purpose, immediate family means the Optionee's spouse,
parents, children, stepchildren and grandchildren and the spouses of such
parents, children, stepchildren and grandchildren. The terms of an Option
shall be final, binding and conclusive upon the beneficiaries, executors,
administrators, heirs and successors of the Optionee.
7.2 Method of Exercise. The exercise of an Option shall be
made only by a written notice delivered in person or by mail to the Secretary
of the Company at the Company's principal executive office, specifying the
number of Shares to be purchased and accompanied by payment therefor and
otherwise in accordance with the Agreement pursuant to which the Option was
granted; PROVIDED, HOWEVER, that Options may not be exercised by an Optionee
for twelve months following a hardship distribution to the Optionee, to the
extent such exercise is prohibited under Treasury Regulation
ss. 1.401(k)-1(d)(2)(iv)(B)(4). The purchase price for any Shares purchased
pursuant to the exercise of an Option shall be paid, as determined by the
Committee in its discretion, in either of the following forms (or any
combination thereof): (i) cash or (ii) the transfer, either actually or by
attestation to the Company, of Shares that have been held by the Optionee for
at least six (6) months (or such lesser period as may be permitted by the
Committee), prior to the exercise of the Option, such transfer to be upon
such terms and conditions as determined by the Committee. In addition,
Options may be exercised through a registered broker-dealer pursuant to such
cashless exercise procedures which are, from time to time, deemed acceptable
by the Committee. Any Shares transferred to the Company as payment of the
purchase price under an Option shall be valued at their Fair Market Value on
the day preceding the date of exercise of such Option. The Optionee shall
deliver the Agreement evidencing the Option to the Secretary of the Company
who shall endorse thereon a notation of such exercise and return such
Agreement to the Optionee. No fractional Shares (or cash in lieu thereof)
shall be issued upon exercise of an Option and the number of Shares that may
be purchased upon exercise shall be rounded to the nearest number of whole
Shares.
7.3 Rights of Optionees. No Optionee shall be deemed for any
purpose to be the owner of any Shares subject to any Option unless and until
(i) the Option shall have been exercised pursuant to the terms thereof, (ii)
the Company shall have issued and delivered Shares to the Optionee, and (iii)
the Optionee's name shall have been entered as a stockholder of record on the
books of the Company. Thereupon, the Optionee shall have full voting,
dividend and other ownership rights with respect to such Shares, subject to
such terms and conditions as may be set forth in the applicable Agreement.
7.4 Effect of Change in Control. Upon the occurrence of a
Change in Control, all Options outstanding on the date of such Change in
Control shall become immediately and fully exercisable. In addition, to the
extent set forth in an Agreement evidencing the grant of an Option, an
Optionee will be permitted to surrender to the Company for cancellation
within sixty (60) days after such Change in Control any Option or portion of
an Option to the extent not yet exercised and the Optionee will be entitled
to receive a cash payment in an amount equal to the excess, if any, of (x)
(A) in the case of a Nonqualified Stock Option, the greater of (1) the Fair
Market Value, on the date preceding the date of surrender, of the Shares
subject to the Option or portion thereof surrendered or (2) the Adjusted Fair
Market Value of the Shares subject to the Option or portion thereof
surrendered or (B) in the case of an Incentive Stock Option, the Fair Market
Value, on the date preceding the date of surrender, of the Shares subject to
the Option or portion thereof surrendered, over (y) the aggregate purchase
price for such Shares under the Option or portion thereof surrendered.
8. Stock Appreciation Rights.
--------------------------
The Committee may in its discretion, either alone or in
connection with the grant of an Option, grant Stock Appreciation Rights in
accordance with the Plan, the terms and conditions of which shall be set
forth in an Agreement. If granted in connection with an Option, a Stock
Appreciation Right shall cover the same Shares covered by the Option (or
such lesser number of Shares as the Committee may determine) and shall,
except as provided in this Section 8, be subject to the same terms and
conditions as the related Option.
8.1 Time of Grant. A Stock Appreciation Right may be granted
(i) at any time if unrelated to an Option, or (ii) if related to an Option,
either at the time of grant, or at any time thereafter during the term of the
Option.
8.2 Stock Appreciation Right Related to an Option.
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(a) Exercise. A Stock Appreciation Right granted in
connection with an Option shall be exercisable at such time or times and only
to the extent that the related Options are exercisable, and will not be
transferable except to the extent the related Option may be transferable. A
Stock Appreciation Right granted in connection with an Incentive Stock Option
shall be exercisable only if the Fair Market Value of a Share on the date of
exercise exceeds the purchase price specified in the related Incentive Stock
Option Agreement.
(b) Amount Payable. Upon the exercise of a Stock
Appreciation Right related to an Option, the Grantee shall be entitled to
receive an amount determined by multiplying (A) the excess of the Fair Market
Value of a Share on the date preceding the date of exercise of such Stock
Appreciation Right over the per Share purchase price under the related
Option, by (B) the number of Shares as to which such Stock Appreciation Right
is being exercised. Notwithstanding the foregoing, the Committee may limit
in any manner the amount payable with respect to any Stock Appreciation Right
by including such a limit in the Agreement evidencing the Stock Appreciation
Right at the time it is granted.
(c) Treatment of Related Options and Stock Appreciation
Rights Upon Exercise. Upon the exercise of a Stock Appreciation Right
granted in connection with an Option, the Option shall be canceled to the
extent of the number of Shares as to which the Stock Appreciation Right is
exercised, and upon the exercise of an Option granted in connection with a
Stock Appreciation Right, the Stock Appreciation Right shall be canceled to
the extent of the number of Shares as to which the Option is exercised or
surrendered.
8.3 Stock Appreciation Right Unrelated to an Option. The
Committee may grant to Eligible Individuals Stock Appreciation Rights
unrelated to Options. Stock Appreciation Rights unrelated to Options shall
contain such terms and conditions as to exercisability (subject to Section
8.7), vesting and duration as the Committee shall determine, but in no event
shall they have a term of greater than ten (10) years. Upon exercise of a
Stock Appreciation Right unrelated to an Option, the Grantee shall be
entitled to receive an amount determined by multiplying (A) the excess of the
Fair Market Value of a Share on the date preceding the date of exercise of
such Stock Appreciation Right over the Fair Market Value of a Share on the
date the Stock Appreciation Right was granted, by (B) the number of Shares as
to which the Stock Appreciation Right is being exercised. Notwithstanding
the foregoing, the Committee may limit in any manner the amount payable with
respect to any Stock Appreciation Right by including such a limit in the
Agreement evidencing the Stock Appreciation Right at the time it is granted.
8.4 Non-Transferability. No Stock Appreciation Right shall be
transferable by the Grantee otherwise than by will or by the laws of descent
and distribution or pursuant to a domestic relations order (within the
meaning of Rule 16a-12 promulgated under the Exchange Act), and such Stock
Appreciation Right shall be exercisable during the lifetime of such Grantee
only by the Grantee or his or her guardian or legal representative. The
terms of such Stock Appreciation Right shall be final, binding and conclusive
upon the beneficiaries, executors, administrators, heirs and successors of
the Grantee.
8.5 Method of Exercise. Stock Appreciation Rights shall be
exercised by a Grantee only by a written notice delivered in person or by
mail to the Secretary of the Company at the Company's principal executive
office, specifying the number of Shares with respect to which the Stock
Appreciation Right is being exercised. If requested by the Committee, the
Grantee shall deliver the Agreement evidencing the Stock Appreciation Right
being exercised and the Agreement evidencing any related Option to the
Secretary of the Company who shall endorse thereon a notation of such
exercise and return such Agreement to the Grantee.
8.6 Form of Payment. Payment of the amount determined under
Sections 8.2(b) or 8.3 may be made in the discretion of the Committee solely
in whole Shares in a number determined at their Fair Market Value on the date
preceding the date of exercise of the Stock Appreciation Right, or solely in
cash, or in a combination of cash and Shares. If the Committee decides to
make full payment in Shares and the amount payable results in a fractional
Share, payment for the fractional Share will be made in cash.
8.7 Effect of Change in Control. Upon the occurrence of a
Change in Control, all Stock Appreciation Rights shall become immediately and
fully exercisable. In addition, to the extent set forth in an Agreement
evidencing the grant of a Stock Appreciation Right unrelated to an Option, a
Grantee will be entitled to receive a payment from the Company in cash or
stock, in either case, with a value equal to the excess, if any, of (A) the
greater of (x) the Fair Market Value, on the date preceding the date of
exercise, of the underlying Shares subject to the Stock Appreciation Right or
portion thereof exercised and (y) the Adjusted Fair Market Value, on the date
preceding the date of exercise, of the Shares over (B) the aggregate Fair
Market Value, on the date the Stock Appreciation Right was granted, of the
Shares subject to the Stock Appreciation Right or portion thereof exercised.
9. Dividend Equivalent Rights.
---------------------------
Dividend Equivalent Rights may be granted to Eligible
Individuals in tandem with an Option or Award or as a separate award. The
terms and conditions applicable to each Dividend Equivalent Right shall be
specified in the Agreement under which the Dividend Equivalent Right is
granted. Amounts payable in respect of Dividend Equivalent Rights may be
payable currently or deferred until the lapsing of restrictions on such
Dividend Equivalent Rights or until the vesting, exercise, payment,
settlement or other lapse of restrictions on the Option or Award to which
the Dividend Equivalent Rights relate. In the event that the amount
payable in respect of Dividend Equivalent Rights are to be deferred, the
Committee shall determine whether such amounts are to be held in cash or
reinvested in Shares or deemed (notionally) to be reinvested in Shares. If
amounts payable in respect of Dividend Equivalent Rights are to be held in
cash, there may be credited at the end of each year (or portion thereof)
interest on the amount of the account at the beginning of the year at a
rate per annum as the Committee, in its discretion, may determine.
Dividend Equivalent Rights may be settled in cash or Shares or a
combination thereof, in a single installment or multiple installments.
10. Restricted Stock.
-----------------
10.1 Grant. The Committee may grant Awards to Eligible
Individuals of Restricted Stock, which shall be evidenced by an Agreement
between the Company and the Grantee. Each Agreement shall contain such
restrictions, terms and conditions as the Committee may, in its discretion,
determine and (without limiting the generality of the foregoing) such
Agreements may require that an appropriate legend be placed on Share
certificates. Awards of Restricted Stock shall be subject to the terms and
provisions set forth below in this Section 10.
10.2 Rights of Grantee. Shares of Restricted Stock granted
pursuant to an Award hereunder shall be issued in the name of the Grantee as
soon as reasonably practicable after the Award is granted provided that the
Grantee has executed an Agreement evidencing the Award, the appropriate blank
stock powers and, in the discretion of the Committee, an escrow agreement and
any other documents which the Committee may require as a condition to the
issuance of such Shares. If a Grantee shall fail to execute the Agreement
evidencing a Restricted Stock Award, the appropriate blank stock powers and,
in the discretion of the Committee, an escrow agreement and any other
documents which the Committee may require within the time period prescribed
by the Committee at the time the Award is granted, the Award shall be null
and void. At the discretion of the Committee, Shares issued in connection
with a Restricted Stock Award shall be deposited together with the stock
powers with an escrow agent (which may be the Company) designated by the
Committee. Unless the Committee determines otherwise and as set forth in the
Agreement, upon delivery of the Shares to the escrow agent, the Grantee shall
have all of the rights of a stockholder with respect to such Shares,
including the right to vote the Shares and to receive all dividends or other
distributions paid or made with respect to the Shares.
10.3 Non-transferability. Until all restrictions upon the
Shares of Restricted Stock awarded to a Grantee shall have lapsed in the
manner set forth in Section 10.4, such Shares shall not be sold, transferred
or otherwise disposed of and shall not be pledged or otherwise hypothecated,
nor shall they be delivered to the Grantee.
10.4 Lapse of Restrictions.
----------------------
(a) Generally. Restrictions upon Shares of Restricted
Stock awarded hereunder shall lapse at such time or times and on such terms
and conditions as the Committee may determine. The Agreement evidencing the
Award shall set forth any such restrictions.
(b) Effect of Change in Control. Unless the Committee
shall determine otherwise at the time of the grant of an Award of Restricted
Stock, the restrictions upon Shares of Restricted Stock shall lapse upon a
Change in Control. The Agreement evidencing the Award shall set forth any
such provisions.
10.5 Treatment of Dividends. At the time an Award of Shares of
Restricted Stock is granted, the Committee may, in its discretion, determine
that the payment to the Grantee of dividends, or a specified portion thereof,
declared or paid on such Shares by the Company shall be (i) deferred until
the lapsing of the restrictions imposed upon such Shares and (ii) held by the
Company for the account of the Grantee until such time. In the event that
dividends are to be deferred, the Committee shall determine whether such
dividends are to be reinvested in shares of Stock (which shall be held as
additional Shares of Restricted Stock) or held in cash. If deferred
dividends are to be held in cash, there may be credited at the end of each
year (or portion thereof) interest on the amount of the account at the
beginning of the year at a rate per annum as the Committee, in its
discretion, may determine. Payment of deferred dividends in respect of
Shares of Restricted Stock (whether held in cash or as additional Shares of
Restricted Stock), together with interest accrued thereon, if any, shall be
made upon the lapsing of restrictions imposed on the Shares in respect of
which the deferred dividends were paid, and any dividends deferred (together
with any interest accrued thereon) in respect of any Shares of Restricted
Stock shall be forfeited upon the forfeiture of such Shares.
10.6 Delivery of Shares. Upon the lapse of the restrictions on
Shares of Restricted Stock, the Committee shall cause a stock certificate to
be delivered to the Grantee with respect to such Shares, free of all
restrictions hereunder.
11. Performance Awards.
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11.1 Performance Units. The Committee, in its discretion, may
grant Awards of Performance Units to Eligible Individuals, the terms and
conditions of which shall be set forth in an Agreement between the Company
and the Grantee. Performance Units may be denominated in Shares or a
specified dollar amount and, contingent upon the attainment of specified
Performance Objectives within the Performance Cycle, represent the right to
receive payment as provided in Section 11.3(c) of (i) in the case of
Share-denominated Performance Units, the Fair Market Value of a Share on the
date the Performance Unit was granted, the date the Performance Unit became
vested or any other date specified by the Committee, (ii) in the case of
dollar-denominated Performance Units, the specified dollar amount or (iii) a
percentage (which may be more than 100%) of the amount described in clause
(i) or (ii) depending on the level of Performance Objective attainment;
PROVIDED, HOWEVER, that, the Committee may at the time a Performance Unit is
granted specify a maximum amount payable in respect of a vested Performance
Unit. Each Agreement shall specify the number of Performance Units to which
it relates, the Performance Objectives which must be satisfied in order for
the Performance Units to vest and the Performance Cycle within which such
Performance Objectives must be satisfied.
(a) Vesting and Forfeiture. Subject to Sections 11.3(c)
and 11.4, a Grantee shall become vested with respect to the Performance Units
to the extent that the Performance Objectives set forth in the Agreement are
satisfied for the Performance Cycle.
(b) Payment of Awards. Subject to Section 11.3(c),
payment to Grantees in respect of vested Performance Units shall be made as
soon as practicable after the last day of the Performance Cycle to which such
Award relates unless the Agreement evidencing the Award provides for the
deferral of payment, in which event the terms and conditions of the deferral
shall be set forth in the Agreement. Subject to Section 11.4, such payments
may be made entirely in Shares valued at their Fair Market Value as of the
day preceding the date of payment or such other date specified by the
Committee, entirely in cash, or in such combination of Shares and cash as the
Committee in its discretion shall determine at any time prior to such
payment; PROVIDED, HOWEVER, that if the Committee in its discretion
determines to make such payment entirely or partially in Shares of Restricted
Stock, the Committee must determine the extent to which such payment will be
in Shares of Restricted Stock and the terms of such Restricted Stock at the
time the Award is granted.
11.2 Performance Shares. The Committee, in its discretion, may
grant Awards of Performance Shares to Eligible Individuals, the terms and
conditions of which shall be set forth in an Agreement between the Company
and the Grantee. Each Agreement may require that an appropriate legend be
placed on Share certificates. Awards of Performance Shares shall be subject
to the following terms and provisions:
(a) Rights of Grantee. The Committee shall provide at
the time an Award of Performance Shares is made the time or times at which
the actual Shares represented by such Award shall be issued in the name of
the Grantee; PROVIDED, HOWEVER, that no Performance Shares shall be issued
until the Grantee has executed an Agreement evidencing the Award, the
appropriate blank stock powers and, in the discretion of the Committee, an
escrow agreement and any other documents which the Committee may require as a
condition to the issuance of such Performance Shares. If a Grantee shall
fail to execute the Agreement evidencing an Award of Performance Shares, the
appropriate blank stock powers and, in the discretion of the Committee, an
escrow agreement and any other documents which the Committee may require
within the time period prescribed by the Committee at the time the Award is
granted, the Award shall be null and void. At the discretion of the
Committee, Shares issued in connection with an Award of Performance Shares
shall be deposited together with the stock powers with an escrow agent (which
may be the Company) designated by the Committee. Except as restricted by the
terms of the Agreement, upon delivery of the Shares to the escrow agent, the
Grantee shall have, in the discretion of the Committee, all of the rights of
a stockholder with respect to such Shares, including the right to vote the
Shares and to receive all dividends or other distributions paid or made with
respect to the Shares.
(b) Non-transferability. Until any restrictions upon the
Performance Shares awarded to a Grantee shall have lapsed in the manner set
forth in Sections 11.2(c) or 11.4, such Performance Shares shall not be sold,
transferred or otherwise disposed of and shall not be pledged or otherwise
hypothecated, nor shall they be delivered to the Grantee. The Committee may
also impose such other restrictions and conditions on the Performance Shares,
if any, as it deems appropriate.
(c) Lapse of Restrictions. Subject to Sections 11.3(c)
and 11.4, restrictions upon Performance Shares awarded hereunder shall lapse
and such Performance Shares shall become vested at such time or times and on
such terms, conditions and satisfaction of Performance Objectives as the
Committee may, in its discretion, determine at the time an Award is granted.
(d) Treatment of Dividends. At the time the Award of
Performance Shares is granted, the Committee may, in its discretion,
determine that the payment to the Grantee of dividends, or a specified
portion thereof, declared or paid on Shares represented by such Award which
have been issued by the Company to the Grantee shall be (i) deferred until
the lapsing of the restrictions imposed upon such Performance Shares and
(ii) held by the Company for the account of the Grantee until such time. In
the event that dividends are to be deferred, the Committee shall determine
whether such dividends are to be reinvested in shares of Stock (which shall
be held as additional Performance Shares) or held in cash. If deferred
dividends are to be held in cash, there may be credited at the end of each
year (or portion thereof) interest on the amount of the account at the
beginning of the year at a rate per annum as the Committee, in its
discretion, may determine. Payment of deferred dividends in respect of
Performance Shares (whether held in cash or in additional Performance
Shares), together with interest accrued thereon, if any, shall be made upon
the lapsing of restrictions imposed on the Performance Shares in respect of
which the deferred dividends were paid, and any dividends deferred (together
with any interest accrued thereon) in respect of any Performance Shares shall
be forfeited upon the forfeiture of such Performance Shares.
(e) Delivery of Shares. Upon the lapse of the
restrictions on Performance Shares awarded hereunder, the Committee shall
cause a stock certificate to be delivered to the Grantee with respect to such
Shares, free of all restrictions hereunder.
11.3 Performance Objectives
----------------------
(a) Establishment. Performance Objectives for
Performance Awards may be expressed in terms of (i) earnings per Share, (ii)
Share price, (iii) pre-tax profits, (iv) net earnings, (v) return on equity
or assets, or (vi) any combination of the foregoing. Performance Objectives
may be in respect of the performance of the Company, any of its Subsidiaries,
any of its Divisions or any combination thereof. Performance Objectives may
be absolute or relative (to prior performance of the Company or to the
performance of one or more other entities or external indices) and may be
expressed in terms of a progression within a specified range. The
Performance Objectives with respect to a Performance Cycle shall be
established in writing by the Committee by the earlier of (x) the date on
which a quarter of the Performance Cycle has elapsed or (y) the date which is
ninety (90) days after the commencement of the Performance Cycle, and in any
event while the performance relating to the Performance Objectives remain
substantially uncertain.
(b) Effect of Certain Events. At the time of the
granting of a Performance Award, or at any time thereafter, in either case to
the extent permitted under Section 162(m) of the Code and the regulations
thereunder without adversely affecting the treatment of the Performance Award
as Performance-Based Compensation, the Committee may provide for the manner
in which performance will be measured against the Performance Objectives (or
may adjust the Performance Objectives) to reflect the impact of specified
corporate transactions, accounting or tax law changes and other extraordinary
and nonrecurring events.
(c) Determination of Performance. Prior to the vesting,
payment, settlement or lapsing of any restrictions with respect to any
Performance Award that is intended to constitute Performance-Based
Compensation made to a Grantee who is subject to Section 162(m) of the Code,
the Committee shall certify in writing that the applicable Performance
Objectives have been satisfied.
11.4 Effect of Change in Control. In the event of a Change in
Control:
(a) With respect to Performance Units, the Grantee shall
(i) become vested in all or a portion of the Performance Units as determined
by the Committee at the time of the Award of such Performance Units and as
set forth in the Agreement and (ii) be entitled to receive in respect of all
Performance Units which become vested as a result of a Change in Control a
cash payment within ten (10) days after such Change in Control in an amount
as determined by the Committee at the time of the Award of such Performance
Unit and as set forth in the Agreement.
(b) With respect to Performance Shares, all or a portion
of any unissued Performance Shares shall be issued and restrictions shall
lapse immediately on all or a portion of the Performance Shares in each case
as determined by the Committee at the time of the Award of such Performance
Shares and as set forth in the Agreement.
(c) The Agreements evidencing Performance Shares and
Performance Units shall provide for the treatment of such Awards (or portions
thereof) which do not become vested as the result of a Change in Control,
including, but not limited to, provisions for the adjustment of applicable
Performance Objectives.
11.5 Non-transferability. Until the vesting of
Performance Units or the lapsing of any restrictions on Performance Shares,
as the case may be, such Performance Units or Performance Shares shall not be
sold, transferred or otherwise disposed of and shall not be pledged or
otherwise hypothecated.
12. Effect of a Termination of Employment.
--------------------------------------
The Agreement evidencing the grant of each Option and each
Award shall set forth the terms and conditions applicable to such Option or
Award upon a termination or change in the status of the employment of the
Optionee or Grantee by the Company, a Subsidiary or a Division (including a
termination or change by reason of the sale of a Subsidiary or a Division),
which shall be as the Committee may, in its discretion, determine at the
time the Option or Award is granted or thereafter.
13. Adjustment Upon Changes in Capitalization.
------------------------------------------
(a) In the event of a Change in Capitalization, the
Committee shall, in its sole discretion, determine the appropriate
adjustments, if any, to (i) the maximum number and class of Shares or other
stock or securities with respect to which Options or Awards may be granted
under the Plan, (ii) the maximum number and class of Shares or other stock or
securities with respect to which Options or Awards may be granted to any
Eligible Individual during the term of the Plan, (iii) the number and class
of Shares or other stock or securities which are subject to outstanding
Options or Awards granted under the Plan and the purchase price therefor, if
applicable, and (iv) the Performance Objectives.
(b) Any such adjustment in the Shares or other stock or
securities subject to outstanding Incentive Stock Options (including any
adjustments in the purchase price) shall be made in such manner as not to
constitute a modification as defined by Section 424(h)(3) of the Code and
only to the extent otherwise permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, a
Grantee of an Award shall be entitled to, or an Optionee shall be entitled to
exercise an Option with respect to, new, additional or different shares of
stock or securities, such new, additional or different shares shall thereupon
be subject to all of the conditions, restrictions and performance criteria
which were applicable to the Shares subject to the Award or Option, as the
case may be, prior to such Change in Capitalization.
14. Effect of Certain Transactions.
-------------------------------
Subject to Sections 7.4, 8.7, 10.4(b) and 11.4 or as otherwise
provided in an Agreement, in the event of (i) the liquidation or
dissolution of the Company or (ii) a merger or consolidation of the Company
(a "Transaction"), the Plan and the Options and Awards issued hereunder
shall continue in effect in accordance with their respective terms, except
that following a Transaction each Optionee and Grantee shall be entitled to
receive in respect of each Share subject to any outstanding Options or
Awards, as the case may be, upon exercise of any Option or payment or
transfer in respect of any Award, the same number and kind of stock,
securities, cash, property or other consideration that each holder of a
Share was entitled to receive in the Transaction in respect of a Share;
PROVIDED, HOWEVER, that such stock, securities, cash, property, or other
consideration shall remain subject to all of the conditions, restrictions
and performance criteria which were applicable to the Options and Awards
prior to such Transaction.
15. Interpretation.
---------------
Following the required registration of any equity security of the
Company pursuant to Section 12 of the Exchange Act:
(a) The Plan is intended to comply with Rule 16b-3
promulgated under the Exchange Act and the Committee shall interpret and
administer the provisions of the Plan or any Agreement in a manner consistent
therewith. Any provisions inconsistent with such Rule shall be inoperative
and shall not affect the validity of the Plan.
(b) Unless otherwise expressly stated in the relevant
Agreement, each Option, Stock Appreciation Right and Performance Award
granted under the Plan is intended to be performance-based compensation
within the meaning of Section 162(m)(4)(C) of the Code. The Committee shall
not be entitled to exercise any discretion otherwise authorized hereunder
with respect to such Options or Awards if the ability to exercise such
discretion or the exercise of such discretion itself would cause the
compensation attributable to such Options or Awards to fail to qualify as
performance-based compensation.
16. Pooling Transactions.
---------------------
Notwithstanding anything contained in the Plan or any Agreement
to the contrary, in the event of a Change in Control which is also intended
to constitute a Pooling Transaction, the Committee shall take such actions,
if any, as are specifically recommended by an independent accounting firm
retained by the Company to the extent reasonably necessary in order to
assure that the Pooling Transaction will qualify as such, including but not
limited to (i) deferring the vesting, exercise, payment, settlement or
lapsing of restrictions with respect to any Option or Award, (ii) providing
that the payment or settlement in respect of any Option or Award be made in
the form of cash, Shares or securities of a successor or acquirer of the
Company, or a combination of the foregoing, and (iii) providing for the
extension of the term of any Option or Award to the extent necessary to
accommodate the foregoing, but not beyond the maximum term permitted for
any Option or Award.
17. Termination and Amendment of the Plan or Modification of
--------------------------------------------------------
Options and Awards.
- -------------------
17.1 Plan Amendment or Termination. The Plan shall terminate
on the day preceding the tenth anniversary of the date of its adoption by
the Board and no Option or Award may be granted thereafter. The Board may
sooner terminate the Plan and the Board may at any time and from time to
time amend, modify or suspend the Plan; PROVIDED, HOWEVER, that:
(a) no such amendment, modification, suspension or
termination shall impair or adversely alter any Options or Awards theretofore
granted under the Plan, except with the consent of the Optionee or Grantee,
nor shall any amendment, modification, suspension or termination deprive any
Optionee or Grantee of any Shares which he or she may have acquired through
or as a result of the Plan; and
(b) to the extent necessary under any applicable law,
regulation or exchange requirement, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable
law, regulation or exchange requirement.
17.2 Modification of Options and Awards. No modification of
an Option or Award shall adversely alter or impair any rights or
obligations under the Option or Award without the consent of the Optionee
or Grantee, as the case may be.
18. Non-Exclusivity of the Plan.
----------------------------
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive
arrangement or as creating any limitations on the power of the Board to adopt
such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than under the
Plan, and such arrangements may be either applicable generally or only in
specific cases.
19. Limitation of Liability.
------------------------
As illustrative of the limitations of liability of the Company,
but not intended to be exhaustive thereof, nothing in the Plan shall be
construed to:
(i) give any person any right to be granted an
Option or Award other than at the sole discretion of the
Committee;
(ii) give any person any rights whatsoever with
respect to Shares except as specifically provided in the
Plan;
(iii) limit in any way the right of the Company or
any Subsidiary to terminate the employment of any person at
any time; or
(iv) be evidence of any agreement or understanding,
expressed or implied, that the Company will employ any
person at any particular rate of compensation or for any
particular period of time.
20. Regulations and Other Approvals; Governing Law.
-----------------------------------------------
20.1 Except as to matters of federal law, the Plan and the
rights of all persons claiming hereunder shall be construed and determined in
accordance with the laws of the State of Delaware without giving effect to
conflicts of laws principles thereof.
20.2 The obligation of the Company to sell or deliver Shares
with respect to Options and Awards granted under the Plan shall be subject to
all applicable laws, rules and regulations, including all applicable federal
and state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the
Committee.
20.3 The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority, or to obtain for Eligible Individuals granted Incentive Stock
Options the tax benefits under the applicable provisions of the Code and
regulations promulgated thereunder.
20.4 Each Option and Award is subject to the requirement that,
if at any time the Committee determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option or
Award or the issuance of Shares, no Options or Awards shall be granted or
payment made or Shares issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been effected or
obtained free of any conditions as acceptable to the Committee.
20.5 Notwithstanding anything contained in the Plan or any
Agreement to the contrary, in the event that the disposition of Shares
acquired pursuant to the Plan is not covered by a then current registration
statement under the Securities Act of 1933, as amended (the "Securities
Act"), and is not otherwise exempt from such registration, such Shares shall
be restricted against transfer to the extent required by the Securities Act
and Rule 144 or other regulations thereunder. The Committee may require any
individual receiving Shares pursuant to an Option or Award granted under the
Plan, as a condition precedent to receipt of such Shares, to represent and
warrant to the Company in writing that the Shares acquired by such individual
are acquired without a view to any distribution thereof and will not be sold
or transferred other than pursuant to an effective registration thereof under
said Act or pursuant to an exemption applicable under the Securities Act or
the rules and regulations promulgated thereunder. The certificates
evidencing any of such Shares shall be appropriately amended to reflect their
status as restricted securities as aforesaid.
21. Miscellaneous.
--------------
21.1 Multiple Agreements. The terms of each Option or Award may
differ from other Options or Awards granted under the Plan at the same time,
or at some other time. The Committee may also grant more than one Option or
Award to a given Eligible Individual during the term of the Plan, either in
addition to, or in substitution for, one or more Options or Awards previously
granted to that Eligible Individual.
21.2 Withholding of Taxes.
---------------------
(a) At such times as an Optionee or Grantee recognizes
taxable income in connection with the receipt of Shares or cash hereunder (a
"Taxable Event"), the Optionee or Grantee shall pay to the Company an amount
equal to the federal, state and local income taxes and other amounts as may
be required by law to be withheld by the Company in connection with the
Taxable Event (the "Withholding Taxes") prior to the issuance, or release
from escrow, of such Shares or the payment of such cash. The Company shall
have the right to deduct from any payment of cash to an Optionee or Grantee
an amount equal to the Withholding Taxes in satisfaction of the obligation to
pay Withholding Taxes. In satisfaction of the obligation to pay Withholding
Taxes to the Company, the Optionee or Grantee may make a written election
(the "Tax Election"), which may be accepted or rejected in the discretion of
the Committee, to have withheld a portion of the Shares then issuable to him
or her having an aggregate Fair Market Value equal to the Withholding Taxes.
(b) If an Optionee makes a disposition, within the
meaning of Section 424(c) of the Code and regulations promulgated thereunder,
of any Share or Shares issued to such Optionee pursuant to the exercise of an
Incentive Stock Option within the two-year period commencing on the day after
the date of the grant or within the one-year period commencing on the day
after the date of transfer of such Share or Shares to the Optionee pursuant
to such exercise, the Optionee shall, within ten (10) days of such
disposition, notify the Company thereof, by delivery of written notice to the
Company at its principal executive office.
21.3. Effective Date. The Plan shall be effective on the date on
which it is adopted by the Board of Directors of the Company (the "Effective
Date"); PROVIDED, HOWEVER, that any Awards granted under the Plan shall be
subject to the requisite approval of the Stockholders of the Company.
<PAGE>
Annex IV to Proxy Statement/Prospectus
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 AND HAS BECOME EFFECTIVE. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME THAT A POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS EXCHANGE RESTRUCTURING 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 AS OF May 26, 1998
PROSPECTUS
SALANT CORPORATION
[LOGO OF SALANT CORPORATION]
OFFER TO EXCHANGE AND SOLICITATION OF ACCEPTANCES
OF PREPACKAGED PLAN OF REORGANIZATION
Salant Corporation (the "Company"), upon the terms and subject to the
conditions set forth in this Exchange Restructuring Prospectus and in the
accompanying Letter of Transmittal and Ballot, as the same may be amended
from time to time, hereby (A) offers to issue the following consideration in
exchange for its outstanding 10-1/2% Senior Secured Notes due December 31,
1998 (the "Exchange Offer") and (B) solicits acceptances of a prepackaged
plan of reorganization (the "Prepackaged Plan") of the Company under Chapter
11 of title 11 of the United States Code, as amended (the "Bankruptcy Code")
from the holders of such securities (as described in more detail below, the
"Noteholders") under which such securities would be exchanged for the same
consideration offered in the Exchange Offer:
FOR EACH $1,000 THE EXCHANGING NOTEHOLDER (AS DEFINED HEREIN)
PRINCIPAL AMOUNT WILL RECEIVE:
(TOGETHER WITH ALL
ACCRUED AND UNPAID
INTEREST THEREON) OF:
The Company's 10-1/2% 175.977555 shares of common stock, par value
Senior Secured Notes $1.00 per share (the "New Common Stock"), of
due December 31, 1998 the Company or, in the aggregate, up to
(the "Senior Notes") 18,456,350 shares of New Common Stock (after
giving effect to the Reverse Split (as defined
herein)). As a result of the Exchange Offer,
each Noteholder will receive such Noteholder's
pro rata portion (sharing with all other
Noteholders) of shares of New Common Stock
equivalent to 92.5% of the outstanding New
Common Stock issued and outstanding immediately
following consummation of the Exchange
Restructuring (as defined herein), subject to
dilution for shares of New Common Stock issued
under the Stock Award and Incentive Plan (as
defined herein) and the Warrant Shares (as
defined herein), and in the case of the
Exchange Restructuring (as defined herein)
only, the shares of New Common Stock issued
under the Old Plans (as defined herein), based
on the number of shares of Old Common Stock (as
defined herein) outstanding as of ____ __, 1998.
THE EXCHANGE OFFER AND THE SOLICITATION PERIOD FOR ACCEPTANCES OF THE
PREPACKAGED PLAN WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _____ __,
1998 UNLESS EXTENDED (AS SUCH DATE MAY BE EXTENDED, THE "EXPIRATION DATE").
The Exchange Offer is conditioned upon, among other things, (i) 100% of
the aggregate principal amount of the Senior Notes being validly tendered and
not withdrawn prior to the Expiration Date (the "Minimum Tender Condition"),
and (ii) approval by the Stockholders (as defined herein) of each of the
Restructuring Proposals (as defined herein). The Company's ability to seek
confirmation of the Prepackaged Plan also depends upon certain minimum levels
of acceptance thereof, as further set forth in this Exchange Restructuring
Prospectus. If the Minimum Tender Condition and all other conditions to the
consummation of the Exchange Offer are satisfied or waived, the Company
intends to consummate the Exchange Offer. If the Exchange Offer is not
consummated or not all of the Restructuring Proposals are approved by the
Stockholders (as defined below) at the Stockholders' Meeting (as defined
below), but the Company receives sufficient acceptances of the Prepackaged
Plan to obtain confirmation thereof by the Bankruptcy Court (as defined
herein), then the Company intends to pursue the financial restructuring of
the Company by means of the filing of the Prepackaged Plan (the "Prepackaged
Restructuring").
An Annual Meeting of stockholders of the Company (the "Stockholders")
will be held on _____ __, 1998 at __:_.m. New York City time (the
"Stockholders' Meeting"), to consider and vote upon proposals (the
"Restructuring Proposals") (i) to amend (the "Charter Amendment") the
Company's Amended and Restated Certificate of Incorporation (the "Certificate
of Incorporation") in order to effect (A) a ten-to-one reverse stock split
(the "Reverse Split") of each outstanding share of common stock, par value
$1.00 per share, of the Company (the "Old Common Stock"), into one-tenth of a
share of New Common Stock and (B) an increase in the number of shares of New
Common Stock authorized; (ii) to approve the issuance (the "Issuance") of (A)
shares of New Common Stock to holders of Senior Notes in exchange for their
Senior Notes and to Stockholders in exchange for their Old Common Stock upon
consummation of the Exchange Restructuring, (B) the Warrants, and (C) shares
of New Common Stock to holders of Warrants upon exercise of their Warrants
(such shares of New Common Stock being hereinafter referred to as the
"Warrant Shares"); and (iii) to elect new directors to the Board of Directors
(the "Board") of the Company (the "Election of the New Board") upon
consummation of the Exchange Restructuring. In addition, the Stockholders
will be asked to (i) consider a proposal (the "Plan Proposal") to approve the
adoption of the Salant Corporation 1998 Stock Award and Incentive Plan (the
"Stock Award and Incentive Plan"); and (ii) ratify the appointment of
Deloitte & Touche LLP as independent auditors to the Company (together with
the Restructuring Proposals and the Plan Proposal, the "Proposals"). A Proxy
Statement/Prospectus (the "Proxy Statement/Prospectus"), further describing
each of the Proposals, will be mailed to each Stockholder of the Company. If
the Prepackaged Restructuring (as defined herein) is pursued and a petition
is filed under the Bankruptcy Code, the Company expects that each of the
Restructuring Proposals will be implemented pursuant to the Prepackaged Plan.
THE SUBSIDIARIES OF THE COMPANY WOULD NOT BE PARTIES TO THE PREPACKAGED
PLAN, AND WOULD THEREFORE CONTINUE TO OPERATE IN THE ORDINARY COURSE OF
BUSINESS AND WOULD NOT BECOME DEBTORS IN CONNECTION WITH THE PREPACKAGED
RESTRUCTURING. THEREFORE, THE SUBSIDIARIES OF SALANT WOULD CONTINUE TO
OPERATE IN THE ORDINARY COURSE OF BUSINESS DURING THE COMPANY'S CHAPTER 11
CASE. AS SUCH, THE PREPACKAGED PLAN WOULD NOT AFFECT THE CONTINUING AND
TIMELY PAYMENT IN FULL OF THE SUBSIDIARIES' OBLIGATIONS TO SUPPLIERS,
EMPLOYEES, AND OTHER CREDITORS. IN ADDITION, THE PREPACKAGED PLAN PROVIDES
FOR ALL PREPETITION UNSECURED CREDITORS OF THE COMPANY, INCLUDING, WITHOUT
LIMITATION, TRADE CREDITORS, TO BE PAID IN FULL IN ACCORDANCE WITH THEIR
TERMS, AND SUCH CREDITORS WOULD NOT, THEREFORE, BE IMPAIRED BY, AND WOULD BE
DEEMED TO ACCEPT, THE PREPACKAGED PLAN, AND THEIR VOTE ON THE PREPACKAGED
PLAN WOULD NOT BE SOUGHT.
THE DATE OF THIS EXCHANGE RESTRUCTURING PROSPECTUS IS [ ], 1998.
SEE "RISK FACTORS" IN PART A ON PAGES A-28 TO A-34 FOR A DISCUSSION OF
CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH THE
EXCHANGE RESTRUCTURING (AS HEREINAFTER DEFINED) AND THE PREPACKAGED
RESTRUCTURING (AS HEREINAFTER DEFINED). SEE "RISK FACTORS" IN THE
DISCLOSURE STATEMENT (AS HEREINAFTER DEFINED) FOR A DISCUSSION OF CERTAIN
ADDITIONAL RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH THE
PREPACKAGED RESTRUCTURING.
NEITHER THE SECURITIES OFFERED HEREBY NOR THE PREPACKAGED PLAN HAS 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 FAIRNESS OR MERITS OF THESE
TRANSACTIONS OR THE ACCURACY OR ADEQUACY OF THIS EXCHANGE RESTRUCTURING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The terms of the Exchange Offer and the Prepackaged Plan have been
developed in the course of discussions by the Company with (i) Magten Asset
Management Corp., the beneficial owner of, or the investment manager on
behalf of the beneficial owners of ("Magten"), not less than $70 million in
aggregate principal face amount of the Senior Notes (collectively, the
"Magten Notes") and (ii) Apollo Apparel Partners, L.P. ("Apollo"), the
beneficial owner of 5,924,352 shares (the "Apollo Shares") of the common
stock, par value $1.00 per share (the "Old Common Stock"), which represents
approximately 39.6% of the issued and outstanding shares of Old Common Stock.
Magten, Apollo and the Company have entered into a letter agreement, dated
March 2, 1998 (the "Letter Agreement") regarding the basic terms and
conditions of a comprehensive consensual plan to restructure the Company to
which Magten and Apollo would be willing to consent, subject to certain terms
and conditions (the "Restructuring"). The Restructuring will convert all of
the Company's indebtedness under the Senior Notes into New Common Stock.
Pursuant to the Letter Agreement, Magten has agreed, among other things, to
tender (or with respect to managed accounts, use its reasonable best efforts
to cause to be tendered), subject to certain conditions, all of the Magten
Notes pursuant to the Exchange Restructuring and, in the event the
Prepackaged Plan is pursued, to vote all of the Magten Notes in favor of the
Prepackaged Plan. In addition, pursuant to the Letter Agreement, Apollo
agreed, among other things, to enter into a voting agreement with the
Company, wherein Apollo would agree to vote all of the Apollo Shares in favor
of each of the Restructuring Proposals and, in the event the Prepackaged Plan
is required, to vote all of the Apollo Shares in favor of the Prepackaged
Plan. As contemplated by the Letter Agreement, under the Restructuring,
holders of 100% of the Old Common Stock of the Company as of the Record Date
(as defined herein) will receive from the Company, in the aggregate, (a)
1,496,461 shares of New Common Stock (after giving effect to the Reverse
Split), constituting 7.5% of the New Common Stock issued and outstanding
immediately following consummation of the Exchange Restructuring, subject to
dilution for shares of New Common Stock issued under the Stock Award and
Incentive Plan and the Warrant Shares, and in the case of the Exchange
Restructuring only, the shares of New Common Stock issued under the Company's
1987 Stock Plan, 1988 Stock Plan, 1993 Stock Plan and 1996 Stock Plan (the
"Old Plans") and (b) 2,216,979 warrants (the "Warrants") representing the
right to purchase, in the aggregate, 2,216,979 additional shares of New
Common Stock, constituting 10% of the New Common Stock issued and outstanding
immediately following consummation of the Exchange Restructuring (on a fully
diluted basis) subject to adjustment. The Warrants will be exercisable for
seven years from the consummation of the Exchange Restructuring Date (the
"Exchange Restructuring Date") at an exercise price of $6.2648 per share, and
each Warrant would be exercisable for one share of New Common Stock, in each
case, subject to adjustment. As contemplated by the Letter Agreement, under
the Restructuring, the holders of the Senior Notes as of the Record Date will
receive from the Company, in the aggregate, 18,456,350 shares of New Common
Stock, constituting 92.5% of the New Common Stock issued and outstanding
immediately following consummation of the Exchange Restructuring, subject to
dilution for shares of New Common Stock issued under the Stock Award and
Incentive Plan and the Warrant Shares, and in the case of the Exchange
Restructuring only, the shares of New Common Stock issued under the Old
Plans.
THE SENIOR NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE
WITHDRAWN, SUBJECT TO THE PROCEDURES DESCRIBED HEREIN, AT ANY TIME BEFORE
THEY ARE ACCEPTED FOR EXCHANGE BY THE COMPANY. VOTES ON THE PREPACKAGED PLAN
MAY BE REVOKED, SUBJECT TO THE PROCEDURES DESCRIBED HEREIN, AT ANY TIME PRIOR
TO THE EXPIRATION DATE. IF A BANKRUPTCY CASE HAS BEEN COMMENCED, REVOCATIONS
OF SUCH VOTES THEREAFTER MAY BE EFFECTED ONLY WITH THE APPROVAL OF THE
BANKRUPTCY COURT.
THE COMPANY'S OBLIGATION TO ACCEPT THE SENIOR NOTES TENDERED PURSUANT TO
THE EXCHANGE OFFER IS CONDITIONED ON, AMONG OTHER THINGS, (A) THE MINIMUM
TENDER CONDITION AND (B) APPROVAL BY THE COMPANY'S STOCKHOLDERS OF EACH OF
THE RESTRUCTURING PROPOSALS. THE COMPANY RESERVES THE RIGHT TO WAIVE ANY OF
THE CONDITIONS TO THE EXCHANGE RESTRUCTURING BUT DOES NOT CURRENTLY INTEND TO
WAIVE ANY CONDITION. PURSUANT TO THE LETTER AGREEMENT, MAGTEN'S PRIOR WRITTEN
CONSENT IS REQUIRED FOR THE COMPANY TO WAIVE THE MINIMUM TENDER CONDITION.
This Exchange Restructuring Prospectus includes information relating to
the Exchange Offer and the Prepackaged Plan and is organized into a Summary
followed by Parts A and B. Part A to this Exchange Restructuring Prospectus,
entitled "The Exchange Restructuring" ("Part A"), contains information
principally relevant to Noteholders in deciding whether to tender their
Senior Notes pursuant to the Exchange Offer. Part B to this Exchange
Restructuring Prospectus, entitled "Disclosure Statement with respect to Plan
of Reorganization of Salant Corporation" including the appendices attached
thereto (the "Disclosure Statement"), contains additional information
principally relevant to Noteholders and Stockholders in deciding whether to
vote for or against the Prepackaged Plan. Much of the information contained
in the Disclosure Statement is also relevant to Noteholders in deciding
whether to tender their Senior Notes pursuant to the Exchange Offer, and
various sections of the Disclosure Statement are explicitly referenced, but
are not repeated, in Part A. Although each part of this Exchange
Restructuring Prospectus is relevant principally to the persons described in
the preceding sentences, all recipients are urged to review this Exchange
Restructuring Prospectus in its entirety.
Regardless of whether a Noteholder completes a Letter of Transmittal,
such Noteholder should duly complete and sign a Ballot in order to vote on
the Prepackaged Plan. IF THE EXCHANGE OFFER IS NOT CONSUMMATED, BUT THE
PREPACKAGED PLAN IS CONFIRMED BY THE BANKRUPTCY COURT AND CONSUMMATED, EACH
NOTEHOLDER WOULD RECEIVE THE SAME CONSIDERATION OFFERED IN THE EXCHANGE OFFER
WHETHER OR NOT SUCH NOTEHOLDER TENDERED IN THE EXCHANGE OFFER OR VOTED TO
ACCEPT THE PREPACKAGED PLAN.
Noteholders as of the Record Date are eligible to vote on the
Prepackaged Plan. Only registered holders of Senior Notes, or persons who
have obtained a properly completed note power from the registered holders
thereof (for purposes of the Exchange Offer, each a "Noteholder" and
collectively, the "Noteholders"), may tender in the Exchange Offer.
NOTEHOLDERS ARE NOT REQUIRED TO TENDER THEIR SENIOR NOTES IN THE EXCHANGE
OFFER IN ORDER TO VOTE ON THE PREPACKAGED PLAN. FAILURE BY A HOLDER TO SEND A
DULY COMPLETED AND SIGNED BALLOT WILL BE DEEMED TO CONSTITUTE AN ABSTENTION
BY SUCH HOLDER WITH RESPECT TO A VOTE ON THE PREPACKAGED PLAN. Abstentions
will not be counted as votes for or against the Prepackaged Plan. Any Ballot
which is executed by a holder but does not indicate an acceptance or
rejection of the Prepackaged Plan will not be counted as a vote for or
against the Prepackaged Plan. See "TENDERING AND VOTING PROCEDURES" in Part A
and "VOTING PROCEDURES AND REQUIREMENTS" in the Disclosure Statement which is
Part B hereof.
The Company is separately soliciting proxies to be voted at the
Stockholders' Meeting, which will be held to consider proposals briefly
described in the Summary hereof: (i) to approve the Charter Amendment; (ii)
to approve the Issuance; (iii) to approve the Plan Proposal; (iv) to elect
new directors pursuant to the Election of the New Board, and (v) to ratify
the appointment of Deloitte & Touche LLP as independent auditors to the
Company. Noteholders may obtain more detailed information with respect to the
Stockholders' Meeting from the Proxy Statement/Prospectus which has been
delivered to each Stockholder of the Company. Included with the Proxy
Statement/Prospectus is a Proxy and Ballot for use by Stockholders (i) to
vote on the Restructuring Proposals and (ii) to vote on the Prepackaged Plan.
Copies of the Proxy Statement/Prospectus and the accompanying Proxy and
Ballot may be obtained from the Company upon request to the Company at its
principal executive offices. Each of the Restructuring Proposals is
conditioned upon the approval by the Stockholders of each of the other
Restructuring Proposals. If any or all of the Restructuring Proposals are not
approved at the Stockholders' meeting, then none of the Restructuring
Proposals will become effective. In addition, the Stockholder votes with
respect to the Issuance and the Election of the New Board will not become
effective unless and until the Charter Amendment is approved at the
Stockholders' Meeting and filed with the Secretary of State of the State of
Delaware and the Exchange Restructuring is consummated. If the Stockholders
approve the Stock Award and Incentive Plan, the Stock Award and Incentive
Plan will become effective regardless of whether the Exchange Restructuring
is implemented or any of the Restructuring Proposals are approved. However,
the approval of the Stock Award and Incentive Plan is not a condition to the
consummation of the Restructuring. If the Prepackaged Restructuring is
pursued and a petition is filed under the Bankruptcy Code, the Company
expects that each of the Restructuring Proposals will be implemented pursuant
to the Prepackaged Plan.
THE BOARD UNANIMOUSLY RECOMMENDS THAT NOTEHOLDERS TENDER THEIR SENIOR
NOTES IN THE EXCHANGE RESTRUCTURING. On April 21, 1998, at the Board's
request, Ernst & Young LLP ("E&Y"), financial advisor to the Company,
delivered to the Board a written opinion that, as of that date and based upon
and subject to the factors and assumptions set forth therein, the
consideration to be received by Stockholders pursuant to the Restructuring is
fair to public Stockholders from a financial point of view. E&Y subsequently
delivered to the Board their written opinion that, as of the date of Proxy
Statement/Prospectus and based upon and subject to the factors and
assumptions set forth therein, the consideration to be received by
Stockholders pursuant to the Restructuring is fair to public Stockholders
from a financial point of view. See "FAIRNESS OPINION" in Part A.
The proposed financial restructuring of the Company in connection with
the Exchange Offer, as described herein, is referred to as the "Exchange
Restructuring." The proposed financial restructuring of the Company pursuant
to the Prepackaged Plan, as described herein, is referred to as the
"Prepackaged Restructuring." The term "Restructuring" as used herein means
the financial restructuring of the Company pursuant to either the Exchange
Restructuring or the Prepackaged Restructuring.
The Old Common Stock is currently traded on the New York Stock Exchange
(the "NYSE") and is quoted on the NYSE under the symbol "SLT". On _____ __,
1998, the closing sale price for the Old Common Stock was $[ ] per share. The
Company expects that the New Common Stock and the Warrants will be eligible
for listing and will be listed for trading on the NYSE. However, there can be
no assurance that the New Common Stock and/or the Warrants will be listed for
trading on the NYSE. If the Company is unable to have the New Common Stock
and the Warrants listed for trading on the NYSE upon consummation of the
Restructuring, the Company will use its best efforts to cause all New
Common Stock and Warrants to be quoted on the National System of the
National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ") Stock Market or to be listed on another national
securities exchange. However, there is no assurance that the Company would
be successful in such efforts.
BECAUSE NO PREPACKAGED BANKRUPTCY CASE HAS BEEN FILED, NEITHER THIS
EXCHANGE RESTRUCTURING PROSPECTUS NOR THE DISCLOSURE STATEMENT INCLUDED
HEREIN HAVE BEEN APPROVED BY THE BANKRUPTCY COURT WITH RESPECT TO THE
ADEQUACY OF THE INFORMATION CONTAINED HEREIN OR THEREIN. IF SUCH A CASE IS
SUBSEQUENTLY COMMENCED, THE COMPANY INTENDS TO SEEK AN ORDER OF THE
BANKRUPTCY COURT DETERMINING THAT THE SOLICITATION OF VOTES ON THE
PREPACKAGED PLAN WAS IN COMPLIANCE WITH SECTION 1126(b) OF THE BANKRUPTCY
CODE.
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 EXCHANGE RESTRUCTURING 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.
This Exchange Restructuring Prospectus, the Letter of Transmittal and
the applicable Ballot and Master Ballot are first being mailed to Noteholders
on or about _____ __, 1998.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities offered hereby. As permitted by the
rules and regulations of the Commission, this Exchange Restructuring
Prospectus omits certain information, exhibits and undertakings contained in
the Registration Statement. Such additional information, exhibits and
undertakings can be inspected at and obtained from the Commission in the
manner set forth below. For further information with respect to the Company
and to the securities offered hereby, reference is made to the Registration
Statement, and the financial schedules and exhibits filed as a part thereof
and the exhibits thereto. Statements contained in this Exchange Restructuring
Prospectus as to the terms of any contract or other documents are not
necessarily complete and, in each case, reference is made to the copy of each
such contract or other document that has been filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects
by such reference.
The Company is subject to the information and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports, proxy statements and other
information with the Commission. Such reports and other information filed by
the Company with the Commission, as well as the Registration Statement and
the exhibits thereto, can be inspected and copied at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at the Commission's regional offices located 700 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and at 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can also be obtained
by mail from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains an Internet Web Site that contains reports, proxy and information
statements, and other information regarding the Company and other registrants
that file electronically with the Commission. The address of such site is:
http://www.sec.gov. In addition, the Old Common Stock is listed and traded on
the NYSE, and such reports, proxy statements and other information concerning
the Company should be available for inspection and copying at the New York
Stock Exchange, Inc., 11 Wall Street, New York, New York 10005.
THIS EXCHANGE RESTRUCTURING PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY
SUCH DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS
ARE SPECIFICALLY REQUESTED), ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS EXCHANGE RESTRUCTURING
PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST DIRECTED TO SALANT
CORPORATION, ATTENTION: TODD KAHN, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY, 1114 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10036,
TELEPHONE NUMBER (212) 221-7500. IN ORDER TO ASSURE TIMELY DELIVERY OF SUCH
DOCUMENTS PRIOR TO THE EXPIRATION DATE, ANY REQUEST SHOULD BE RECEIVED BY
______ __, 1998. COPIES OF SUCH DOCUMENTS WILL ALSO BE AVAILABLE UPON REQUEST
THEREAFTER UNTIL THE EXCHANGE RESTRUCTURING DATE (AS HEREINAFTER DEFINED).
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer, the Prepackaged Plan or
the solicitation of votes for the Prepackaged Plan, other than those
contained in this Exchange Restructuring Prospectus and in the exhibits
attached hereto or incorporated by reference or referred to herein. If given
or made, such other information or representation may not be relied upon as
having been authorized by the Company. This Exchange Restructuring Prospectus
does not constitute an offer to sell or the solicitation of an offer to buy
any securities other than those to which it relates, or an offer to sell or a
solicitation of an offer to buy any securities in any jurisdiction in which,
or to any person to whom, it is unlawful to make such offer or solicitation.
Neither the delivery of this Exchange Restructuring Prospectus nor any
distribution of securities hereunder shall under any circumstances create any
implication that the information contained herein is correct as of any time
subsequent to the date hereof or that there has been no change in the
information set forth herein or in the affairs of the Company since the date
hereof. Any estimates of Claims (as defined herein) and Interests (as defined
herein) set forth in this Exchange Restructuring Prospectus may vary from the
final amounts of Claims or Interests allowed by the Bankruptcy Court.
FORWARD LOOKING INFORMATION
Certain of the financial information contained herein contains
forward-looking statements within the meaning of Section 27A of the
Securities Act. Where any such forward-looking statement includes a statement
of the assumptions or bases underlying such forward-looking statement, the
Company cautions that assumed facts or bases almost always vary from the
actual results, and the differences between assumed facts or bases and actual
results can be material, depending upon the circumstances. Where, in any
forward-looking statement, the Company or its management expresses an
expectation or belief as to future results, there can be no assurance that
the statement of expectation or belief will result or be achieved or
accomplished. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The works "believe," "expect,"
"estimate," "project," "seek," "anticipate" and similar expression may
identify forward-looking statements.
Taking into account the foregoing, the risk factors set-forth in this
Exchange Restructuring Prospectus are identified as important factors that
could cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company.
TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION......................................................vii
FORWARD LOOKING INFORMATION...............................................viii
PART A -- THE EXCHANGE RESTRUCTURING PROSPECTUS
INDEX OF CERTAIN DEFINED TERMS.............................................A-i
SUMMARY....................................................................A-1
THE COMPANY.............................................................A-1
BACKGROUND OF THE RESTRUCTURING.........................................A-1
THE EXCHANGE OFFER AND PREPACKAGED PLAN.................................A-5
SUMMARY DISTRIBUTION TABLE..............................................A-5
COMPARISON OF EXCHANGE RESTRUCTURING AND PREPACKAGED RESTRUCTURING.....A-12
PURPOSE OF THE RESTRUCTURING...........................................A-14
RISK FACTORS...........................................................A-15
Risk Factors Relating to the Exchange Restructuring and the
Prepackaged Restructuring........................................A-15
Additional Risk Factors Relating to the Prepackaged Restructuring...A-15
TENDERING AND VOTING PROCEDURES........................................A-16
STOCKHOLDERS' MEETING..................................................A-19
DESCRIPTION OF WARRANTS................................................A-22
DESCRIPTION OF NEW CREDIT AGREEMENT....................................A-23
DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT...........................A-24
DESCRIPTION OF RIGHTS PLAN.............................................A-24
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION..................A-25
CAPITALIZATION.........................................................A-27
RISK FACTORS..............................................................A-28
Risk of Nonconsummation of the Restructuring........................A-28
Company Results of Operations Subject to Variable Influences;
Intense Competition..............................................A-28
Dilution............................................................A-28
Limitation on Use of Net Operating Losses...........................A-29
Change in Priority..................................................A-29
Lack of Trading Market for New Common Stock; Volatility; Potential
De-Listing of the New Common Stock...............................A-29
Possible Volatility of Stock Price; Effect of Restructuring on
Stock Price......................................................A-29
Concentrated Ownership of New Common Stock..........................A-30
Absence of and/or Restrictions on Dividends.........................A-30
History of Losses; Effect of Transaction............................A-30
Cash Flow from Operations...........................................A-30
Declines in Net Sales and Gross Profits.............................A-31
Retail Environment..................................................A-31
Apparel Industry Cycles and Other Economic Factors..................A-32
Seasonality and Fashion Risk........................................A-32
Dependence on Certain Customers and Licensees; Effect of
Restructuring on Licenses........................................A-32
Foreign Operations and Sourcing; Import Restrictions................A-33
Dependence on Contract Manufacturing................................A-33
Information Systems and Control Procedures..........................A-33
Leverage and Debt Service...........................................A-34
Restrictive Covenants...............................................A-34
Need for Sustained Trade Support....................................A-34
BACKGROUND OF RESTRUCTURING...............................................A-35
Background of the Restructuring.....................................A-35
The Letter Agreement................................................A-36
The Voting Agreement................................................A-39
The Waiver and Forbearance Under the Credit Agreement...............A-40
PURPOSE OF THE RESTRUCTURING..............................................A-41
RESTRUCTURING FINANCIAL CONSIDERATIONS....................................A-42
Background of the Restructuring Financial Analysis..................A-42
Fairness Opinion....................................................A-42
The Three-Year Business Plan........................................A-46
Liquidation Analysis................................................A-47
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.....................A-48
SALANT CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS...........................................................A-51
PROJECTED CONSOLIDATED FINANCIAL INFORMATION..............................A-52
PROJECTED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS..............A-55
PROJECTED CONDENSED CONSOLIDATED BALANCE SHEETS........................A-56
PROJECTED STATEMENTS OF CONSOLIDATED CASH FLOWS........................A-57
BUSINESS AND PROPERTIES OF THE COMPANY....................................A-58
FISCAL YEAR...............................................................A-59
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION....................A-64
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................A-65
TENDERING AND VOTING PROCEDURES...........................................A-76
The Restructuring...................................................A-76
General.............................................................A-76
Interest on Senior Notes............................................A-77
Expiration Date; Extensions; Amendments.............................A-77
How to Tender in the Exchange Offer.................................A-78
Tenders--Additional Information.....................................A-78
Withdrawal of Tenders and Revocation of Votes.......................A-80
Conditions..........................................................A-81
VOTING ON THE PREPACKAGED PLAN............................................A-82
DESCRIPTION OF NEW COMMON STOCK...........................................A-83
Distributions.......................................................A-83
Voting..............................................................A-83
Election of Directors...............................................A-83
Shares Reserved In Connection With Salant II Chapter 11 Plan........A-84
DESCRIPTION OF CHARTER AMENDMENT.......................................A-84
SALANT CORPORATION 1998 STOCK AWARD AND INCENTIVE PLAN.................A-85
Purpose of the Stock Award and Incentive Plan.......................A-85
Eligibility.........................................................A-85
Plan Administration and Shares Subject to the Stock Award and
Incentive Plan...................................................A-86
Awards..............................................................A-86
Change In Control...................................................A-87
Transferability.....................................................A-87
Certain Federal Income Tax Considerations...........................A-87
New Plan Benefits...................................................A-89
DESCRIPTION OF REGISTRATION RIGHTS PLAN................................A-89
DESCRIPTION OF RIGHTS PLAN.............................................A-89
DESCRIPTION OF CERTAIN EXISTING INDEBTEDNESS OF THE COMPANY...............A-90
General.............................................................A-90
Revolving Credit Agreement..........................................A-90
The Senior Notes....................................................A-91
MARKET FOR OLD COMMON STOCK AND RELATED STOCKHOLDER MATTERS...............A-92
MARKET PRICES OF THE SENIOR NOTES.........................................A-94
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................A-95
Federal Income Tax Consequences to Noteholders......................A-95
Market Discount.....................................................A-95
Federal Income Tax Consequences to the Company......................A-96
Limitation on Net Operating Loss Carryovers.........................A-96
INFORMATION REGARDING NOMINEES............................................A-96
POST RESTRUCTURING STOCK OPTION GRANTS.................................A-97
Exchange Restructuring..............................................A-97
Prepackaged Restructuring...........................................A-97
CERTAIN AFFILIATE TRANSACTIONS............................................A-99
PAYMENTS TO MANAGEMENT....................................................A-99
ADVISORS AND REPRESENTATIVES..............................................A-99
ESTIMATED FEES AND EXPENSES..............................................A-100
LEGAL MATTERS............................................................A-101
EXPERTS..................................................................A-101
PART B--DISCLOSURE STATEMENT
GLOSSARY...................................................................B-i
I. INTRODUCTION.........................................................B-1
A. GENERAL..............................................................B-1
B. THE COMPANY..........................................................B-3
C. CONSUMMATION OF THE RESTRUCTURING....................................B-3
1. Exchange Restructuring............................................B-3
2. Prepackaged Restructuring.........................................B-4
D. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS......B-5
E. NOTICE TO HOLDERS OF CLAIMS AND INTERESTS............................B-8
II. BUSINESS AND PROPERTIES OF THE COMPANY...............................B-9
A. GENERAL..............................................................B-9
1. Introduction......................................................B-9
2. Men's Apparel.....................................................B-9
3. Children's Sleepwear and Underwear................................B-9
4. Retail Outlet Stores.............................................B-10
5. Principal Product Lines..........................................B-10
6. Trademarks Owned by the Company and Related Licensing Income.....B-11
7. Trademarks Licensed to the Company...............................B-11
8. Design and Manufacturing.........................................B-12
9. Raw Materials....................................................B-12
10. Employees.......................................................B-12
11. Competition.....................................................B-13
12. Environmental Regulations.......................................B-13
13. Made in the Shade - Discontinued Operation......................B-13
14. Vera Scarf Division - Discontinued Operation....................B-13
15. Acquisition of JJ. Farmer.......................................B-13
16. Bankruptcy Court Cases..........................................B-13
17. Recent Events...................................................B-14
B. PROPERTIES..........................................................B-14
C. LEGAL PROCEEDINGS...................................................B-14
III. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION..............B-16
IV. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..............................................B-16
A. OVERVIEW............................................................B-18
B. RESULTS OF OPERATIONS...............................................B-18
C. LIQUIDITY AND CAPITAL RESOURCES.....................................B-26
D. YEAR 2000 COMPLIANCE................................................B-29
E. SEASONALITY.........................................................B-29
F. BACKLOG.............................................................B-30
G. FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION......B-30
1. Substantial Level of Indebtedness and the Ability to Restructure
Debt.............................................................B-30
2. Competition......................................................B-30
3. Apparel Industry Cycles and other Economic Factors...............B-30
4. Retail Environment...............................................B-31
5. Seasonality of Business and Fashion Risk.........................B-31
6. Foreign Operations...............................................B-31
7. Dependence on Contract Manufacturing.............................B-31
V. BACKGROUND OF THE RESTRUCTURING.....................................B-32
A. BACKGROUND OF THE RESTRUCTURING.....................................B-32
B. THE LETTER AGREEMENT................................................B-34
C. THE VOTING AGREEMENT................................................B-36
D. THE WAIVER AND FORBEARANCE UNDER THE CREDIT AGREEMENT...............B-37
VI. PURPOSES AND EFFECTS OF THE PREPACKAGED RESTRUCTURING...............B-38
A. PURPOSE OF THE PREPACKAGED RESTRUCTURING............................B-38
B. EFFECTS OF THE PREPACKAGED RESTRUCTURING............................B-40
1. Dilution of Equity Interests.....................................B-40
2. Provisions For Employees.........................................B-41
VII. THE CHAPTER 11 CASE.................................................B-41
A. TIMETABLE FOR THE CHAPTER 11 CASE...................................B-41
B. COMMITTEES..........................................................B-42
C. ACTIONS TO BE TAKEN UPON COMMENCEMENT OF CASE.......................B-42
1. Applications to Retain Professionals.............................B-42
2. Motion to Waive Filing of Schedules and Statement of Financial
Affairs..........................................................B-42
3. Motion To Mail Notices And To Provide Only Publication Notice
Of Meeting Of Creditors To Unimpaired Creditors..................B-42
4. Motion to Continue Using Existing Bank Accounts, Payroll
Accounts and Business Forms......................................B-43
5. Motion for Authority to Pay Prepetition Employee Wages and
Associated Benefits..............................................B-43
6. Motion for Authority to Maintain Workers' Compensation
Insurance Policies and to Pay Prepetition Workers' Compensation
Claims...........................................................B-43
7. Chapter 11 Financing.............................................B-43
8. Motion to Honor Commission and Expense Checks....................B-43
9. Motion Restraining and Enjoining Utilities from Discontinuing
Service..........................................................B-44
10. Motion to Pay Custom Duties, Broker Charges, Shipping Charges
and Related Possessory Liens.....................................B-44
11. Disclosure Statement/Confirmation Hearings......................B-44
VIII. OFFICERS AND DIRECTORS..............................................B-44
A. DIRECTORS...........................................................B-44
B. EXECUTIVE OFFICERS..................................................B-46
IX. SUMMARY OF THE PREPACKAGED PLAN.....................................B-47
A. BRIEF EXPLANATION OF CHAPTER 11.....................................B-47
B. GENERAL INFORMATION CONCERNING TREATMENT OF CLAIMS AND INTERESTS....B-47
C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS................B-48
1. Unclassified Claims..............................................B-49
2. Classified Claims And Interests..................................B-51
D. SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PREPACKAGED PLAN..B-53
1. The New Common Stock.............................................B-53
2. The Warrants.....................................................B-54
3. Market And Trading Information...................................B-56
E. SOURCES OF CASH TO MAKE PREPACKAGED PLAN DISTRIBUTIONS..............B-56
F. EXECUTORY CONTRACTS AND UNEXPIRED LEASES............................B-56
1. Generally........................................................B-56
2. Assumption and Rejection.........................................B-57
3. Bar Date for Rejection Damages...................................B-57
G. IMPLEMENTATION OF THIS PLAN........................................B-57
1. Vesting of Property..............................................B-57
2. Transactions on Business Days....................................B-57
3. Restated Certificate of Incorporation; Restated By-Laws..........B-57
4. Implementation...................................................B-58
5. Issuance of New Securities.......................................B-58
6. Cancellation of Existing Securities and Agreements...............B-58
7. Board of Directors of Reorganized Salant.........................B-58
8. Employee Benefit Plans...........................................B-58
9. The Stock Award and Incentive Plan...............................B-58
10. Survival of Indemnification Obligations.........................B-58
11. Listing of New Common Stock; Registration of Securities.........B-59
12. Retention and Enforcement of Causes of Action...................B-59
H. PROVISIONS COVERING DISTRIBUTIONS..................................B-59
1. Timing of Distributions Under the Prepackaged Plan...............B-59
2. Allocation of Consideration......................................B-59
3. Cash Payments....................................................B-60
4. Payment of Statutory Fees........................................B-60
5. No Interest......................................................B-60
6. Fractional Securities............................................B-60
7. Withholding of Taxes.............................................B-60
8. Pro Rata Distribution............................................B-60
9. Distribution Record Date.........................................B-61
10. Persons Deemed Holders of Registered Securities.................B-61
11. Surrender of Existing Securities................................B-61
12. Special Procedures for Lost, Stolen, Mutilated or Destroyed
Instruments......................................................B-61
13. Undeliverable or Unclaimed Distributions........................B-61
I. PROCEDURES FOR RESOLVING DISPUTED CLAIMS...........................B-62
1. Objections to Claims.............................................B-62
2. Procedure........................................................B-62
3. Payments and Distributions With Respect to Disputed Claims.......B-62
4. Timing of Payments and Distributions With Respect to Disputed
Claims..........................................................B-62
5. Individual Holder Proofs of Interest.............................B-63
J. DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS..........B-63
1. Discharge of All Claims and Interests and Releases...............B-63
2. Injunction.......................................................B-63
3. Exculpation......................................................B-64
4. Guaranties and Claims of Subordination...........................B-64
K. CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE......B-65
1. Conditions Precedent to Entry of the Confirmation Order..........B-65
2. Conditions Precedent to the Effective Date.......................B-65
3. Waiver of Conditions.............................................B-65
4. Effect of Failure of Conditions..................................B-65
L. MISCELLANEOUS PROVISIONS...........................................B-66
1. Bankruptcy Court to Retain Jurisdiction..........................B-66
2. Binding Effect of this Plan......................................B-66
3. Nonvoting Stock..................................................B-66
4. Authorization of Corporate Action................................B-66
5. Retiree Benefits.................................................B-66
6. Withdrawal of the Prepackaged Plan...............................B-67
7. Dissolution of Statutory Committees..............................B-67
8. Fees, Costs and Expenses of Indenture Trustee....................B-67
9. Amendments and Modifications to the Prepackaged Plan.............B-67
10. Section 1125(e) of the Bankruptcy Code..........................B-67
X. DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT.........................B-68
XI. DESCRIPTION OF NEW CREDIT AGREEMENT.................................B-68
XII. DESCRIPTION OF STOCK AWARD AND INCENTIVE PLAN......................B-68
A. PURPOSE OF THE STOCK AWARD AND INCENTIVE PLAN.......................B-69
B. ELIGIBILITY.........................................................B-69
C. PLAN ADMINISTRATION AND SHARES SUBJECT TO THE STOCK AWARD AND
INCENTIVE PLAN......................................................B-69
D. AWARDS..............................................................B-69
E. CHANGE IN CONTROL...................................................B-70
F. TRANSFERABILITY.....................................................B-71
G. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS...........................B-71
H. TREATMENT OF OLD OPTIONS............................................B-72
XIV. RISK FACTORS........................................................B-72
A. DISRUPTION OF OPERATIONS RELATING TO BANKRUPTCY FILING..............B-72
B. CERTAIN RISKS OF NON-CONFIRMATION...................................B-73
C. CERTAIN BANKRUPTCY CONSIDERATIONS...................................B-74
1. Treatment Of The Warrants........................................B-74
2. Failure To File Prepackaged Plan.................................B-74
3. Effect On Operations.............................................B-75
4. Nonconsensual Confirmation.......................................B-75
D. ADDITIONAL RISK FACTORS.............................................B-75
1. Company Results of Operations Subject to Variable Influences;
Intense Competition..............................................B-75
2. Dilution.........................................................B-76
3. Limitation on Use of Net Operating Losses........................B-76
4. Lack of Trading Market for Warrants and New Common Stock;
Volatility; Potential De-Listing of the New Common Stock.........B-76
5. Possible Volatility of Stock Price; Effect of Restructuring on
Stock Price......................................................B-77
6. Concentrated Ownership of New Common Stock.......................B-77
7. Absence of and/or Restriction on Dividends.......................B-77
8. History of Losses; Effect of Transaction.........................B-77
9. Cash Flow From Operations........................................B-78
10. Declines in Net Sales and Gross Profits.........................B-78
11. Retail Environment..............................................B-79
12. Apparel Industry Cycles and Other Economic Factors..............B-79
13. Seasonality and Fashion Risk....................................B-79
14. Dependence on Certain Customers and Licensees; Effect of
Restructuring on Licenses.......................................B-79
15. Foreign Operations and Sourcing; Import Restrictions............B-80
16. Dependence on Contract Manufacturing............................B-80
17. Information Systems and Control Procedures......................B-80
18. Leverage and Debt Service.......................................B-81
19. Restrictive Covenants...........................................B-81
20. Need for Sustained Trade Support................................B-82
XV. OWNERSHIP OF OLD COMMON STOCK.......................................B-82
XVI. MARKET FOR OLD COMMON STOCK AND RELATED STOCKHOLDER MATTERS.........B-83
XVII. MARKET PRICES OF THE SENIOR NOTES...................................B-86
XVIII.APPLICATION OF SECURITIES ACT.......................................B-86
A. THE SOLICITATION....................................................B-86
B. ISSUANCE AND RESALE OF NEW SECURITIES UNDER THE PREPACKAGED PLAN....B-86
XIX. PRO FORMA FINANCIAL STATEMENTS......................................B-87
XX. DESCRIPTION OF INDEBTEDNESS OF THE COMPANY..........................B-93
A. REVOLVING CREDIT AGREEMENT..........................................B-93
B. THE SENIOR NOTES....................................................B-94
XXI. FINANCIAL PROJECTIONS AND ASSUMPTIONS USED..........................B-95
A. GENERAL ASSUMPTIONS.................................................B-95
B. THE THREE-YEAR BUSINESS PLAN........................................B-97
XXII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PREPACKAGED PLAN.....B-102
A. FEDERAL INCOME TAX CONSEQUENCES TO SALANT...........................B-102
1. Cancellation Of Indebtedness Income..............................B-102
2. Limitation On Net Operating Loss Carryovers......................B-102
B. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF SENIOR NOTES..........B-102
1. General..........................................................B-102
2. Market Discount..................................................B-103
C. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF OLD COMMON STOCK......B-103
1. General..........................................................B-103
2. Disposition......................................................B-103
3. Exercise Or Lapse Of Warrants....................................B-103
4. Adjustment To Exercise Price.....................................B-104
XXIII.FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF
CREDITORS TEST....................................................B-104
A. CONFIRMATION HEARING................................................B-104
B. FEASIBILITY OF THE PREPACKAGED PLAN.................................B-106
C. BEST INTERESTS TEST.................................................B-106
D. NONCONSENSUAL CONFIRMATION..........................................B-113
1. No Unfair Discrimination.........................................B-114
2. Fair and Equitable Test..........................................B-114
XXIV. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PREPACKAGED
PLAN...............................................................B-114
A. CONTINUATION OF THE CHAPTER 11 CASE.................................B-114
B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11...........................B-115
XXV. VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN.....................B-115
A. VOTING PROCEDURES FOR PREPACKAGED PLAN AND REQUIREMENTS.............B-116
B. WHO MAY VOTE........................................................B-117
C. PROCEDURES FOR HOLDERS OF OLD SECURITIES TO VOTE ON
PREPACKAGED PLAN...................................................B-117
D. BENEFICIAL OWNERS OF OLD SECURITIES.................................B-118
E. BROKERAGE FIRMS, BANKS AND OTHER NOMINEES...........................B-118
F. SECURITIES CLEARING AGENT...........................................B-119
G. INCOMPLETE BALLOTS..................................................B-119
H. VOTING DEADLINE AND EXTENSIONS......................................B-119
I. WITHDRAWAL OF VOTES ON THE PREPACKAGED PLAN.........................B-120
J. INFORMATION AGENT...................................................B-120
XXVI. CONCLUSION..........................................................B-120
PART A
THE EXCHANGE RESTRUCTURING PROSPECTUS
INDEX OF CERTAIN DEFINED TERMS
As used in this Exchange Restructuring Prospectus, the following are the
meanings for the terms set forth below:
"1995 Business Plan"..........means the business plan formulated in fiscal
1995 to improve the Company's overall liquidity.
"Apollo"......................means Apollo Apparel Partners, L.P., a Delaware
limited partnership, in its capacity as the
beneficial owner of 5,924,352 shares of Old
Common Stock.
"Ballots" ....................means the forms to be distributed to vote on
the Prepackaged Plan, included herewith.
"Bankruptcy Code" ............means title 11 of the United States Code, as
amended from time to time.
"Bankruptcy Court" ...........means the United States Bankruptcy Court for
the Southern District of New York.
"Board" ......................means the Board of Directors of the Company.
"By-Laws" ....................means the By-Laws, as amended, of the Company.
"Certificate of
Incorporation" ..............means the Amended and Restated
Certificate of Incorporation of the Company.
"Charter Amendment" ..........means the proposed Certificate of Amendment to
the Company's Amended and Restated Certificate
of Incorporation, as more fully described
herein.
"CIT" ........................means The CIT Group/Commercial Services, Inc.,
the lender under the Credit Agreement.
"Claim" ......................means any right to (a) payment from the
Company, whether or not such right is reduced
to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or
unsecured or (b) an equitable remedy for breach
of performance if such breach gives rise to a
right to payment from the Company, whether or
not such right to an equitable remedy is
reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed,
secured or unsecured.
"Commission" .................means the Securities and Exchange Commission.
"Company" ....................means, unless the context otherwise requires,
Salant Corporation, a Delaware corporation, and
its wholly owned subsidiaries.
"Credit Agreement" ...........means the Revolving Credit, Factoring and
Security Agreement, dated as of September 20,
1993, as amended, modified or supplemented from
time to time.
"Deloitte & Touche" ..........means Deloitte & Touche LLP, independent
auditors to the Company.
"Depositary" .................means __________, the entity which will act as
agent for the tendering Noteholders for the
purposes of receiving New Common Stock from the
Company and transmitting such New Common Stock
to tendering Noteholders.
"Disclosure Statement" .......means Part B of the Exchange Restructuring
Prospectus, entitled "THE PREPACKAGED
RESTRUCTURING DISCLOSURE STATEMENT," including
the appendices attached thereto.
"Election of the
New Board" ..................means the election of new directors to the
Board as of the Exchange Restructuring Date.
"Exchange Act" ...............means the Securities Exchange Act of 1934, as
amended.
"Exchange Offer" .............means the Company's offer to exchange shares of
New Common Stock for the Senior Notes pursuant
to the terms of the Exchange Restructuring.
"Exchange Restructuring" .....means the proposed financial restructuring of
the Company, as more fully set forth herein.
"Exchange
Restructuring Date" .........means the date of consummation of the
Restructuring.
"Exchange Restructuring
Prospectus" .................means the Prospectus to be delivered to
the Noteholders in connection with the Exchange
Offer and the Prepackaged Plan, included herein
as Part A.
"Exercise Price" .............means $6.2648 per share, subject to adjustment.
"Expiration Date" ............means, with respect to the Exchange Offer and
the solicitation of acceptances of the
Prepackaged Plan, 5:00 p.m., New York City
time, on ______ __, 1998, unless the Company,
in its sole discretion, extends the Exchange
Offer or solicitation period, in which case the
term "Expiration Date" for the Exchange Offer
or solicitation period shall mean the last time
and date to which the Exchange Offer or
solicitation period is extended.
"E&Y" ........................means Ernst & Young LLP, financial advisor to
the Company in connection with the
Restructuring.
"Fiscal 1997" ................means the fiscal year of the Company for
accounting purposes which ended on January 3,
1998.
"Forbearance Agreement" ......means the Twelfth Amendment and Forbearance
Agreement, dated as of March 2, 1998, by and
between the Company and CIT, and included as
Exhibit 10.43 to the Company's Registration
Statement on Form S-4 of which this Exchange
Restructuring Prospectus is a part.
"GAAP" .......................means generally accepted accounting principles.
"Indenture" ..................means the Indenture, dated September 20, 1993,
as amended, between the Company and Bankers
Trust Company, as Trustee, relating to the
Senior Notes.
"Interests" ..................means the equity interests in the Company,
including, but not limited to, shares of common
stock and shares of preferred stock of the
company and any options, warrants, calls,
subscriptions or other similar rights or
agreements, commitments or outstanding
securities obligating the Company to issue,
transfer or sell any shares of capital stock of
the Company.
"Issuance" ...................means the issuance of (i) the shares of New
Common Stock to the Noteholders in exchange for
their Senior Notes and to the Stockholders in
exchange for their Old Common Stock; (ii) the
Warrants; and (iii) the shares of New Common
Stock to holders of Warrants upon exercise of
their Warrants, pursuant to the Exchange
Restructuring.
"Letter Agreement" ...........means that certain letter agreement, dated
March 2, 1998, among Magten, Apollo and the
Company, regarding the basic terms and
conditions of the Restructuring, and filed as
Exhibit 10.42 to the Company's Registration
Statement on Form S-4 of which this Exchange
Restructuring Prospectus is a part.
"Letter of Transmittal" ......means the letter of transmittal mailed to the
Stockholders with the Proxy
Statement/Prospectus or to the Noteholders with
the Exchange Restructuring Prospectus, as
applicable.
"Magten" .....................means Magten Asset Management Corp., a New York
corporation, in its capacity as the beneficial
owner, or the investment manager on behalf of
the beneficial owners of, not less than $70
million in aggregate principal face amount of
the Senior Notes as of April 1, 1998.
"Master Ballots" .............means ballots to be voted on behalf of
beneficial owners of Old Common Stock with
respect to the Prepackaged Plan by such
beneficial owners' broker or other record
holder of such shares.
"Minimum
Tender Condition" ...........means the condition to the Exchange Offer
requiring 100% of the aggregate principal
amount of the Senior Notes to be validly
tendered and not withdrawn prior to the
Expiration Date.
"NASD" .......................means the National Association of Securities
Dealers, Inc.
"New Common Stock" ...........means shares of common stock, par value $1.00
per share, of the Company to be issued pursuant
to the Restructuring.
"New Credit Agreement" .......means the agreement in respect of a new working
capital facility to be entered into by the
Company and either CIT or another working
capital lender on the Exchange Restructuring
Date, and which will replace the Company's
current working capital facility under the
Credit Agreement.
"Noteholders" ................means the holders of the Senior Notes.
"NYSE" .......................means the New York Stock Exchange, Inc.
"Old Common Stock" ...........means the issued and outstanding common stock,
par value $1.00 per share, of the Company
authorized prior to the Restructuring.
"Old Plans" ..................means the Company's 1987 Stock Plan, 1988 Stock
Plan, 1993 Stock Plan and 1996 Stock Plan.
"Prepackaged Plan" ...........means the prepackaged plan of reorganization of
the Company under Chapter 11 of the Bankruptcy
Code contemplated by the Prepackaged
Restructuring and attached hereto as Appendix I.
"Prepackaged
Restructuring" ..............means the proposed financial restructuring of
the Company pursuant to the Prepackaged Plan,
as more fully described herein.
"Plan Proposal" ..............means the proposal to approve the adoption of
the Stock Award and Incentive Plan.
"Proposals" ..................means collectively the (A) proposal to ratify
Deloitte & Touche as independent auditors, (B)
the Plan Proposal, and (C) the Restructuring
Proposals.
"Proxy" ......................means the proxy card mailed to Stockholders,
together with the Proxy Statement/Prospectus
which also serves as a Letter of Transmittal
for the Stockholder.
"Proxy
Statement/Prospectus" .......means the Proxy Statement/Prospectus of the
Company mailed to Stockholders in connection
with the Stockholders' Meeting.
"Record Date" ................means _____ __, 1998.
"Registration Statement" .....means the Registration Statement on Form S-4
that the Company filed with the Commission
under the Securities Act, with respect to the
securities offered hereby.
"Restructuring Proposals" ....means the proposals of the Board that are
described herein (A) to approve the Charter
Amendment, (B) to approve the Issuance, and (C)
to elect new directors pursuant to the Election
of the New Board.
"Reorganized Salant" .........means Salant Corporation, from and after
consummation of the Prepackaged Restructuring.
"Restructuring" ..............means the financial restructuring of the
Company pursuant to either the Exchange
Restructuring or the Prepackaged Restructuring,
as the case may be.
"Reverse Split" ..............means the ten-to-one reverse stock split of the
Company's common stock to be effected pursuant
to the Charter Amendment.
"Rights Plan" ................means the shareholder rights plan between the
Company and Chase Manhattan Bank, N.A., as
rights agent, dated December 8, 1987, as
amended.
"Securities Act" .............means the Securities Act of 1933, as amended.
"Senior Notes" ...............means the 10-1/2% Senior Secured Notes due
December 31, 1998, of the Company that were
issued pursuant to the Indenture.
"Series A
Preferred Stock" ............means the 50,000 shares of preferred stock
designated as "Series A Junior Participating
Preferred Stock" authorized pursuant to a
resolution adopted by the Board on December 8,
1987, in connection with the Rights Plan.
"Solicitation" ...............means the solicitation of Stockholders'
acceptances of the Restructuring Proposals and
the Prepackaged Plan, as contemplated under the
Proxy Statement/Prospectus, or the solicitation
of the Noteholders' acceptance of the
Prepackaged Plan in connection with the
Exchange Offer, as applicable.
"Stock Award and
Incentive Plan" .............means the Company's 1998 Stock Award and
Incentive Plan, a copy of which is attached
hereto as Annex III.
"Stockholders" ...............means the holders of Old Common Stock.
"Stockholders' Meeting" ......means the Annual Meeting of Stockholders of the
Company to be held on _____ __, 1998 at __:__
_.m., New York City time, at Fried, Frank,
Harris, Shriver & Jacobson, One New York Plaza,
New York, New York 10004.
"Three-Year Business Plan " ..means the Company's Three-Year Operating Plan
for 1998-2000.
"Trustee" ....................means Bankers Trust Company, as trustee under
the Indenture.
"Warrants" ...................means the Warrants exercisable for shares of
New Common Stock and issued in accordance with
the Warrant Agreement.
"Warrant Agreement" ..........means the Warrant Agreement under which the
Warrants will be issued, a copy of which is
attached hereto as Annex II.
"Warrant Shares" .............means shares of New Common Stock issued to
holders of Warrants upon exercise of their
Warrants.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Exchange Restructuring Prospectus. Reference is made to, and this
summary is qualified in its entirety by, the more detailed information
contained in this Exchange Restructuring Prospectus, the Annexes hereto and
the documents incorporated by reference herein. Noteholders are urged to read
this Exchange Restructuring Prospectus and the Annexes hereto in their
entirety. References herein to the "Company" shall, unless the context
otherwise requires, refer to Salant Corporation and its subsidiaries.
THE COMPANY
The Company, which was incorporated in Delaware in 1987, is the
successor to a business founded in 1893 and incorporated in New York in 1919.
The Company is a leading designer, manufacturer, importer and marketer of a
broad line of men's apparel, neckwear and belts and children's sleepwear and
underwear. The Company's corporate headquarters is located at 1114 Avenue of
the Americas, New York, New York 10036, and its telephone number at that
address is (212) 221-7500. The Company's apparel products are sold under
internationally recognized owned and licensed brand names, including Perry
Ellis, Manhattan, John Henry and Joe Boxer trademarks, as well as under
retailers' private labels. The Company's collection of Perry Ellis menswear
which includes collection sportswear, casual and dress shirts, slacks, jeans,
neckwear and belts, is the Company's largest product offering. In Fiscal
1997, products sold under the Perry Ellis, Perry Ellis Portfolio and Perry
Ellis America brand names (the "Perry Ellis Trademarks") represented 44% of
the Company's total Fiscal 1997 net sales.
The Company's merchandise is sold throughout the United States to
leading retailers, including Federated Department Stores, Inc., May Company,
Dillards Department Stores, Dayton Hudson, Sears, Roebuck & Co., WalMart,
and K-Mart. The Company believes its relationships with a wide variety of
leading retailers, design expertise, low-cost manufacturing operations and
sourcing relationships allow it to participate in numerous areas of the men's
apparel industry.
For additional information concerning the Company and its business,
financial position and operations, see "BUSINESS AND PROPERTIES OF THE
COMPANY", "SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS".
BACKGROUND OF THE RESTRUCTURING
On February 22, 1985, Salant Corporation, a New York corporation
("Salant NY") and its two largest subsidiaries, Thomson Company, Inc.
("Thomson") and Obion Company, Inc. ("Obion"), filed with the Bankruptcy
Court separate voluntary petitions for relief under Chapter 11 of title 11 of
the Bankruptcy Code (Case Nos. 85-B-10229 (PBA) through 85-B-10231 (PBA),
inclusive) ("Salant NY"). Salant NY's other United States, Canada and Mexico
subsidiaries did not seek relief under the Bankruptcy Code or other foreign
insolvency laws, respectively. On May 19, 1987, the Bankruptcy Court issued
an order confirming the Joint Chapter 11 Plan of Salant NY, Thomson and Obion
(the "1987 Chapter 11 Plan"). The 1987 Chapter 11 Plan was consummated on
June 2, 1987. On June 2, 1987, pursuant to the provisions of the 1987 Chapter
11 Plan, the assets and liabilities of Salant NY, Thomson and Obion were
substantively consolidated, and Salant NY, Thomson and Obion and the inactive
subsidiaries of Salant NY merged with a wholly-owned subsidiary of Salant NY.
The Company is the surviving corporation of such merger.
On June 27, 1990, the Company and its wholly-owned subsidiary, Denton
Mills, Inc. ("Denton Mills"), each filed with the Bankruptcy Court a separate
voluntary petition for relief under Chapter 11 of the Bankruptcy Code (Case
Nos. 90-B-12037(CB) and 90-B-12038(CB)) (the "1990 Chapter 11 Case"). On July
30, 1993, the Bankruptcy Court issued an order confirming the Third Amended
Joint Plan of Reorganization of the Company and Denton Mills (the "1993
Chapter 11 Plan"). The 1993 Chapter 11 Plan was consummated on September 20,
1993.
Pursuant to the 1993 Chapter 11 Plan, on September 20, 1993, the
Company issued the Senior Notes. While issuance of the Senior Notes
facilitated the Company's emergence from Chapter 11, the Company, as a
result, was capitalized with a significant amount of long-term debt. In
connection with the formulation of the 1993 Chapter 11 Plan, management of
the Company believed that, based upon projected operating results, the
Company would be able to refinance the Senior Notes prior to their final
maturity. The entire aggregate principal amount of the Senior Notes (which
is currently in the aggregate amount of $104.879 million) becomes due on
December 31, 1998. Since emerging from bankruptcy in September 1993, the
Company has from time to time explored various strategies regarding its
overall business operations and, in particular, various possible
transactions that would result in a refinancing of its long-term debt
obligations. In this connection, during the period from the beginning of
Fiscal 1997 through the date of this Exchange Restructuring Prospectus,
including since the announcement of the proposed Restructuring on March 3,
1998, the Company has from time to time received indications of interest
from various third parties to purchase all or a portion of the Company's
businesses or assets. During this period, the Company's refinancing efforts
have been significantly hampered by its inconsistent operating results and
the fact that investors in the marketplace generally do not look favorably
upon investing in highly-leveraged apparel companies.
In the latter half of Fiscal 1997, the Company, working with the
Company's various investment banking firms, the Board and management analyzed
and assessed its financial situation and explored the availability of capital
in both the private and public debt and equity markets for the purpose of
recapitalizing the Company. The investment banking firms advised the Company
that they did not believe that the Company could recapitalize by use of the
capital markets, in light of the Company's past inconsistent operating
performance, together with the reluctance of investors to invest in apparel
companies suffering from high debt-to-equity ratios.
The Company's unfavorable operating results continued throughout the
fourth quarter of Fiscal 1997. Net sales for the fourth quarter of Fiscal
1997 were $116.4 million, a 1.1% increase from the comparable quarter in
1996, however, the Company's net losses amounted to $5.6 million (as
compared to a net income of $6.1 million in 1996), and the loss from
continuing operations before interest, income taxes and extraordinary gain
was $2.4 million (as compared to $10.6 million of income from continuing
operations before interest and income taxes for the same quarter of 1996).
These results heightened the Company's concern that absent a restructuring
or other extraordinary transaction, it would be difficult for the Company
to make the principal payment under its Senior Notes due on December 31,
1998 of $104.879 million. Moreover, during the fourth quarter of Fiscal
1997, the Company closed 42 of its retail outlets (representing all retail
outlets other than the Perry Ellis outlet stores), determined to close one
of its distribution centers and changed the sourcing of a portion of its
Perry Ellis product line. While these changes were essential to streamline
the Company by eliminating non-core businesses and correcting certain
operational issues, these actions had a detrimental affect on the Company's
earnings and profitability in Fiscal 1997. As a result, heading into fiscal
year 1998, the Company was concerned that, in light of its inconsistent
operating performance and the Company's inability to access the capital
markets in order to refinance or retire its indebtedness under the Senior
Notes, the Company's ability to maintain the support and confidence of its
trade vendors was at risk. In that connection, the Company, in consultation
with its financial advisors, decided that it needed to immediately address
the Company's high level of indebtedness in order to avoid any permanent
adverse effects on its business operations, future productivity and growth
potential. In addition, as a result of the Company's performance during
Fiscal 1997, as of January 3, 1998, the Company had failed to meet certain
of the financial covenants contained in the Credit Agreement (the "CIT
Financial Covenants"). In this connection, the Company reviewed the
advisability of making the $5.5 million interest payment on the Senior
Notes due and payable on March 2, 1998 with a view towards maximizing
liquidity in order to appropriately fund operations during the pendency of
the restructuring transactions. Commencing in December 1997, the Company
began discussions with CIT regarding a possible restructuring of the
Company's indebtedness under the Senior Notes (including various issues
relating to the Company's failure to meet the CIT Financial Covenants and
the upcoming March 1998 interest payment on the Senior Notes). The Company
believed that, given the potential instability that is associated with any
restructuring process, it would be most productive to adopt a strategy to
maximize liquidity and thereby protect the total enterprise value of the
Company. The Company also concluded that the Noteholders and the
Stockholders would best be served by converting the Senior Notes into
equity of the Company, thus allowing the Company to eliminate a significant
portion of its debt and substantially improve its balance sheet.
In furtherance of the Company's continuing efforts to deleverage, the
Company approached Magten, to discuss the possible terms and conditions of a
restructuring of the indebtedness under the Senior Notes, including the
Senior Notes held by Magten (the "Magten Notes"). In addition, in connection
with the Company's efforts to restructure, the Company developed the
Three-Year Business Plan. See "The Three-Year Business Plan." During the
months of January and February, 1998, the Company continued to actively
discuss a restructuring of the Company with Magten and Apollo, the beneficial
owner of 5,924,352 shares (the "Apollo Shares") of Old Common Stock,
representing approximately 39.6% of the issued and outstanding shares. During
this period, the Company continued its negotiations with CIT to ensure its
support of the Restructuring. These efforts culminated in the Letter
Agreement.
In connection with the discussions concerning the Restructuring by the
parties, and in order to determine the allocation of the equity of the
Company among the Stockholders and Noteholders upon consummation of the
Restructuring, the parties assumed a total enterprise value for the Company
of $185 million. The parties also assumed that the average outstanding
balance under the Company's working capital facility for the
post-restructured Company would be $60 million. Thus, the total net equity
value of the Company after giving effect to the Restructuring was assumed to
be $125 million. Neither the Company, Magten nor Apollo has expressed any
opinion as to the accuracy of any of the foregoing assumptions, including,
without limitation, the enterprise value of the Company. Such assumptions
were made solely for purposes of allocating the equity of the Company
post-Restructuring among the Noteholders and Stockholders pursuant to the
Restructuring and should not in any way be viewed as indicative of any
party's opinion as to the total enterprise value of the Company.
As a result of the foregoing assumptions and calculations, the parties
agreed in the Letter Agreement that they would each support the
Restructuring (subject to certain conditions), pursuant to which (i)
Noteholders would receive 92.5% of the New Common Stock, which value would
imply a distribution of equity to Noteholders valued at $110 million after
giving effect to the conversion of the Senior Notes and after taking into
consideration the value of the Warrants as determined below (which is
approximately the aggregate outstanding amount under the Senior Notes -
i.e., $104.879 million in aggregate principal amount and $5.5 million in
accrued and unpaid interest as of March 2, 1998); and (ii) Stockholders
would receive (a) 7.5% of the New Common Stock, which value would imply a
distribution of equity to Stockholders valued at $8.9 million after taking
into consideration the value of the Warrants as determined below, and (b)
seven year Warrants representing the right to purchase 10% of the New
Common Stock (on a fully diluted basis). Using the Black-Scholes option
pricing formula, which incorporates such factors as the relationship of the
underlying stock's price to the strike price of the Warrants and the time
remaining until the Warrants expire, a value of $6.1 million is implied for
the Warrants.
On March 2, 1998, Magten, Apollo and the Company entered into the Letter
Agreement setting forth the basic terms and conditions of the Restructuring.
Pursuant to the Letter Agreement, the parties agreed, among other things, to
support the Restructuring on the following terms: (i) the entire $104.879
million outstanding aggregate principal amount of, and all accrued and unpaid
interest on, the Senior Notes would be converted into 92.5% of the Company's
issued and outstanding New Common Stock, subject to dilution for shares of
New Common Stock issued under the Stock Award and Incentive Plan and the
Warrant Shares, and in the case of the Exchange Restructuring only, the
shares of New Common Stock issued under the Old Plans, and (ii) the Old
Common Stock would be converted into 7.5% of the Company's issued and
outstanding New Common Stock, subject to dilution for shares of New Common
Stock issued under the Stock Award and Incentive Plan and the Warrant Shares,
and in the case of the Exchange Restructuring only, the shares of New Common
Stock issued under the Old Plans, plus Stockholders would receive seven year
Warrants to purchase up to 10% of the Company's New Common Stock, on a fully
diluted basis. In addition, pursuant to the Letter Agreement and in order to
effect the Restructuring, the Company agreed to (a) effectuate the Reverse
Split in order to "normalize" the post-restructuring trading of the New
Common Stock by reducing the number of outstanding shares and, thus,
increasing the per share stock price; (b) elect a new Board, consisting of
between five and seven members and comprised of Mr. Jerald Politzer, as
Chairman, between three and five members nominated by Magten, subject to
consultation with the Company and other Noteholders who may come forward, and
one member nominated by the current Board; (c) enter into a registration
rights agreement for the benefit of Noteholders who will hold 10% or more of
the New Common Stock immediately after occurrence of the Exchange
Restructuring Date, on terms and conditions reasonably acceptable to Magten
and the Company; (d) enter into a New Credit Agreement to replace the
Company's existing working capital facility under the Credit Agreement on
terms and conditions reasonably satisfactory to Magten and Apollo; (e) adjust
all existing stock options and other equity based plans to reflect the
Restructuring and/or adopt the Stock Award and Incentive Plan; and (f) amend
the Company's existing Rights Plan to permit the Restructuring to be
consummated without causing any rights thereunder to become exercisable as a
result. Pursuant to the Letter Agreement, Magten agreed, among other things,
to tender (or with respect to managed accounts, use its reasonable best
efforts to cause to be tendered) all of the Magten Notes in acceptance of the
Exchange Offer, provided that certain conditions are satisfied, including
that (i) all applicable federal and state securities laws are complied with,
and (ii) the terms of the Exchange Offer and the remaining components of the
Restructuring are consistent with the terms of the Exchange Offer and
Restructuring as described in the Letter Agreement. In accordance with the
Letter Agreement, Magten has, in accordance with Section 6.5 of the
Indenture, caused a written direction to be provided to the Trustee, to
forbear during the term of the Letter Agreement from taking any action under
the Indenture in connection with the failure by the Company to make the
interest payment on the Senior Notes that was due and payable on March 2,
1998.
CIT agreed to support the Company's restructuring efforts under the
Letter Agreement and, on March 2, 1998, the Company entered into the
Forbearance Agreement with CIT, wherein CIT (i) waived certain existing
financial covenant defaults under the Credit Agreement as of January 3, 1998,
(ii) agreed to forbear until July 1, 1998 from exercising any of its rights
and remedies under the Credit Agreement arising from the Company's failure to
make the interest payment on the Senior Notes due and payable on March 2,
1998, (iii) agreed to continue making loans, advances and other financial
accommodations to the Company, subject to the terms and conditions of the
Forbearance Agreement, and (iv) agreed to amend certain provisions of the
Credit Agreement, including an increase in the advance rate for revolving
loans made pursuant to the Credit Agreement. In consideration for CIT's
entering into the Forbearance Agreement, the Company agreed to pay CIT
certain fees. See "BACKGROUND OF RESTRUCTURING -- The Waiver and Forbearance
Under the Credit Agreement." Under the Forbearance Agreement, such agreement
to forbear by CIT will terminate on July 1, 1998 or earlier upon the
happening of: (a) the occurrence of any Event of Default (as defined in the
Credit Agreement) (other than the Company's failure to make the March 2, 1998
interest payment on the Senior Notes); (b) the failure of the Company to
execute and deliver to CIT before June 1, 1998, (i) a commitment letter
executed by CIT providing for the agreement between CIT and the Company to
enter into a new $135 million syndicated credit facility (in replacement of
the financing and factoring arrangements provided by CIT pursuant to the
Credit Agreement) on terms and conditions satisfactory to CIT or (ii) a copy
of a commitment letter executed between another lender and the Company
providing for a credit facility to the Company which by its terms provides
for closing and funding thereof on or before July 1, 1998, and enabling the
Company upon such closing and funding to simultaneously terminate the Credit
Agreement and all other Financing Agreements (as defined in the Credit
Agreement) and to satisfy in full all of its then existing Obligations (as
defined in the Credit Agreement) to CIT; (c) the exercise of any right or
remedy with respect to any of the Collateral (as defined in the Credit
Agreement) by any holder of any Senior Notes or by the Trustee under the
Indenture; or (d) the payment of any interest on the Senior Notes in respect
of the Company's failure to make the March 2, 1998 interest payment or
otherwise.
In accordance with the Letter Agreement, Apollo entered into a Voting
Agreement with the Company on May __, 1998, pursuant to which Apollo has
agreed to vote all of the Apollo Shares in favor of each of the
Restructuring Proposals and the Solicitation. See "BACKGROUND OF THE
RESTRUCTURING -- The Voting Agreement." The Company's refinancing efforts
during Fiscal 1997 included discussions with DDJ Capital Management, LLC
("DDJ") regarding a possible refinancing transaction. As of April 20, 1998,
DDJ was the beneficial owner of 1,615,730 shares of Old Common Stock (the
"DDJ Shares"), representing approximately 10.8% of the issued and
outstanding shares of Old Common Stock. In connection with these
discussions, DDJ entered into a confidentiality agreement (the "DDJ
Confidentiality Agreement") with the Company related to DDJ's review of
various materials relative to such proposed refinancing. The DDJ
Confidentiality Agreement contained certain restrictions on the ability of
DDJ to buy or sell the shares of Old Common Stock. In accordance with the
terms of the Letter Agreement, the Company requested that DDJ enter into a
voting agreement with the Company similar to the Voting Agreement entered
into with Apollo. DDJ, however, has informed the Company that it does not
wish to enter into such a voting agreement. In addition, on or about March
3, 1998, DDJ requested that the Company terminate the restrictions on DDJ's
ability to buy or sell shares of Old Common Stock set forth in the DDJ
Confidentiality Agreement. On March 4, 1998, the Company granted this
request.
THE EXCHANGE OFFER AND PREPACKAGED PLAN
Consideration Offered.........For each $1,000 principal amount of Senior
Notes (plus accrued but unpaid interest),
Noteholders will receive 175.977555 shares of
New Common Stock. As a result of the Exchange
Restructuring, as of the Exchange Restructuring
Date, Noteholders will receive, in the
aggregate, shares of New Common Stock
equivalent to 92.5% of the New Common Stock
issued and outstanding immediately following
consummation of the Exchange Restructuring,
based on the number of outstanding shares of
Old Common Stock as of the Record Date, and
subject to dilution for shares of New Common
Stock issued under the Stock Award and
Incentive Plan and the Warrant Shares, and in
the case of the Exchange Restructuring only,
shares of New Common Stock issued under the Old
Plans. The allocations of distributions of the
New Common Stock under the Exchange
Restructuring to the holders of the Senior
Notes will be pro rata based on the amount of
the holders' respective claims relating to the
Senior Notes held by them. Noteholders will
not be entitled to receive Warrants. Should
the Prepackaged Restructuring be consummated,
the Noteholders will receive consideration
substantially similar to that which such
holders would receive in the Exchange
Restructuring.
SUMMARY DISTRIBUTION TABLE
EXISTING NEW COMMON
SECURITY STOCK WARRANTS
-------- ---------- --------
To Stockholders:
Per 1,000 Shares ........ 1,000 100 148.14815
In Aggregate ............ 14,964,608 1,496,461 2,216,979
To Noteholders:
Per $1,000 Principal .... $ 1,000 175.977555 --
Face Amount of, and all
accrued and unpaid
interest through the
Exchange Restructuring
Date, on the Senior Notes
In Aggregate ............ $104,879,000 18,456,350 --
For more information on consideration offered pursuant to the
Restructuring, see Part A.
Expiration Date...............With respect to the Exchange Offer and the
solicitation of acceptances of the Prepackaged
Plan, the term "Expiration Date" shall mean
5:00 p.m., New York City time, on _____ __,
1998, unless the Company, in its sole
discretion, extends the Exchange Offer or
solicitation period, in which case the term
"Expiration Date" for the Exchange Offer or
solicitation period shall mean the last time
and date to which the Exchange Offer or
solicitation period is extended. See
"TENDERING AND VOTING PROCEDURES" in Part A and
"VOTING PROCEDURES AND REQUIREMENTS" in the
Disclosure Statement.
Interest on Senior Notes......The consideration to be paid pursuant to the
Exchange Offer or the Prepackaged Plan will be
paid in respect of each $1,000 principal amount
of Senior Notes (together with all accrued and
unpaid interest) tendered pursuant to the
Exchange Restructuring and accepted for
exchange or exchanged pursuant to the
Prepackaged Restructuring. By tendering Senior
Notes pursuant to the Exchange Restructuring,
and pursuant to the terms of the Prepackaged
Restructuring, a Noteholder waives all rights
to receive any payments with respect to accrued
but unpaid interest on such Senior Notes, other
than the New Common Stock to be paid pursuant
to the Exchange Restructuring or the
Prepackaged Restructuring.
Outstanding Senior Notes as
of the date of this Exchange
Restructuring Prospectus......As of the date of this Exchange Restructuring
Prospectus, there was outstanding $104.879
million aggregate principal amount of Senior
Notes (plus accrued but unpaid interest
thereon). As of March 2, 1998, the total
interest accrued on the Senior Notes amounted
to $5.5 million. As of the date of this
Exchange Restructuring Prospectus, the total
interest accrued on the Senior Notes amounts to
$[______________].
Classification and Treatment
of Claims and Interests Under
the Prepackaged Plan
(capitalized terms used in
this section and not
otherwise defined
herein are defined in the
Prepackaged Plan).............The classification and treatment of Claims and
Interests pursuant to the Prepackaged Plan is
as follows:
Administrative Expenses.......Allowed Administrative Expenses are to be paid
in full, in cash, on the later of (i) the
consummation of the Prepackaged Restructuring
(the "Effective Date") and (ii) the date on
which the Bankruptcy Court enters an order
allowing such Administrative Expense; provided,
however, that allowed Administrative Expenses
representing obligations incurred in the
ordinary course of business, consistent with
past practice, or assumed by the Company in the
ordinary course of business, consistent with
past practice; provided further, however, that
allowed Administrative Expenses incurred by the
Company after the Confirmation Date, including
(without limitation) claims for professionals'
fees and expenses, shall not be subject to
application and may be paid by the Company in
the ordinary course of business without further
Bankruptcy Court approval.
Priority Tax Claims...........With respect to each Allowed Priority Tax
Claim, at the sole option of the Company, the
Holder of an Allowed Priority Tax Claim will be
entitled to receive from the Company on account
of such claim: (a) Cash payments made in equal
installments beginning on or before the first
anniversary following the Effective Date with
the final installment being payable no later
than the sixth anniversary of the date of the
assessment of such Allowed Priority Tax Claim,
together with interest on the unpaid balance of
such Allowed Priority Tax Claim from the
Effective Date calculated at the Market Rate;
or (b) such other treatment agreed to by the
Holder of such Allowed Priority Tax Claim and
the Company.
Class 1: Priority Claims
(Unimpaired)..................Priority Claims are to be paid in full on the
latest of (a) the Effective Date, (b) the date
on which such Priority Claim becomes an Allowed
Claim, and (c) the date on which the Company
and the Holder of such Claim otherwise agree,
the Holder of an Allowed Priority Claim will be
entitled to receive Cash in an amount
sufficient to render such Allowed Priority
Claim Unimpaired under Section 1124 of the
Bankruptcy Code.
Class 2: CIT Secured Claim
(Unimpaired)..................At the election of the Company prior to the
Effective Date, on the Effective Date or as
soon thereafter as practicable, CIT will be
entitled to receive on account of the Allowed
CIT Claim one of the following treatments: (i)
CIT will receive a distribution in Cash equal
to 100% of its Allowed CIT Claim, (ii) the
Allowed CIT Claim will be otherwise rendered
Unimpaired in accordance with Section 1124 of
the Bankruptcy Code, or (iii) such other
treatment as mutually agreed to by the Company
and CIT.
Class 3: Senior Note Claims
(Impaired)....................On the Effective Date or as soon as practicable
thereafter, each Holder of an Allowed Senior
Note Claim will receive on account of such
Holder's Allowed Senior Note Claim, such
Holder's pro rata share of 18,456,350 shares of
the New Common Stock (or 175.977555 shares of
New Common Stock for each $1,000 principal face
amount of Senior Notes held by such Holder).
Class 4: Miscellaneous
Secured Claims (Unimpaired)...At the election of the Company prior to the
Effective Date, on the Effective Date, or as
soon thereafter as practicable, each Holder of
an Allowed Miscellaneous Secured Claim, will be
entitled to receive on account of such Holder's
Allowed Miscellaneous Secured Claim one of the
following treatments: (i) the legal, equitable
and contractual rights to which such Allowed
Miscellaneous Secured Claim entitles such
Holder will remain unaltered, (ii) such
Holder's Allowed Miscellaneous Secured Claim
will be reinstated and rendered Unimpaired in
accordance with Section 1124(2) of the
Bankruptcy Code; or (iii) will receive the
collateral securing such Allowed
Miscellaneous Secured Claim, or (iv) such other
treatment as mutually agreed to by the Company
and such Holder.
Class 5: General Unsecured
Claims (Unimpaired)...........At the election of the Company prior to the
Effective Date, on the Effective Date or as
soon as practicable thereafter, each Holder of
an Allowed General Unsecured Claim that has not
been fully paid or satisfied prior to the
Effective Date will be entitled to receive on
account of such Holder's Allowed General
Unsecured Claim one of the following
treatments: (i) the legal, equitable and
contractual rights to which such Allowed
General Unsecured Claim entitles such Holder
will remain unaltered, (ii) such Holder's
Allowed General Unsecured Claim will be
reinstated and rendered Unimpaired in
accordance with Section 1124(2) of the
Bankruptcy Code; or (iii) such other treatment
as mutually agreed to by the Company and such
Holder.
Class 6: Old Common Stock
Interests (Impaired)..........On the Effective Date or as soon as practicable
thereafter, each Holder of an Allowed Old
Common Stock Interest will be entitled to
receive on account of such Holder's Allowed Old
Common Stock Interest, such Holder's pro rata
share of: (i) 1,496,461 shares of New Common
Stock; and (ii) the Warrants.
Class 7: Other Interests
(Impaired)....................On the Effective Date, all Other Interests will
be extinguished and no distributions will be
made in respect of such Other Interests.
For a more detailed description of the foregoing Classes of Claims and
Interests, see "SUMMARY OF PLAN" in the Disclosure Statement.
Conditions to Exchange
Restructuring ................The Company's obligation to accept Senior Notes
tendered pursuant to the Exchange Restructuring
is conditioned, among other things, on (a) the
Minimum Tender Condition, (b) approval by the
Stockholders of each of the Restructuring
Proposals, and (c) obtaining the waiver of
certain provisions under the Company's
licensing agreements by certain licensors to
the Company, including, but not limited to, the
Walt Disney Company and Perry Ellis
International, Inc., and any other consents or
waivers that the Company determines are
necessary to effectuate the terms and
conditions of the Exchange Restructuring. The
Company has reserved the right to waive or seek
the waiver of any one or more of these
conditions but does not currently intend to
waive or seek the waiver of any condition.
Pursuant to the Letter Agreement, Magten's
prior written consent is required for the
Company to waive the Minimum Tender Condition.
If any or all of the Restructuring Proposals
are not approved by the Stockholders at the
Stockholders' Meeting and/or the Minimum Tender
Condition is not satisfied or waived, but the
Company receives sufficient acceptances of the
Prepackaged Plan to obtain confirmation thereof
by the Bankruptcy Court, then the Company
intends to pursue confirmation of the
Prepackaged Plan under Chapter 11 of the
Bankruptcy Code and to attempt to use such
acceptances to obtain confirmation of the
Prepackaged Plan. See "TENDERING AND VOTING
PROCEDURES" in Part A.
Conditions to Prepackaged
Restructuring.................The Bankruptcy Code requires that the
Bankruptcy Court determine that the Prepackaged
Plan complies with the requirements of Section
1129 of the Bankruptcy Code. Approval of
two-thirds of the principal amount and a
majority in number of the Noteholders voting on
the Prepackaged Plan is required for the
consummation of the Prepackaged Restructuring.
See "SUMMARY OF THE PLAN" in the Disclosure
Statement.
Certain Federal Income Tax
Considerations................Noteholders will generally not recognize gain
or loss upon the receipt of New Common Stock in
exchange for the Senior Notes pursuant to the
Restructuring. Subject to certain exceptions
described herein (see CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS), the Company will realize
cancellation of indebtedness income for Federal
income tax purposes as a result of the
Restructuring if the fair market value of the
New Common Stock received by the Noteholders
pursuant to the Restructuring is less than the
adjusted issue price (including any accrued but
unpaid interest) of the Senior Notes exchanged
therefor. The Company has approximately $55
million of operating losses and net operating
loss carryovers ("NOLs") which are available to
offset any cancellation of indebtedness income
that may be recognized. In the event that the
Restructuring is consummated by means of the
Prepackaged Restructuring, such income would
not be included in income for Federal income
tax purposes. As a result of the Restructuring,
the Company will undergo an "ownership change"
for Federal income tax purposes and will be
limited in its ability to use its NOLs and
certain tax credit carryforwards to offset
future taxable income. See "CERTAIN FEDERAL
INCOME TAX CONSIDERATIONS."
Old Common Stock..............As of the Record Date, there were 30,000,000
shares of Old Common Stock authorized for
issuance, of which 14,964,608 shares were
issued and outstanding (or 1,496,461 shares of
New Common Stock, after giving effect to the
Reverse Split). As part of the Exchange
Restructuring, Stockholders will be asked to
consider and approve the Charter Amendment, the
Issuance, the Stock Award and Incentive Plan
and to elect new directors pursuant to the
Election of the New Board. If the Stockholders
approve the Stock Award and Incentive Plan, the
Stock Award and Incentive Plan will become
effective regardless of whether the Exchange
Restructuring is implemented or any of the
Restructuring Proposals are approved. However,
the approval of the Stock Award and Incentive
Plan is not a condition to the consummation of
the Restructuring. If the Prepackaged
Restructuring is consummated, the Company
expects that each of the Restructuring
Proposals will be implemented pursuant to the
Prepackaged Plan. See "PURPOSES AND EFFECTS OF
THE PREPACKAGED RESTRUCTURING" in the
Disclosure Statement.
Shareholder Rights Plan.......The Rights Plan provides for a dividend
distribution of one right (collectively, the
"Rights") for each share of Old Common Stock to
holders of record of the Old Common Stock at
the close of business on December 23, 1997.
With certain exceptions, the Rights will become
exercisable only in the event that an acquiring
party accumulates 20% or more of the Company's
voting stock, or if a party announces an offer
to acquire 30% or more of such voting stock.
In order to effectuate the terms of the
Restructuring, on [_________], 1998, the Rights
Plan was amended to provide that the Rights
expire immediately prior to the consummation of
the Restructuring. See "DESCRIPTION OF RIGHTS
PLAN" in Part A.
Market and Trading Information:
Senior Notes..................The Senior Notes are traded in the
over-the-counter market by certain dealers who
from time to time are willing to make a market
in such securities. Trading of the Senior
Notes is, however, limited, and prices and
trading volume are not reported and are
difficult to monitor. See "MARKET PRICES OF
SENIOR NOTES" in Part A.
Old Common Stock..............The Old Common Stock is currently traded on the
NYSE and is quoted on the NYSE under the symbol
"SLT". See "MARKET PRICES OF OLD COMMON STOCK"
in Part A and "RISK FACTORS" in Part A and the
Disclosure Statement.
New Common Stock..............The Company expects that the New Common Stock
will be eligible for listing and will be
listed for trading on the NYSE. However,
there can be no assurance that the New Common
Stock will be listed for trading on the NYSE.
If the Company is unable to have the New
Common Stock listed for trading on the NYSE
upon consummation of the Restructuring, the
Company will use its best efforts to cause
all New Common Stock to be quoted on the
National System of the NASDAQ Stock Market or
to be listed on another national securities
exchange. However, there is no assurance that
the Company would be successful in such
efforts. See "RISK FACTORS -- Lack of Trading
Market for Warrants and New Common Stock;
Volatility; Potential De-Listing of the New
Common Stock."
Warrants and Warrant Shares ..Application will be made to list the Warrants
and the Warrant Shares for trading on the
NYSE. There can be no assurance that such
application will be approved or that an active
market for the Warrants or the Warrant Shares
will develop or as to the prices at which they
might be traded. If the Company is unable to
have the Warrants or the Warrant Shares listed
for trading on the NYSE upon consummation of
the Restructuring, the Company will use its
best efforts to cause the Warrants and/or the
Warrant Shares to be quoted on the National
Market System of NASDAQ or to be listed on
another national securities exchange. However,
there is no assurance that the Company would be
successful in such efforts. See "RISK
FACTORS--Lack of Trading Market for Warrants and
New Common Stock; Volatility; Potential
De-Listing of the New Common Stock."
Post-Restructuring Board .....Each of the existing members of the Board has
delivered to the Company a resignation letter
resigning from the Board effective as of the
Exchange Restructuring Date. In accordance with
the Company's Certificate of Incorporation, by
resolution of the Board, the number of
directors has been fixed at [_________]
effective as of the Exchange Restructuring
Date. As provided for in the Letter Agreement,
the new Board will consist of: (i) Mr. Jerald
Politzer, the Chairman of the Board; (ii) five
members nominated by Magten, subject to
consultation with the Company and other
Noteholders who may come forward prior to the
commencement of the Solicitation; and (iii) one
member designated by the current Board. As
described above, as contemplated by the Letter
Agreement, it is expected that Magten will
provide the Company with its Board nominees
prior to the commencement of the Solicitation.
In addition, the current Board has designated
Marvin Schiller to be the current Board's
nominee to the new Board. See "INFORMATION
REGARDING NOMINEES" in the Proxy
Statement/Prospectus.
Depositary/Voting Agent.......[__________] has been appointed as Depositary
with respect to the Senior Notes for the
Exchange Restructuring (the "Depositary
Agent"), and as voting agent with respect to
the Senior Notes for the solicitation of
acceptances of the Prepackaged Plan. Questions
and requests for assistance may be directed to
the Depositary at one of its addresses and
telephone numbers set forth on the back cover
of this Exchange Restructuring Prospectus. See
"ADVISORS AND REPRESENTATIVES" in Part A.
Information Agent ............[__________] is serving as Information Agent in
connection with the Exchange Restructuring and
the solicitation of acceptances of the
Prepackaged Plan (the "Information Agent").
Any questions regarding how to tender in the
Exchange Offer or how to vote on the
Prepackaged Plan, and any requests for
additional copies of the Exchange Restructuring
Prospectus, Letters of Transmittal, Ballots or
Master Ballots should be directed to the
Information Agent at its address and telephone
number set forth on the back cover of Part A to
the Exchange Restructuring Prospectus. See
also "ADVISORS AND REPRESENTATIVES" in Part A.
COMPARISON OF EXCHANGE RESTRUCTURING
AND PREPACKAGED RESTRUCTURING
The following is a comparison of certain of the elements of, and
differences between, the Exchange Restructuring and the Prepackaged
Restructuring.
PREPACKAGED
EXCHANGE RESTRUCTURING RESTRUCTURING
---------------------- -------------------------
APPROVAL REQUIRED........ 100% of the aggregate Acceptances must be
principal amount of the received from holders of
Senior Notes must be at least two-thirds in
tendered and not dollar amount and more
withdrawn and a majority than one-half in number
of the voting power of of Senior Notes,
the outstanding Old counting only holders
Common Stock must approve who vote.
each of the Restructuring
Proposals.
EFFECT ON NOTEHOLDERS
WHO DO NOT PARTICIPATE... Not applicable, as the Upon receipt of the
Exchange Restructuring is requisite acceptances
conditioned upon, among and consummation of the
other things, 100% of the Prepackaged
aggregate principal Restructuring, all
amount of the Senior Senior Notes would be
Notes being tendered and canceled and Noteholders
not withdrawn. The would receive the same
Company currently does consideration as the
not intend to waive or holders who voted in
seek the waiver of the favor of the Prepackaged
Minimum Tender Restructuring.
Condition. Pursuant to
the Letter Agreement,
Magten's prior written
consent is required for
the Company to waive the
Minimum Tender
Condition.
ANNUAL MEETING OF
STOCKHOLDERS............. At the Stockholders' If the Prepackaged
Meeting, Stockholders Restructuring is pursued
will be asked to consider and a petition is filed
and vote upon the Charter under the Bankruptcy
Amendment, the Issuance, Code, the Company
the Stock Award and expects that each of the
Incentive Plan and the Restructuring Proposals
Election of the New will be implemented
Board. The Stockholder pursuant to the
votes with respect to the Prepackaged
Issuance and the Election Restructuring. Pursuant
of the New Board will not to the Prepackaged Plan,
be effective unless and all Old Options will be
until the Charter terminated upon
Amendment is approved at consummation thereof.
the Stockholders' Meeting The Stock Award and
and filed with the Incentive Plan will
Secretary of State of remain in effect after
Delaware and the Exchange the consummation of the
Offer has been Prepackaged Plan;
consummated. Each of the provided, that, if the
Restructuring Proposals Stock Award and
is conditioned upon Incentive Plan has not
approval by the been approved by the
Stockholders of each of Stockholders prior to
the other Restructuring the commencement of the
Proposals. If any or all Chapter 11 Case, any
of the Restructuring awards granted
Proposals are not thereunder shall be
approved by the subject to the
Stockholders at the subsequent approval of
Stockholders' Meeting, the Stockholders of the
then none of the Company.
Restructuring Proposals
will become effective.
If the Stockholders
approve the Stock Award
and Incentive Plan, the
Stock Award and Incentive
Plan will become
effective regardless of
whether the Exchange
Restructuring is
implemented or any of the
Restructuring Proposals
are approved. However,
approval of the Stock
Award and Incentive Plan
is not a condition to the
consummation of the
Restructuring
MECHANICS OF
PARTICIPATION............ Noteholders who desire to Impaired creditors and
participate in the equity interest holders
Exchange Offer must who desire to vote on
properly complete a the Prepackaged Plan
Letter of Transmittal and must properly complete a
deliver it, together with Ballot or Master Ballot,
the Senior Notes and any as the case may be, and
other required documents, deliver it in accordance
to the Depositary. Only with the voting
a registered Noteholder, instructions. Only
or persons who have beneficial owners of
obtained a properly Claims or Interests or,
completed note power from if applicable, nominees
a registered Noteholder, who are voting at the
may tender in the instruction of the
Exchange Offer. beneficial owners and
make a certification
with respect thereto,
may vote on the
Prepackaged Plan.
PREFERRED STOCK
VOTING RIGHTS............ There is currently no The Charter Amendment
preferred stock of the will provide that any
Company outstanding, but preferred stock to be
any subsequently issued issued will have certain
shares of preferred stock specified minimum voting
may or may not have rights, as required by
voting rights after the Bankruptcy Code.
consummation of the
Exchange Restructuring.
PURPOSE OF THE RESTRUCTURING
The purpose of the Restructuring is to help ensure the long-term
viability and to contribute to the success of the Company by deleveraging the
Company's capital structure. Specifically, in accordance with the Three-Year
Business Plan developed by the Company, the Restructuring is designed to
recapitalize the Company by converting all of the Company's long-term debt
obligations under the Senior Notes (which, as of March 2, 1998, was $110.379
million, consisting of $104.879 million of principal amount and $5.5 million
of accrued interest on, the Senior Notes) into New Common Stock. Interest
charges for the Company should be substantially reduced and stockholders'
equity should be substantially increased as a result of the Restructuring.
Upon consummation of the Restructuring, the Company believes it will not have
any long-term debt, other than the term loan portion of its working capital
facility. This significantly lower debt-to-equity ratio should help the
Company to achieve the objectives as described in the Three-Year Business
Plan and make the Company more attractive to investors. The Company believes
that by reducing the uncertainty surrounding its ability to pay or retire the
Senior Notes which are due in their entirety on December 31, 1998, the
Restructuring should maximize liquidity for the Company's business operations
and thereby provide a platform for future growth and enhance the Company's
total enterprise value. The Company further believes that by providing the
Company with a deleveraged capital structure, the company that results from
the Restructuring should be positioned favorably to withstand the normal
market fluctuations in the highly volatile apparel industry.
In addition, in contemplation of the Restructuring, the Company elected
not to pay the interest payment of approximately $5.5 million that was due
and payable under the Senior Notes on March 2, 1998, subject to a 30 day
grace period. Because the Company elected not to pay the interest due on the
Senior Notes by the expiration of the applicable grace period, an event of
default has occurred with respect to the Senior Notes entitling the
Noteholders to accelerate the maturity thereof. Holders of at least 25% in
the aggregate principal face amount of the Senior Notes may accelerate all
outstanding indebtedness under the Senior Notes pursuant to the terms of the
Indenture. If such holders accelerate the indebtedness under the Senior
Notes, the Company may be required to commence a proceeding under Federal
bankruptcy law without having solicited acceptances for the Prepackaged Plan
prior to the commencement of such proceeding. Pursuant to the Letter
Agreement, Magten has, in accordance with Section 6.5 of the Indenture,
caused a written direction to be provided to the Trustee, to forbear during
the term of the Letter Agreement from taking any action under the Indenture
in connection with the failure by the Company to make the interest payment on
the Senior Notes that was due and payable on March 2, 1998. On April 8, 1998,
the Trustee issued a Notice of Default stating that as a result of the
Company's failure to make the interest payment due on the Senior Notes, an
event of default under the Indenture had occurred on April 1, 1998. In
addition, the Company's working capital lender, CIT, agreed to forbear until
July 1, 1998, subject to certain conditions, from exercising any of its
rights or remedies under the Credit Agreement, arising by virtue of the
Company's failure to pay such interest on the Senior Notes. Failure to
consummate the Restructuring could result in the acceleration of all of the
indebtedness under the Senior Notes and/or the Credit Agreement.
ABSENT THE RESTRUCTURING, THE COMPANY DOES NOT BELIEVE IT WILL BE ABLE
TO SATISFY ITS OBLIGATIONS UNDER THE SENIOR NOTES WITHOUT A REFINANCING OF
THE COMPANY'S INDEBTEDNESS UNDER THE CREDIT AGREEMENT AND/OR THE SENIOR NOTES
OR AN ADDITIONAL CAPITAL INFUSION, AND IT IS UNLIKELY THAT THE COMPANY WILL
BE ABLE TO OBTAIN SUCH REFINANCING OR ADDITIONAL CAPITAL INFUSION. IF THE
COMPANY DETERMINES THAT IT IS OR WILL BE UNABLE TO COMPLETE THE
RESTRUCTURING, THE COMPANY WILL CONSIDER ALL OTHER AVAILABLE FINANCIAL
ALTERNATIVES, INCLUDING THE SALE OF ALL OR A PART OF THE COMPANY'S
BUSINESSES, THE IMPLEMENTATION OF AN ALTERNATIVE RESTRUCTURING ARRANGEMENT
OUTSIDE OF BANKRUPTCY, OR THE COMMENCEMENT OF A CHAPTER 11 CASE WITHOUT A
PRE-BANKRUPTCY ACCEPTED PLAN OF REORGANIZATION. THERE CAN BE NO ASSURANCE,
HOWEVER, THAT ANY ALTERNATIVE WOULD BE ON TERMS AS FAVORABLE TO NOTEHOLDERS
AND STOCKHOLDERS AS THE RESTRUCTURING.
For more information, see "PURPOSES AND EFFECTS OF THE PREPACKAGED
RESTRUCTURING" in the Disclosure Statement.
RISK FACTORS
Investment in the New Common Stock involves a high degree of risk. Prior
to deciding whether to (a) participate in the Exchange Offer and/or (b) vote
to accept the Prepackaged Plan, each Noteholder should carefully consider all
of the information contained in this Exchange Restructuring Prospectus,
especially the factors outlined below and described under "RISK FACTORS" in
each of Part A and the Disclosure Statement, to the extent applicable.
RISK FACTORS RELATING TO THE EXCHANGE RESTRUCTURING
AND THE PREPACKAGED RESTRUCTURING
Noteholders should consider that (a) in the event that, for any reason,
the Restructuring is not consummated, the Noteholders may accelerate the
outstanding indebtedness under the Senior Notes, (b) there can be no
assurances that an active market for the New Common Stock will develop or
continue to exist, or that the price of the New Common Stock will not be
volatile, (c) upon completion of the Restructuring, the Senior Notes will be
tendered and exchanged for New Common Stock which, in a liquidation or
reorganization under the Bankruptcy Code, would rank below all debt claims,
(d) the Company is currently highly leveraged and, once the Restructuring is
consummated, the Company will have long-term indebtedness outstanding under
the term loan portion of the Company's working capital facility, (e)
economic, market or other conditions (including, but not limited to, the
volatility of the men's apparel industry) have affected the Company's
historical performance and may adversely affect cash flow, sales and profits
in the future and there can be no assurance that such conditions will not
adversely effect the Company's ability to meet its financial projections
developed from the Three-Year Business Plan, (f) market forces, such as
interest rates, affect the value of securities and are influenced by
conditions beyond the Company's control, (g) the Company's capital
expenditure levels assumed in preparation of the projected financial data
contained herein may be inadequate to maintain the Company's long-term
competitive position, (h) the Company is restricted in its ability, among
other restrictions under the Credit Agreement, to declare and pay cash
dividends on its common equity, and those and other restrictions should
continue after consummation of the Exchange Restructuring, under the New
Credit Agreement, (i) if certain of the major suppliers, licensors,
manufacturers and vendors that the Company currently deals with were to
change the terms or credit limits or product availability that it currently
extends to the Company, it could have a significant negative impact on the
Company's sales, cash position and liquidity, (j) the Company is subject to
the risk of increased competition, which could affect its sales volume,
pricing and margins, (k) there are certain Federal income tax considerations
with respect to the Restructuring, including the Company's net operating loss
carryovers being reduced or subject to limitations on use, although such
reduction or limitation would be greater under the Exchange Restructuring
than under the Prepackaged Restructuring, and (l) the Company is not in
compliance with the continuing listing requirements of the NYSE, and
de-listing from the NYSE could adversely affect the liquidity of the market
for their shares of New Common Stock and the Warrants.
ADDITIONAL RISK FACTORS RELATING TO THE PREPACKAGED RESTRUCTURING
Noteholders should consider that (a) commencement of bankruptcy
proceedings, even if only to confirm the Prepackaged Plan, could adversely
affect the relationship between the Company and its subsidiaries, licensors,
licensees, employees, customers and suppliers which, in turn, could adversely
affect the Company's ability to complete the Solicitation or obtain
confirmation of the Prepackaged Plan, (b) the Prepackaged Plan might not be
confirmed by the Bankruptcy Court, even if all classes of impaired creditors
and equity interest holders accept the Prepackaged Plan and (c) there can be
no assurance that the Bankruptcy Court will decide that the Disclosure
Statement meets the disclosure requirements of the Bankruptcy Code.
For a discussion of certain additional risk factors that should be
considered in connection with voting on the Prepackaged Plan, see "RISK
FACTORS" in the Disclosure Statement.
TENDERING AND VOTING PROCEDURES
How to Tender in the Exchange
Offer......................... ONLY NOTEHOLDERS, OR PERSONS WHO HAVE
OBTAINED A PROPERLY COMPLETED NOTE POWER
FROM THE REGISTERED HOLDERS THEREOF, MAY
TENDER IN THE EXCHANGE OFFER. Any
beneficial holder whose Senior Notes are
registered or held of record in the name of
such holder's broker, dealer, commercial
bank, trust company or other nominee and who
wishes to tender Senior Notes should contact
such Noteholder of record and instruct such
Noteholder to tender Senior Notes.
To tender Senior Notes pursuant to the
Exchange Offer, a properly completed and
duly executed Letter of Transmittal (or a
manually signed facsimile thereof) or an
Agent's Message (as defined herein) in the
case of a Book-Entry Transfer of Senior
Notes, together with any signature
guarantees and any other documents required
by the Instructions to the Letter of
Transmittal, must be received by the
Depositary at one of its addresses set forth
on the back cover page of this Prospectus
prior to the Expiration Date and either (i)
a certificate representing such Senior Notes
must be received by the Depositary at one of
its addresses or (ii) such Senior Notes must
be transferred pursuant to the procedures
for Book-Entry Transfer set forth under
"TENDERING AND VOTING PROCEDURES" in Part A,
and the Book-Entry Transfer of such Senior
Notes into the Depositary's account at a
Book-Entry Transfer Facility (as defined
herein) must be confirmed, in each case,
prior to the Expiration Date. THERE IS NO
PROCEDURE FOR TENDERING BY GUARANTEED
DELIVERY. TENDERS BY GUARANTEED DELIVERY
WILL NOT BE ACCEPTED. Noteholders will not
be obligated to pay the Company any
brokerage commissions or solicitation fees
in connection with the Exchange Offer. See
"TENDERING AND VOTING PROCEDURES" in Part A.
How to Vote on the Prepackaged
Plan (capitalized terms used in
this section and not otherwise
defined herein are defined in
the Prepackaged Plan and/or the
Disclosure Statement) ............The following Classes of Claims and
Interests are impaired under the
Prepackaged Plan, and all Holders of Claims
or Interests in such Classes as of the
Voting Record Date are entitled to vote to
accept or to reject the Prepackaged Plan:
Claims of Noteholder or Stockholder. To be
entitled to vote to accept or to reject the
Prepackaged Plan, a Noteholder or
Stockholder, must be the beneficial
interest holder of such security or other
Claims at the close of business on the
Voting Record Date, whether such Claims or
Interests are held of record on the Voting
Record Date in such Holder's name or in the
name of such Holder's broker, dealer,
commercial bank, trust company or other
nominee. For purposes of determining
whether the requisite number of acceptances
is received to approve the Prepackaged
Plan, only votes which are cast at the
direction of beneficial interest holders in
accordance with the procedures set forth in
the Disclosure Statement may be counted,
and only the votes of Holders of Allowed
Claims or Interests will be counted.
Ballots are to be used by beneficial
interest holders whether such beneficial
interest holders are also record holders or
hold through other record holders. Master
Ballots are to be used by record holders of
Senior Notes and/or Old Common Stock which
hold such Senior Notes and/or Old Common
Stock for the account of one or more
beneficial interest holders. A record
holder which holds Senior Notes and/or Old
Common Stock on behalf of one or more
beneficial interest holders should collect
completed Ballots from such beneficial
interest holders and should complete a
Master Ballot reflecting the votes of such
beneficial interest holders, as indicated
on their respective Ballots.
Holders of such Claims and/or Interests
should complete an appropriate Ballot and,
where appropriate, Master Ballot, for each
Class of Claims and Interests held by such
Holders in accordance with the instructions
set forth thereon and the procedures set
forth in the Disclosure Statement and in the
Prepackaged Plan.
The Ballots require voting Holders to make
certain certifications, including with
respect to casting other votes pursuant to
the Solicitation. Each beneficial interest
holder of Senior Notes and each beneficial
interest holder of Interests who holds
Claims or Interests in more than one Class
is required to vote separately with respect
to each Class in which such beneficial
interest holder holds Claims or Interests in
aggregate amounts not in excess of the
amounts which were beneficially owned as of
the Voting Record Date. A separate Ballot
of the appropriate form should be used to
vote on the Prepackaged Plan with respect to
each Impaired Class of Claims or Interests.
Votes must be made on the appropriate
Ballots in order to be counted. The vote of
a Noteholder will be counted only once in
determining whether the requisite number of
Holders in Class 3 have voted to accept the
Prepackaged Plan, regardless of the number
of Ballots relating to such Class submitted
by or on behalf of such Holder. A Holder
may not split its vote within a Class of
Impaired Claims or Interests.
Under the Bankruptcy Code, for purposes of
determining whether the requisite
acceptances have been received from an
Impaired Class of Claims or Interests, the
vote will be tabulated based on the ratio of
(i) Allowed Claims and/or Interests with
respect to which a vote to accept was
received to (ii) all Allowed Claims and/or
Interests of such Impaired Class with
respect to which any valid vote was
received. Therefore, it is possible that
the Prepackaged Plan could be approved by an
Impaired Class of Claims with the
affirmative vote of significantly less than
two-thirds in amount and one-half in number
of the entire Class of Claims, or by an
Impaired Class of Interests with the
affirmative vote of significantly less than
two-thirds in amount of the entire Class of
Interests. Failure by a Holder of an
Impaired Claim or an Impaired Interest to
submit a properly executed Ballot or Master
Ballot (as appropriate) or to indicate
acceptance or rejection of the Prepackaged
Plan in accordance with the instructions set
forth thereon and the procedures set forth
in the Disclosure Statement shall be deemed
to constitute an abstention by such Holder
with respect to a vote regarding the
Prepackaged Plan. Abstentions as a result
of failing to submit a properly executed
Ballot or Master Ballot (as appropriate) or
failing to indicate a vote either for
acceptance or rejection of the Prepackaged
Plan will not be counted as votes for or
against the Prepackaged Plan. The Company,
in its sole discretion, may waive any defect
in any Ballot or Master Ballot at any time,
either before or after the close of voting,
and without notice. Except as otherwise
ordered by the Bankruptcy Court, a Ballot or
where appropriate, Master Ballot, which is
either (i) not submitted to the Voting
Agent, (ii) submitted to the Voting Agent
without proper execution or (iii) executed
and submitted to the Voting Agent without
properly indicating acceptance or rejection
of the Prepackaged Plan will constitute an
abstention with respect to a vote on the
Prepackaged Plan under section 1126(b) of
the Bankruptcy Code for purposes of
confirmation of the Prepackaged Plan. See
"VOTING AND CONFIRMATION OF THE PLAN" in the
Disclosure Statement.
Withdrawal Rights and
Revocation of Votes........... Tenders of Senior Notes may be withdrawn,
subject to the procedures described in Part
A, at any time before they are accepted for
exchange by the Company. Votes on the
Prepackaged Plan may be revoked, subject to
the procedures described in the Disclosure
Statement, at any time prior to the earlier
of (i) the Filing Date and (ii) the
Expiration Date. Revocations of such votes
thereafter may be effected only with the
approval of the Bankruptcy Court. See
"TENDERING AND VOTING" in Part A and "VOTING
AND CONFIRMATION OF THE PLAN -- Withdrawal
of Votes on the Plan" in the Disclosure
Statement.
Acceptance of Senior Notes and
Delivery of New Common Stock.. Subject to the satisfaction or waiver of all
conditions to the Exchange Offer, the
Company will accept all Senior Notes validly
tendered on or prior to the Expiration
Date. The New Common Stock will be
delivered in exchange for the Senior Notes
accepted in the Exchange Offer promptly
after acceptance on the Expiration Date.
Pursuant to the Prepackaged Plan, Senior
Notes will be exchanged following the
Effective Date (as defined herein) upon the
receipt by the Company of such Senior Notes.
STOCKHOLDERS' MEETING
Date, Time and Place of
Stockholders' Meeting......... The Stockholders' Meeting will be held at
Fried, Frank, Harris, Shriver & Jacobson,
One New York Plaza, New York, New York
10004 on _____ __, 1998 at __:__ _.m., New
York City time.
Record Date; Stockholders
Entitled to Vote; Quorum...... Holders of record of Old Common Stock at the
close of business on the Record Date will be
entitled to vote at the Stockholders'
Meeting. Stockholders will be entitled to
one vote per share with respect to each of
the Proposals. On the Record Date, there
were 14,964,608 shares of Old Common Stock
outstanding, of which there were [____]
holders of record. The presence, either in
person or by properly executed proxy, of the
holders of a majority of the shares of Old
Common Stock outstanding and entitled to
vote is necessary to constitute a quorum at
the Stockholders' Meeting.
Purpose of Stockholders'
Meeting....................... The purpose of the Stockholders' Meeting is
for the Stockholders to consider and to
vote on various Proposals to implement the
Restructuring, including Proposals (i) to
approve the Charter Amendment, (ii) to
approve the Issuance, (iii) to approve the
Plan Proposal, (iv) to elect new directors
pursuant to the Election of the New Board,
(v) to ratify the appointment of Deloitte &
Touche as independent auditors to the
Company, and (vi) such other business as
may properly come before the Stockholders'
Meeting or any adjournments or
postponements thereof. The Board has
unanimously adopted a resolution proposing
that the Company's Certificate of
Incorporation be amended pursuant to the
Charter Amendment to effect (i) a
ten-to-one reverse stock split of the
Company's outstanding shares of Old Common
Stock and (ii) an increase in the number of
shares of New Common Stock authorized. For
the full text of the Charter Amendment, See
"DISCUSSION OF THE PROPOSALS -- The Charter
Amendment," in the Proxy
Statement/Prospectus. The Charter Amendment
is necessary to permit the Company to
consummate the Exchange Restructuring on
the terms contemplated by the Exchange
Offer. In addition, assuming the aggregate
market capitalization of the Company
remains constant, the Reverse Split as
implemented pursuant to the Charter
Amendment should have the effect of
increasing the trading price of the common
stock of the Company from where it would
otherwise trade in the absence of the
Reverse Split. However, there can be no
assurance that such an increase in the
trading price will occur. The approval of
the Stock Award and Incentive Plan by the
Stockholders is necessary to provide
appropriate incentives for those eligible
to participate thereunder. The Board has
also unanimously adopted resolutions
approving the Issuance, the Stock Award and
Incentive Plan and the Election of the New
Board. In connection with its consideration
of the Restructuring, the Board received
the E&Y Fairness Opinion. See
"RESTRUCTURING FINANCIAL CONSIDERATIONS --
Fairness Opinion." The approval of the
Issuance and the Stock Award and Incentive
Plan by the Stockholders may be required by
the applicable rules of the NYSE. If any or
all of the Restructuring Proposals are not
approved by the Stockholders at the
Stockholders' Meeting, then none of the
Restructuring Proposals will become
effective. The Stockholder votes with
respect to the Issuance and the Election of
the New Board will not be effective unless
and until the Charter Amendment is approved
at the Stockholders' Meeting and filed with
the Secretary of State of Delaware and the
Exchange Restructuring has been
consummated. If the Stockholders approve
the Stock Award and Incentive Plan, the
Stock Award and Incentive Plan will become
effective regardless of whether the
Exchange Restructuring is implemented or
any of the Restructuring Proposals are
approved. However, approval of the Stock
Award and Incentive Plan is not a condition
to the consummation of the Restructuring.
If the Prepackaged Restructuring is
required and a petition is filed under the
Bankruptcy Code, the Company expects that
the Restructuring Proposals will be
implemented pursuant to the Prepackaged
Plan.
Votes Required................ Under the Delaware General Corporation Law
(the "DGCL") and the Company's Certificate
of Incorporation, the Issuance, the Charter
Amendment and the Stock Award and Incentive
Plan must be approved by the affirmative
vote of the holders of a majority of the
voting power of the Old Common Stock
represented at the Stockholders' Meeting.
If the Restructuring is effected by means of
the Exchange Restructuring, the new members
of the Board to be elected at the
Stockholders' Meeting must be elected by the
affirmative vote of the holders of a
plurality of the voting power of the Old
Common Stock represented at the
Stockholders' Meeting. Apollo, the
beneficial owner of 5,924,352 shares,
representing approximately 39.6% of the
issued and outstanding shares of Old Common
Stock, has entered into a Voting Agreement
with the Company, dated May __, 1998,
wherein Apollo has agreed to vote all of its
shares of Old Common Stock in favor of the
Charter Amendment, the Issuance, the Stock
Award and Incentive Plan and the Election of
the New Board. See "BACKGROUND OF THE
RESTRUCTURING -- THE VOTING AGREEMENT." In
accordance with the terms of the Letter
Agreement, the Company also requested that
DDJ, the beneficial holder of approximately
10.8% of the issued and outstanding shares
of Old Common Stock, enter into a voting
agreement with the Company similar to the
Voting Agreement entered into with Apollo.
DDJ, however, has informed the Company that
it does not wish to enter into such a voting
agreement. In addition, on or about March
3, 1998, DDJ requested that the Company
terminate the restrictions on DDJ's ability
to buy or sell shares of Old Common Stock
set forth in the DDJ Confidentiality
Agreement. On March 4, 1998, the Company
granted this request by DDJ. As of the
Record Date, the Company's executive
officers and directors, as a group,
beneficially owned 492,721 (exclusive of the
Apollo Shares) shares of the outstanding Old
Common Stock, representing 3.3% of the
issued and outstanding shares of Old Common
Stock. Such officers and directors have
advised the Company that they intend to vote
in favor of each of the Proposals. The
Stockholder votes with respect to the
Issuance and the Election of the New Board
will not become effective unless and until
the Charter Amendment is approved at the
Stockholders' Meeting and filed with the
Secretary of State of Delaware and the
Exchange Restructuring has been
consummated. If the Stockholders approve
the Stock Award and Incentive Plan, the
Stock Award and Incentive Plan would become
effective regardless of whether the Exchange
Restructuring is implemented or any of the
Restructuring Proposals are approved. Even
if each of the Restructuring Proposals is
approved by the Stockholders, the Board has
reserved the right to abandon the Charter
Amendment and each other Restructuring
Proposal in the event that any other
condition to the Restructuring is not
satisfied or waived, including, but not
limited to, the Minimum Tender Condition.
However, the Board intends to file the
Charter Amendment with the Secretary of
State of Delaware if the Exchange
Restructuring is consummated.
Fairness Opinion.............. On April 21, 1998, at the request of the
Board, E&Y delivered to the Board a
written opinion that, as of that date and
based upon and subject to the factors and
assumptions set forth therein, the
consideration to be received by public
Stockholders pursuant to the
Restructuring is fair to public
Stockholders from a financial point of
view. E&Y subsequently delivered to the
Board their written opinion that, as of
the date of the Proxy
Statement/Prospectus and based upon and
subject to the factors and assumptions
set forth therein, the consideration to
be received by public Stockholders
pursuant to the Restructuring is fair to
public Stockholders from a financial
point of view. See "RESTRUCTURING
FINANCIAL CONSIDERATIONS -- Fairness
Opinion." A copy of the E&Y Fairness
Opinion is attached as Annex I to the
Proxy Statement/Prospectus.
Dissenters' Rights............ Stockholders will not be entitled to
dissenters' rights or rights of appraisal in
connection with the Charter Amendment, the
Issuance, the Stock Award and Incentive Plan
or the Election of the New Board.
Dilution...................... Assuming 100% acceptance of the Exchange
Offer, the Company expects to issue
18,456,350 shares of New Common Stock
directly to exchanging Noteholders,
1,496,461 shares of New Common Stock
directly to existing Shareholders, and
Warrants to purchase 2,216,979 additional
shares of New Common Stock (subject to
adjustment) to existing Stockholders. Based
on the number of shares of outstanding Old
Common Stock as of the Record Date, the
18,456,350 shares issued directly to
Noteholders will represent 92.5% of the
total issued and outstanding shares of New
Common Stock immediately following
consummation of the Exchange Restructuring,
but excluding shares issued under the Stock
Award and Incentive Plan and the Warrant
Shares. The Stockholders currently own 100%
of the common equity of the Company in the
form of the Old Common Stock. As of March
16, 1998, there were 14,964,608 shares of
Old Common Stock issued and outstanding.
Assuming all of the conditions to the
Restructuring are fulfilled, the Exchange
Restructuring will result in the
Stockholders receiving, in exchange for
their shares of Old Common Stock, after
giving effect to the Reverse Split, an
aggregate of 1,496,461 shares of New Common
Stock constituting 7.5% of the New Common
Stock issued and outstanding immediately
following consummation of the Exchange
Restructuring (subject to dilution for
shares of New Common Stock issued under the
Stock Award and Incentive Plan and the
Warrant Shares, and in the case of the
Exchange Restructuring only, shares of New
Common Stock issued under the Old Plans).
In addition, the Stockholders will receive
the Warrants, which represent the right to
purchase up to 10% of the New Common Stock
issued and outstanding immediately
following consummation of the Exchange
Restructuring and the Reverse Split (on a
fully diluted basis). As a result, upon
consummation of the Exchange Restructuring,
the equity interests of the Stockholders
represented by the Old Common Stock, as a
percentage of the total number of
outstanding shares of the common stock of
the Company, will be significantly diluted
from 100% of the Old Common Stock to 7.5%
of the New Common Stock (subject to further
dilution as a result of the issuance of
shares of New Common Stock under the Stock
Award and Incentive Plan and the Warrant
Shares, and in the case of the Exchange
Restructuring only, shares of New Common
Stock issued under the Old Plans).
Consummating the Prepackaged Plan will have
the same dilutive effect. See "PURPOSE OF
THE RESTRUCTURING" and "RISK FACTORS."
DESCRIPTION OF WARRANTS
The following is a brief description of certain provisions of the
Warrants. The Warrants will be issued to holders of Old Common Stock under
the Warrant Agreement, to be dated on the Exchange Restructuring Date,
between the Company and the Warrant Agent (as defined herein). The following
description of such provisions does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, the detailed provisions
of the Warrant Agreement, a copy of which is attached as Annex II to the
Proxy Statement/Prospectus, pursuant to which such securities will be issued.
Issue......................... Upon consummation of the Exchange
Restructuring, up to 2,216,979 Warrants (the
"Warrants") will be issued to Stockholders,
which after giving effect to the Reverse
Split, will represent the right to purchase
10% of the issued and outstanding shares of
New Common Stock (on a fully diluted
basis). Each Warrant will be exercisable
for a period of seven years from the
Exchange Restructuring Date and shall be
exercisable for one share of New Common
Stock, subject to adjustment.
Exercise Price................ Each Warrant will be exercisable at an
exercise price ("Exercise Price") of $6.2648
per share of New Common Stock. The Exercise
Price and the number of shares of New Common
Stock purchasable upon exercise of the
Warrants are both subject to adjustment in
certain cases referred to below.
Stockholders will receive, for each share of
Old Common Stock, .14814815 Warrants
exercisable, in the aggregate and based upon
the number of shares of Old Common Stock
issued and outstanding as of the Record
Date, for 2,216,979 shares of New Common
Stock, constituting 10% of the issued and
outstanding shares of New Common Stock
immediately after giving effect to the
Exchange Restructuring (on a fully diluted
basis).
No Rights Generally as
Stockholders................ No holder of Warrants will be entitled to
any rights generally as a Stockholder of
the Company unless and until such holder
has obtained shares of New Common Stock
upon the exercise of the Warrants for New
Common Stock. Stockholders will not be
entitled to receive Warrants unless and
until they exchange their Old Common Stock
for New Common Stock.
Adjustment of Exercise Price
and Number of Shares of New
Common Stock Obtainable Upon
Exercise...................... The number of shares of New Common Stock
obtainable upon exercise of each Warrant,
and correspondingly the Exercise Price,
will be proportionately adjusted subject to
standard antidilution provisions at any
time the Company pays stock dividends,
subdivides, combines or reclassifies its
New Common Stock; distributes evidences of
indebtedness or assets of the Company, or
rights for such assets; issues New Common
Stock for less than market value; issues
options, warrants or other securities
convertible for New Common Stock for less
than market value; or effects similar
dilutive transactions.
DESCRIPTION OF NEW CREDIT AGREEMENT
The Company intends to enter into a New Credit Agreement, effective as
of the Exchange Restructuring Date, with either CIT or another working
capital lender, which will replace the Company's current working capital
facility under the Credit Agreement. The Company has received and is
currently reviewing proposals for a New Credit Agreement which have been
submitted by CIT as well as various other prospective lenders. Based upon the
proposals that have been received by the Company as of the date of this
Exchange Restructuring Prospectus, the Company expects that it will be able
to obtain a new working capital facility under a New Credit Agreement as of
the Exchange Restructuring Date which contains terms and conditions
significantly more favorable than those currently existing under the Credit
Agreement with CIT.
The Company currently anticipates no difficulty in obtaining the credit
facility under a New Credit Agreement on satisfactory terms on or prior to
the Exchange Restructuring Date. The Company further believes that the
financing available pursuant to such facility should be adequate to permit
the Company to operate its business in accordance with the Three-Year
Business Plan. However, there is no assurance that such facility will be
obtained in light of, among other things, the possibility of the occurrence
of potentially materially adverse conditions in the private and public
capital and/or debt markets and potentially materially adverse operating
results for the Company. Under the Letter Agreement, the credit facility
under the New Credit Agreement must be on terms and conditions reasonably
satisfactory to Magten, Apollo and the Company.
DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT
In connection with the Restructuring, the Company will also enter into,
on the date of consummation of the Restructuring, a registration rights
agreement in the form of Exhibit B to the Prepackaged Plan, attached hereto
as Appendix I to Part B (the "Registration Rights Agreement"). Under the
terms and conditions of the Registration Rights Agreement, the Company must
use commercially reasonable efforts to register the New Common Stock pursuant
to a "shelf registration," and to keep such shelf registration continuously
effective for three years (subject to a two-year extension of such period to
the extent that a registration statement on Form S-3 is available to the
Company at the end of such initial three-year period), subject to the right
to suspend the use of the prospectus constituting part of such registration
statement for designated corporate purposes. Thereafter, holders who did not
resell New Common Stock during the three-year period, but whose resales would
have been covered by the registration statement, will be entitled to
exercise, over a two-year period, up to three demand registrations and will
be entitled to piggyback registration rights as well during such period. In
the event that the shelf registration does not become effective within one
hundred days after the date that the registration statement is filed, holders
of the New Common Stock whose resales would have been covered by the
registration statement will be entitled to exercise, over a two-year period,
up to four demand registrations and will be entitled to piggyback
registration rights as well during such period.
DESCRIPTION OF RIGHTS PLAN
The Company is a party to a shareholder rights plan, dated December 8,
1987, as amended on December 10, 1997 (the "Rights Plan"), which provides for
a dividend distribution of one right (collectively, the "Rights") for each
share of Old Common Stock to holders of record of the Old Common Stock at the
close of business on December 23, 1997. With certain exceptions, the Rights
will become exercisable only in the event that an acquiring party accumulates
20 percent or more of the Company's voting stock, or if a party announces an
offer to acquire 30 percent or more of such voting stock. Each Right, when
exercisable, will entitle the holder to buy one-hundredth of a share of the
Company's Series A Preferred Stock at a price of $30 per right or, upon the
occurrence of certain events, to purchase either common stock of the Company
or shares in an Acquiring Entity (as defined in the Rights Plan) at half the
market value thereof. The Company will generally be entitled to redeem the
Rights at a redemption price of $0.03 per Right at any time until the 10th
day following the acquisition of a 20 percent position in its shares of Old
Common Stock. In July 1993, the Rights Plan was amended to provide that an
acquisition or offer by Apollo, or any of Apollo's Subsidiaries (as defined
in the Rights Plan), will not cause the Rights to become exercisable.
Pursuant to the December 10, 1997 amendment to the Rights Plan, the
expiration date of the Rights was extended to December 23, 2002. On [ ],
1998, in connection with the Restructuring, consistent with the terms of the
Letter Agreement, the Company amended the Rights Plan to provide, among other
things, that the Rights will expire under the Rights Plan immediately prior
to the consummation of the Restructuring.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(Amounts in thousands except share, per share and ratio data)
Set forth below are summary consolidated historical financial data of
the Company. The summary financial data for each of the years in the five
year period ended January 3, 1998 have been derived from the audited
Consolidated Financial Statements of the Company. The summary financial
data for the three month periods ended April 4, 1998 and March 29, 1997
have been derived from the unaudited financial statements of the Company
and include all adjustments of a normal recurring nature which are
necessary to present fairly such financial statements. The data presented
below is qualified by, and should be read in conjunction with, the
Consolidated Financial Statements and related notes thereto, and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" in Part A of this Exchange Restructuring Prospectus. The
Company's fiscal year ends on the Saturday closest to December 31.
<TABLE>
<CAPTION>
For the Three Months Ended For the Fiscal Year Ended
----------------------------------------------------------------------------------------------------
April 4, March 29, Jan. 03, Dec. 28, Dec. 30, Dec. 31, Jan. 1,
1998 1997 1998 1996 1995 1994 1994
(52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks)
---------- ---------- ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS:
Net sales $ 84,887 $ 88,209 $396,832 $417,711 $485,825 $398,990 $379,012
Reversal of /(Provision
for) Restructuring costs
(a) 160 754 (2,066) (11,730) (3,550) - (5,500)
Income/(loss) from
continuing operations (3,297) (2,737) (10,722) (8,958) (362) 3,398 7,865
DISCONTINUED OPERATIONS:
Loss from operations,
net of income taxes - (773) (8,136) (365) (136) (9,530) (638)
Estimated loss on
disposal, net of income
taxes - - (1,330) - - (1,796) -
Reversal of estimated
loss on disposal, net of
income taxes - - - - - - 11,772
Extraordinary gain (b) - - 2,100 - 1,000 63 24,707
Net income/(loss)(a) (3,297) (3,510) (18,088) (9,323) 502 (7,865) 43,706
BASIC EARNINGS/(LOSS (PER
share:
Earnings/(loss) per share
from continuing
operations before
extraordinary gain $ (.22) $ (.18) $ (0.71) $ (0.60) $ (0.02) $ (0.23) $ 1.18
Earnings/(loss) per share
from discontinued
operations - $ (.05) $ (0.62) (0.02) $ (0.01) $ (0.76) $ 1.68
Earnings per share from
extraordinary gain - - 0.14 - 0.06 - 3.72
Basic earnings/(loss) per
share (a) (.22) (.23) (1.19) (0.62) 0.03 (0.53) 6.58
DILUTED EARNINGS/(LOSS)
PER SHARE:
Earnings/(loss) per share
from continuing
operations before
extraordinary gain $ (.22) $ (.18) $ (0.71) $ (0.60) $ (0.02) $ 0.23 $ 1.10
Earnings/(loss) per share
from discontinued
operations - (.05) (0.62) (0.02) (0.01) (0.76) 1.57
Earnings per share from
extraordinary gain - - 0.14 - 0.06 - 3.48
Diluted earnings/(loss)
per share (a) (.22) (.23) (1.19) (0.62) 0.03 (0.53) 6.15
CASH DIVIDENDS PER SHARE - - - - - - -
WEIGHTED AVERAGE SHARES:
Shares used in computing
basic earnings per share 15,170 15,041 15,139 15,078 15,008 14,954 6,638
Add - Common stock
equivalents (d) (d) (d) (d) 110 (d) 465
Shares used in computing
diluted earnings
per share 15,170 15,041 15,139 15,078 15,118 14,954 7,103
AT END OF PERIOD:
Current assets $ 156,094 $ 167,325 $148,899 $150,986 $163,799 $172,234 $161,375
Total assets 238,990 253,473 233,377 235,251 253,970 266,157 251,946
Current liabilities (c) 194,627 82,365 185,692 59,566 61,704 71,104 44,427
Long-term debt (c) - 104,879 - 106,231 110,040 109,908 111,851
Deferred liabilities 5,354 9,114 5,382 8,863 11,373 13,479 16,766
Working capital/(deficiency) (38,533) 84,960 (36,793) 91,420 102,095 101,130 116,948
Current ratio 0.8:1 2.0:1 0.8:1 2.5:1 2.7:1 2.4:1 3.61:1
Shareholders' equity $ 39,009 $ 57,115 $ 42,303 $ 60,591 $ 70,853 $ 71,666 $ 78,902
Book value per share $ 2.57 $ 3.78 $ 2.79 $ 4.01 $ 4.71 $ 4.78 $ 5.34
Number of shares
outstanding 15,170 15,104 15,170 15,094 15,041 15,008 14,781
</TABLE>
- -----------------
(a) Includes, for the three month periods ended April 4, 1998 and March
29, 1997, a reversal of a previously recorded restructuring provision
of $160 and $754, respectively, related to the excess portion of net
liabilities set up for the closure of all retail outlet stores other
than Perry Ellis outlet stores and the closure of the JJ Farmer
sportswear product line, respectively; for the year ended January 3,
1998, a provision of $2,066 (14 cents per share; tax benefit not
available) for restructuring costs principally related to (i) $3,530
related to the decision in the fourth quarter to close all retail
outlet stores other than Perry Ellis outlet stores and (ii) the
reversal of previously recorded restructuring provisions of $1,464,
primarily resulting from the settlement of liabilities for less than
the carrying amount, resulting in the reversal of the excess portion
of the provision; for the year ended December 28, 1996, a provision
of $11,730 (78 cents per share; tax benefit not available) for
restructuring costs principally related to (i) the write-off of
goodwill and the write-down of other assets for a product line which
has been put up for sale, (ii) the write-off of certain assets and
accrual for future royalties for a licensed product line and (iii)
employee costs related to closing certain facilities; for the year
ended December 30, 1995, a provision of $3,550 (24 cents per share;
tax benefit not available) for restructuring costs principally
related to (i) fixed asset write-downs at locations to be closed and
(ii) inventory markdowns for discontinued product lines; and for the
year ended January 1, 1994, a provision of $5,500 (basic loss per
share of 83 cents; tax benefit not available) for restructuring costs
principally related to the costs incurred in connection with the
closure of certain unprofitable operations, including (i) inventory
markdowns associated with those product lines and (ii) fixed asset
write-downs at closed locations.
(b) Includes, for the year ended January 3, 1998, a gain of $2,100 (14
cents per share) related to the reversal of excess liabilities
previously provided for the anticipated settlement of claims arising
from the Chapter 11 proceeding; for the year ended December 30, 1995,
a gain of $1,000 (6 cents per share) related to the reversal of
excess liabilities previously provided for the anticipated settlement
of claims arising from the Chapter 11 proceeding; for the year ended
December 31, 1994, a gain of $63 (no per share effect) related to the
purchase and retirement of a portion of the Senior Notes at a price
below the principal amount thereof; and for the year ended January 1,
1994, a gain of $24,707 (basic earnings per share of $3.72) related
to the settlement and anticipated settlement of claims arising from
the Chapter 11 proceeding.
(c) At April 4, 1998 and January 3, 1998, long-term debt of $104,879 had
been classified as a current liability. See Note 1 to the Consolidated
Financial Statements at page F-6 and page F-26 to the Company's
Registration Statement on Form S-4 of which this Exchange Restructuring
Prospectus is a part.
(d) Common stock equivalents have not been included in these periods as
their inclusion would be anti-dilutive to the calculation.
CAPITALIZATION
The following table sets forth the unaudited historical capitalization
of the Company as of April 4, 1998 and the unaudited pro forma consolidated
capitalization of the Company after giving effect to the Exchange
Restructuring as if the Exchange Restructuring had occurred on April 4,
1998. This table should be read in conjunction with the "SUMMARY HISTORICAL
CONSOLIDATED FINANCIAL INFORMATION," "UNAUDITED PRO FORMA FINANCIAL
STATEMENTS," the condensed consolidated interim unaudited financial
statements for the three months ended April 4, 1998 and the Consolidated
Financial Statements for the year ended January 3, 1998 and the notes
thereto included elsewhere in the Company's Registration Statement on
Form S-4 of which this Exchange Restructuring Prospectus is a part.
(Unaudited)
April 4, 1998
-------------------------
Actual Pro Forma
------------ ------------
($ in thousands)
Cash and cash equivalents................................ $ 1,683 $ 1,683
======== ========
Long-term debt, including current portion:
Senior Notes........................................... $104,879 $ --
-------- --------
Total long-term debt................................ $104,879 --
Stockholder's equity:
Common stock........................................... 15,405 20,227
Additional paid-in capital............................. 107,249 208,135
Deficit................................................ (78,532) (79,912)
Accumulated other comprehensive income................. (3,499) (3,499)
Less-treasury stock, at cost-234 shares................ (1,614) --
-------- --------
Total stockholder's equity.......................... 39,009 144,951
-------- --------
Total capitalization............................. $143,888 $144,951
======== ========
RISK FACTORS
Investment in the New Common Stock involves a high degree of risk. Prior
to deciding whether to (a) participate in the Exchange Offer and/or (b) vote
to accept the Prepackaged Plan, each Noteholder should carefully consider all
of the information contained in this Exchange Restructuring Prospectus,
especially the factors described in the following paragraphs.
RISK OF NONCONSUMMATION OF THE RESTRUCTURING
If holders of at least 25% in aggregate principal face amount of the
Senior Notes accelerate all outstanding indebtedness under the Senior Notes
pursuant to the terms of the Indenture, such an acceleration of the
outstanding indebtedness under the Senior Notes could result in the Company
becoming subject to a proceeding under the Federal bankruptcy laws. As
contemplated by the terms of the Letter Agreement, Magten has, in accordance
with Section 6.5 of the Indenture, caused a written direction to be provided
to the Trustee, to forbear during the term of the Letter Agreement from
taking any action under the Indenture in connection with the failure by the
Company to make the interest payment on the Senior Notes that was due and
payable on March 2, 1998. However, there is no assurance that the holders of
25% or more in principal amount of the Senior Notes will not decide to
accelerate the outstanding indebtedness under the Senior Notes prior to
consummation of the Restructuring or if the Stockholders fail to approve the
Restructuring
COMPANY RESULTS OF OPERATIONS SUBJECT TO VARIABLE INFLUENCES; INTENSE
COMPETITION
The Company's business is sensitive to changes in consumer spending
patterns, consumer preferences and overall economic conditions. The Company
is also subject to fashion trends affecting the desirability of its
merchandise. The apparel industry in the United States is highly competitive
and characterized by a relatively small number of multi-line manufactures
(such as the Company) and a large number of specialty manufacturers. The
Company faces substantial competition in its markets from manufacturers in
both categories. Many of the Company's competitors have significantly greater
financial resources than the Company. The Company also competes for private
label programs with the internal sourcing organizations of its own customers.
The Company's future performance will be subject to such factors, most of
which are beyond its control, and there can be no assurance that such factors
would not have a material adverse effect on the Company's results of
operations and financial condition.
DILUTION
Upon completion of the Exchange Offer or the Prepackaged Plan, as
applicable, the Company will issue 18,456,350 shares of New Common Stock
directly to exchanging Noteholders and 1,496,461 shares of New Common Stock
to Stockholders, and will reserve 2,216,979 shares of New Common Stock for
issuance upon exercise of the Warrants. The issuance of 18,456,350 shares to
Noteholders upon the Issuance will result in a significant dilution of the
existing equity interests of the holders of Old Common Stock (as a percentage
of outstanding shares of common stock) which could adversely affect the
market price and the value of the New Common Stock. Immediately following the
consummation of the Exchange Restructuring or the Prepackaged Restructuring,
as applicable, the 18,456,350 shares issued directly to Noteholders will,
after giving effect to the Restructuring, represent 92.5% of the total
outstanding shares of New Common Stock, excluding the Warrant Shares, based
on the number of shares of Old Common Stock outstanding as of the Record
Date. Upon consummation of the Restructuring, holders of Old Common Stock
will receive, for each share of Old Common Stock held, .14814815 Warrants
with an exercise price of $6.2648 per share (subject to adjustment). Based
upon the current market price of the Old Common Stock (after giving effect to
the Reverse Split), the Warrants may be "out of the money" immediately
following the Restructuring, and no assurance can be made that the Warrants
will ever be "in the money." If all Warrants are exercised, the percentage of
New Common Stock held by exchanging Noteholders would be reduced from 92.5%
to 83.25%, and the percentage of New Common Stock held by exchanging
Stockholders would be reduced from 7.5% to 6.75% (assuming none of the
Warrants are held by Stockholders at the time the Warrants are exercised).
See "PURPOSE OF THE RESTRUCTURING." In addition, there can be no assurance
that the Company will not need to issue additional Common Stock in the future
in order to achieve its business plan or if it does not achieve its projected
results, which could lead to further dilution to holders of the Company's
Common Stock.
LIMITATION ON USE OF NET OPERATING LOSSES
As a result of the receipt by Noteholders of New Common Stock in
exchange for the Senior Notes pursuant to the Restructuring, the Company will
undergo an "ownership change" for Federal income tax purposes. Accordingly,
the Company will be limited in its ability to use its net operating loss
carryovers and certain tax credit carry forwards to offset future taxable
income. Under the Exchange Restructuring, the limitation imposed upon the
Company's use of its net operating loss carryovers would be more restrictive
than under the Prepackaged Restructuring. See "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS."
CHANGE IN PRIORITY
The Senior Notes are secured debt obligations of the Company and,
accordingly, have priority over the Common Stock with respect to payment in
the event of a liquidation, dissolution or winding-up of the Company. Upon
exchange pursuant to the Exchange Offer, the Senior Notes tendered and
accepted will be exchanged for the New Common Stock. In any liquidation or
reorganization of the Company under the Bankruptcy Code, the New Common
Stock, as equity securities of the Company, would rank below all debt claims,
including claims of the lender under the Company's New Credit Agreement. In
addition, holders of the New Common Stock will not be entitled to receive any
payment or other distribution of assets upon the liquidation or dissolution
of the Company until after the holders of preferred stock, if any, have
received the entire preferential amounts to which they may be entitled. See
"Description of Capital Stock."
LACK OF TRADING MARKET FOR NEW COMMON STOCK; VOLATILITY; POTENTIAL DE-LISTING
OF THE NEW COMMON STOCK
There can be no assurance that an active market for the New Common Stock
will develop or, if any such market does develop, that it will continue to
exist. Further, the degree of price volatility in any such market that does
develop may be significant. Accordingly, no assurance can be give as to the
liquidity of the market for any of the New Common Stock or the price at which
any sales may occur.
The Company has fallen below the continued listing criteria of the NYSE
for net tangible assets available to common stock together with average net
income after taxes for the past three years. The Company has requested that
the NYSE waive compliance with such test until consummation of the
Restructuring. There can be no assurance, however, that the NYSE will waive
compliance of such test. If the common stock of the Company were de-listed,
there could be an adverse effect on the liquidity of the market for such
common stock. Should the Restructuring be consummated, the Company expects to
be in full compliance with all of the NYSE's requirements for continued
listing on the NYSE. See "UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS".
The Company expects that the New Common Stock and the Warrants will be
eligible for listing and will be listed for trading on the NYSE. There can be
no assurances, however, that the New Common Stock and/or the Warrants will be
listed for trading on the NYSE. If the Company is unable to have the New
Common Stock and the Warrants listed for trading on the NYSE upon
consummation of the Restructuring, the Company will use its best efforts to
cause all New Common Stock and Warrants to be quoted on the National Market
System of the NASDAQ or to be listed on another national securities exchange.
However, there is no assurance that the Company would be successful in such
efforts.
POSSIBLE VOLATILITY OF STOCK PRICE; EFFECT OF RESTRUCTURING ON STOCK PRICE
Since March 3, 1998, the market price of the Old Common Stock has
experienced some degree of volatility. There can be no assurance that such
volatility will not continue for the New Common Stock or become more
pronounced. In addition, the stock market has recently experienced, and is
likely to experience in the future, significant price and volume fluctuations
which could materially adversely effect the market price of the New Common
Stock without regard to the operating performance of the Company. The Company
believes that factors such as the Restructuring, quarterly fluctuations in
the financial results of the Company or its competitors and general
conditions in the industry, the overall economy, the financial markets and
other risks described herein could cause the price of the New Common Stock to
fluctuate substantially.
CONCENTRATED OWNERSHIP OF NEW COMMON STOCK
Following consummation of the Restructuring, the ownership of the New
Common Stock will likely be significantly more concentrated than was the
ownership of the Old Common Stock. Assuming that the current holders of the
Senior Notes do not significantly change prior to the consummation of the
Restructuring, the Company will be controlled by a few stockholders who are
current holders of the Senior Notes. These holders of New Common Stock may
seek to influence the direction of the Company. For instance, following
consummation of the Restructuring, Magten will own in excess of 60% of the
issued and outstanding shares of New Common Stock. As a result, Magten may
have the ability to control the Company's management, policies and
financing decisions, to elect a majority of the members of the Company's
Board and to control the vote on all matters coming before the stockholders
of the Company. Pursuant to the Letter Agreement, the Company has agreed
that three to five out of seven to nine members of the initial new Board
members will be nominated by Magten, subject to consultation with the
Company and other Noteholders who may come forward for election to the
Board following the Restructuring. See "INFORMATION REGARDING NOMINEES."
The Company does not have complete information regarding the beneficial
ownership of the Senior Notes and is not aware of any stated intention by
Magten or any agreement among Noteholders generally to seek to influence
the direction of the Company or to otherwise act in concert following the
Restructuring. There can be no assurance, however, that no such agreements
exist.
ABSENCE OF AND/OR RESTRICTIONS ON DIVIDENDS
The Company did not pay any dividends on the Old Common Stock in 1995,
1996 or 1997 and does not anticipate paying dividends on the Common Stock at
any time in the foreseeable future. Moreover, the Credit Agreement places
restrictions on the Company's ability to declare or pay cash dividends on the
Old Common Stock and the Company believes that the New Credit Agreement will
similarly restrict the payment of dividends on the New Common Stock. For a
description of the limitations contained in the Credit Agreement, see
"DESCRIPTION OF INDEBTEDNESS OF THE COMPANY" in the Disclosure Statement.
HISTORY OF LOSSES; EFFECT OF TRANSACTION
Although the Company was profitable for the fiscal year ended December
30, 1995, for the fiscal years ended December 31, 1994, December 28, 1996,
and January 3, 1998, the Company reported net losses of $7,865,000,
$9,323,000, and $18,088,000 respectively. The net losses were primarily
attributable to the write-off of goodwill, the write-down of other assets,
facility shut-downs and the closure of certain unprofitable operations. There
can be no assurance that the Company will regain its profitability, or have
earnings or cash flow sufficient to cover its fixed charges. See "SALANT
CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS" at F-2 to
the Company's Registration Statement on Form S-4 of which this Exchange
Restructuring Prospectus is a part.
CASH FLOW FROM OPERATIONS
During the fiscal years ended December 28, 1996 and January 3, 1998, the
Company had positive cash flow from operating activities of $17.1 million and
negative cash flow from operating activities of $9.8 million, respectively.
The fiscal 1996 figure reflects a $17.5 million reduction in inventories due
to improved inventory management, and the effects of the implementation of a
strategic business plan for the men's apparel group. The lower inventory
balance was partially offset by an increase in accounts receivable, due to
changes in the Company's factoring arrangements with CIT which reduced the
amount of accounts receivable sold to CIT and the related factoring costs.
The Fiscal 1997 figure reflects an operating loss of $10.7 million and an
increase in accounts receivable of $5.7 million, offset by non-cash charges
such as depreciation and amortization of $8.9 million.
The Company's principal sources of liquidity, both on a short-term and a
long-term basis, are cash flow from operations and borrowings under the
Credit Agreement. Based upon its analysis of its consolidated financial
position, its cash flow during the past twelve months and the cash flow
anticipated from its future operations, the Company believes that its future
cash flows together with funds available under the Credit Agreement should be
adequate to meet the financing requirements it anticipates during the next
twelve months provided that the Company consummates the Restructuring and
secures a New Credit Agreement. See "DESCRIPTION OF NEW CREDIT AGREEMENT."
There can be no assurance, however, (i) that the Company will consummate the
Restructuring, or (ii) the Company will obtain a New Credit Agreement on
favorable terms, or (iii) that future developments and general economic
trends will not adversely affect the Company's operations and, hence, its
anticipated cash flow.
DECLINES IN NET SALES AND GROSS PROFITS
Sales of men's apparel decreased by $18.9 million, or 5.5%, in Fiscal
1997. The decrease resulted from (a) a $12.4 million reduction in sales of
men's slacks, of which $8.4 million reflected the elimination of unprofitable
programs and the balance was primarily due to operational difficulties
experienced in the first quarter of Fiscal 1997 related to the move of
manufacturing and distribution out of the Company's facilities in Thomson,
Georgia, (b) a $5.7 million reduction in sales of men's sportswear, which
included a $16.7 million reduction for the elimination of the Company's JJ
Farmer and Manhattan sportswear lines, as offset by an $11.0 million increase
in sales of Perry Ellis sportswear product, (c) a $5.1 million decrease in
sales of men's accessories, primarily due to the slow-down of the novelty
neckwear business and (d) a $4.7 million decrease in sales of certain dress
shirt lines, which reflected the elimination of unprofitable businesses.
These sales decreases were partially offset by a $9.5 million increase in
sales of Perry Ellis dress shirts due to the addition of new distribution and
the continued strong acceptance of these products by consumers. Sales of
children's sleepwear, underwear and sportswear increased by $3.4 million, or
7.5%, in Fiscal 1997. This increase was primarily a result of the continuing
expansion of the Joe Boxer children's product line. Sales of the retail
outlet stores division decreased by $5.4 million, or 19.8%, in Fiscal 1997.
This decrease was due to (i) a decrease in the number of stores in the first
10 months of Fiscal 1997 and (ii) the decision in November 1997 to close all
non-Perry Ellis outlet stores. The Company ceased to operate the non-Perry
Ellis outlet stores in November 1997. The total sales reduction attributable
to the elimination of unprofitable programs was $29.8 million.
The gross profit margin of the children's sleepwear and underwear
segment declined as a result of (i) slowdown in sales of certain licensed
products, requiring a greater percentage of off-price sales, as well as an
increase in discounts and allowances, (ii) an increase in reserves for
remaining inventory, and (iii) higher distribution and product handling
costs. The gross profit of the retail outlet stores decreased primarily as a
result of inventory markdowns of $1.6 million (7.3% of net sales) related to
the closing of the non-Perry Ellis stores. Excluding these inventory
markdowns, the gross profit margin increased as a result of a decrease in the
transfer prices (from a negotiated rate to standard cost) charged to the
retail outlet stores for products made by other divisions of the Company.
RETAIL ENVIRONMENT
The retail industry has experienced significant consolidation and other
ownership changes resulting in a decrease in the number of retailers. In
addition, various retailers, including some of the Company's customers, have
experienced declines in revenue and profits in recent periods and some have
been forced to file for protection under the federal bankruptcy laws. In the
future, other retailers in the United States and in foreign markets may
consolidate, undergo restructurings or reorganizations, or realign their
affiliations, any of which could decrease the number of stores that carry the
Company's products or increase the ownership concentration within the retail
industry. There can be no assurance that such changes would not have a
material adverse effect on the Company's results of operations and financial
condition.
APPAREL INDUSTRY CYCLES AND OTHER ECONOMIC FACTORS
The apparel industry historically has been subject to substantial
cyclical variations, with consumer spending on apparel tending to decline
during recessionary periods. A decline in the general economy or
uncertainties regarding future economic prospects may affect consumer
spending habits, which, in turn, could have a material adverse effect on the
Company's results of operations and financial condition.
SEASONALITY AND FASHION RISK
The Company's principal products are organized into seasonal lines for
resale at the retail level during the Spring, Fall and Holiday seasons.
Typically, the Company's products are designed as much as one year in advance
and manufactured approximately one season in advance of the related retail
selling season. Accordingly, the success of the Company's products is often
dependent on the ability of the Company to successfully anticipate the needs
of the Company's retail customers and the tastes of the ultimate consumer up
to a year prior to the relevant selling season. In addition, the Company
experiences seasonal fluctuations in its net sales and net income, with a
disproportional amount of the Company's net sales and a majority of its net
income typically realized during the fourth quarter. Net sales and net income
are generally weakest during the first quarter. The Company's quarterly
results of operations may also fluctuate significantly as a result of a
variety of other factors, including the Company's ability to source,
manufacture and distribute its products.
DEPENDENCE ON CERTAIN CUSTOMERS AND LICENSEES; EFFECT OF RESTRUCTURING ON
LICENSES
Certain of the Company's customers, including some under common
ownership, have accounted for significant portions of the Company's gross
revenues.
In Fiscal 1997, approximately 17% of the Company's net sales were made
to Sears Roebuck & Co. ("Sears"), approximately 11% of the Company's net
sales were made to Federated Department Stores, Inc. ("Federated") and
approximately 10% of the Company's net sales were made to TJX Corporation
("TJX"). In 1996, approximately 13% of the Company's net sales were made to
Sears. In 1996 and 1995, net sales to Federated represented approximately 11%
and 12% of the Company's net sales, respectively. In 1995, approximately 11%
of the Company's net sales were made to TJX. In 1995, approximately 13% of
the Children's Group's net sales were made to Dayton Hudson Corporation. No
other customers accounted for more than 10% of the net sales of the Company
or any of its business segments during 1995, 1996 or 1997.
A decision by the controlling owner of a group of stores or any
substantial customer, whether motivated by fashion concerns, financial
difficulties, or otherwise, to decrease the amount of merchandise purchased
from the Company or to cease carrying the Company's products could materially
adversely affect the Company.
In Fiscal 1997, approximately 44% of the Company's net sales was
attributable to products sold under the Perry Ellis Portfolio by Perry Ellis
and Perry Ellis America trademarks which are licensed to the Company under a
series of license agreements with Perry Ellis International, Inc. ("PEI").
The license agreements contain renewal options which, subject to compliance
with certain conditions contained therein, permit the Company to extend the
terms of such license agreements. Assuming the exercise by the Company of all
available renewal options, the license agreements covering men's apparel and
accessories will expire on December 31, 2015. If the Company were unable to
exercise its right to renew the agreements or the agreements were terminated
by their terms, the resulting inability to sell products bearing a Perry
Ellis trademark would have a material adverse affect on the Company.
In addition to the license agreement with PEI, the Company is also a
party to several other license agreements. Certain of these license
agreements, including the license agreements with PEI and The Walt Disney
Company, contain "change of control" provisions which may be triggered by the
Restructuring, or otherwise contain provisions that enable the licensor to
terminate the license or exercise other remedies thereunder as a result of
the Restructuring. The Company intends to seek a waiver of any such
provisions from the applicable licensors. However, there can be no assurance
that any such waivers will be obtained, or to the extent such waivers are
obtained, on what terms they would be granted.
FOREIGN OPERATIONS AND SOURCING; IMPORT RESTRICTIONS
During Fiscal 1997, approximately 12% of the products produced by the
Company (measured in units) were manufactured in the United States, with the
balance manufactured in foreign countries. Facilities operated by the Company
accounted for approximately 75% of its domestic-made products and 37% of its
foreign-made products; the balance in each case was attributable to
unaffiliated contract manufacturers. In Fiscal 1997, approximately 47% of the
Company's foreign production was manufactured in Mexico, approximately 18%
was manufactured in Guatemala and approximately 12% was manufactured in the
Dominican Republic.
Some of the Company's imported merchandise is subject to United States
customs duties. In addition, bilateral agreements between the major exporting
countries and the United States impose quotas which limit the amount of
certain categories of merchandise that may be imported into the United
States. As a result, the Company's operations would be significantly
adversely affected by political instability resulting in the disruption of
trade from the countries in which the Company's contractors or suppliers are
located, the imposition of additional regulations relating to imports, the
imposition of additional duties, taxes, and other charges on imports,
decreases in quota levels or available quota allocations, significant
fluctuations of the value of the dollar against foreign currencies (although
predominately all of the Company's contracts are designated in U.S. dollars)
or restrictions on the transfer of funds. The inability of a contractor to
ship orders of the Company's products in a timely manner could cause the
Company to miss the delivery date requirements of its customers for those
items, which could result in cancellation of orders, refusal to accept
deliveries, or a reduction in sales prices. Further, since the Company is
generally unable to return merchandise to its suppliers, it could be faced
with a significant amount of unsold merchandise, which could have a material
adverse effect on the Company. There can be no assurance that such factors
would not have a material adverse effect on the Company's results of
operations.
DEPENDENCE ON CONTRACT MANUFACTURING
In Fiscal 1997, the Company produced 59% of all of its products (in
units) through arrangements with independent contract manufacturers. The use
of such contractors and the resulting lack of direct control could subject
the Company to difficulty in obtaining timely delivery of products of
acceptable quality. In addition, as is customary in the industry, the Company
does not have any long-term contracts with its fabric suppliers or product
manufacturers. While the Company is not dependent on one particular product
manufacturer or raw materials supplier, the loss of several such product
manufacturers and/or raw material suppliers in a given season could have a
material adverse effect on the Company's performance.
INFORMATION SYSTEMS AND CONTROL PROCEDURES
The Company has completed an assessment of its information systems
("IS"), including its computer software and hardware, and the impact that the
year 2000 will have on such systems and the Company's overall operations. The
Company's current software systems, without modification, will be adversely
affected by the inability of the systems to appropriately interpret data
information after 1999. As part of the process of improving the Company's IS
to provide enhanced support to all operating areas, the Company has entered
into an interim working agreement with Electronic Data Systems Corporation
("EDS"), which constitutes the initial phase of a long-term contract to
outsource its IS. Such long-term outsourcing contract will provide for or
eliminate any issues involving year 2000 compliance because all software
provided under the outsourcing contract will be year 2000 compliant. The
Company anticipates that its cost for such outsourcing will be approximately
$9.0 million annually, which is consistent with the Company's current IS
expenditures. The Company anticipates that it will complete its outsourcing
and systems conversion in time to accommodate year 2000 issues. If the
Company fails to complete such conversion in a timely manner, such failure
will have a material adverse effect on the business, financial condition and
results of operations of the Company.
While the Company believes its current is generally adequate to support
the Company's business operations, certain deficiencies relating to the age
and design of the systems, including, without limitation, difficulties in
planning, forecasting, allocating and measuring performance through an
integrated financial system, may adversely affect the business operations of
the Company in the near and long-term. There can be no assurance that the
Company's efforts to improve upon and enhance its present IS will resolve or
eliminate any such existing or potential deficiencies.
As noted above, the Company has implemented a program designed to ensure
that all the Company's software will manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data abnormality
and without inaccurate results to such dates. Any failure on the part of the
Company to ensure that any such software complies with year 2000 requirements
could have a material adverse effect on the business, financial condition,
and results of operations of the Company. Likewise, any failure on the part
of suppliers and customers of the Company to implement a year 2000 compliance
program could have a material adverse effect on the business, financial
condition and results of operations of the Company if such lack of compliance
interrupts the Company's daily business interactions and relationships with
such suppliers and customers.
LEVERAGE AND DEBT SERVICE
As of January 3, 1998, the Company had outstanding total interest
bearing indebtedness of approximately $151.9 million and a total
debt-to-total capital ratio of 0.761. The amount of indebtedness of the
Company will be reduced by the principal amount of Senior Notes as a result
of the Restructuring. The Company will continue to have annual fixed debt
service requirements under the term loan portion of the New Credit Agreement.
The Company expects that the New Credit Agreement will have a term loan
component in the maximum principal amount of $25 million. The ability of the
Company to make principal and interest payments under the Company's working
capital facility, including the term loan component, will be dependent upon
the Company's future performance, which is subject to financial, economic and
other factors affecting the Company, some of which are beyond its control.
There can be no assurance that the Company will be able to meet its fixed
charges as such charges become due.
RESTRICTIVE COVENANTS
The Credit Agreement contains certain restrictive covenants which impose
prohibitions or limitations on the Company with respect to, among other
things, (i) the incurrence of indebtedness, (ii) capital expenditures, (iii)
the creation or incurrence of liens, (iv) the declaration or payment of
dividends or other distributions on, or the acquisition, redemption or
retirement of, any shares of capital stock of the Company, and (v) mergers,
consolidations and sales or purchases of substantial assets. The Credit
Agreement also requires that the Company satisfy certain financial tests,
maintain certain financial ratios, and satisfy a maximum net loss test.
Failure to comply with such covenants could result in a default under the
Credit Agreement which could have a material adverse effect on the financial
condition and results of operations of the Company. The Company currently
anticipates that the New Credit Agreement will contain restrictive covenants
similar to those contained in the Credit Agreement.
NEED FOR SUSTAINED TRADE SUPPORT
The Company's ability to achieve sales growth and profitability includes
significant reliance on continued support from its vendors. If the Company's
major vendors reduce their credit lines or product availability to the
Company, it could have a material adverse effect on the Company's sales, cash
position and liquidity.
FOR A DISCUSSION OF CERTAIN ADDITIONAL RISK FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH VOTING ON THE PREPACKAGED PLAN, SEE "RISK
FACTORS" IN THE PROXY STATEMENT/PROSPECTUS AND THE DISCLOSURE STATEMENT.
BACKGROUND OF RESTRUCTURING
The following summary of the background of the Restructuring,
including the principal terms of the Letter Agreement, the Forbearance
Agreement and the Voting Agreement, does not purport to be complete and is
qualified in its entirety by reference to those documents, including the
definitions of certain terms contained therein. Copies of the Letter
Agreement and the Forbearance Agreement are filed as Exhibits 10.42 and
10.43, respectively to the Company's Registration Statement on Form S-4 of
which this Exchange Restructuring Prospectus is a part. The form of Voting
Agreement is attached to the Company's Registration Statement on Form S-4,
of which this Exchange Restructuring Prospectus is a part, as Exhibit 9.1.
Whenever particular provisions of such documents are referred to herein,
such provisions are incorporated herein by reference, and the statements
are qualified in their entirety by such reference.
BACKGROUND OF THE RESTRUCTURING
On February 22, 1985, Salant NY and its two largest subsidiaries,
Thomson and Obion filed with the Bankruptcy Court separate voluntary
petitions for relief under Chapter 11 of title 11 of the Bankruptcy Code
(Case Nos. 85-B-10229 (PBA) through 85-B-10231 (PBA), inclusive). Salant NY's
other United States, Canada and Mexico subsidiaries did not seek relief under
the Bankruptcy Code or other foreign insolvency laws, respectively. On May
19, 1987, the Bankruptcy Court issued an order confirming the 1987 Chapter 11
Plan. The 1987 Chapter 11 Plan was consummated on June 2, 1987. On June 2,
1987, pursuant to the provisions of the 1987 Chapter 11 Plan, the assets and
liabilities of Salant NY, Thomson and Obion were substantively consolidated,
and Salant NY, Thomson and Obion and the inactive subsidiaries of Salant NY
merged with a wholly-owned subsidiary of Salant NY. The Company is the
surviving corporation of such merger.
On June 27, 1990, the Company and its wholly-owned subsidiary, Denton
Mills, each filed with the Bankruptcy Court a separate voluntary petition
for relief under Chapter 11 of the Bankruptcy Code. On July 30, 1993, the
Bankruptcy Court issued an order confirming the 1993 Chapter 11 Plan. The
1993 Chapter 11 Plan was consummated on September 20, 1993. Pursuant to the
1993 Chapter 11 Plan, on September 20, 1993, the Company issued the Senior
Notes. While issuance of the Senior Notes facilitated the Company's
emergence from Chapter 11, the Company, as a result, was capitalized with a
significant amount of long-term debt. In connection with the formulation of
the 1993 Chapter 11 Plan, management of the Company believed that, based
upon projected operating results, the Company would be able to refinance
the Senior Notes prior to their final maturity. The entire aggregate
principal amount of the Senior Notes (which is currently in the aggregate
amount of $104.879 million) becomes due on December 31, 1998. Since
emerging from bankruptcy in September 1993, the Company has from time to
time explored various strategies regarding its overall business operations
and, in particular, various possible transactions that would result in a
refinancing of its long-term debt obligations. In this connection, during
the period from the beginning of Fiscal 1997 through the date of this
Exchange Restructuring Prospectus, including since the announcement of the
proposed Restructuring on March 3, 1998, the Company has from time to time
received indications of interest from various third parties to purchase all
or a portion of the Company's businesses or assets. During this period, the
Company's refinancing efforts have been significantly hampered by its
inconsistent operating results and the fact that investors in the
marketplace generally do not look favorably upon investing in
highly-leveraged apparel companies.
In the latter half of Fiscal 1997, the Company, working with the
Company's various investment banking firms, the Board and management
analyzed and assessed its financial situation and explored with the Board
and management the availability of capital in both the private and public
debt and equity markets for the purpose of recapitalizing the Company. The
investment banking firms advised the Company that they did not believe that
the Company could recapitalize by use of the capital markets, in light of
the Company's past inconsistent operating performance, together with the
reluctance of investors to invest in apparel companies suffering from high
debt-to-equity ratios.
The Company's unfavorable operating results continued throughout the
fourth quarter of Fiscal 1997. Net sales for the fourth quarter of Fiscal
1997 were $116.4 million, a 1.1% increase from the comparable quarter in
1996, however, the Company's net losses amounted to $5.6 million (as
compared to a net income of $6.1 million in 1996), and the loss from
continuing operations before interest, income taxes and extraordinary gain
was $2.4 million (as compared to $10.6 million of income from continuing
operations before interest and income taxes for the same quarter of 1996).
These results heightened the Company's concern that, absent a restructuring
or other extraordinary transaction, it would be difficult for the Company
to make the principal payment under its Senior Notes due on December 31,
1998 of $104.879 million. Moreover, during the fourth quarter of Fiscal
1997, the Company closed 42 of its retail outlets (representing all retail
outlets other than the Perry Ellis outlet stores), determined to close one
of its distribution centers and changed the sourcing of a portion of its
Perry Ellis product line. While these changes were essential to streamline
the Company by eliminating non-core businesses and correcting certain
operational issues, these actions had a detrimental affect on the Company's
earnings and profitability in Fiscal 1997. As a result, heading into fiscal
year 1998, the Company was concerned that, in light of its inconsistent
operating performance and the Company's inability to access the capital
markets in order to refinance or retire its indebtedness under the Senior
Notes, the Company's ability to maintain the support and confidence of its
trade vendors was at risk. In that connection, the Company, in consultation
with its financial advisors, decided that it needed to immediately address
the Company's high level of indebtedness in order to avoid any permanent
adverse effects on its business operations, future productivity and growth
potential. In addition, as a result of the Company's performance during
Fiscal 1997, as of January 3, 1998, the Company had failed to meet certain
of the CIT Financial Covenants. In this connection, the Company reviewed
the advisability of making the $5.5 million interest payment on the Senior
Notes due and payable on March 2, 1998 with a view towards maximizing
liquidity in order to appropriately fund operations during the pendency of
the restructuring transactions. Commencing in December 1997, the Company
began discussions with CIT regarding a possible restructuring of the
Company's indebtedness under the Senior Notes (including various issues
relating to the Company's failure to meet the CIT Financial Covenants and
the upcoming March 1998 interest payment on the Senior Notes). The Company
believed that, given the potential instability that is associated with any
restructuring process, it would be most productive to adopt a strategy to
maximize liquidity and thereby protect the total enterprise value of the
Company. The Company also concluded that the Noteholders and the
Stockholders would best be served by converting the Senior Notes into
equity of the Company, thus allowing the Company to eliminate a significant
portion of its debt and substantially improve its balance sheet.
THE LETTER AGREEMENT
In furtherance of the Company's continuing efforts to deleverage, the
Company approached Magten, to discuss the possible terms and conditions of a
restructuring of the indebtedness under the Senior Notes, including the
Magten Notes. In addition, in connection with the Company's efforts to
restructure, the Company developed the Three-Year Business Plan. See
"RESTRUCTURING FINANCIAL CONSIDERATIONS -- The Three-Year Business Plan."
During the months of January and February, 1998, the Company continued to
actively discuss a restructuring of the Company with Magten and Apollo, the
beneficial owner of 5,924,352 shares (the "Apollo Shares") of Old Common
Stock, representing approximately 39.6% of the issued and outstanding shares.
During this period, the Company continued its negotiations with CIT to ensure
its support of the Restructuring. The efforts culminated in the Letter
Agreement.
In connection with the discussions concerning the Restructuring by the
parties, and in order to determine the allocation of the equity of the
Company among the Stockholders and Noteholders upon the consummation of the
Restructuring, the parties assumed a total enterprise value for the Company
of $185 million. The parties also assumed that the average outstanding
balance under the Company's working capital facility for the
post-restructured Company would be $60 million. Thus, the total net equity
value of the Company after giving effect to the Restructuring was assumed to
be $125 million. Neither the Company, Magten nor Apollo has expressed any
opinion as to the accuracy of any of the foregoing assumptions, including,
without limitation, the total enterprise value of the Company. Such
assumptions were made solely for purposes of allocating the equity of the
Company post-Restructuring among the Noteholders and Stockholders pursuant to
the Restructuring and should not in any way be viewed as indicative of any
party's opinion as to the total enterprise value of the Company.
As a result of the foregoing assumptions and calculations, the parties
agreed in the Letter Agreement that they would each support the
Restructuring (subject to certain conditions), pursuant to which (i)
Noteholders would receive 92.5% of the New Common Stock, which value would
imply a distribution of equity to Noteholders valued at $110 million after
giving effect to the conversion of the Senior Notes and after taking into
consideration the value of the Warrants as determined below (which is
approximately the aggregate outstanding amount under the Senior Notes -
i.e., $104.879 million in aggregate principal amount and $5.5 million in
accrued and unpaid interest as of March 2, 1998); and (ii) Stockholders
would receive (a) 7.5% of the New Common Stock, which value would imply a
distribution of equity to Stockholders valued at $8.9 million after taking
into consideration the value of the Warrants as determined below, and (b)
seven year Warrants representing the right to purchase 10% of the New
Common Stock (on a fully diluted basis). Using the Black-Scholes option
pricing formula, which incorporates such factors as the relationship of the
underlying stock's price to the strike price of the Warrants and the time
remaining until the Warrants expire, a value of $6.1 million is implied for
the Warrants.
On March 2, 1998, Magten, Apollo and the Company entered into the Letter
Agreement setting forth the basic terms and conditions of the Restructuring.
Pursuant to the Letter Agreement, the parties agreed, among other things, to
support the Restructuring on the following terms: (i) the entire long term
debt (which, as of March 2, 1998, was $110.379 million, consisting of
$104.879 million of principal amount and $5.5 million of accrued interest on
the Senior Notes) would be converted into 92.5% of the Company's issued and
outstanding New Common Stock immediately following consummation of the
Exchange Restructuring, subject to dilution for shares of New Common Stock
issued under the Stock Award and Incentive Plan and the Warrant Shares and,
in the case of the Exchange Restructuring only, the shares of New Common
Stock issued under the Old Plans, and (ii) the Old Common Stock would be
converted into 7.5% of the Company's issued and outstanding New Common Stock
immediately following consummation of the Exchange Restructuring, subject to
dilution for shares of New Common Stock issued under the Stock Award and
Incentive Plan and the Warrant Shares and, in the case of the Exchange
Restructuring only, the shares of New Common Stock issued under the Old
Plans, plus Stockholders would receive seven year Warrants to purchase up to
10% of the Company's New Common Stock, on a fully diluted basis. In addition,
pursuant to the Letter Agreement and in order to effect the Restructuring,
the Company agreed to (a) effectuate the Reverse Split in order to
"normalize" the post-restructuring trading of the New Common Stock by
reducing the number of outstanding shares and, thus, increasing the per share
stock price; (b) elect a new Board, consisting of between five and seven
members comprised of Mr. Jerald Politzer, as Chairman, between three and five
members nominated by Magten, subject to consultation with the Company and
other Noteholders who may come forward, and one member nominated by the
current Board; (c) enter into a registration rights agreement for the benefit
of Noteholders who will hold 10% or more of the New Common Stock immediately
after occurrence of the Exchange Restructuring Date, on terms and conditions
reasonably acceptable to Magten and the Company; (d) enter into a New Credit
Agreement to replace the Company's existing working capital facility under
the Credit Agreement on terms reasonably satisfactory to Magten and Apollo;
(e) adjust all existing stock options and other equity based plans to reflect
the Restructuring and/or adopt the Stock Award and Incentive Plan; and (f)
amend the Company's existing Rights Plan to permit the Restructuring to be
consummated without causing any rights thereunder to become exercisable as a
result. Pursuant to the Letter Agreement, Magten agreed, among other things,
to tender (or with respect to managed accounts, use its reasonable best
efforts to cause to be tendered) all of the Magten Notes in acceptance of the
Exchange Offer, provided that certain conditions are satisfied, including
that (i) all applicable federal and state securities laws are complied with,
and (ii) the terms of the Exchange Offer and the remaining components of the
Restructuring are consistent with the terms of the Exchange Offer and
Restructuring as described in the Letter Agreement. As contemplated by the
Letter Agreement, Magten has, in accordance with Section 6.5 of the
Indenture, caused a written direction to be provided to the Trustee, to
forbear during the term of the Letter Agreement from taking any action under
the Indenture in connection with the failure by the Company to make the
interest payment on the Senior Notes that was due and payable on March 2,
1998.
Each of the existing members of the Board has delivered to the Company
a resignation letter resigning from the Board effective as of the Exchange
Restructuring Date. In accordance with the Company's Certificate of
Incorporation, by resolution of the Board, the number of directors has been
fixed at [ ] effective as of the Exchange Restructuring Date. As provided
for in the Letter Agreement, the new Board will consist of: (i) Mr. Jerald
Politzer, as the Chairman of the Board; (ii) between three and five members
to be nominated by Magten, subject to consultation with the Company and
other Noteholders who may come forward prior to the commencement of the
Solicitation; and (iii) one member designated by the current Board. As
described above, as contemplated by the Letter Agreement, it is expected
that Magten will provide the Company with its Board nominees prior to the
commencement of the Solicitation. In addition, the current Board has
designated Marvin Schiller to be the current Board's nominee to the new
Board. If any nominee should be unavailable for election at the
Stockholders' Meeting, the proxies will be voted for the election of such
other person as may be recommended by the Board. See "INFORMATION REGARDING
NOMINEES."
Magten's obligations under the Letter Agreement will terminate upon the
occurrence of any of the following events (a "Magten Agreement Termination
Event") unless waived in writing by Magten:
(a) the Company has not obtained the requisite shareholder approval for
the Restructuring Proposals at the Stockholders' Meeting on or
before July 31, 1998;
(b) the Exchange Offer shall not have commenced on or before June 15,
1998;
(c) the Exchange Restructuring Date shall not have occurred on or
before July 31, 1998;
(d) the Company or Apollo shall have disclaimed publicly in writing (or
in a writing sent to Magten) its intention to pursue the
Restructuring;
(e) there occurs any material change in the terms or the feasibility of
the Restructuring that materially affects the Noteholders, not
previously consented to in writing by Magten;
(f) the Company shall be the subject of a voluntary or involuntary
petition under the Bankruptcy Code prior to the occurrence of the
Exchange Restructuring Date, other than the Prepackaged
Restructuring, provided, however, that the filing of an involuntary
petition will only be deemed to constitute a Magten Agreement
Termination Event when and if such involuntary petition for relief
has continued undismissed for 60 days or an order or decree
approving the involuntary petition has continued unstayed and in
effect for 60 days; and
(g) to the extent the right of Magten to vote or direct the disposition
of the Senior Notes results from an arrangement in existence as of
March 2, 1998 under which Magten has been engaged to perform
investment management services on behalf of a beneficial owner of
Senior Notes, (i) such engagement will be terminated by such
beneficial owner or as a result of any statutory, regulatory or
bona fide business requirement or condition not related to the
Letter Agreement, or (ii) such beneficial owner directs Magten to
dispose of some or all of the Senior Notes beneficially owned by
such beneficial owner; provided that, in any case, the Magten
Agreement Termination Event only applies to Senior Notes held by
the beneficial owner as to which engagement has been terminated or
as to which such disposal direction has been issued.
Apollo's obligations under the Letter Agreement will terminate upon the
occurrence of any of the following events (an "Apollo Agreement Termination
Event") unless waived in writing by Apollo:
(a) the Exchange Restructuring Date shall not have occurred on or
before July 31, 1998;
(b) there occurs any material change in the terms or the feasibility of
the Restructuring that materially and adversely affects the
Stockholders, not previously consented to by Apollo; and
(c) the Company shall be the subject of a voluntary or involuntarily
petition under the Bankruptcy Code prior to the occurrence of the
Exchange Restructuring Date other than the Prepackaged
Restructuring, provided, however, that the filing of an involuntary
petition will only be deemed to constitute an Apollo Agreement
Termination Event when and if such involuntary petition for relief
has continued undismissed for 60 days or an order or decree
approving the involuntary petition has continued unstayed and in
effect for 60 days.
In addition, the respective obligations of Magten, Apollo and the
Company to consummate each of the transactions contemplated by the
Restructuring are also subject to the satisfaction of each of the following
conditions:
(a) neither Magten, the Company nor Apollo has failed to comply with
any of its obligations set forth in the Letter Agreement;
(b) the negotiation, preparation and execution of mutually satisfactory
definitive transaction agreements and other documents incorporating
the terms and conditions of each of the transactions contemplated
by the Restructuring set forth in the Letter Agreement and such
other terms and conditions as the parties may reasonably require;
(c) all authorizations, consents and regulatory approvals required, if
any, in connection with the consummation of the transactions
contemplated by the Restructuring and the continuation of the
Company's businesses as currently constituted shall have been
obtained; and
(d) the holders of 100% (or such lesser percentage as agreed upon by
Magten) of the Senior Notes shall have tendered their Senior Notes
in connection with the Exchange Offer.
In the event that less than 100% of the aggregate principal amount of
the Senior Notes are tendered in the Exchange Offer but at least two-thirds
in principal amount and a majority in number of the Noteholders voting and at
least two-thirds of the Stockholders voting have voted in favor of the
Prepackaged Plan, the Company intends to file the Prepackaged Plan under
Chapter 11 of the Bankruptcy Code. Pursuant to the Letter Agreement, Magten
has agreed to tender (or with respect to managed accounts, use its reasonable
best efforts to cause to be tendered), subject to certain conditions, all of
the Magten Notes pursuant to the Exchange Offer and, in the event the
Prepackaged Plan is pursued, to vote all of the Magten Notes in favor of the
Prepackaged Plan.
THE VOTING AGREEMENT
In accordance with the terms of the Letter Agreement, on May _, 1998,
Apollo and the Company entered into the Voting Agreement. A form of the
Voting Agreement is filed as Exhibit 9.1 to the Company's Registration
Statement on Form S-4 of which this Exchange Restructuring Prospectus is a
part. Pursuant to the Voting Agreement, Apollo agreed that, subject to
Apollo's receipt of proxy or other solicitation in respect of the
Restructuring that are consistent with the terms of the Letter Agreement,
(A) at any meeting of the Stockholders, however called, and in any action
by consent of the Stockholders, Apollo will vote all of the Apollo Shares
in favor of each of the transactions contemplated by the Restructuring with
respect to which a vote of the Stockholders is called, including, without
limitation, each of the Restructuring Proposals; (B) Apollo will vote all
of the Apollo Shares in favor of any plan of reorganization for which votes
to accept or reject such plan of reorganization have been solicited;
provided, that, such plan of reorganization is consistent with the terms of
the Restructuring set forth in the Letter Agreement; (C) so long as it is
the beneficial owner of the Apollo Shares, Apollo will not at any time
prior to the termination of the Letter Agreement, support or encourage,
directly or indirectly, any financial restructuring concerning the Company
other than the Restructuring or any transaction or other action that is
inconsistent with the terms of the Restructuring; and (D) Apollo will not
sell, transfer or assign any of the Apollo Shares or any voting interest
therein during the term of the Letter Agreement except to a purchaser who
agrees in writing prior to such acquisition to be bound by the terms of
this Agreement and by all the terms of the Letter Agreement with respect to
the Apollo Shares being acquired by such purchaser.
In addition, pursuant to the Voting Agreement Apollo also agreed that if
it fails to comply with the provisions of the Letter Agreement, as determined
by the Company in its sole discretion, such failure will result, without any
further action by Apollo, in the irrevocable appointment of the Company,
until termination of the Voting Agreement, as Apollo's attorney and proxy
pursuant to the provisions of Section 212(c) of the Delaware General
Corporate Law, with full power of substitution, to vote, and otherwise act
(by written consent or otherwise) with respect to the Apollo Shares which
Apollo is entitled to vote at any meeting of Stockholders (whether annual or
special and whether or not an adjourned or postponed meeting) or consent in
lieu of any such meeting or otherwise, on the matters and in the manner
specified in the Voting Agreement.
The Company's refinancing efforts during Fiscal 1997 included
discussions with DDJ regarding a possible refinancing transaction. As of
April 20, 1998, DDJ was the beneficial owner of 1,615,730 shares of Old
Common Stock, which represents approximately 10.8% of the issued and
outstanding shares of Old Common Stock. In connection with these
discussions, DDJ entered into the DDJ Confidentiality Agreement with the
Company relating to DDJ's review of various materials relative to such
proposed refinancing. The DDJ Confidentiality Agreement contained certain
restrictions on the ability of DDJ to buy or sell shares of Old Common
Stock. In accordance with the terms of the Letter Agreement, the Company
requested that DDJ enter into a voting agreement with the Company similar
to the Voting Agreement entered into with Apollo. DDJ, however, informed
the Company that it does not wish to enter into such a voting agreement. In
addition, on or about March 3, 1998, DDJ requested that the Company
terminate the restrictions on DDJ's ability to buy or sell shares of Old
Common Stock set forth in the DDJ Confidentiality Agreement. On March 4,
1998, the Company granted this request by DDJ.
THE WAIVER AND FORBEARANCE UNDER THE CREDIT AGREEMENT
CIT agreed to support the Company's restructuring efforts under the
Letter Agreement and, on March 2, 1998, the Company entered into the
Forbearance Agreement with CIT, wherein CIT (i) waived certain existing
financial covenant defaults under the Credit Agreement as of January 3, 1998;
(ii) agreed to forbear (subject to certain conditions) from exercising any of
its rights or remedies arising under the Credit Agreement arising from the
Company's failure to make the interest payment on the Senior Notes due and
payable on March 2, 1998: (iii) agreed to continue making loans, advances and
other financial accommodations to the Company; and (iv) agreed to amend
certain provisions of the Credit Agreement, including an increase in the
advance rate for revolving loans made pursuant to the Credit Agreement. Under
the Forbearance Agreement, such agreement to forbear by CIT will terminate on
July 1, 1998 or earlier upon the happening of (a) the occurrence of any Event
of Default (as defined in the Credit Agreement) other than a Payment Default
(as defined in the Forbearance Agreement) or (b) the failure of the Company
to execute and deliver to CIT before June 1, 1998, (i) a commitment letter
executed by CIT providing for the agreement between CIT and the Company to
enter into a new $135 million syndicated credit facility (in replacement of
the financing and factoring arrangements provided by CIT pursuant to the
Credit Agreement) on terms and conditions satisfactory to CIT or (ii) a copy
of a commitment letter executed between another lender and the Company
providing for a credit facility to the Company which by its terms provides
for closing and funding thereof on or before July 1, 1998, and enabling the
Company upon such closing and funding to simultaneously terminate the Credit
Agreement and all other Financing Agreements (as defined in the Credit
Agreement) and to satisfy in full all of its then existing Obligations (as
defined in the Credit Agreement) to CIT; or (c) the exercise of any right or
remedy with respect to any of the Collateral (as defined in the Credit
Agreement) by any holder of any Senior Notes or by the Trustee under the
Indenture; or (d) the payment of any interest on the Senior Notes in respect
of the Company's failure to make the March 2, 1998 interest payment or
otherwise. If the Company fails to execute and deliver to CIT, prior to June
1, 1998, a commitment letter with CIT or another lender providing for an
agreement to enter into a New Credit Agreement, the Company intends to
request an extension of such deadline from CIT. However, there is no
assurance that such an extension would be granted. In addition, while the
Company expects that the Restructuring will be consummated prior to July 1,
1998, if the Restructuring is not consummated by such date, the Company
intends to request an extension of the forbearance period referred to above
from CIT. However, there is no assurance that such an extension would be
granted.
In consideration for CIT's agreement to enter into the Forbearance
Agreement, pursuant thereto, the Company agreed to pay CIT a forbearance and
waiver fee in the amount of $150,000. In addition, in consideration of a New
Credit Agreement proposed by CIT, the Company agreed to pay CIT a
non-refundable and fully earned fee of $1,050,000, payable in three equal
installments of $350,000 each on April 1, May 1 and June 1, 1998. This fee is
non-refundable in whole or in part, provided, however, that notwithstanding
the foregoing, (a) if the Company does execute a New Credit Agreement with
CIT, such fee will be applied to satisfy any and all closing fees and
facility fees under such New Credit Agreement, or (b) if CIT does not extend
a New Credit Agreement to the Company because CIT's Executive Credit
Committee fails to give credit approval for such facility, then $600,000 of
such fee shall be refunded to the Company. In the event that CIT becomes the
lender under the New Credit Agreement or under a debtor-in-possession working
capital facility, if the Prepackaged Restructuring is pursued, the
Forbearance Agreement provides that no other closing fee or facility fee
shall be due and payable in connection with any such replacement credit
facility provided by CIT.
PURPOSE OF THE RESTRUCTURING
The purpose of the Restructuring is to help ensure the long-term
viability and to contribute to the success of the Company by deleveraging the
Company's capital structure. Specifically, in accordance with the Three-Year
Business Plan developed by the Company the Restructuring is designed to
recapitalize the Company by converting all of the Company's long-term debt
obligations under the Senior Notes (which, as of March 2, 1998, was $110.379
million, consisting of $104.879 million aggregate principal amount of and $5.5
million of accrued interest on the Senior Notes) into New Common Stock.
Interest charges for the Company should be substantially reduced and
stockholders' equity should be substantially increased as a result of the
Restructuring. Upon consummation of the Restructuring, the Company believes
it will not have any long-term debt, other than the term loan portion of its
working capital facility. This significantly lower debt-to-equity ratio
should help the Company to achieve the objectives as described in the
Three-Year Business Plan and make the Company more attractive to investors.
The Company believes that by reducing the uncertainty surrounding its ability
to pay or retire the Senior Notes which are due in their entirety on December
31, 1998, the Restructuring should maximize liquidity for the Company's
business operations and thereby provide a platform for future growth and
enhance the Company's total enterprise value. The Company further believes
that by providing the Company with a deleveraged capital structure, the
company that results from the Restructuring should be positioned favorably to
withstand the normal market fluctuations in the highly volatile apparel
industry.
In contemplation of the Restructuring the Company elected not to pay the
interest payment of approximately $5.5 million that was due and payable under
the Senior Notes on March 2, 1998, subject to a 30 day grace period. Because
the Company elected not to pay the interest due on the Senior Notes, by the
expiration of the applicable grace period, an event of default has occurred
with respect to the Senior Notes entitling the Noteholders to accelerate the
maturity thereof. Pursuant to the Letter Agreement, Magten has, in accordance
with Section 6.5 of the Indenture, caused a written direction to be provided
to the Trustee, to forbear during the term of the Letter Agreement from
taking any action under the Indenture in connection with the failure by the
Company to make the interest payment on the Senior Notes that was due and
payable on March 2, 1998. On April 8, 1998, the Trustee issued a Notice of
Default stating that as a result of the Company's failure to make the
interest payment on the Senior Notes, an event of default under the Indenture
had occurred on April 1, 1998. Holders of at least 25% in the aggregate
principal face amount of the Senior Notes may accelerate all outstanding
indebtedness under the Senior Notes pursuant to the terms of the Indenture.
If such holders accelerate the indebtedness under the Senior Notes, the
Company may be required to commence a proceeding under the Federal bankruptcy
laws without having solicited acceptances for the Prepackaged Plan prior to
commencement of such proceeding. In addition, the Company's working capital
lender, CIT, agreed to forbear until July 1, 1998, subject to certain
conditions, from exercising any of its rights or remedies under the Credit
Agreement, arising by virtue of the Company's failure to pay such interest on
the Senior Notes. Failure to consummate the Restructuring could result in the
acceleration of all of the indebtedness under the Senior Notes and/or the
Credit Agreement.
ABSENT THE RESTRUCTURING, THE COMPANY DOES NOT BELIEVE IT WILL BE ABLE
TO SATISFY ITS OBLIGATIONS UNDER THE SENIOR NOTES WITHOUT A REFINANCING OF
THE COMPANY'S INDEBTEDNESS UNDER THE CREDIT AGREEMENT AND/OR THE SENIOR
NOTES OR AN ADDITIONAL CAPITAL INFUSION, AND IT IS UNLIKELY THAT THE
COMPANY WILL BE ABLE TO OBTAIN SUCH REFINANCING OR ADDITIONAL CAPITAL
INFUSION. IF THE COMPANY DETERMINES THAT IT IS OR WILL BE UNABLE TO
COMPLETE THE RESTRUCTURING, THE COMPANY WILL CONSIDER ALL OTHER AVAILABLE
FINANCIAL ALTERNATIVES, INCLUDING THE SALE OF ALL OR A PART OF THE
COMPANY'S BUSINESSES, THE IMPLEMENTATION OF AN ALTERNATIVE RESTRUCTURING
ARRANGEMENT OUTSIDE OF BANKRUPTCY, OR THE COMMENCEMENT OF A CHAPTER 11 CASE
WITHOUT A PREBANKRUPTCY ACCEPTED PLAN OF REORGANIZATION. THERE CAN BE NO
ASSURANCE, HOWEVER, THAT ANY ALTERNATIVE WOULD BE ON TERMS AS FAVORABLE TO
NOTEHOLDERS AND STOCKHOLDERS AS THE RESTRUCTURING.
If any of the Restructuring Proposals is not approved by the
Stockholders and/or the Minimum Tender Condition is not satisfied or waived,
but the Company receives sufficient acceptances of the Prepackaged Plan to
obtain confirmation thereof by the Bankruptcy Court, then the Company intends
to pursue confirmation of the Prepackaged Plan under Chapter 11 of the
Bankruptcy Code and to attempt to use such acceptances to obtain confirmation
of the Prepackaged Plan. If the Company determines that it is or will be
unable to complete the Restructuring, the Company will consider all financial
alternatives available to it at such time, which may include the sale of all
or part of the Company's business, the implementation of an alternative
restructuring arrangement outside of bankruptcy, or the commencement of a
Chapter 11 case with or without a preapproved plan of reorganization. There
can be no assurance, however, that any alternative restructuring would result
in a reorganization of the Company rather than a liquidation, or that any
such reorganization would be on terms as favorable to the Noteholders and
Stockholders as the terms of the Restructuring. If a liquidation or a
protracted and non-orderly reorganization were to occur, there is a risk that
the ability of the Noteholders and Stockholders to recover their investments
would be even more impaired than under the Restructuring and would be
substantially delayed. A non-consensual restructuring would likely have a
material adverse impact on the Company and its employees, suppliers and
customers.
RESTRUCTURING FINANCIAL CONSIDERATIONS
BACKGROUND OF THE RESTRUCTURING FINANCIAL ANALYSIS
The Restructuring was designed to enable the Company to achieve the
Three-Year Business Plan by attempting to maximize liquidity for the
Company's business operations which should thereby provide a platform for
future growth and enhance the Company's total enterprise value. The Board
reviewed the Three-Year Business Plan and projections and the various factors
influencing the apparel industry which historically had affected the
Company's operations. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
FAIRNESS OPINION
Pursuant to an agreement effective as of December 18, 1997, between E&Y
and the Company (the "E&Y Agreement"), the Company engaged E&Y to act as its
financial advisor in connection with the Restructuring. In addition, E&Y
performed certain valuation services at the request of the Company under the
E&Y Agreement. For a more detailed description of the arrangements pursuant
to the E&Y Agreement, including the fees and expenses payable to E&Y by the
Company, see "ADVISORS AND REPRESENTATIVES."
On March 25, 1998, the Company retained E&Y to render its opinion as
to whether or not the consideration to be received by public Stockholders
pursuant to the Restructuring is fair to the public Stockholders from a
financial point of view. On April 21, 1998, at the request of the Board,
E&Y delivered to the Board a written opinion that as of that date
and based upon and subject to the factors and assumptions set forth
therein, the consideration to be received by public Stockholders pursuant
to the Restructuring is fair to public Stockholders from a financial point
of view. E&Y subsequently delivered to the Board their written opinion
that, as of the date of the Proxy Statement/Prospectus and based upon and
subject to the factors and assumptions set forth therein, the consideration
to be received by public Stockholders pursuant to the Restructuring is fair
to the public Stockholders from a financial point of view (the "E&Y Fairness
Opinion").
THE FULL TEXT OF THE E&Y FAIRNESS OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON
THE REVIEW UNDERTAKEN BY E&Y, IS ATTACHED AS AN ANNEX TO THE PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF
THE COMPANY ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. THE E&Y FAIRNESS
OPINION WAS PROVIDED TO THE BOARD FOR ITS USE AND BENEFIT AND IS DIRECTED
ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO
BE RECEIVED BY PUBLIC STOCKHOLDERS PURSUANT TO THE RESTRUCTURING AND DOES NOT
ADDRESS THE MERITS OF THE UNDERLYING DECISION BY THE COMPANY TO ENGAGE IN THE
RESTRUCTURING NOR DOES IT CONSTITUTE A RECOMMENDATION TO THE COMPANY'S
STOCKHOLDERS AS TO HOW SUCH STOCKHOLDERS SHOULD VOTE ON THE PROPOSED
RESTRUCTURING. THE SUMMARY OF THE E&Y FAIRNESS OPINION SET FORTH IN THIS
EXCHANGE RESTRUCTURING/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF SUCH OPINION.
In arriving at the E&Y Fairness Opinion, E&Y, among other things: (i)
reviewed the terms of the Restructuring, as set forth in the Letter Agreement
included in the Company's Form 8-K filing dated March 2, 1998, the Company's
Annual Report, Form 10-K and related audited financial information for the
fiscal year ended January 3, 1998 and the Company's Forms 10-Q and the
related unaudited financial information for the quarterly periods ending
September 27, 1997 and June 28, 1997, unaudited financial information for the
two month period ending March 7, 1998 and a draft copy of the Company's
Registration Statement on Form S-4, dated April 17, 1998, to be filed in
conjunction with the Restructuring; (ii) reviewed and discussed with the
Company's management certain information, including financial forecasts
(specifically the Three-Year Business Plan), relating to the business,
earnings, cash flow, assets, liabilities and prospects of the Company,
furnished to E&Y; (iii) conducted discussions with members of senior
management of the Company concerning their respective businesses and
prospects, before and after giving effect to the Restructuring; (iv) reviewed
the historical market prices and valuation multiples for the Old Common Stock
and considered the reasonableness of this information as it related to fair
market valuation of the Old Common Stock; (v) applied commonly-accepted
valuation procedures in determining the fair market value of the Company's
total invested capital ("TIC") on a going concern basis; (vi) reviewed the
Three Year Business Plan; and (vii) reviewed such other financial studies and
analyses and took into account such other matters as E&Y deemed necessary,
including its assessment of general economic, market and monetary conditions.
In preparing its opinion, E&Y assumed and relied on the accuracy and
completeness of all information supplied by the Company or others,
information otherwise made available to E&Y, information discussed with or
reviewed by or for E&Y, and any publicly available information. E&Y did not
assume any responsibility for independently verifying such information and
did not undertake an independent evaluation or appraisal of any of the assets
or liabilities of the Company. In addition, E&Y did not assume any obligation
to conduct, nor did E&Y conduct, any physical inspection of the properties or
facilities of the Company. With respect to the financial forecast information
furnished to or discussed with E&Y by the Company, E&Y assumed that they were
reasonably prepared and reflect the best currently available estimates and
judgments of the Company's management as to the expected future financial
performance of the Company, as the case may be. E&Y also assumed that the
final form of the Restructuring would be in the form of the Restructuring as
set forth in the draft copy of the Company's Form S-4, dated April 17, 1998.
The E&Y Fairness Opinion is necessarily based upon market, economic and
other conditions as they existed and could be evaluated, and on the
information made available to E&Y as of, the date of such opinion. E&Y
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the Restructuring, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on
the contemplated benefits to Stockholders of the Restructuring. E&Y was not
authorized by the Company or the Board to solicit, nor did it solicit,
third-party indications of interest for the acquisition of all or any part of
the Company. E&Y did participate in discussions and negotiations among
representatives of the Company, Apollo and Magten, including each party's
financial and legal advisors, and it provided advisory services to the
Company in connection with the Restructuring including valuation and
assessment of the terms of the Restructuring, however, E&Y did not determine
the terms of the Restructuring. In addition, E&Y was not asked to consider,
and the E&Y Fairness Opinion does not in any manner address, the price at
which shares of the Company will trade following the announcement or
consummation of the Restructuring.
The following is a summary of the facts and circumstances observed by
E&Y and the material financial and comparative analyses performed by E&Y in
connection with the preparation of the E&Y Fairness Opinion.
Review of the Process by Which the Terms of the Restructuring Were
Determined. E&Y reviewed the facts and circumstances surrounding the Company
leading to the Restructuring as well as the process by which the
Restructuring was negotiated to identify issues relating to fairness to
public Stockholders. The Company has advised E&Y that the following issues,
among others, occurring prior to the Restructuring, are important to
consider: (i) the severe financial distress of the Company caused by
decreasing sales volume in Fiscal 1997, (ii) the inability of the Company to
meet the CIT Financial Covenants as of January 3, 1998, (iii) anticipated
difficulty in meeting a semi-annual coupon payment on the Senior Notes, (iv)
anticipated difficulty in meeting funding requirements for critical capital
expenditures required to maintain the Company's operations on a competitive
footing, (v) anticipated difficulty in refinancing the Senior Notes upon
maturity at December 31, 1998, and (vi) replacement of substantially all of
the Company's senior management in 1997 including the Chief Executive
Officer, Chief Financial Officer and other members of senior management.
With regard to the facts and circumstances surrounding the negotiation
process in which the terms of the Restructuring were determined, E&Y
observed, among other things, that (i) the Company initiated negotiations
with the largest holders of the Senior Notes and Old Common Stock, Magten and
Apollo, respectively, (ii) under the Current Structure, Magten controls
approximately 67% of the Senior Notes, and Apollo controls approximately 40%
of the Old Common Stock, (iii) at the time of the negotiations, DDJ, an
entity unrelated to either the Company, Magten or Apollo, held approximately
12% of the Company's Old Common Stock and was not included in negotiations
regarding the Restructuring, (iv) the Company proposed a restructuring plan
under which holders of the Senior Notes would exchange their claims against
the Company for a percentage of the Company's common stock, (v) in several
negotiations taking place over the course of several weeks, the Company,
Magten and Apollo agreed to the terms of the Restructuring, (vi) Magten and
Apollo are unrelated entities and have no interests in the Company other than
those represented by their respective claims against and interests in the
Company, and (viii) based on publicly available information, Magten owns none
of the Company's common equity, and Apollo owns none of the Company's Senior
Notes as of the date of its opinion.
Fair Market Valuation of the Company's Total Invested Capital. In
conducting financial analyses to determine the fairness of the Restructuring
to the public Stockholders, E&Y employed commonly-accepted valuation
approaches to determine the fair market value of the Company's total invested
capital ("TIC") on a going concern basis. Such commonly accepted valuation
approaches include, but are not limited to the guideline company approach,
the comparable transaction approach and the discounted cash flow approach
described herein.
Guideline Company Approach. E&Y performed a guideline company analysis to
identify the fair market value of the Company's TIC on a going concern basis
pursuant to which it compared certain publicly available financial and
operating data, projections of future financial performance and market
statistics (based on closing stock prices on April 3, 1998) of nine companies
with those for the Company assuming implementation of the Restructuring.
These companies include Farah, Inc., Garan, Inc., Haggar Corp., Hampton
Industries, Hartmarx Corp., Oxford Industries, Inc., Phillips-Van Heusen,
Premiumwear, Inc. and Supreme International Corp. E&Y compared TIC as a
multiple of, among other things, latest twelve months ("LTM") earnings before
interest, taxes, depreciation and amortization ("EBITDA"), 1998 estimated
EBITDA, LTM earnings before interest and taxes ("EBIT"), 1998 estimated EBIT,
LTM sales and 1998 estimated sales. In each case, financial performance of
the Company assumed implementation of the Restructuring. With respect to the
nine guideline companies, E&Y's analysis indicated median TIC as a multiple
of LTM EBITDA of 8.0x, 1998 estimated EBITDA of 5.7x, LTM EBIT of 10.5x ,
1998 estimated EBIT of 9.6x , LTM sales of 0.48x, 1998 estimated sales of
0.46x.
No company utilized in the guideline company approach analysis was
identical to the Company. Accordingly, an analysis of the results of such a
comparison is not purely mathematical; rather it involves complex
considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the comparable companies
and other factors that could affect the public trading value of the
comparable companies or company to which they are being compared.
Comparable Transaction Approach. E&Y reviewed certain publicly available
information regarding six selected apparel industry acquisitions announced
since February 1993 (the "Acquisition Comparables"), and for each transaction
calculated transaction value (defined as offer value plus total debt) as a
multiple of LTM EBITDA, LTM EBIT and LTM revenues. Such analysis indicated
that the transaction value as a multiple of LTM EBITDA ranged from 6.2x to
7.9x, with a median of 7.6x, as a multiple of LTM EBIT ranged from 5.9x to
16.1x, with a median of 8.6x, and as a multiple of LTM revenues ranged from
0.44x to 0.92x, with a median of 0.76x.
There were a limited number of transactions in the apparel industry
which E&Y deemed to be relevant. No company utilized in the comparable
apparel industry acquisitions analysis was identical to the Company.
Accordingly, an analysis of the results of this comparison is not purely
mathematical; rather it involves complex considerations and judgments
concerning differences in historical and projected financial and operating
characteristics of the comparable acquired companies and other factors that
could affect the offer value of such companies and the Company.
Discounted Cash Flow Analysis. Using projections for the Company prepared by
its management for the fiscal years ending January 1, 1998 through December
30, 2000 (the "Company Projections"), E&Y calculated ranges of implied TIC
values for the Company based upon the sum of the discounted present value of
the Company's three year stream of projected un-levered after-tax free cash
flow (defined as tax-effected EBIT excluding extraordinary and non-recurring
items, plus depreciation and amortization, minus capital expenditures, minus
(plus) increases (decreases) in working capital) and the discounted net
present value of a terminal value based on a range of multiples of its
projected calendar year 2000 EBITDA. In performing this analysis, E&Y
utilized discount rates reflecting a weighted average cost of capital.
Comparison of Allocation of TIC on a Going Concern Basis to Existing Equity.
E&Y reviewed the proportion of TIC value, as calculated on a going concern
basis, that would be attributable to the current owners of the Old Common
Stock both under the current capital structure of the Company (the "Current
Structure") as well as under the revised capital structure described in the
Restructuring. Value allocable to the owners of the Old Common Stock under
the Current Structure equals 100% of the Company's TIC value after satisfying
the Credit Agreement and the Senior Notes. Value allocable to current owners
of the Old Common Stock under the revised capital structure described in the
Restructuring equals the value of the Warrants plus 7.5% of the Company's New
Common Stock after satisfying the Credit Agreement. E&Y has identified value
of the Warrants by, among other things, employing a Black-Scholes option
pricing model.
By allocating the fair market value of the Company's TIC, as calculated
on a going concern basis, to holders of Senior Notes and Old Common Stock
under the Current Structure, E&Y has not quantified potential decreases in
the value of such securities due to the Company's current financial distress
and associated additional risk.
Consideration of Control Status and Marketability. E&Y has considered the
issues of relative elements of control status and marketability faced by
holders of Old Common Stock under the Current Structure and as anticipated
under the revised structure as set forth in the Restructuring.
Historical Stock Price Analysis. E&Y reviewed and analyzed the history of
the trading price for the Company's common stock. Since emerging from
bankruptcy in 1993, the Company's stock price declined steadily, losing
approximately 85% of its value between the four-year high of $11.00 per share
in June of 1994 and the $1.6875 value per share as of the March 2, 1998,
which is the date immediately prior to the public announcement of the
Restructuring. The price per share as of the March 2, 1998 also represented
over a 40% decline since announcement of the Company's third quarter results
in early November of 1997. With the exception of an early December
announcement of a charge to be taken by the Company in connection with
closure of outlet stores, no information had been publicly disclosed prior to
the March 3, 1998 public announcement with regard to the Company's failure to
satisfy the covenants of its Credit Agreement nor on the Company's potential
difficulty in meeting a March, 1998 semi-annual coupon payment due on the
Senior Notes while also funding critical capital expenditures. Following the
March filing, the stock price further declined from $1.69 as of February 27,
1998 to $0.63 as of March 13, 1998.
The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances. Therefore, such an opinion is not readily
susceptible to partial analysis or summary description. In arriving at its
opinion, E&Y did not attribute any particular weight to any analysis or
factor considered by it. Accordingly, E&Y's analyses must be considered as a
whole and selecting portions of its analyses, without considering all of its
analyses, would create an incomplete view of the process underlying the E&Y
Fairness Opinion.
In performing its analyses, numerous assumptions were made with respect
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of E&Y or
the Company. Any estimates contained in the analyses performed by E&Y are not
necessarily indicative of future results, which may be significantly more or
less favorable than suggested by such analyses. Additionally, estimates of
the value of businesses or securities do not purport to be appraisals or to
reflect the prices at which such businesses or securities might actually be
sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty. In addition, as described above, the E&Y Fairness
Opinion was among several factors taken into consideration by the Board in
making its determination to approve the Restructuring. Consequently, the E&Y
analyses described herein should not be viewed as determinative of the
decision of the Board or the Company's management with respect to the
fairness of the Restructuring.
E&Y's Financial Advisory Fee. In connection with the E&Y Fairness Opinion and
pursuant to a letter agreement dated March 25, 1998 between the Company and
E&Y, the Company agreed to pay E&Y (i) a fee of $75,000 payable in cash upon
execution of the letter agreement and (ii) $75,000 payable in cash on the
date that E&Y informed the Company that they were prepared to deliver the E&Y
Fairness Opinion. Pursuant to such letter agreement, the Company also agreed
to reimburse E&Y for its reasonable out-of-pocket expenses and indemnify E&Y
and certain related persons for certain liabilities related to or arising out
of its engagement, including liabilities under Federal securities laws.
To date, the Company has paid $150,000 to E&Y in respect of its services
pursuant to such letter agreement. In addition to the letter agreement
entered into in connection with the E&Y Fairness Opinion, E&Y and the Company
entered into the E&Y Agreement effective as of December 18, 1997 pursuant to
which the Company engaged E&Y to act as its financial advisor in connection
with the Restructuring. Pursuant to the E&Y Agreement, the Company agreed to
pay E&Y a monthly advisory fee in the amount of $125,000, consisting of two
components (i) $95,000 per month, and (ii) $90,000 at the end of every three
month period (representing $30,000 per month for the prior three months) and
to reimburse E&Y for its reasonable out-of-pocket costs. To date, the
Company has paid approximately $500,000 to E&Y in respect of its services
under the E&Y Agreement. The E&Y Agreement may be terminated at any time.
At the request of the Company, E&Y performed certain valuation services under
the E&Y Agreement. In connection with those services, E&Y has been paid
$100,000 by the Company. See "ADVISORS AND REPRESENTATIVES."
E&Y is an internationally recognized financial services firm. E&Y,
through its Financial Advisory Service practice, is continuously engaged in
the valuation of businesses and securities in connection with restructurings,
mergers and acquisitions and other purposes. E&Y has in the past provided
financial advisory services to the Company, including having acted as advisor
to the Company and providing valuation services in connection with the
re-negotiation of its Credit Agreement and with consideration of this
Restructuring, and may continue to do so and has received, and may receive,
fees for the rendering of such services. Although E&Y did not determine the
terms of the Restructuring, E&Y did provide financial advisory services to
the Company including valuation advisory services pertaining to the terms of
the Restructuring.
THE THREE-YEAR BUSINESS PLAN
The summary that follows is not intended to be complete and is
qualified, in its entirety, by the actual terms of the Three-Year Business
Plan.
In the latter part of Fiscal 1997 and the beginning of 1998, the Company
developed the Three-Year Business Plan. Under the Three-Year Business Plan,
the Company intends to, among other things: (i) grow its currently profitable
branded businesses with its existing labels such as Perry Ellis, John Henry
and Manhattan; (ii) expand its branded menswear business with new licensed
labels; (iii) expand its private brand programs such as Sear's Canyon River
Blues denim and Khaki programs; and (iii) focus on the return to historical
levels of profitability with respect to the Company's children's apparel
group; (iv) develop strategies designed to return the Company's Children
Group to historical levels of profitability; (v) implement procedures
designed to improve operational efficiencies in distribution, manufacturing
and information systems; and (vi) leverage the overhead structure of the
Company.
While the Three-Year Business Plan contemplates the Company maintaining
each business segment and major line of business through the three year
period, the Company will periodically review each such business segment and
major line of business in order to determine whether each aspect of the
Company's business is (i) performing as budgeted, (ii) consistent with the
Company's strategic goals, and (iii) conducive to creating operating profits
in order to maximize shareholder value. As a result of such periodic reviews
the Company may determine to refocus capital to different aspects of its
business, sell assets and/or exit certain businesses.
LIQUIDATION ANALYSIS
The Company has prepared a liquidation analysis, which is included in
the Disclosure Statement. See "CHAPTER 7 LIQUIDATION ANALYSIS" in the
Disclosure Statement. The liquidation analysis estimates the gross value
available for distribution in such a liquidation to be between $122,541,000
and $149,167,000 less (i) all indebtedness outstanding under the Credit
Agreement with CIT estimated to be $58,562,000, and (ii) administrative
expenses including trustee and professional fees estimated to be between
$43,062,000 and $51,667,000. Accordingly, under such analysis the net
proceeds available to Noteholders and Stockholders would be between
$12,312,000 and $47,453,000. Based on the Noteholders' claim of $104,879,000
plus accrued and unpaid interest to the date of liquidation (which amounts
are estimated to aggregate 114,067,000), the liquidation would net the
Noteholders' between a 10.8% and 41.7% recovery on their claims and leave
existing holders of Old Common Stock with no consideration, assuming a strict
priority distribution.
The liquidation analysis is an estimate of the proceeds that may be
generated as a result of a hypothetical Chapter 7 liquidation of the assets
of the Company. The liquidation analysis makes numerous assumptions with
respect to asset valuation, industry performance, business and economic
conditions, and other matters, many of which are beyond the Company's
control. Moreover, the methods and assumptions used in preparing the
liquidation analysis involve significant elements of subjective judgment on
the part of the Company and may or may not prove to be correct. The
liquidation analysis does not purport to be a valuation of the Company's
assets and is not necessarily indicative of the values that may be realized
in an actual liquidation, which may be significantly more or less favorable
than such estimates. For a discussion of the assumptions used in preparing
the liquidation analysis. See "FEASIBILITY OF THE PREPACKAGED PLAN AND THE
BEST INTERESTS OF CREDITORS TEST -- BEST INTERESTS TEST."
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Balance Sheet as of
April 4, 1998 and the Unaudited Pro Forma Consolidated Statements of
Operations for the three month period ended April 4, 1998 and for the year
ended January 3, 1998 are based upon the historical financial position and
results of operations as of and for the periods then ended. The following
pro forma adjustments (based on the assumptions set forth below) give
effect to the Restructuring transactions, including (i) the issuance of
18,456,350 shares, after giving affect to the Reverse Split, of New Common
Stock to Noteholders, (ii) the issuance of 1,517,100 shares of New Common
Stock to Stockholders, after giving effect to the Reverse Split, which
includes 1,496,461 shares of New Common Stock to be issued upon
consummation of the Restructuring and 20,639 shares of New Common Stock
reserved for issuance in order to settle claim asserted in the 1990 Chapter
11 Case, and (iii) the issuance of Warrants representing the right to
purchase up to 2,216,979 shares, after giving effect to the Reverse Split,
of New Common Stock to Stockholders. The following Unaudited Pro Forma
Consolidated Balance Sheet as of April 4, 1998 includes pro forma
adjustments as if the Restructuring had been completed on that date. The
following Unaudited Pro Forma Consolidated Statement of Operations for the
three month period ended April 4, 1998 and the year ended January 3, 1998
includes pro forma adjustments as if the Restructuring had been completed
at December 29, 1996.
The pro forma adjustments are based on available information and upon
certain assumptions that the Company believes are reasonable under the
circumstances. The unaudited pro forma condensed consolidated financial
statements and accompanying notes should be read in conjunction with the
historical consolidated financial statements of the Company, including the
notes thereto, and the other information pertaining to the Company
appearing elsewhere in this Disclosure Statement or incorporated herein.
THESE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS ARE
PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED TO BE
INDICATIVE OF THE FINANCIAL CONDITIONS OR RESULTS OF OPERATIONS OF THE
COMPANY HAD THE TRANSACTIONS DESCRIBED THEREIN BEEN CONSUMMATED ON THE
RESPECTIVE DATES INDICATED AND ARE NOT INTENDED TO BE PREDICTIVE OF THE
FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF THE COMPANY AT ANY FUTURE
DATE OR FOR ANY FUTURE PERIOD.
<PAGE>
<TABLE>
<CAPTION>
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
HISTORICAL PRO FORMA PRO FORMA
APRIL 4, 1998 ADJUSTMENTS APRIL 4, 1998
------------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,683 $ $ 1,683
Accounts receivable, net 51,329 51,329
Inventories 97,274 97,274
Prepaid expenses and other current 5,808 5,808
assets
Total current assets 156,094 156,094
Property, plant & equipment, net 25,743 25,743
Other assets 57,153 57,153
------------ ------------
$ 238,990 $ 238,990
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable $44,625 $44,625
Accounts payable 24,973 24,973
Reserve for business restructuring 1,582 1,582
Accrued salaries, wages and other
liabilities 18,568 (6,650) (b) 17,505
5,587 (c)
Current portion of long term debt 104,879 (104,879)(b) --
------------ ------------ ------------
Total Current Liabilities 194,627 (105,942) 88,685
Deferred Liabilities 5,354 5,354
Shareholders' equity:
Preferred stock -- --
Common stock 15,405 (234) (d) 20,227
(15,171) (e)
1,517 (e)
18,710 (b)
Additional paid-in capital 107,249 15,171 (e) 208,135
(1,517) (e)
6,100 (b)
86,719 (b)
(5,587) (c)
Deficit (78,532) (1,380) (d) (79,912)
Accumulated other comprehensive income (3,499) (3,499)
Treasury stock (1,614) 1,614 (d) --
------------ ------------- ------------
Total stockholders' equity 39,009 105,942 144,951
------------ ------------- ------------
$238,990 0 $238,990
============ ============= ============
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 4, 1998
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
--------------- --------------- --------------
<S> <C> <C> <C>
Net sales $ 84,887 $ $ 84,887
Costs of sales 67,977 67,977
-------- --------- --------
Gross profit 16,910 16,910
Selling, general and
administrative expenses (17,116) (17,116)
Royalty Income 1,121 1,121
Goodwill amortization (470) (470)
Other income, net 160 160
Reversal of Division
restructuring costs 61 61
--------- --------- ---------
Income from continuing
operations before interest,
income taxes and
extraordinary gain 666 ---- 666
Interest expense, net (3,960) 2,753 (f) (1,207)
-------- ------ --------
Income/(loss) from continuing
operations before income taxes (3,294) 2,753 (541)
Income taxes 3 -- (g) 3
--------- --------- ---------
Income/(loss) from continuing
operations $ (3,297) $ 2,753 $ (544)
======== ========= =========
Basic earnings/(loss) per share
from continuing operations (0.22) $ 0.03
========= =========
Weighted average common stock
outstanding 15,170 20,227
======== =========
</TABLE>
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------------- -------------- -------------
<S> <C> <C> <C>
Net sales $396,832 $ $396,832
Costs of sales 312,358 312,358
-------- --------- --------
Gross profit 84,474 84,474
Selling, general and
administrative expenses (80,593) (80,593)
Royalty Income 5,596 5,596
Goodwill amortization (1,881) (1,881)
Other income, net 575 575
Division restructuring costs (2,066) (2,066)
-------- --------- --------
Income from continuing
operations before interest,
income taxes and
extraordinary gain 6,105 6,105
Interest expense, net (16,660) 11,226 (f) (5,434)
-------- --------- --------
Income/(loss) from continuing
operations before income taxes (10,555) 11,226 671
Income taxes 167 -- (g) 167
-------- --------- --------
Income/(loss) from continuing
operations (10,722) $ 11,226 $ 504
======== ========= ========
Basic earnings/(loss) per share
from continuing operations $ (0.71) $ 0.02
========= =========
Weighted average common stock
outstanding 15,139 20,227
======== =========
</TABLE>
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
SALANT CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) Presentation:
The Unaudited Pro Forma Consolidated Financial Statements assume that
the transactions contemplated by the Exchange Restructuring occurred on
April 4, 1998 for purposes of the Unaudited Pro Forma Consolidated
Balance Sheet and December 29, 1996 for purposes of the Unaudited Pro
Forma Consolidated Statement of Operations.
(b) Represents (i) the Noteholders exchange of $104.879 million principal
amount of Senior Notes and $3.9 million of accrued interest thereon
for 18,710,417 shares, after giving affect to the ten-for-one Reverse
Stock Split, of New Common Stock, and (ii) the issuance of Warrants,
representing the right to purchase up to 2,247,497 shares, after
giving affect to the ten-for-one Reverse Split, of New Common Stock,
to Stockholders at a value of $6.1 million, using the Black-Scholes
option pricing formula, which incorporates such factors as the
relationship of the underlying stock's price to the strike price of
the Warrants and the time remaining until the Warrants expire.
(c) Represents the expenses attributable to the restructuring activities
of the Company which are offset against stockholders equity.
(d) Represents the retirement of the Company's outstanding Treasury Stock.
(e) Represents the retirement of 15,171,000 shares Old Common Stock, which
includes 14,964,608 issued and outstanding shares and 206,392 shares
of Old Common that have been reserved for issuance in order to settle
claims asserted in the 1990 Chapter 11 Case, and the issuance of
1,517,100 shares of New Common Stock to Stockholders, thereby giving
effect to the ten-for-one Reverse Split, which includes 1,496,461
shares of New Common Stock to be issued upon consummation of the
Restructuring and 20,639 shares of New Common Stock to be reserved for
issuance in order to settle claims asserted in the 1990 Chapter 11
Case.
(f) Represents the elimination of interest expense relating to the
Company's existing Senior Notes.
(g) No tax provision was reflected due to the utilization of net operating
loss carryforwards.
PROJECTED CONSOLIDATED FINANCIAL INFORMATION
The projected financial information set forth below (the "Projections")
should be read in conjunction with the assumptions, qualifications,
limitations and explanations set forth herein, the selected historical
financial information and the other information set forth in "Selected
Historical Consolidated Financial Information" as set forth in this Exchange
Restructuring Prospectus and the other financial statements contained herein.
GENERAL
The Projections contained herein constitutes "forward-looking
statements" within the meaning of Section 27A of the Securities Act, and
Section 21E of the Exchange Act. The Projections reflect numerous
assumptions, including various assumptions with respect to the anticipated
future performance of the Company after the Restructuring, industry
performance, general business and economic conditions and other matters, some
of which are beyond the control of the Company. In addition, unanticipated
events and circumstances may affect the actual financial results of the
Company in the future. THEREFORE, WHILE THE PROJECTIONS ARE NECESSARILY
PRESENTED WITH NUMERICAL SPECIFICITY, THE ACTUAL RESULTS ACHIEVED THROUGHOUT
THE YEARS 1998-2000 (the "PROJECTED PERIOD") MAY VARY FROM THE PROJECTED
RESULTS. THESE VARIATIONS MAY BE MATERIAL. ACCORDINGLY, NO REPRESENTATION CAN
BE MADE OR IS MADE WITH RESPECT TO THE ACCURACY OF THE PROJECTIONS OR THE
ABILITY OF THE COMPANY TO ACHIEVE THE PROJECTED RESULTS. See "RISK FACTORS"
for a discussion of certain factors that may affect the future financial
performance of the Company and of the various risks associated with the
securities of the Company to be issued pursuant to the Restructuring.
The Company does not, as a matter of course, make public projections of
its anticipated financial position or results of operations. Accordingly, the
Company does not anticipate that it will, and disclaims any obligation to,
furnish updated projections in the event that actual industry performance or
the general economic or business climate differs from that upon which the
Projections has been based. Further, the Company does not anticipate that it
will include such information in documents required to be filed with the
Commission, or otherwise make such information public.
The Projections have been prepared by the Company's management, and
while it believes that the assumptions underlying the projections for the
Projected Period, when considered on an overall basis, are reasonable in
light of current circumstances, no assurance can be given or is given that
the Projections will be realized. The Projections were not prepared in
accordance with standards for projections promulgated by the American
Institute of Certified Public Accountants or with a view to compliance with
published guidelines of the Commission regarding projections or forecasts.
The Projections have not been audited, reviewed or compiled by the Company's
Independent Auditors.
Neither the Company's independent auditors, nor any other independent
accountants or financial advisors, have compiled, examined or performed any
procedures with respect to the projected consolidated financial information
contained herein, nor have they expressed any opinion or any other form of
assurance on such information or its achievability, and assume no
responsibility for, and disclaim any association with, the projected
financial information.
PRINCIPAL ASSUMPTIONS
- ---------------------
The Projections are based upon forecasts of operating results during the
Projected Period. The following is a listing of assumptions that were used
to develop the Projections.
1) The Projections assume that the Restructuring will be consummated
on July 1, 1998.
2) The Projections assume that the Company will continue to operate
without significant changes to it current structure.
3) The Projections assume that the current economic environment
continues throughout the Projected Period
4) The Projections assume that no unforeseen national or international
events will occur during the Projected Period that would cause the
retail industry to be adversely impacted.
In addition to the aforementioned assumptions, the Projections are based on
numerous detailed operating assumptions. The Projections also assume, among
other things, the successful implementation of the Three-Year Business Plan.
The table below summarizes the projected operating statistics that management
believes are significant and upon which the financial results of the Company
will depend during the Projected Period.
----------------------------------------------------------------------
ACTUAL
1997 1998 1999 2000
---- ---- ---- ----
Net Sales (Millions) $395.1 $383.6 $405.0 $448.9
Total Gross Margin as a % of Sales 21.4% 24.3% 25.4% 26.3%
Total Operating Expenses as a % of
Total Sales 20.3% 20.1% 20.2% 19.5%
----------------------------------------------------------------------
SALES
- -----
During the Projected Period, sales are assumed to increase from $395.1
million in fiscal year 1997 to $448.9 million in fiscal year 2000. The
assumed increase in sales during the Projected Period is based on increases
in sales to existing customers, the introduction of new customers and, the
certain new product line offerings.
GROSS MARGIN
- ------------
The Gross Margin presented in the Projections includes cost of merchandise
and certain design, manufacturing and distribution costs. The overall level
of Gross Margin as a percentage of net sales is expected to increase over the
Projected Period, primarily as a result of a change in the sales mix and an
improvement related to certain manufacturing processes.
OPERATING EXPENSES
- ------------------
Expenses are forecast based upon existing expense structures adjusted for
increases in sales and changes relating to the implementation of a new
management information system structure. In conjunction with the Three-Year
Business Plan, management has introduced various initiatives that have
streamlined its operations and reduced overhead costs. It is assumed that
expenses will increase in total dollar amount during the Projected Period
from $80.1 million in fiscal year 1997 to $87.7 million in fiscal year 2000.
However, expenses as a percentage of sales ("Operating Expenses/Net Sales")
is assumed to decrease during the Projected Period from 20.3% in fiscal year
1997 to 19.5% in fiscal year 2000.
Management intends to implement several new initiatives which management
believes will further benefit the Company's operations and will help reduce
expenses to the assumed levels.
WORKING CAPITAL
- ---------------
Working capital has been forecast based upon the Company's experience and
expectations in the marketplace and are consistent with the trends that the
Company is currently experiencing.
CAPITAL EXPENDITURES
- --------------------
The Projections assume a significant reinvestment of capital into the Company
over the Projected Period. The main areas of focus are management
information systems, manufacturing and distribution. Management believes
that these expenditures will substantially enhance operating efficiency,
provide a platform for continued growth and are necessary to achieve the
levels of profitability in the Projections.
INCOME TAXES
- ------------
The Company believes that the transactions contemplated by the restructuring
will cause a substantial limitation of the use of the NOLs pursuant to
Section 382 of the Internal Revenue Code. A combined federal and state
income tax rate of 40% has been assumed in calculating the income taxes to be
paid for each of the projected years.
THE THREE-YEAR BUSINESS PLAN
In connection with the Company's efforts to restructure, the Company
developed the Three-Year Business Plan. See "RESTRUCTURING FINANCIAL
CONSIDERATIONS -- The Three-Year Business Plan." The Projections form a part
of the Three-Year Business Plan.
Projected income statement, balance sheet and cash flow statements for
the Company are included for each of the fiscal years 1998, 1999 and 2000.
Additional information relating to the principal assumptions used in
preparing the projections is set forth below. See "RISK FACTORS" for a
discussion of various factors that could materially affect the Company's
financial condition, results of operations, business, prospects and
securities.
PROJECTED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(In thousands)
FISCAL YEAR ENDING DEC. 31,
-----------------------------------
1998 1999 2000
--------- --------- ---------
Net sales $ 383,550 $ 405,002 $ 448,966
Cost of goods sold (290,375) (302,307) (330,834)
--------- --------- ---------
Gross profit 93,175 102,695 118,132
Selling, general and administrative (77,193) (81,903) (87,695)
Royalty income 4,414 4,398 4,063
Goodwill amortization (1,881) (1,881) (1,881)
Restructuring costs (5,425) 0 0
--------- --------- ---------
Income from continuing operations
before interest and income taxes 13,090 23,309 32,619
Interest expense, net (6,615) (4,262) (3,418)
--------- --------- ---------
Income from continuing operations before
income taxes 6,475 19,047 29,201
Income taxes (2,590) (7,619) (11,680)
--------- --------- ---------
Net income $ 3,885 $ 11,428 $ 17,521
========= ========= =========
PROJECTED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
------------------------------------
1998 1999 2000
-------- -------- --------
ASSETS
CURRENT ASSETS:
Cash $ 2,218 $ 2,218 $ 2,218
Accounts Receivable (Net) 60,019 60,465 65,623
Inventories (Net) 96,403 98,488 104,414
Prepaid Expenses 3,910 3,954 4,215
-------- -------- --------
TOTAL CURRENT ASSETS 162,549 165,126 176,471
Net Fixed Assets 30,943 31,184 31,833
Other Assets 55,035 51,854 48,573
-------- -------- --------
TOTAL ASSETS $248,527 $248,164 $256,877
======== ======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Loan Payable $ 43,136 $ 29,897 $ 18,553
Accounts Payable 28,746 30,063 31,837
Accrued Expenses 11,416 11,546 12,308
Other 2,906 2,906 2,906
-------- -------- --------
TOTAL CURRENT LIABILITIES 86,204 74,412 65,605
Other (deferred liab) 5,579 5,579 5,579
-------- -------- --------
TOTAL LIABILITIES 91,783 79,991 71,184
TOTAL SHAREHOLDERS' EQUITY 156,745 168,173 185,694
======== ======== ========
TOTAL LIABILITIES AND EQUITY $248,527 $248,164 $256,877
======== ======== ========
PROJECTED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
FISCAL YEAR ENDING DEC. 31,
--------------------------------
1998 1999 2000
-------- -------- --------
OPERATING ACTIVITIES:
Net Income $ 3,885 $ 11,428 $ 17,521
Adjustment to reconcile net income to net
cash used in operating activities:
Accretion of interest on senior
secured notes 5,533 0 0
Amortization of intangibles 3,004 3,181 3,281
Depreciation 7,188 7,581 7,187
Changes in operating assets and
liabilities
Net accounts receivable (1,364) (447) (5,158)
Inventory 235 (2,085) (5,927)
Prepaids and other assets 307 (45) (261)
Accounts payable 1,000 1,317 1,775
Accrued expenses (211) 130 762
Other current liabilities (4,394) 0 0
-------- -------- --------
Net cash (used in) provided by
operating activities 15,183 21,060 19,180
INVESTING ACTIVITIES:
Purchase of fixed assets, net (11,692) (7,821) (7,836)
-------- -------- --------
Net cash used in investing activities (11,692) (7,821) (7,836)
FINANCING ACTIVITIES:
(Repayments) increase of loan payable (3,491) (13,239) (11,344)
-------- -------- --------
Net cash provided by (used in)
financing activities (3,491) (13,239) (11,344)
-------- -------- --------
Net (decrease) increase in cash and
cash equivalents 0 0 0
Cash and cash equivalents, beginning of year 2,218 2,218 2,218
======== ======== ========
Cash and cash equivalents, end of year $ 2,218 $ 2,218 $ 2,218
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF
NON-CASH TRANSACTIONS:
Conversion of debt to common stock $110,555
BUSINESS AND PROPERTIES OF THE COMPANY
OVERVIEW
Introduction
The Company which was incorporated in Delaware in 1987, is the successor
to a business founded in 1893 and incorporated in New York in 1919. The
Company designs, manufactures, imports and markets to retailers throughout
the United States brand name and private label apparel products primarily in
three product categories: (i) menswear; (ii) children's sleepwear and
underwear; and (iii) retail outlet stores, as described below. The Company
sells its products to department and specialty stores, national chains, major
discounters and mass volume retailers throughout the United States. (As used
herein, the "Company" includes Salant and its subsidiaries, but excludes
Salant's Made in the Shade and Vera Scarf divisions.)
Men's Apparel
The men's apparel business is comprised of the Perry Ellis division and
Salant Menswear Group. The Perry Ellis division markets dress shirts, slacks
and sportswear under the PERRY ELLIS, PORTFOLIO BY PERRY ELLIS and PERRY
ELLIS AMERICA trademarks. Salant Menswear Group is comprised of the
Accessories division, the Bottoms division and all dress shirt businesses
other than those selling products bearing the PERRY ELLIS trademarks. The
Accessories division markets neckwear, belts and suspenders under a number of
different trademarks, including PORTFOLIO BY PERRY ELLIS, JOHN HENRY, SAVE
THE CHILDREN and PEANUTS. The Bottoms division primarily manufactures men's
and boys' jeans, principally under the Sears, Roebuck & Co. ("Sears") CANYON
RIVER BLUES trademark, and men's casual slacks under Sears' CANYON RIVER
BLUES KHAKIS trademark. The Salant Menswear Group also markets dress shirts,
primarily under the JOHN HENRY and MANHATTAN trademarks.
Children's Sleepwear and Underwear
The children's sleepwear and underwear business is conducted by the
Salant Children's Apparel Group (the "Children's Group"). The Children's
Group markets blanket sleepers primarily using a number of well-known
licensed cartoon characters created by, among others, DISNEY and WARNER BROS.
The Children's Group also markets pajamas under the OSHKOSH B'GOSH trademark,
and sleepwear and underwear under the JOE BOXER trademark. At the end of the
first quarter of 1998, the Company determined not to continue with its Joe
Boxer sportswear line for Fall 1998. Instead, consistent with the approach
that the Joe Boxer Corporation (Salant's licensor of the Joe Boxer trademark)
has taken, the Company will focus on its core business of underwear and
sleepwear.
Retail Outlet Stores
The retail outlet stores business of the Company consists of a chain of
factory outlet stores (the "Stores division"), through which it sells
products manufactured by the Company and other apparel manufacturers. In
December 1997, the Company announced the restructuring of the Stores
division, pursuant to which the Company closed all stores other than its
Perry Ellis outlet stores. This resulted in the closing of 42 outlet stores.
At the end of Fiscal 1997, the Company operated 17 Perry Ellis outlet stores.
Commencing with the 1998 fiscal year, as a result of the restructuring of
this division, the retail outlet stores will be reported as part of the men's
apparel segment of Salant.
Principal Product Lines
The following table sets forth, for fiscal years 1995 through 1997, the
percentage of the Company's total net sales contributed by each category of
product:
FISCAL YEAR
-----------
1995 1996 1997
---- ---- ----
Men's Apparel 86% 83% 82%
Children's Sleepwear and Underwear 8% 11% 12%
Retail Outlet Stores 6% 6% 6%
For more detailed information regarding the Company's product
categories, see Note 11 to the Consolidated Financial Statements.
In Fiscal 1997, approximately 17% of the Company's net sales were made
to Sears, approximately 11% of the Company's net sales were made to Federated
Department Stores, Inc. ("Federated") and approximately 10% of the Company's
net sales were made to TJX Corporation ("TJX"). In 1996, approximately 13% of
the Company's net sales were made to Sears. In 1996 and 1995, net sales to
Federated represented approximately 11% and 12% of the Company's net sales,
respectively. In 1995, approximately 11% of the Company's net sales were made
to TJX. In 1995, approximately 13% of the Children's Group's net sales were
made to Dayton Hudson Corporation.
No other customer accounted for more than 10% of the net sales of the
Company or any of its business segments during 1995, 1996 or 1997.
The markets in which the Company operates are highly competitive. The
Company competes primarily on the basis of brand recognition, quality,
fashion, price, customer service and merchandising expertise.
A significant factor in the marketing of the Company's products is the
consumer perception of the trademark or brand name under which those products
are marketed. Approximately 76% of the Company's net sales for Fiscal 1997
was attributable to products sold under Company owned or licensed designer
trademarks and other internationally recognized brand names and the balance
was attributable to products sold under retailers' private labels, including
Sears' CANYON RIVER BLUES. The following table lists the principal owned or
licensed trademarks under which the Company's products were sold in Fiscal
1997 and the product lines associated with those trademarks. Trademarks used
under license are indicated with an asterisk; all other listed trademarks are
owned by the Company.
TRADEMARK PRODUCT LINES
DISNEY characters * Children's sleepwear and
underwear
DR. DENTON Children's sleepwear and
underwear
GANT * Men's dress shirts, neckwear,
belts and suspenders
JOE BOXER * Children's sleepwear,
underwear and sportswear;
men's neckwear
JOHN HENRY Men's dress shirts, neckwear,
belts, suspenders and jeans
LOONEY TUNES characters * Children's sleepwear
MANHATTAN Men's dress shirts
OSHKOSH B'GOSH * Children's sleepwear
PEANUTS * Men's dress shirts and neckwear
PERRY ELLIS * Men's sportswear, dress
shirts, neckwear, belts and
suspenders
PERRY ELLIS AMERICA * Men's casual sportswear and
jeans
PORTFOLIO BY PERRY ELLIS * Men's dress slacks, dress
shirts, neckwear, belts and
suspenders
SAVE THE CHILDREN * Men's neckwear and suspenders
THOMSON Men's casual and dress slacks
UNICEF * Men's neckwear
During Fiscal 1997, 44% of the Company's net sales was attributable to
products sold under the PERRY ELLIS, PORTFOLIO BY PERRY ELLIS and PERRY ELLIS
AMERICA trademarks; these products are sold through leading department and
specialty stores. Products sold to Sears under its exclusive brand CANYON
RIVER BLUES accounted for 14% of the Company's net sales during Fiscal 1997.
No other line of products accounted for more than 10% of the Company's net
sales during Fiscal 1997.
Trademarks Owned by the Company and Related Licensing Income
The Company owns the DR. DENTON, JOHN HENRY, LADY MANHATTAN, MANHATTAN
and THOMSON trademarks, among others. All of the significant brand names
owned by the Company have been registered or are pending registration with
the United States Patent and Trademark Office.
The Company has sought to capitalize on the consumer recognition of and
interest in its trademarks by licensing various of those trademarks to
others. As of the end of Fiscal 1997, licenses were outstanding to
approximately 18 licensees to make or sell apparel products and accessories
in the United States and to 34 licensees in 30 other countries under the
MANHATTAN, LADY MANHATTAN, JOHN HENRY, and VERA trademarks, which produced
royalty income of approximately $5.6 million in Fiscal 1997. Products under
license include men's belts, dress shirts, leather accessories, neckwear,
optical frames, outerwear, pajamas, robes, scarves, shorts, slacks, socks,
sportcoats, sunglasses, suspenders and underwear, and women's blouses and
tops, gloves, intimate apparel, lingerie, optical frames, scarves and shirts.
Trademarks Licensed to the Company
The name Perry Ellis and related trademarks are licensed to the Company
under a series of license agreements with Perry Ellis International, Inc.
("PEI"). The license agreements contain renewal options, which, subject to
compliance with certain conditions contained therein, permit the Company to
extend the terms of such license agreements. Assuming the exercise by the
Company of all available renewal options, the license agreements covering
men's apparel and accessories will expire on December 31, 2015. The Company
also has rights of first refusal worldwide for certain new licenses granted
by PEI for men's apparel and accessories.
The Company is also a licensee of various trademarks, including certain
DISNEY characters (including DISNEY BABIES, MICKEY FOR KIDS, WINNIE THE POOH
and THE LION KING-SIMBA'S PRIDE), GANT, JOE BOXER, OSHKOSH B'GOSH, PEANUTS,
SAVE THE CHILDREN, UNICEF and certain WARNER BROS. characters (including
certain LOONEY TUNES characters, such as BUGS BUNNY, DAFFY DUCK and PORKY
PIG), for various categories of products under license agreements expiring
between 1998 and 2002.
The agreements under which the Company is licensed to use trademarks
owned by others typically provide for royalties at varying percentages of net
sales under the licensed trademark, subject to a minimum annual royalty
payable irrespective of the level of net sales. The Company anticipates that
it should be able to extend, if it so desires, the term of any material
licenses when they expire.
Design and Manufacturing
Products sold by the Company's various divisions are manufactured to the
designs and specifications (including fabric selections) of designers
employed by those divisions. In limited cases, the Company's designers may
receive input from one or more of the Company's licensors on general themes
or color palettes.
During Fiscal 1997, approximately 12% of the products produced by the
Company (measured in units) were manufactured in the United States, with the
balance manufactured in foreign countries. Facilities operated by the Company
accounted for approximately 75% of its domestic-made products and 37% of its
foreign-made products; the balance in each case was attributable to
unaffiliated contract manufacturers. In Fiscal 1997, approximately 47% of the
Company's foreign production was manufactured in Mexico, approximately 18%
was manufactured in Guatemala and approximately 12% was manufactured in the
Dominican Republic.
The Company's foreign sourcing operations are subject to various risks
of doing business abroad, including currency fluctuations (although the
predominant currency used is the U.S. dollar), quotas and, in certain parts
of the world, political instability. Although the Company's operations have
not been materially adversely affected by any of such factors to date, any
substantial disruption of its relationships with its foreign suppliers could
adversely affect its operations. Some of the Company's imported merchandise
is subject to United States Customs duties. In addition, bilateral agreements
between the major exporting countries and the United States impose quotas,
which limit the amounts of certain categories of merchandise that may be
imported into the United States. Any material increase in duty levels,
material decrease in quota levels or material decrease in available quota
allocations could adversely affect the Company's operations.
Raw Materials
The raw materials used in the Company's manufacturing operations consist
principally of finished fabrics made from natural, synthetic and blended
fibers. These fabrics and other materials, such as leathers used in the
manufacture of various accessories, are purchased from a variety of sources
both within and outside the United States. The Company believes that adequate
sources of supply at acceptable price levels are available for all such
materials. Substantially all of the Company's foreign purchases are
denominated in U.S. currency. No single supplier accounted for more than 10%
of Salant's raw material purchases during Fiscal 1997. In Fiscal 1997, the
Company entered into forward foreign exchange contracts, relating to 80% of
its projected 1998 Mexican peso needs, to fix its cost of acquiring pesos and
diminish the risk of foreign currency fluctuation.
Employees
As of the end of Fiscal 1997, the Company employed approximately 3,800
persons, of whom 3,200 were engaged in manufacturing and distribution
operations and the remainder were employed in executive, marketing and sales,
product design, engineering and purchasing activities and in the operation of
the Company's retail outlet stores. Substantially all of the manufacturing
employees are covered by collective bargaining agreements with various
unions, which expire between 1998 and 2000. The Company believes that its
relations with its employees are satisfactory.
Competition
The apparel industry in the United States is highly competitive and
characterized by a relatively small number of multi-line manufacturers (such
as the Company) and a larger number of specialty manufacturers. The Company
faces substantial competition in its markets from manufacturers in both
categories. Many of the Company's competitors have greater financial
resources than the Company. The Company seeks to maintain its competitive
position in the markets for its branded products on the basis of the strong
brand recognition associated with those products and, with respect to all of
its products, on the basis of styling, quality, fashion, price and customer
service.
Environmental Regulations
Current environmental regulations have not had, and in the opinion of
the Company, assuming the continuation of present conditions, are not
expected to have a material effect on the business, capital expenditures,
earnings or competitive position of the Company.
Made in the Shade - Discontinued Operation
In June 1997, the Company discontinued the operations of the Made in the
Shade division, which produced and marketed women's junior sportswear under
the Company owned trademarks MADE IN THE SHADE and PRIME TIME. The financial
statements of the Company included in this report treat the Made in the Shade
division as a discontinued operation.
Vera Scarf Division - Discontinued Operation
In February 1995, the Company discontinued its Vera Scarf division,
which imported and marketed women's scarves under (i) the Company-owned
trademarks VERA and ACUTE, (ii) trademarks licensed to the Company, including
PERRY ELLIS, and (iii) retailers' private labels. The Company closed the Vera
Scarf division in 1995. The financial statements of the Company included in
this report treat the Vera Scarf division as a discontinued operation.
Acquisition of JJ. Farmer
On June 10, 1994, the Company acquired all the capital stock of JJ.
Farmer Clothing Inc. (a Canadian corporation) and the assets of JJ. Farmer
International Limited (a Hong Kong corporation) (collectively "JJ. Farmer")
for approximately $5,311 in cash, subject to adjustment based on a number of
items, including the future profitability of JJ. Farmer. As part of the
acquisition, the company agreed to pay to the former owners of JJ. Farmer,
certain minimum amounts in the years 1996 through 1999. The present value of
such future payments is $1,352, which is included in long-term debt. Through
December 28, 1996, the Company had made additional payments of $1,157 in
accordance with the acquisition agreement. The acquisition has been accounted
for as a purchase, and accordingly, JJ. Farmer's operating results have been
included in the Company's consolidated results of operations commencing June
11, 1994. Pro forma results of operations have not been presented as the
effect would not be significant. JJ. Farmer's net sales for the five months
ended May 31, 1994 were $3,392. The excess of cost over the book value of net
assets acquired ($4,589 subject to adjustment) was being amortized over a
period of not more than 15 years on a straight-line basis, prior to the
write-off in the second quarter of 1996.
Bankruptcy Court Cases
On February 22, 1985, Salant NY and its two largest subsidiaries,
Thomson Company, Inc. and Obion Company, Inc., filed with the Bankruptcy
Court separate voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code (Case Nos. 85-B-10229 (PBA) through 85-B-10231 (PBA),
inclusive). Salant NY's other United States, Canada and Mexico subsidiaries
did not seek relief under the Bankruptcy Code or other foreign insolvency
laws, respectively. On May 19, 1987, the Bankruptcy Court issued an order
confirming the 1987 Chapter 11 Plan. The 1987 Chapter 11 Plan was
consummated on June 2, 1987. On June 2, 1987, pursuant to the provisions of
the 1987 Chapter 11 Plan, the assets and liabilities of Salant NY, Thomson
and Obion were substantively consolidated, and Salant NY, Thomson and Obion
and the inactive subsidiaries of Salant NY merged with a wholly-owned
subsidiary of Salant NY. The Company is the surviving corporation of such
merger.
On June 27, 1990, Salant and its wholly owned subsidiary, Denton
Mills, Inc., each filed with the United States Bankruptcy Court for the
Southern District of New York a separate voluntary petition for relief
under chapter 11 of title 11 of the Bankruptcy Code (Case Nos. 90-B-12037
(CB) and 90-B-12038 (CB)) (the "Chapter 11 Cases"). The Company's other
United States subsidiaries did not seek relief under the Bankruptcy Code.
On July 30, 1993, the Bankruptcy Court issued an order confirming the Third
Amended Joint Plan of Reorganization of Salant and Denton Mills (the "1993
Chapter 11"). The 1993 Chapter 11 Plan was consummated on September 20,
1993 (the "Consummation Date").
Recent Events
For a discussion of recent events, see "BACKGROUND OF RESTRUCTURING."
PROPERTIES
The Company's principal executive offices are located at 1114 Avenue of
the Americas, New York, New York 10036. The Company's principal properties
consist of three domestic manufacturing facilities located in Alabama, New
York and Tennessee, four manufacturing facilities located in Mexico, and five
distribution centers; one in New York, two in South Carolina and two in
Texas. At the end of Fiscal 1997, the Company was in the process of closing
one distribution facility in South Carolina. The Company owns approximately
1,067,000 square feet of space devoted to manufacturing and distribution and
leases approximately 497,000 square feet of such space. The Company owns
approximately 69,000 square feet of office space and leases approximately
210,000 square feet of combined office, design and showroom space. The
Children's Group has exclusive use of the Tennessee manufacturing facility,
shares one of the Mexican manufacturing facilities with the Salant Menswear
Group Bottoms division and has its distribution center in a building in
Texas. As of the end of Fiscal 1997, the Company's Stores division operated
17 factory outlet stores, comprising approximately 45,000 square feet of
selling space, all of which are leased. Except as noted above, substantially
all of the owned and leased property of the Company is used in connection
with its men's apparel business or general corporate administrative
functions.
The Company believes that its plant and equipment are adequately
maintained, in good operating condition, and are adequate for the Company's
present needs.
LEGAL PROCEEDINGS
(a) Chapter 11 Cases. On June 27, 1990, Salant and Denton Mills each
filed with the Bankruptcy Court a separate voluntary petition for relief
under chapter 11 of the Bankruptcy Code. On July 30, 1993, the Bankruptcy
Court issued an order confirming the 1993 Chapter 11 Plan.
The 1993 Chapter 11 Plan was consummated on September 20, 1993. From
that date through January 3, 1998 (approximately 51 months), the Company
made cash payments of $9.7 million, issued $111.9 million of Senior Notes,
and issued 11.1 million shares of common stock in settlement of certain
undisputed and disputed claims in the chapter 11 proceedings. The Company
anticipates that an additional $1.8 million in cash and an additional 206
thousand shares of common stock will ultimately be distributed in
connection with the resolution of all remaining claims. Provisions for such
distributions were made in the consolidated financial statements at the
time of emergence from the bankruptcy during the year ended January 1,
1994. The process of resolving claims is continuing and, pursuant to the
Reorganization Plan, remains under the jurisdiction of the Bankruptcy
Court.
(b) Other. The Company is a defendant in several other legal actions. In
the opinion of the Company's management, based upon the advice of the
respective attorneys handling such cases, such actions are not expected to
have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flow.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(Amounts in thousands except share, per share and ratio data)
Set forth below are summary consolidated historical financial data of
the Company. The summary financial data for each of the years in the five
year period ended January 3, 1998 have been derived from the audited
Consolidated Financial Statements of the Company. The summary financial
data for the three month periods ended April 4, 1998 and March 29, 1997
have been derived from the unaudited financial statements of the Company
and include all adjustments of a normal recurring nature which are
necessary to present fairly such financial statements. The data presented
below is qualified by, and should be read in conjunction with, the
Consolidated Financial Statements and related notes thereto, and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" in Part A of this Exchange Restructuring Prospectus. The Company's
fiscal year ends on the Saturday closest to December 31.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE FISCAL YEAR ENDED
-------------------------- -------------------------------------------------------------------------
APRIL 4, MARCH 29, JAN. 03, DEC. 28, DEC. 30, DEC. 31, JAN. 1,
1998 1997 1998 1996 1995 1994 1994
(52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
---------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS:
Net sales $ 84,887 $ 88,209 $396,832 $417,711 $485,825 $398,990 $379,012
Reversal of /(Provision
for) Restructuring costs
(a) 160 754 (2,066) (11,730) (3,550) - (5,500)
Income/(loss) from
continuing operations (3,297) (2,737) (10,722) (8,958) (362) 3,398 7,865
DISCONTINUED OPERATIONS:
Loss from operations,
net of income taxes - (773) (8,136) (365) (136) (9,530) (638)
Estimated loss on
disposal, net of income
taxes - - (1,330) - - (1,796) -
Reversal of estimated
loss on disposal, net of
income taxes - - - - - - 11,772
Extraordinary gain (b) - - 2,100 - 1,000 63 24,707
Net income/(loss)(a) (3,297) (3,510) (18,088) (9,323) 502 (7,865) 43,706
BASIC EARNINGS/(LOSS (PER
share:
Earnings/(loss) per share
from continuing
operations before
extraordinary gain $ (.22) $ (.18) $ (0.71) $ (0.60) $ (0.02) $ (0.23) $ 1.18
Earnings/(loss) per share
from discontinued
operations - $ (.05) $ (0.62) (0.02) $ (0.01) $ (0.76) $ 1.68
Earnings per share from
extraordinary gain - - 0.14 - 0.06 - 3.72
Basic earnings/(loss) per
share (a) (.22) (.23) (1.19) (0.62) 0.03 (0.53) 6.58
DILUTED EARNINGS/(LOSS)
PER SHARE:
Earnings/(loss) per share
from continuing
operations before
extraordinary gain $ (.22) $ (.18) $ (0.71) $ (0.60) $ (0.02) $ 0.23 $ 1.10
Earnings/(loss) per share
from discontinued
operations - (.05) (0.62) (0.02) (0.01) (0.76) 1.57
Earnings per share from
extraordinary gain - - 0.14 - 0.06 - 3.48
Diluted earnings/(loss)
per share (a) (.22) (.23) (1.19) (0.62) 0.03 (0.53) 6.15
CASH DIVIDENDS PER SHARE - - - - - - -
WEIGHTED AVERAGE SHARES:
Shares used in computing
basic earnings per share 15,170 15,041 15,139 15,078 15,008 14,954 6,638
Add - Common stock
equivalents (d) (d) (d) (d) 110 (d) 465
Shares used in computing
diluted earnings
per share 15,170 15,041 15,139 15,078 15,118 14,954 7,103
AT END OF PERIOD:
Current assets $ 156,094 $ 167,325 $148,899 $150,986 $163,799 $172,234 $161,375
Total assets 238,990 253,473 233,377 235,251 253,970 266,157 251,946
Current liabilities (c) 194,627 82,365 185,692 59,566 61,704 71,104 44,427
Long-term debt (c) - 104,879 - 106,231 110,040 109,908 111,851
Deferred liabilities 5,354 9,114 5,382 8,863 11,373 13,479 16,766
Working capital/(deficiency) (38,533) 84,960 (36,793) 91,420 102,095 101,130 116,948
Current ratio 0.8:1 2.0:1 0.8:1 2.5:1 2.7:1 2.4:1 3.61:1
Shareholders' equity $ 39,009 $ 57,115 $ 42,303 $ 60,591 $ 70,853 $ 71,666 $ 78,902
Book value per share $ 2.57 $ 3.78 $ 2.79 $ 4.01 $ 4.71 $ 4.78 $ 5.34
Number of shares 15,170 15,104 15,170 15,094 15,041 15,008 14,781
outstanding
</TABLE>
- ----------------
(a) Includes, for the three month periods ended April 4, 1998 and March
29, 1997, a reversal of a previously recorded restructuring provision
of $160 and $754, respectively, related to the excess portion of net
liabilities set up for the closure of all retail outlet stores other
than Perry Ellis outlet stores and the closure of the JJ Farmer
sportswear product line, respectively; for the year ended January 3,
1998, a provision of $2,066 (14 cents per share; tax benefit not
available) for restructuring costs principally related to (i) $3,530
related to the decision in the fourth quarter to close all retail
outlet stores other than Perry Ellis outlet stores and (ii) the
reversal of previously recorded restructuring provisions of $1,464,
primarily resulting from the settlement of liabilities for less than
the carrying amount, resulting in the reversal of the excess portion
of the provision; for the year ended December 28, 1996, a provision
of $11,730 (78 cents per share; tax benefit not available) for
restructuring costs principally related to (i) the write-off of
goodwill and the write-down of other assets for a product line which
has been put up for sale, (ii) the write-off of certain assets and
accrual for future royalties for a licensed product line and (iii)
employee costs related to closing certain facilities; for the year
ended December 30, 1995, a provision of $3,550 (24 cents per share;
tax benefit not available) for restructuring costs principally
related to (i) fixed asset write-downs at locations to be closed and
(ii) inventory markdowns for discontinued product lines; and for the
year ended January 1, 1994, a provision of $5,500 (basic loss per
share of 83 cents; tax benefit not available) for restructuring costs
principally related to the costs incurred in connection with the
closure of certain unprofitable operations, including (i) inventory
markdowns associated with those product lines and (ii) fixed asset
write-downs at closed locations.
(b) Includes, for the year ended January 3, 1998, a gain of $2,100 (14
cents per share) related to the reversal of excess liabilities
previously provided for the anticipated settlement of claims arising
from the Chapter 11 proceeding; for the year ended December 30, 1995,
a gain of $1,000 (6 cents per share) related to the reversal of
excess liabilities previously provided for the anticipated settlement
of claims arising from the Chapter 11 proceeding; for the year ended
December 31, 1994, a gain of $63 (no per share effect) related to the
purchase and retirement of a portion of the Senior Notes at a price
below the principal amount thereof; and for the year ended January 1,
1994, a gain of $24,707 (basic earnings per share of $3.72) related
to the settlement and anticipated settlement of claims arising from
the Chapter 11 proceeding.
(c) At April 4, 1998 and January 3, 1998, long-term debt of $104,879 had
been classified as a current liability. See Note 1 to the Consolidated
Financial Statements at page F-6 and page F-26 to the Company's
Registration Statement on Form S-4 of which this Exchange
Restructuring Prospectus is a part.
(d) Common stock equivalents have not been included in these periods as
their inclusion would be anti-dilutive to the calculation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
In Fiscal 1997, the Company continued to implement and enhance its plan
(i) to concentrate the Company's resources on a limited number of key
menswear brand names (including continuing to emphasize and cohesively market
the Company's leading Perry Ellis brand), (ii) to further expand the
Company's private label business and (iii) to correct operational issues that
have hampered the Company in the past.
In accordance with these objectives, in Fiscal 1997, the Company (i)
discontinued its Made in the Shade women's junior sportswear business, (ii)
closed all non-Perry Ellis retail outlet stores and (iii) made significant
changes to management. In Fiscal 1997, the Company hired a new Chairman and
Chief Executive Officer, Chief Financial Officer, Senior Vice President of
Human Resources, President of its Salant Menswear division, and Vice
Presidents for Distribution, Manufacturing and Information Services.
In March 1998, the Company announced that it had reached an agreement in
principle with its major note and equity holders to restructure its existing
indebtedness under the Company's 10 1/2% Senior Notes due December 31, 1998
(the "Senior Notes"). Under this proposed restructuring, the Company would
convert the entire $104.879 million outstanding aggregate principal amount
of, and all accrued and unpaid interest on, its Senior Notes into New Common
Stock.
RESULTS OF OPERATIONS
First Quarter of 1998 Compared with First Quarter of 1997
- ---------------------------------------------------------
Net Sales
The following table sets forth the net sales of each of the Company's
principal business segments for the three months ended April 4, 1998 and
March 29, 1997 and the percentage contribution of each of those segments to
total net sales:
Three Months Ended Percentage
------------------ Increase/
April 4, 1998 March 29, 1997 (Decrease)
------------- -------------- ----------
(dollars in millions)
Men's Apparel (a) $77.0 91% $83.8 95% (8.2%)
Children's Sleepwear and
Underwear 7.9 9% 4.4 5% 78.8%
--- -- ---- --
Total $84.9 100% $88.2 100% (3.8%)
===== ===== ===== ====
- ------------
(a) Includes the retail outlet stores.
Sales of men's apparel decreased by $6.8 million, or 8.2%, in the
first quarter of 1998, as compared to the first quarter of 1997. This
decrease resulted from (a) planned sales decreases of $8.7 million,
including (i) $3.5 million for jeans, both Canyon River Blues and other
labels, resulting from higher initial shipments for new programs, which
began in the first quarter of 1997, and reduced off-price sales resulting
from a lower excess inventory position in the first quarter of 1998, (ii)
$2.9 million for dress shirts (other than Perry Ellis) and (iii) $2.1
million related to the closure of the non-Perry Ellis retail stores in the
fourth quarter of 1997. In addition to the planned sales decreases, the
Company experienced approximately $2.8 million of other sales decreases in
various product categories, which were offset by sales increases of Perry
Ellis product lines of approximately $3.8 million.
Sales of children's sleepwear and underwear increased by $3.5 million,
or 78.8%, in the first quarter of 1998, as compared to the first quarter of
1997. This increase was primarily a result of (i) the continuing expansion
of the Joe Boxer children's sleepwear and underwear product lines and (ii)
an increase in the sale of prior season goods carried over from last year.
As previously announced, the Company determined not to continue with its
Joe Boxer sportswear line for Fall 1998. This line accounted for net sales
of $1.5 million in the first quarter of 1998. The Company will continue
with its Joe Boxer sleepwear and underwear product lines.
Gross Profit
The following table sets forth the gross profit and gross profit margin
(gross profit as a percentage of net sales) for each of the Company's
business segments for the three months ended April 4, 1998 and March 29,
1997:
Three Months Ended
------------------
April 4, 1998 March 29, 1997
------------- --------------
(dollars in millions)
Men's Apparel $16.4 21.3% $19.0 22.7%
Children's Sleepwear and
Underwear 0.5 6.5% 0.8 18.1%
---- -----
Total $16.9 19.9% $19.8 22.4%
===== =====
The decline in gross profit in the men's apparel segment was primarily
attributable to the reduction in net sales discussed above. The decline in
gross profit margin was primarily due to the change in sales mix, with
increased off-price sales in the first quarter of 1998. These off-price
sales are part of the Company's continuing plan to reduce excess and out of
season inventory more expeditiously than in prior years, which also helps
to improve liquidity.
The decline in gross profit margin in children's sleepwear and underwear
was primarily attributable to (i) the sale of prior season goods and (ii)
the underabsorption of manufacturing costs in the first quarter of 1998
related to the planned shift of production closer to the order taking
process. This shift has also resulted in better control over the inventory
position of the segment.
Selling, General and Administrative Expenses
As a result of initiatives begun in 1997, selling, general and
administrative ("SG&A") expenses for the first quarter of 1998 decreased to
$17.1 million (20.2% of net sales) from $20.6 million (23.3% of net sales)
for the first quarter of 1997. The decrease primarily resulted from (a) a
$2.0 million decrease related to the closure of the non-Perry Ellis retail
stores in the fourth quarter of 1997, and (b) a reduction in advertising
expenses of $0.8 million.
Reversal of Provision for Restructuring
In the first quarter of 1997, the Company reversed a previously recorded
restructuring provision of $0.8 million. The provision was for net
liabilities related to the closure of the JJ. Farmer sportswear product
line. These net liabilities were settled for less than the carrying amount.
The cash portion of the remaining reserve for restructuring is expected to
be expended in the following manner: $1.1 million in the last three
quarters of 1998 and $0.5 million in 1999.
Income from Operations Before Interest and Income Taxes
The following table sets forth income from operations before interest and
income taxes for each of the Company's business segments, expressed both in
dollars and as a percentage of net sales, for the three months ended April
4, 1998 and March 29, 1997:
Three Months Ended
------------------
April 4, 1998 March 29, 1997
------------- --------------
(dollars in millions)
Men's Apparel (a) $3.8 4.9% $3.0 3.6%
Children's Sleepwear and Underwear (1.5) (18.8%) (1.0) (22.5%)
---- -----
2.3 2.7% 2.0 2.3%
Corporate expenses (2.5) (2.1)
Licensing division income 0.9 0.8
---- ----
Income from operations before
interest and income taxes $0.7 0.8% $0.7 0.8%
==== ====
(a) Includes the reversal of restructuring charges of $0.2 million and $0.8
million in the first quarter of 1998 and 1997, respectively.
Interest Expense, Net
Net interest expense was $4.0 million for the first quarter of 1998
compared with $3.4 million for the first quarter of 1997. The increase in
interest expense resulted from higher average borrowings during the first
quarter of 1998, primarily due to the loss from operations over the past
year.
Discontinued Operations
In the first quarter of 1997, the Company recorded a loss of $0.8 million
related to the discontinuance of the Made in the Shade division. Net sales
of the division for the three months ended March 29, 1997 were $1.3
million.
Net Loss
In the first quarter of 1998, the Company reported a net loss of $3.3
million, or $0.22 per share, as compared with a net loss of $3.5 million,
or $0.23 per share, in the first quarter of 1997.
Earnings Before Interest, Taxes, Depreciation, Amortization and
Restructuring Charges
Earnings before interest, taxes, depreciation, amortization and
restructuring charges was $2.90 million (3.4% of net sales) in the first
quarter of 1998, compared to $2.15 million (2.4% of net sales) in the first
quarter of 1997, an increase of $0.75 million, or 35%. The Company believes
this information is helpful in understanding cash flow from operations that
is available for debt service and capital expenditures. This measure is not
contained in Generally Accepted Accounting Principles and is not a
substitute for operating income, net income or net cash flows from
operating activities.
Fiscal 1997 Compared with Fiscal 1996
Net Sales
The following table sets forth the net sales of each of the Company's
three principal business segments for the fiscal years ended January 3, 1998
("Fiscal 1997") and December 28, 1996 ("Fiscal 1996") and the percentage
contribution of each of those segments to total net sales:
Percentage
Increase/
Fiscal 1997 Fiscal 1996 (Decrease)
------------- ------------- ----------
(dollars in millions)
Men's $325.8 82% $344.7 83% (5.5%)
Children's 49.2 12% 45.8 11% 7.5%
Retail Outlet Stores 21.8 6% 27.2 6% (19.8%)
------ ---- ------ ----
Total $396.8 100% $417.7 100% (5.0%)
====== ==== ====== ====
Sales of men's apparel decreased by $18.9 million, or 5.5%, in Fiscal
1997. This decrease resulted from (a) a $12.4 million reduction in sales of
men's slacks, of which $8.4 reflected the elimination of unprofitable
programs and the balance was primarily due to operational difficulties
experienced in the first quarter of Fiscal 1997 related to the move of
manufacturing and distribution out of the Company's facilities in Thomson,
Georgia, (b) a $5.7 million reduction in sales of men's sportswear, which
includes the elimination of $16.7 million of the Company's JJ. Farmer and
Manhattan sportswear lines net sales, offset by an $11.0 million increase in
sales of Perry Ellis sportswear products, (c) a $5.1 million decrease in
sales of men's accessories, primarily due to the slow-down of the novelty
neckwear business and (d) a $4.7 million reduction in sales of certain dress
shirt lines, which reflected the elimination of unprofitable businesses.
These sales decreases were partially offset by a $9.5 million increase in
sales of Perry Ellis dress shirts due to the addition of new distribution and
the continued strong acceptance of these products by consumers. The total
sales reduction attributable to the elimination of unprofitable programs was
$29.8 million.
Sales of children's sleepwear and underwear increased by $3.4 million,
or 7.5%, in Fiscal 1997. This increase was primarily a result of the
continuing expansion of the Joe Boxer children's product lines in Fiscal
1997. At the end of the first quarter of 1998, the Company determined not to
continue with its Joe Boxer sportswear line for Fall 1998. Instead,
consistent with the approach that the Joe Boxer Corporation (Salant's
licensor of the Joe Boxer trademark) has taken, the Company will focus on its
core business of underwear and sleepwear. Sales of the retail outlet stores
division decreased by $5.4 million, or 19.8%, in Fiscal 1997. This decrease
was due to (i) a decrease in the number of stores in the first 10 months of
Fiscal 1997 and (ii) the decision in November 1997 to close all non-Perry
Ellis outlet stores. The Company ceased to operate the non-Perry Ellis outlet
stores in November 1997.
Gross Profit
The following table sets forth the gross profit and gross profit margin
(gross profit as a percentage of net sales) for each of the Company's
business segments for each of Fiscal 1997 and Fiscal 1996:
Fiscal 1997 Fiscal 1996
--------------- ---------------
(dollars in millions)
Men's $ 69.5 21.3% $ 74.2 21.5%
Children's 7.5 15.2% 11.5 25.1%
Retail Outlet Stores 7.5 34.6% 9.2 33.9%
-------- --------
Total $ 84.5 21.3% $ 94.9 22.7%
======== ========
The decline in gross profit in the men's apparel segment was primarily
attributable to the reduction in net sales discussed above.
The gross profit margin of the children's sleepwear and underwear
segment declined as a result of (i) a slowdown in sales of certain licensed
products, requiring a greater percentage of off-price sales, as well as an
increase in discounts and allowances, (ii) an increase in reserves for
remaining inventory and (iii) higher distribution and product handling costs.
The gross profit of the retail outlet stores decreased primarily as a
result of inventory markdowns of $1.6 million (7.3% of net sales) related to
the closing of the non-Perry Ellis stores. Excluding these inventory
markdowns, the gross profit margin increased as a result of a decrease in the
transfer prices (from a negotiated rate to standard cost) charged to the
retail outlet stores for products made by other divisions of the Company.
Selling, General and Administrative Expenses
Selling, general and administrative ("S,G&A") expenses for Fiscal 1997
were $80.6 million (20.3% of net sales) compared with $83.1 million (19.9% of
net sales) for Fiscal 1996. While implementation of the Company's strategic
plan resulted in the elimination of certain S,G&A expenses in Fiscal 1997,
such eliminations were partially offset by higher amortization costs
attributable to the installation of new store fixtures for Perry Ellis
sportswear shops in department stores which commenced in 1995. The
amortization of these store fixtures accounted for approximately $2.5 million
of the total S,G&A expenses in Fiscal 1997, compared with $1.6 million in
Fiscal 1996.
Other Income
Other income for Fiscal 1996 included a gain of $2.7 million related to
the sale of a leasehold interest in a facility located in Glen Rock, New
Jersey.
Provision for Restructuring
In Fiscal 1997, the Company recorded a provision for restructuring
charge of $2.1 million, consisting of (i) $3.5 million related to the
decision in the fourth quarter to close all retail outlet stores other than
Perry Ellis outlet stores and (ii) the reversal of previously recorded
restructuring provisions of $1.4 million, including $300 thousand in the
fourth quarter, primarily resulting from the settlement of liabilities for
less than the carrying amount, as a result of a settlement agreement and
license arrangement with the former owners of the JJ. Farmer trademark,
resulting in the reversal of the excess portion of the provision.
The Company recorded a restructuring charge of $11.7 million in Fiscal
1996. Of this amount, (i) $5.7 million was primarily related to the write-off
of goodwill and the write-down of other assets of the JJ. Farmer product
line, (ii) $2.9 million was attributable to the write-off of certain assets
related to the licensing of the Gant brand name for certain of the Company's
dress shirt and accessories product lines and the accrual of a portion of
future royalties payable under the Gant licenses that are not expected to be
covered by future sales, (iii) $1.8 million was primarily related to employee
costs associated with the closing of a manufacturing and distribution
facility in Thomson, Georgia, (iv) $0.7 million was primarily related to
employee costs associated with the closing of a manufacturing facility in
Americus, Georgia and (v) $0.6 million related to other severance costs.
The Fiscal 1997 restructuring charge related to the retail outlet store
closings was comprised of $1.3 million of non-cash charges and $2.2 million
requiring cash payments over a period of time. Of the cash portion, $0.6
million was expended during Fiscal 1997 and the balance is expected to be
expended in 1998.
Income from Continuing Operations Before Interest, Income Taxes and
Extraordinary Gain
The following table sets forth income from continuing operations before
interest, income taxes and extraordinary gain for each of the Company's three
business segments, expressed both in dollars and as a percentage of net
sales, for each of Fiscal 1997 and Fiscal 1996:
Fiscal 1997 Fiscal 1996
------------------ -----------------
(dollars in millions)
Men's (a) $ 19.5 6.0% $ 6.2 1.8%
Children's (0.3) (0.6%) 5.4 11.8%
Retail Outlet Stores (b) (8.4) (38.4%) (4.2) (15.4%)
-------- --------
10.8 2.7% 7.4 1.8%
Corporate expenses (c) (9.3) (5.8)
Licensing division income 4.6 5.0
-------- --------
Income from continuing
operations before interest,
income taxes and
extraordinary gain $ 6.1 1.5% $ 6.6 1.6%
======== ========
- ---------------
(a) Includes the reversal of restructuring charges of $1.5 million in Fiscal
1997 and restructuring charges of $11.7 million in Fiscal 1996.
(b) Includes restructuring charges of $3.5 million in Fiscal 1997.
(c) Includes other income of $2.7 million in Fiscal 1996 related to the sale
of a leasehold interest.
The $0.5 million decrease in income from continuing operations before
interest, income taxes and extraordinary gain in Fiscal 1997 was primarily a
result of the significant decline in profitability of the Children's segment.
This decline was a result of (i) the decline in gross profit as previously
noted and (ii) increased occupancy costs related to new office, design and
showroom space acquired in Fiscal 1997. The decline in retail outlet stores
operating income is due to the restructuring and inventory markdown costs
related to the closing of the non-Perry Ellis stores, offset by the higher
gross profit related to the change in transfer pricing, as previously
discussed. The increase in corporate expenses is primarily due to costs
associated with the significant management changes previously discussed.
Interest Expense, Net
Net interest expense was $16.7 million for Fiscal 1997 compared with
$15.5 million for Fiscal 1996. The $1.2 million increase is a result of
higher average borrowings during Fiscal 1997 primarily due to the loss from
operations and spending on capital expenditures and store fixtures.
Loss from Continuing Operations
In Fiscal 1997, the Company reported a loss from continuing operations
before extraordinary gain of $10.7 million, or $0.71 per share, compared with
a loss from continuing operations of $9.0 million, or $0.60 per share, in
Fiscal 1996.
Extraordinary Gain
The extraordinary gain of $2.1 million recorded in Fiscal 1997,
including $1.5 million in the fourth quarter, related to the reversal of
excess liabilities previously provided for the anticipated settlement of
claims arising from the Company's prior chapter 11 cases.
Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring
Charges and Extraordinary Gain
Earnings before interest, taxes, depreciation, amortization,
restructuring charges and extraordinary gain was $17.1 million (4.3% of net
sales) in Fiscal 1997, compared to $26.5 million (6.4% of net sales) in
Fiscal 1996, a decrease of $9.4 million, or 35%. The Company believes this
information is helpful in understanding cash flow from operations that is
available for debt service and capital expenditures. This measure is not
contained in Generally Accepted Accounting Principles and is not a substitute
for operating income, net income or net cash flows from operating activities.
Fiscal 1996 Compared with Fiscal 1995
Net Sales
The following table sets forth the net sales of each of the Company's
three principal business segments for the fiscal years ended December 28,
1996 ("Fiscal 1996") and December 30, 1995 ("Fiscal 1995") and the percentage
contribution of each of those segments to total net sales:
Percentage
Increase/
Fiscal 1996 Fiscal 1995 (Decrease)
-------------- -------------- ----------
(dollars in millions)
Men's $ 344.7 83% $ 416.7 86% (17.3%)
Children's 45.8 11% 39.9 8% 14.8%
Retail Outlet Stores 27.2 6% 29.2 6% (7.0%)
-------- ---- -------- ----
Total $ 417.7 100% $ 485.8 100% (14.0%)
======== ==== ======== ====
The decline in net sales in the men's apparel segment was $72.0 million.
Of this amount, $58.8 million was attributable to the planned discontinuation
of various product lines and the redirection of other product lines to
different channels of distribution. Of the balance, $7.4 million resulted
from a decision by Sears, Roebuck & Co. ("Sears") to source its knit and
woven Canyon River Blues tops through its own internal sourcing operations
and $3.6 million was due to reduced sales of Perry Ellis sportswear as a
result of a reduction of $12.3 million in sales to off-price retailers,
partially offset by an increase of $8.7 million in sales to department
stores.
Sales of children's sleepwear and underwear increased by $5.9 million,
or 14.8%, in Fiscal 1996. This increase was primarily a result of the
continuing expansion of the Joe Boxer children's product lines.
Gross Profit
The following table sets forth the gross profit and gross profit margin
(gross profit as a percentage of net sales) for each of the Company's
business segments for each of Fiscal 1996 and Fiscal 1995:
Fiscal 1996 Fiscal 1995
------------------ -------------------
(dollars in millions)
Men's $ 74.2 21.5% $ 79.1 19.0%
Children's 11.5 25.1% 10.8 26.9%
Retail Outlet Stores 9.2 33.9% 10.7 36.7%
------- ----- -------- -----
Total $ 94.9 22.7% $ 100.6 20.7%
======= ===== ======== =====
The decline in gross profit in the men's apparel segment and for the
Company as a whole was primarily attributable to the reduction in net sales
discussed above. The gross profit margin for the men's apparel segment and
the Company as a whole, however, improved significantly, primarily as a
result of (i) a greater percentage of sales of the Company's higher margin
Perry Ellis product lines as a percentage of net sales, (ii) planned
reductions in sales of lower-margin brands and products, (iii) increased
efficiencies at the Company's manufacturing facilities in Mexico, and (iv)
reduced markdowns of accessories due to improved consumer acceptance of the
Company's neckwear product lines. The gross profit margin for the men's
apparel segment was adversely affected, however, by charges of (i) $3.0
million (0.8% of men's apparel net sales) for markdowns related to the
discontinuation of the JJ. Farmer and Manhattan sportswear product lines and
a change in the primary channel of distribution for products sold under the
John Henry label and (ii) $1.9 million (0.5% of men's apparel net sales)
related to the closing of manufacturing and distribution facilities in
Americus and Thomson, Georgia.
The gross profit margin of the children's sleepwear and underwear
segment declined as a result of an increased percentage of off-price sales of
licensed character products in that segment's total sales mix. The gross
profit margin of the Company's retail outlet stores business declined
primarily as a result of margin pressures as well as charges of $0.3 million
(1.0% of net sales) due to markdowns of discontinued product lines at the
Company's outlet stores.
Selling, General and Administrative Expenses
Selling, general and administrative ("S,G&A") expenses for Fiscal 1996
were $83.1 million (19.9% of net sales) compared with $82.6 million (17.0% of
net sales) for Fiscal 1995. While implementation of the Company's strategic
plan resulted in the elimination of certain S,G&A expenses in Fiscal 1996,
such eliminations were partially offset by higher amortization costs
attributable to the installation of new store fixtures for Perry Ellis
sportswear shops in department stores and Canyon River Blues shops in Sears
stores, which installations commenced in 1995. The amortization of these
store fixtures accounted for approximately $1.6 million of the total S,G&A
expenses in Fiscal 1996 as compared with $0.4 million in Fiscal 1995. The
Company's merchandise coordinator and retail specialist programs, which
provide support for the presentation and coordination of the Company's
products in retail stores was also enlarged in 1996, primarily to support the
expansion of the Perry Ellis sportswear shop program; this increase accounted
for a further $1.2 million of the S,G&A expense increase in Fiscal 1996.
Total expenses related to these programs were $3.3 million in Fiscal 1996, as
compared with $2.1 million in Fiscal 1995.
Other Income
Other income for Fiscal 1996 included a gain of $2.7 million related to
the sale of a leasehold interest in a facility located in Glen Rock, New
Jersey.
Provision for Restructuring
The Company recorded a restructuring charge of $11.7 million in Fiscal
1996. Of this amount, (i) $5.7 million was primarily related to the write-off
of goodwill and the write-down of other assets of the JJ. Farmer product
line, (ii) $2.9 million was attributable to the write-off of certain assets
related to the licensing of the Gant brand name for certain of the Company's
dress shirt and accessories product lines and the accrual of a portion of
future royalties payable under the Gant licenses that are not expected to be
covered by future sales, (iii) $1.8 million was primarily related to employee
costs associated with the closing of a manufacturing and distribution
facility in Thomson, Georgia, (iv) $0.7 million was primarily related to
employee costs associated with the closing of a manufacturing facility in
Americus, Georgia and (v) $0.6 million related to other severance costs.
Income from Continuing Operations Before Interest, Income Taxes and
Extraordinary Gain
The following table sets forth income from continuing operations before
interest, income taxes and extraordinary gain for each of the Company's three
business segments, expressed both in dollars and as a percentage of net
sales, for each of Fiscal 1996 and Fiscal 1995:
Fiscal 1996 Fiscal 1995
---------------- -----------------
(dollars in million)
Men's (a) $ 6.2 1.8% $ 19.6 4.7%
Children's 5.4 11.8% 5.2 13.0%
Retail Outlet Stores (4.2) (15.4%) (2.7) (9.2%)
------- --------
7.4 1.8% 22.1 4.6%
Corporate expenses (b) (5.8) (8.8)
Licensing division income 5.0 5.6
------- --------
Income from continuing
operations before interest, income
taxes and extraordinary gain $ 6.6 1.6% $ 18.9 3.9%
======= ========
(a) Includes restructuring charges of $11.7 million in Fiscal 1996 and $3.6
million in Fiscal 1995.
(b) Includes other income of $2.7 million in Fiscal 1996 related to the sale
of a leasehold interest.
The $12.3 million reduction in income from continuing operations before
interest, income taxes and extraordinary gain in Fiscal 1996 was primarily a
result of the $11.7 million restructuring charge (compared with $3.6 million
in Fiscal 1995) and $6.3 million of other charges associated with the
implementation of the strategic business plan, which was partially offset by
a $2.7 million gain on the sale of a leasehold interest, as previously
discussed.
Interest Expense, Net
Net interest expense was $15.5 million for Fiscal 1996 compared with
$19.0 million for Fiscal 1995. The $3.5 million decrease is a result of lower
average borrowings during Fiscal 1996 primarily due to reduced average levels
of inventory.
Loss from Continuing Operations
In Fiscal 1996, the Company reported a loss from continuing operations
of $9.0 million, or $0.60 per share, as compared with a loss from continuing
operations before extraordinary gain of $0.4 million, or $0.02 per share, in
Fiscal 1995.
Extraordinary Gain
The extraordinary gain of $1.0 million recorded in the fourth quarter of
Fiscal 1995 related to the reversal of excess liabilities previously provided
for the anticipated settlement of claims arising from the Company's prior
chapter 11 cases.
Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring
Charges and Extraordinary Gain
Earnings before interest, taxes, depreciation, amortization,
restructuring charges and extraordinary gain was $26.5 million (6.4% of net
sales) in Fiscal 1996, compared to $30.4 million (6.3% of net sales) in
Fiscal 1995, a decrease of $3.9 million, or 12.8%. The Fiscal 1996 amount was
negatively affected by $6.3 million of charges primarily associated with the
implementation of the Company's strategic business plan. The Company believes
this information is helpful in understanding cash flow from operations that
is available for debt service and capital expenditures. This measure is not
contained in Generally Accepted Accounting Principles and is not a substitute
for operating income, net income or net cash flows from operating activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a party to the Credit Agreement, with CIT. The Credit
Agreement provides the Company with working capital financing, in the form of
direct borrowings and letters of credit, up to an aggregate of $120 million,
subject to an asset-based borrowing formula. As collateral for borrowings
under the Credit Agreement, the Company has granted to CIT a security
interest in substantially all of the assets of the Company.
On March 3, 1998, the Company announced that it had reached an agreement
in principle with its major note and equity holders to restructure its
existing indebtedness under the Senior Notes pursuant to the Letter Agreement
upon which the Restructuring is based. Implementation of the Restructuring
will result in the elimination of $11.0 million of annual interest expense to
the Company. In connection with the execution of the Letter Agreement, the
Company and CIT executed the Forbearance Agreement, See "BACKGROUND OF
RESTRUCTURING--The Waiver and Forbearance Under the Credit Agreement."
Pursuant to the Credit Agreement, the interest rate charged on direct
borrowings is 0.75 percent in excess of the base rate of The Chase
Manhattan Bank, N.A. (the "Prime Rate", which was 8.5% at January 3, 1998
and at April 4, 1998) or 3.00% above the London Late Eurodollar rate (the
"Eurodollar Rate", which was 5.7% at January 3, 1998 and at April 4, 1998).
Pursuant to the Credit Agreement, the Company sells to CIT, without
recourse, certain eligible accounts receivable. The credit risk for such
accounts is thereby transferred to CIT. The amounts due from CIT have been
offset against the Company's direct borrowings from CIT set forth in the
condensed consolidated interim unaudited balance sheet of the Company for
the three months ended April 4, 1998 and the consolidated annual audited
balance sheets of the Company for the year ended January 3, 1998. The
amounts which have been offset were $12.827 million at January 3, 1998 and
$16.355 million at December 28, 1996 and $10.7 million at April 4, 1998 and
$13.3 million at March 29, 1997.
On April 4, 1998, direct borrowings (including borrowings under the
Eurodollar option) and letters of credit outstanding under the Credit
Agreement were $44.6 million and $23.0 million, respectively, and the
Company had unused availability of $15.2 million. On March 29, 1997, direct
borrowings and letters of credit outstanding under the Credit Agreement
were $32.9 million and $32.8 million, respectively, and the Company had
unused availability of $12.4 million. During the first quarter of 1998, the
maximum aggregate amount of direct borrowings and letters of credit
outstanding under the Credit Agreement was $81.1 million at which time the
Company had unused availability of $15.2 million. During the first quarter
of 1997, the maximum aggregate amount of direct borrowings and letters of
credit outstanding under the Credit Agreement was $71.8 million at which
time the Company had unused availability of $11.9 million.
The Company's cash used in operating activities for the first quarter
of 1998 was $10.6 million, which primarily reflects a $5.5 million increase
in accounts receivable and the loss from operations of $3.3 million. Cash
used for investing activities in the first quarter of 1998 was $0.8
million, which represented capital expenditures of $0.5 million and the
installation of store fixtures in department stores of $0.3 million. During
1998, the Company plans to make capital expenditures of approximately $10
million and to spend an additional $1.6 million for the installation of
store fixtures in department stores. Cash provided by financing activities
in the first quarter of 1998 was $10.8 million, which represented
short-term borrowings under the Credit Agreement.
At the end of Fiscal 1997, direct borrowings and letters of credit
outstanding under the Credit Agreement were $33.8 million and $23.2
million, respectively, and the Company had unused availability of $17.5
million. At the end of Fiscal 1996, direct borrowings and letters of credit
outstanding under the Credit Agreement were $7.7 million and $33.6 million,
respectively, and the Company had unused availability of $23.6 million.
During Fiscal 1997, the maximum aggregate amount of direct borrowings and
letters of credit outstanding at any one time under the Credit Agreement
was $112.9 million, at which time the Company had unused availability of
$10.5 million. During Fiscal 1996, the maximum aggregate amount of direct
borrowings and letters of credit outstanding at any one time under the
Credit Agreement was $101.0 million, at which time the Company had unused
availability of $19.6 million.
The Company's cash used in operating activities for Fiscal 1997 was $9.8
million, which primarily reflects the operating loss of $10.7 million and an
increase in accounts receivable of $5.7 million, offset by non-cash charges,
such as depreciation and amortization, of $8.9 million.
Cash used in Fiscal 1997 for investing activities was $10.2 million, of
which $7.1 million was related to capital expenditures and $3.1 million to
the installation of store fixtures in department stores. During Fiscal 1998,
the Company plans to make capital expenditures of approximately $6.4 million
and to spend an additional $2.0 million for the installation of store
fixtures in department stores.
Cash provided by financing activities in Fiscal 1997 was $22.9 million,
which represented short-term borrowings under the Credit Agreement of $26.1
million, offset by the retirement of long-term debt of $3.4 million.
On October 28, 1996, the Company completed the sale of a leasehold
interest in a facility located in Glen Rock, New Jersey. Pursuant to the
indenture governing the Senior Notes, the $3,372,000 net cash proceeds of
that sale were applied to the repurchase of a like principal amount of the
Senior Notes immediately following the end of the 1996 fiscal year.
The instruments governing the Company's outstanding debt contain
numerous financial and operating covenants, including restrictions on
incurring indebtedness and liens, making investments in or purchasing the
stock or all or a substantial part of the assets of another person, selling
property and paying cash dividends. In addition, under the Credit
Agreement, the Company is required, during the year, to maintain a minimum
level of stockholders' equity and to satisfy a maximum cumulative net loss
test. At January 3, 1998, the Company was not in compliance with the two
financial covenants contained in the Credit Agreement, and has obtained a
waiver from CIT, as of January 3, 1998, as provided by the Forbearance
Agreement. See "DESCRIPTION OF EXISTING INDEBTEDNESS OF THE COMPANY -- The
Senior Notes."
The indenture governing the Company's outstanding Senior Notes requires
the Company to reduce its outstanding indebtedness (excluding outstanding
letters of credit) to $20 million or less for fifteen consecutive days during
each twelve month period commencing on the first day of February. This
covenant has been satisfied for the balance of the term of the Senior Notes.
See "DESCRIPTION OF EXISTING INDEBTEDNESS OF THE COMPANY -- The Senior Notes."
In contemplation of the Restructuring, the Company elected not to pay
the interest payment of approximately $5.5 million that was due and payable
under the Senior Notes on March 2, 1998, subject to a 30 day grace period.
Because the Company elected not to pay the interest due on the Senior Notes
by the expiration of the applicable grace period, an event of default has
occurred with respect to the Senior Notes entitling the Noteholders to
accelerate the maturity thereof. Pursuant to the Letter Agreement, Magten
has, in accordance with Section 6.5 of the Indenture, caused a written
direction to be provided to the Trustee under the Indenture, to forbear
during the term of the Letter Agreement from taking any action under the
Indenture in connection with the failure by the Company to make the interest
payment on the Senior Notes that was due and payable on March 2, 1998. On
April 8, 1998, the Trustee issued a Notice of Default stating that as a
result of the Company's failure to make the interest payment due on the
Senior Notes, an event of default under the Indenture had occurred on April
1, 1998. In addition, the Company's working capital lender, CIT, agreed to
forbear until July 1, 1998, subject to certain conditions, from exercising
any of its rights or remedies under the Credit Agreement, arising by virtue
of the Company's failure to pay such interest on the Senior Notes. Failure to
consummate the Restructuring could result in the acceleration of all of the
indebtedness under the Senior Notes and/or the Credit Agreement.
The Company's principal sources of liquidity, both on a short-term and
a long-term basis, are cash flow from operations and borrowings under the
Credit Agreement. Based upon its analysis of its consolidated financial
position, its cash flow during the past twelve months and the cash flow
anticipated from its future operations, the Company believes that its
future cash flows together with funds available under the Credit Agreement,
will be adequate to meet the financing requirements it anticipates during
the next twelve months, provided that the Company consummates the
Restructuring and secures an extension of the Credit Agreement or a new
working capital facility. There can be no assurance, however, (i) that the
Company will consummate the Restructuring and secure an extension of the
Credit Agreement or a new working capital facility, or (ii) that future
developments and general economic trends will not adversely affect the
Company's operations and, hence, its anticipated cash flow.
The Company is required to adopt Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income", during the year
ending January 2, 1999. SFAS 130 establishes standards for reporting
comprehensive income and its components in a full set of general-purpose
financial statements. This Statement requires that an enterprise (i) classify
items of other comprehensive income by their nature in a financial
statements, and (ii) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in
the equity section of a statement of financial position. Adoption of this
Statement will require the Company to report changes in the excess of
additional pension liability over unrecognized prior service cost and foreign
currency translation adjustment accounts, currently shown in the
stockholders' equity section of the balance sheet, as an increase or decrease
to reported net income in arriving at comprehensive income.
The Company is required to adopt SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" during the year ending
January 2, 1999. The Statement establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. This Statement
supersedes FASB Statement No. 14, "Financial Reporting for Segments of a
Business Enterprise", but retains the requirement to report information about
major customers. It amends FASB Statement No. 94, "Consolidation of All
Majority-Owned Subsidiaries", to remove the special disclosure requirements
for previously unconsolidated subsidiaries. The Company is currently
considering what effect adoption of this statement will have on the Company.
The Company is required to adopt SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", for the period ended
January 2, 1999. This statement revises employers' disclosures about pension
and other postretirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practicable,
requires additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis, and
eliminates certain disclosures that are no longer as useful. The statement is
effective for fiscal year ending January 2, 1999. Restatement of disclosures
for earlier periods provided for comparative purposes is required. The
Company has not yet determined the impact the adoption of this statement will
have on the Company's financial statements.
YEAR 2000 COMPLIANCE
The Company has completed an assessment of its information systems
("IS"), including its computer software and hardware, and the impact that the
year 2000 will have on such systems and The Company's overall operations. The
Company's current software systems, without modification, will be adversely
affected by the inability of the systems to appropriately interpret date
information after 1999. As part of the process of improving the Company's IS
to provide enhanced support to all operating areas, the Company has entered
into an interim working agreement with Electronic Data Systems Corporation
("EDS"), which constitutes the initial phase of a long-term contract to
outsource its IS. Such long-term outsourcing contract will provide for or
eliminate any issues involving year 2000 compliance because all software
provided under the outsourcing contract will be year 2000 compliant. The
Company anticipates that its cost for such outsourcing will be approximately
$9.0 million annually, which is consistent with The Company's current IS
expenditures. The Company anticipates that it will complete its outsourcing
and systems conversion in time to accommodate year 2000 issues. If the
Company fails to complete such conversion in a timely manner, such failure
will have a material adverse effect on the business, financial condition and
results of operations of the Company.
SEASONALITY
Although the Company typically introduces and withdraws various
individual products throughout the year, its principal products are organized
into the customary retail Spring, Fall and Holiday seasonal lines. The
Company's products are designed as much as one year in advance and
manufactured approximately one season in advance of the related retail
selling season.
BACKLOG
The Company does not consider the amount of its backlog of orders to be
significant to an understanding of its business primarily due to increased
utilization of EDI technology, which provides for the electronic transmission
of orders from customers' computers to the Company's computers. As a result,
orders are placed closer to the required delivery date than had been the case
prior to EDI technology. At March 7, 1998, the Company's backlog of orders
was approximately $94.9 million, 2.3% less than the backlog of orders of
approximately $97.1 million that existed at March 1, 1997.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, the Company
cautions that assumed facts or bases almost always vary from the actual
results, and the differences between assumed facts or bases and actual
results can be material, depending on the circumstances. Where, in any
forward-looking statement, the Company or its management expresses an
expectation or belief as to future results, there can be no assurance that
the statement of the expectation or belief will result or be achieved or
accomplished. The words "believe", "expect", "estimate", "project", "seek",
"anticipate" and similar expressions may identify forward-looking statements.
The Company's future operating results and financial condition are dependent
upon the Company's ability to successfully design, manufacture, import and
market apparel. Taking into account the foregoing, the following are
identified as important factors that could cause results to differ materially
from those expressed in any forward-looking statement made by, or on behalf
of, the Company:
SUBSTANTIAL LEVEL OF INDEBTEDNESS AND THE ABILITY TO RESTRUCTURE DEBT
The Company had current indebtedness of $149.5 million and $138.7
million as of April 4, 1998 and January 3, 1998, respectively. Of this
amount, $104.879 million represents the principal amount of the Senior
Notes. The Company will not generate sufficient cash flow from operations
to repay this amount at maturity. Accordingly, the Company has entered into
the Letter Agreement as described above. Given the Company's past
inconsistent operating performance, together with the reluctance of
investors to invest in companies suffering from high debt-to-equity ratios
and the Company's inability to raise funds in the capital markets to
recapitalize the Company, absent the Restructuring, the Company does not
believe it will be able to refinance its indebtedness under the Senior
Notes. Failure by the Company to consummate the Restructuring as
contemplated could result in the acceleration of all of the indebtedness
under the Senior Notes and/or the Credit Agreement, and, thus, would be
likely to have a material adverse effect on the Company.
COMPETITION
The apparel industry in the United States is highly competitive and
characterized by a relatively small number of multi-line manufacturers (such
as the Company) and a large number of specialty manufacturers. The Company
faces substantial competition in its markets from manufacturers in both
categories. Many of the Company's competitors have greater financial
resources than the Company. The Company also competes for private label
programs with the internal sourcing organizations of many of its own
customers.
APPAREL INDUSTRY CYCLES AND OTHER ECONOMIC FACTORS
The apparel industry historically has been subject to substantial
cyclical variation, with consumer spending on apparel tending to decline
during recessionary periods. A decline in the general economy or
uncertainties regarding future economic prospects may affect consumer
spending habits, which, in turn, could have a material adverse effect on the
Company's results of operations and financial condition.
RETAIL ENVIRONMENT
Various retailers, including some of the Company's customers, have
experienced declines in revenue and profits in recent periods and some have
been forced to file for bankruptcy protection. To the extent that these
financial difficulties continue, there can be no assurance that the Company's
financial condition and results of operations would not be adversely
affected.
SEASONALITY OF BUSINESS AND FASHION RISK
The Company's principal products are organized into seasonal lines for
resale at the retail level during the Spring, Fall and Holiday Seasons.
Typically, the Company's products are designed as much as one year in advance
and manufactured approximately one season in advance of the related retail
selling season. Accordingly, the success of the Company's products is often
dependent on the ability of the Company to successfully anticipate the needs
of the Company's retail customers and the tastes of the ultimate consumer up
to a year prior to the relevant selling season.
FOREIGN OPERATIONS
The Company's foreign sourcing operations are subject to various risks
of doing business abroad, including currency fluctuations (although the
predominant currency used is the U.S. dollar), quotas and, in certain parts
of the world, political instability. Any substantial disruption of its
relationship with its foreign suppliers could adversely affect the Company's
operations. Some of the Company's imported merchandise is subject to United
States Customs duties. In addition, bilateral agreements between the major
exporting countries and the United States impose quotas, which limit the
amount of certain categories of merchandise that may be imported into the
United States. Any material increase in duty levels, material decrease in
quota levels or material decrease in available quota allocation could
adversely affect the Company's operations. The Company's operations in Asia,
including those of its licensees, are subject to certain political and
economic risks including, but not limited to, political instability, changing
tax and trade regulations and currency devaluations and controls. The
Company's risks associated with the Company's Asian operations may be higher
in 1998 than has historically been the case, due to the fact that financial
markets in East and Southeast Asia have recently experienced and continue to
experience difficult conditions, including a currency crisis. As a result of
recent economic volatility, the currencies of many countries in this region
have lost value relative to the U.S. dollar. Although the Company has
experienced no material foreign currency transaction losses since the
beginning of this crisis, its operations in the region are subject to an
increased level of economic instability. The impact of these events on the
Company's business, and in particular its sources of supply and royalty
income cannot be determined at this time.
DEPENDENCE ON CONTRACT MANUFACTURING
The Company currently produces 59% of all of its products (in units)
through arrangements with independent contract manufacturers. The use of such
contractors and the resulting lack of direct control could subject the
Company to difficulty in obtaining timely delivery of products of acceptable
quality. In addition, as is customary in the industry, the Company does not
have any long-term contracts with its fabric suppliers or product
manufacturers. While the Company is not dependent on one particular product
manufacturer or raw material supplier, the loss of several such product
manufacturers and/or raw material suppliers in a given season could have a
material adverse effect on the Company's performance.
Because of the foregoing factors, as well as other factors affecting the
Company's operating results and financial condition, past financial
performance should not be considered to be a reliable indicator of future
performance, and investors are cautioned not to use historical trends to
anticipate results or trends in the future. In addition, the Company's
participation in the highly competitive apparel industry often results in
significant volatility in the Company's common stock price.
TENDERING AND VOTING PROCEDURES
THE RESTRUCTURING
Upon the terms and subject to the conditions set forth in this Exchange
Restructuring Prospectus and in the accompanying Letter of Transmittal, the
Company is offering in the Exchange Offer to issue to each Noteholder
175,977,555 shares (adjusted to reflect the ten-to-one reverse stock split
described herein) of New Common Stock, for each $1,000 principal amount of
Senior Notes (together with all accrued and unpaid interest) which is validly
tendered and not withdrawn (as described below) prior to the Expiration Date.
Nominees or other record holders of Senior Notes that hold for more than one
beneficial owner will be entitled to make elections that reflect the
elections of each of the beneficial holders for whom they exchange Senior
Notes. The Company is also soliciting from the holders of Senior Notes
acceptances of the Prepackaged Plan, under which the Senior Notes would be
exchanged for the same consideration offered in the Exchange Offer.
Instructions for voting on the Prepackaged Plan are contained in the
Disclosure Statement and in the instructions attached to the Ballots and
Master Ballots. See "VOTING PROCEDURES AND REQUIREMENTS" in the Disclosure
Statement.
This Exchange Restructuring Prospectus and the Letter of Transmittal are
first being mailed to registered Noteholders on or about ______ __, 1998.
GENERAL
As of March 2, 1998, there were outstanding $104.879 million aggregate
principal amount of Senior Notes (plus accrued but unpaid interest thereon of
approximately $5.5 million).
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange, and to have exchanged, validly tendered Senior Notes
in the Exchange Offer when, as and if the Company has given oral or written
notice thereof to the Depositary. The Depositary will act as agent for the
tendering Noteholders for the purposes of receiving New Common Stock from the
Company and transmitting such New Common Stock to tendering Noteholders.
The New Common Stock will be delivered in exchange for Senior Notes
accepted in the Exchange Offer promptly after acceptance on the Expiration
Date or, in the event of confirmation of the Prepackaged Plan, promptly after
the Effective Date as described in the Prepackaged Plan. The Company's
obligation to accept Senior Notes for exchange in the Exchange Offer is
subject to the satisfaction of the conditions set forth below under
"Conditions." The Company reserves the right, in its sole discretion, to
waive any or all of the conditions to the Exchange Offer or amend the terms
of the Exchange Offer but does not currently intend to waive any condition or
amend any of the terms of the Exchange Offer. Pursuant to the Letter
Agreement, Magten's consent is required for the Company to waive the Minimum
Tender Condition. The Exchange Offer is subject to extension of the time
period during which it is open. See "Expiration Date; Extensions; Amendments"
below.
New Common Stock will be rounded up or down to the nearest whole number
in the Exchange Restructuring and the Prepackaged Restructuring. Noteholders
who receive New Common Stock pursuant to the Exchange Restructuring will not
be required to pay brokerage commissions or fees to the Company or, subject
to the instructions in the Letter of Transmittal, transfer taxes with respect
to the receipt of New Common Stock pursuant to the Exchange Restructuring.
The Company will pay all charges and expenses, other than certain applicable
taxes, in connection with the Exchange Restructuring.
INTEREST ON SENIOR NOTES
Exchange Offer consideration will be paid in respect of each $1,000
principal amount of Senior Notes, together with all accrued and unpaid
interest, tendered and accepted for exchange. By tendering Senior Notes, a
Noteholder waives all rights to receive any payments with respect to accrued
but unpaid interest on such Senior Notes other than the New Common Stock to
be issued pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
With respect to the Exchange Offer and the solicitation of acceptances
of the Prepackaged Plan, the term "Expiration Date" shall mean 5:00 p.m., New
York City time, on ______ __, 1998, unless the Company, in its sole
discretion, extends the Exchange Offer or solicitation period, in which case
the term "Expiration Date" for such Exchange Offer or solicitation period
shall mean the last time and date to which the Exchange Offer or solicitation
period is extended.
The Company expressly reserves the right, at any time or from time to
time, to extend the period during which the Exchange Offer is open. In order
to extend the Expiration Date, the Company will notify the Depositary of any
extension by oral or written notice and will make a public announcement
thereof, the announcement to be issued no later than 5:00 p.m., New York City
time, on the next business day after the previously scheduled Expiration
Date. Such announcement may state that the Company is extending the Exchange
Offer for a specified period or on a daily basis.
The Company also expressly reserves the right to (a) delay accepting any
Senior Notes, to extend the Exchange Offer and the solicitation period for
acceptances of the Prepackaged Plan or to terminate the Exchange Offer and
the solicitation period for acceptances of the Prepackaged Plan and not
accept Senior Notes not previously accepted, if any of the conditions set
forth herein under "Conditions" shall not have been satisfied or validly
waived by the Company, by giving oral or written notice of such delay,
extension or termination to the Depositary or (b) amend, at any time or from
time to time, the terms of the Exchange Offer and the Prepackaged Plan in any
respect. The Company also expressly reserves the right to terminate the
Exchange Offer at any time as described herein under "Conditions." Any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by public announcement thereof. Pursuant to the
Letter Agreement, the obligations of Magten and Apollo under the Letter
Agreement will terminate if the Exchange Restructuring Date does not occur on
or before July 31, 1998. If the terms of the Exchange Offer or the
Prepackaged Plan are amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the affected
Noteholders of such amendment and the Company will extend the Exchange Offer
or the solicitation period for acceptances of the Prepackaged Plan for a
period which the Company in its discretion deems appropriate, depending upon
the significance of the amendment and the manner of disclosure to
Noteholders, if the Exchange Offer or the solicitation period for acceptances
of the Prepackaged Plan would otherwise expire during such period. Any such
extension shall, in the case of the Exchange Offer and, prior to the filing
of the Prepackaged Plan, in the case of the Prepackaged Plan, be in
compliance with any applicable rules and regulations of the Commission.
Without limiting the manner in which the Company may choose to make a
public announcement of any extension, amendment or termination of the
Exchange Offer or the solicitation period for acceptances of the Prepackaged
Plan, the Company shall have no obligation, unless otherwise required by law,
to publish, advertise, or otherwise communicate any such public announcement,
other than by making a timely release to the [Dow Jones News Service].
HOW TO TENDER IN THE EXCHANGE OFFER
To tender Senior Notes pursuant to the Exchange Offer, a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) or an Agent's Message (as defined herein) in the case of a
book-entry transfer of Senior Notes, together with any signature guarantees
and any other documents required by the instructions to the Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the back cover page of this Exchange Restructuring Prospectus prior
to the Expiration Date and either (i) certificates representing such Senior
Notes must be received by the Depositary at one of its address or (ii) such
Senior Notes must be transferred pursuant to the procedures for book-entry
transfer set forth below and the book-entry transfer of such Senior Notes
into the Depositary's account at a book-entry transfer facility must be
confirmed, in each case, prior to the Expiration Date. LETTERS OF TRANSMITTAL
AND ANY SENIOR NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER SHOULD BE SENT
ONLY TO THE DEPOSITARY, NOT THE COMPANY, THE TRUSTEE, THE INFORMATION AGENT
OR THE FINANCIAL ADVISOR.
ONLY REGISTERED NOTEHOLDERS, OR PERSONS WHO HAVE OBTAINED A PROPERLY
COMPLETED NOTE POWER FROM THE REGISTERED NOTEHOLDERS THEREOF, MAY TENDER IN
THE EXCHANGE OFFER. Any beneficial holder whose Senior Notes are registered
in the name of his broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender Senior Notes should contact such registered
Noteholder and instruct such registered Noteholder to tender Senior Notes on
his behalf. If such beneficial holder wishes to tender Senior Notes on his
own behalf, such beneficial holder must, prior to completing and executing
the Letter of Transmittal and delivering his Senior Notes, either make
appropriate arrangements to register ownership of the Senior Notes in such
beneficial holder's name or obtain a properly completed note power from the
Noteholder. The transfer of record ownership of Senior Notes may take
considerable time and, depending on when such transfer is requested, may not
be accomplished prior to the Expiration Date.
The Depositary and The Depository Trust Company ("DTC") have confirmed
that the Exchange Offer is eligible to ATOP. Accordingly, DTC participants
may electronically transmit their acceptance of the Exchange Offer by causing
DTC to transfer Senior Notes to the Depositary in accordance with DTC's ATOP
procedures for transfer. DTC will then send an Agent's Message to the
Depositary.
The term "Agent's Message" means a message transmitted by DTC, received
by the Depositary and forming part of the confirmation of book-entry
transfer, which states that DTC has received an express acknowledgment from
the participant in DTC tendering Senior Notes which are the subject of such
confirmation of book-entry transfer that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Company may enforce such agreement against such participant.
TENDERS--ADDITIONAL INFORMATION
The tender by a Noteholder pursuant to one of the procedures set forth
herein will constitute an agreement between such Noteholder and the Company
in accordance with the terms and subject to the conditions set forth herein
and in the Letter of Transmittal.
The method of delivery of Senior Notes, the Letter of Transmittal and
all other required documents to be delivered to the Depositary, including
delivery through a book-entry transfer facility and any acceptance or Agent's
Message transmitted through ATOP, is at the election and risk of each
Noteholder. Except as otherwise provided herein, such delivery will be deemed
made only when actually received by the Depositary. If such delivery is by
mail, registered mail, with return receipt requested, properly insured, is
recommended, and sufficient time should be allowed to assure timely delivery.
No documents should be sent to the Company, the financial advisor, the
Information Agent, the Trustee or the transfer agent for the New Common
Stock.
The Depositary will establish accounts with respect to the Senior Notes
within two business days after the date of this Exchange Restructuring
Prospectus at DTC and the Philadelphia Depository Trust Company ("Philadep,"
together with DTC, collectively referred to as the "Book-Entry Transfer
Facilities") for the purpose of the Exchange Offer. Any financial institution
that is a participant in any of the Book-Entry Transfer Facilities' systems
may make book entry delivery of the Senior Notes by causing DTC or Philadep
to transfer such Senior Notes into the Depositary's account in accordance
with such Book-Entry Transfer Facility's procedure for such transfer.
Although delivery of Senior Notes may be effected through book entry transfer
in the Depositary's account at DTC or Philadep, the Letter of Transmittal or
facsimile thereof, with any required signature guarantees and any other
required documents, or an Agent's Message, must in any case, be transmitted
to and received or confirmed by the Depositary at one of its addresses set
forth on the back cover of this Exchange Restructuring Prospectus prior to
the Expiration Date. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY
IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
Signatures on each Letter of Transmittal must be guaranteed by an
Eligible Institution (as defined herein) unless the Senior Notes delivered
pursuant thereto are delivered (a) by a Noteholder (or a participant in one
of the Book-Entry Transfer Facilities whose name appears on a security
position listing as the owner of Senior Notes) who has not completed the
boxes on the Letter of Transmittal entitled "Special Issuance Instructions"
or "Special Delivery Instructions" or (b) for the account of an Eligible
Institution. An "Eligible Institution" means a participant in the Security
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchange Medallion Program. If the Senior
Notes are registered, in the name of a person other than the signer of the
Letter of Transmittal, then the signatures on the Letters of Transmittal
accompanying the tendered Senior Notes must be guaranteed by an Eligible
Institution as described above. See Instructions to the Letter of
Transmittal.
If the Letter of Transmittal with respect to any Senior Notes is signed
by a person other than the Noteholder of any certificate(s) listed hereon,
such certificate(s) must be endorsed or accompanied by appropriate note
powers signed exactly as the name or names of the Noteholder or Noteholders
appear on the certificate(s) with the signature(s) on the Senior Notes or
instruments of transfer guaranteed as provided herein. If the exchanging
holder is not the registered holder of the Senior Notes, then the registered
holder must also sign a valid proxy in favor of the exchanging holder. If the
Letter of Transmittal, or any certificates, note powers, stock powers or
proxies are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing,
and, unless waived by the Company, proper evidence satisfactory to the
Company of their authority to so act must be submitted.
Tenders of Senior Notes for exchange may be made only in principal
amounts of $1,000 and integral multiples thereof.
If a Noteholder desires to tender Senior Notes, but the certificates
evidencing such Senior Notes have been mutilated, lost, stolen or destroyed,
such Noteholder should contact the Trustee to receive information about the
procedures for obtaining replacement certificates for Senior Notes at the
following address or telephone number:
[---------------]
[---------------]
Notwithstanding any other provision hereof, payment for Senior Notes
tendered and accepted for exchange pursuant to the Exchange Offer will, in
all cases, be made only after timely receipt by the Depositary of such Senior
Notes (or confirmation of a book-entry transfer of such Senior Notes into the
Depositary's account at a Book-Entry Transfer Facility as described above)
and a Letter of Transmittal (or facsimile thereof) with respect to such
Senior Notes, properly completed and duly executed, with any required
signature guarantees and any other documents required by the Letter of
Transmittal, or an Agent's Message in the case of a book-entry transfer of
the Senior Notes.
All question as to the validity, form, eligibility (including time of
receipt), acceptance, withdrawal and revocation of tendered Senior Notes will
be resolved by the Company, whose determination will be final and binding.
The Company reserves the absolute right to reject any or all tenders and
withdrawals of Senior Notes that are not in proper form or the acceptance of
which would, in the opinion of the Company or counsel for the Company, be
unlawful. The Company also reserves the absolute right, in its sole
discretion, to waive any defect or irregularity in any tender as to
particular Senior Notes, whether or not similar defects or irregularities are
waived in the case of other Senior Notes. The Company's interpretation of the
terms and conditions of the Exchange Offer (including the instructions in the
Letter of Transmittal) will be final and binding. Unless waived, any
irregularities in connection with tenders and withdrawals of Senior Notes
must be cured within such time as the Company shall determine in its sole
discretion. None of the Company, the Depositary, the Trustee or any other
person shall be under any duty to give notification of defects in such
tenders, withdrawals, deliveries or revocations or shall incur any liability
for failure to give such notification. Tenders and withdrawals of Senior
Notes will not be deemed to have been made until such irregularities have
been cured or waived. Any Senior Notes received by the Depositary that are
not properly tendered or delivered and as to which the irregularities have
not been cured or waived will be returned by the Depositary to the tendering
Noteholders unless otherwise provided in the Letter of Transmittal as soon as
practicable following the Expiration Date.
THERE IS NO PROCEDURE FOR TENDERING BY GUARANTEED DELIVERY. TENDERS BY
GUARANTEED DELIVERY WILL NOT BE ACCEPTED.
WITHDRAWAL OF TENDERS AND REVOCATION OF VOTES.
Tenders of Senior Notes may be withdrawn, subject to the procedures
described herein, at any time before they are accepted for exchange by the
Company. The Company shall be deemed to have accepted for exchange, and to
have exchanged, validly tendered Senior Notes in the Exchange Offer when, as
and if the Company has given oral or written notice thereof to the
Depositary.
Any Noteholder who has tendered Senior Notes, or who succeeds to the
record ownership of Senior Notes in respect of which such tenders have
previously been given, may withdraw such Senior Notes by delivery of a
written notice of withdrawal or revocation. To be effective, a written,
telegraphic or facsimile transmission notice of withdrawal or revocation of a
tender must (a) be timely received by the Depositary at one of its addresses
specified on the back cover of this Exchange Restructuring Prospectus, before
such Senior Notes are accepted for exchange by the Company, (b) specify the
name of the person who tendered the Senior Notes to be withdrawn, (c) contain
the description of the Senior Notes to be withdrawn, the certificate numbers
shown on the particular certificates evidencing such Senior Notes (unless the
Senior Notes were tendered by Book-Entry Transfer) and the aggregate
principal amount represented by such Senior Notes and (d) be signed by such
Noteholder in the same manner as the original signature on the Letter of
Transmittal (including any required signature guarantees), or be accompanied
by documents of transfer sufficient to have the Trustee register the transfer
of such Senior Notes into the name of the person withdrawing Senior Notes.
The signature(s) on the notice of withdrawal must be guaranteed by an
Eligible Institution unless such Senior Notes have been tendered (a) by a
registered Noteholder who has not completed the boxes on the Letter of
Transmittal entitled "Special Issuance Instructions" or "Special Delivery
Instructions" or (b) for the account of an Eligible Institution. If the
Senior Notes to be withdrawn have been delivered or otherwise identified to
the Depositary, a properly completed and signed notice of withdrawal shall be
effective immediately upon receipt thereof even if physical release is not
yet effected. A withdrawal of Senior Notes can only be accomplished in
accordance with the foregoing procedures.
Any Senior Notes which have been tendered for exchange but which are not
exchanged will be returned to the Noteholder without cost to such Noteholder
as soon as practicable following the Expiration Date. Properly withdrawn
Senior Notes may be retendered at any time prior to the Expiration Date by
following one of the procedures described under "How to Tender in the
Exchange Offer."
Votes on the Prepackaged Plan may be revoked, subject to the procedures
described in the Disclosure Statement at any time prior to the earlier of (i)
the Filing Date and (ii) the Expiration Date. If a bankruptcy case has been
commenced, revocations of such votes thereafter may be effected only with the
approval of the appropriate bankruptcy court. See "VOTING PROCEDURES AND
REQUIREMENTS" in the Disclosure Statement.
CONDITIONS
The obligation of the Company to accept for exchange any Senior Notes
validly tendered pursuant to the Exchange Offer is subject to the
satisfaction of the following conditions:
(1) the Minimum Tender Condition (requiring 100% of the aggregate
principal amount of the Senior Notes being validly tendered and not withdrawn
prior to the Expiration Date), which pursuant to the Letter Agreement cannot
be waived without the consent of Magten;
(2) the approval by the Company's Stockholders of each of the
Restructuring Proposals; and
(3) obtaining the waiver of certain provisions under the Company's
licensing agreements by certain licensors to the Company, including, but not
limited to, the Walt Disney Company and Perry Ellis International, Inc., and
any other consents or waivers that the Company determines are necessary to
effectuate the terms and conditions of the Exchange Restructuring.
In addition, notwithstanding any other provisions of the Exchange Offer
and without prejudice to the Company's other rights under the Exchange Offer,
the Company, in its sole discretion, may amend, extend or terminate the
Exchange Offer, or may delay or refrain from accepting for exchange or
exchanging any Senior Notes subject to the Exchange Offer, in each event
subject to Rule 14e-1(c) under the Exchange Act, if, at any time prior to the
Expiration Date, any of the following shall occur:
(a) there shall be threatened, instituted, or pending any action,
proceeding, application, claim or counterclaim before any court or
governmental regulatory or administrative agency, authority or tribunal,
domestic or foreign, which in the sole judgment of the Company (i)
challenges or makes or seeks to make illegal the acceptance for
exchange, or exchange of, any of the Senior Notes pursuant to the
Exchange Offer, (ii) could result in a delay in the ability of the
Company to accept for exchange or exchange some or all of the Senior
Notes, (iii) imposes or seeks to impose limitations on the ability of
the Company to acquire, hold or exercise full rights of ownership of the
Senior Notes, or (iv) may prohibit, restrict or delay consummation of,
or otherwise have a material adverse effect on the contemplated benefits
to the Company of, the Exchange Offer or the Exchange Restructuring;
(b) any change (or any condition, event or development involving a
prospective change) shall have occurred or be threatened in the general
economic, financial, currency exchange or market conditions in the
United States or abroad that, in the sole judgment of the Company, has
or may have a material adverse effect upon (i) the market prices of the
Senior Notes and/or New Common Stock, (ii) the trading in the Senior
Notes and/or New Common Stock, or (iii) the value of the Senior Notes to
the Company;
(c) a general deterioration in the prices of equity or debt
(including high-yield debt) securities in the United States from levels
prevailing at the date hereof shall have occurred which, in the sole
judgment of the Company, may have a material adverse effect on the
contemplated benefits of, or otherwise may make it inadvisable for the
Company to proceed with, the Exchange Offer;
(d) (i) any general suspension of or limitation on times for
trading in, or limitation on prices for, securities on the NYSE, the
Nasdaq Stock Market, the American Stock Exchange or in the
over-the-counter market, (ii) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States or
any limitation (whether or not mandatory) by any federal, state or
foreign governmental authority on, or any other event which might
affect, the extension of credit by banks or other financial
institutions, (iii) a commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States, (iv) a material adverse change (or development or
threatened development including a prospective material adverse change)
in United States or any other currency exchange rates or a suspension of
or limitation on the markets therefor or (v) in the case of any of the
foregoing existing at the date hereof, a material acceleration or
worsening thereof;
(e) any statute, order, rule or regulation shall have been proposed
or enacted or deemed applicable, or any action shall have been taken by
any governmental authority, that would or might prohibit, restrict or
delay consummation of the Exchange Restructuring or, in the sole
judgment of the Company, materially affect the contemplated benefits to
the Company of the Exchange Restructuring;
(f) there exists, in the sole judgment of the Company, any other
actual or threatened legal impediment (including a default under an
agreement, indenture (including the Indenture) or other instrument or
obligation to which the Company is a party, or by which it is bound) to
the acceptance for exchange, or exchange of, any of the Senior Notes
pursuant to the Exchange Offer; (g) a preliminary or permanent
injunction or other order by any court or governmental agency shall have
been issued and remain in effect which restrains or prohibits the
consummation of any component of the Exchange Restructuring; or
(h) any change shall occur or be threatened in the business,
assets, properties, liabilities, condition (financial or other), income,
results of operations or prospects of the Company or any of its
Subsidiaries, which, in the sole judgment of the Company, is or may be
material to the Company.
The conditions (a) through (h) set forth above are for the sole benefit
of the Company. Each such condition may be asserted by the Company regardless
of the circumstances, including any action or inaction by the Company giving
rise thereto, and each may be waived by the Company with respect to the
Senior Notes subject to the Exchange Offer in whole or in part at any time,
and from time to time, in its sole discretion.
If any of the conditions set forth herein is not satisfied, the Company
may (a) refuse to accept any Senior Notes and return all tendered Senior
Notes to tendering Noteholders, (b) extend the Exchange Offer and retain all
Senior Notes previously tendered, or (c) waive or modify any of such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Senior Notes. If such waiver constitutes a material change
to the Exchange Offer, the Company will promptly disclose such waiver in a
manner reasonably calculated to inform Noteholders of such waiver, and the
Company will extend the Exchange Offer for a period which the Company in its
discretion deems appropriate, subject to any applicable laws, depending on
the significance of the waiver or amendment and the manner of disclosure to
Noteholders. In the event the Company waives or modifies any of such
conditions, the Company and/or Noteholders may be exposed to additional risks
which cannot currently be predicted or evaluated. See "Expiration Date;
Extensions; Amendments."
In addition, the Company may, in its sole discretion, (a) terminate the
Exchange Offer at any time prior to the Expiration Date for any reason
(whether or not the Registration Statement of which this Exchange
Restructuring Prospectus is a part has become effective under the Securities
Act) or (b) amend, at any time or from time to time, the terms of the
Exchange Offer. The Company has no present intention of terminating or
amending the terms of the Exchange Offer.
VOTING ON THE PREPACKAGED PLAN
Instructions for voting on the Prepackaged Plan are contained in the
Disclosure Statement and in the instructions attached to the Ballots and
Master Ballots. See "VOTING PROCEDURES" in the Disclosure Statement.
Under the Bankruptcy Code, for purposes of determining whether the
requisite acceptances of the classes of Claims and Interests have been
received, only Holders who vote will be counted. Failure of a Holder to send
duly completed and signed Ballots or Master Ballots will be deemed to
constitute an abstention by such Holder with respect to a vote regarding the
Prepackaged Plan. Abstentions as a result of not submitting duly signed
Ballots or Master Ballots will not be counted as votes for or against the
Prepackaged Plan. Any Ballot or Master Ballot which is validly executed by a
Holder but does not indicate an acceptance or rejection of the Prepackaged
Plan will not be counted as a vote for or against the Prepackaged Plan. Any
Ballot or Master Ballot which is validly executed by a Holder and which
indicates both acceptance and rejection of the Prepackaged Plan will not be
counted as a vote for or against the Prepackaged Plan.
DESCRIPTION OF NEW COMMON STOCK
The following summary description of the New Common Stock does not
purport to be complete and is qualified in its entirety by this reference to
the Company's Charter Amendment, a copy of which has been filed as an exhibit
to the Registration Statement of which this Exchange Restructuring Prospectus
is a part. The New Common Stock is identical in all material respects to the
Old Common Stock except for the effects of the Reverse Split.
Immediately after the Restructuring, the Company will have 50,000,000
authorized shares of stock consisting of 45,000,000 shares of New Common
Stock and 5,000,000 shares of Series A Preferred Stock, par value $1.00 per
share and 5,000,000 authorized shares of preferred stock, par value $2.00 per
share. As of such time, [ ] shares of New Common Stock will be issued and
outstanding to approximately 19,952,811 holders of record, and no shares of
preferred stock will be issued and outstanding. 18,456,350 shares of New
Common Stock will be issued to Noteholders as of immediately after the
Restructuring and 1,496,461 shares of New Common Stock will be issued to
Stockholders as of immediately after the Restructuring in connection with the
Restructuring (not including Warrant Shares and shares issuable upon the
exercise of stock options granted to the Company's employees and directors
under the Stock Award and Incentive Plan and, in the event the Exchange
Restructuring is consummated, the Old Plans). All of the New Common Stock
issued and outstanding as of the Exchange Restructuring Date will be fully
paid and nonassessable.
DISTRIBUTIONS
Subject to such preferential rights as may be granted by the Board in
connection with future issuances of preferred stock, holders of shares of New
Common Stock will be entitled to receive ratably such dividends as may be
declared by the Board in its discretion from funds legally available
therefor. The Credit Agreement contains negative covenants that restrict,
among other things, the ability of the Company to pay dividends and the
Company believes that the New Credit Agreement will contain similar
restrictions. In the event of a liquidation, dissolution or winding up of the
Company, the holders of New Common Stock will be entitled to share ratably in
all assets remaining after payment of liabilities and any liquidation
preference owed to holders of any preferred stock. Holders of New Common
Stock will have no preemptive rights and have no rights to convert their New
Common Stock into any other securities.
VOTING
Subject to any preferential rights of holders of preferred stock,
Stockholders are entitled to one vote per share on all matters to be voted on
by Stockholders. Matters submitted for Stockholder approval require a
majority vote of the shares, except where the vote of a greater number is
required by the DGCL. Article Sixth of the Certificate of Incorporation
provides that any action required or permitted to be taken by the
Stockholders of the Company must be effected at a duly called annual or
special meeting of such holders and may not be effected by written consent of
the Stockholders. Article Sixth may not be repealed or amended in any respect
except with the approval of 67% of the outstanding shares of New Common
Stock.
ELECTION OF DIRECTORS
Article Fifth of the Certificate of Incorporation divides the Board into
three classes, with each class serving a three year term. Any vacancies in
the Board, for any reason, and any directorships resulting from any increase
in the number of directors, may be filled only by the affirmative vote of a
majority of the Board, although less than a quorum. Article Fifth may not be
repealed or amended in any respect except with the approval of 67% of the
outstanding shares of New Common Stock and subject to the provisions of any
preferred stock outstanding.
SHARES RESERVED IN CONNECTION WITH THE 1993 CHAPTER 11 PLAN
In accordance with the 1993 Chapter 11 Plan, the Company reserved for
issuance a certain number of shares of Old Common Stock in order to satisfy
certain claims that had been asserted in the 1990 Chapter 11 Case pursuant to
the terms and conditions of the 1993 Chapter 11 Plan. As of the date hereof,
the Company continues to have 206,392 shares of Old Common Stock reserved for
such purpose. Upon the consummation of the Restructuring, such shares will be
canceled and the Company intends to reserve for issuance approximately 20,639
shares of New Common Stock (reflecting the Reverse Split) for the purpose of
settling any remaining claims in the 1990 Chapter 11 Case for which a
settlement of stock may be appropriate.
DESCRIPTION OF CHARTER AMENDMENT
The Board has unanimously adopted resolutions proposing that the
Company's Certificate of Incorporation be amended by the Charter Amendment.
The Charter Amendment will effect (i) the Reverse Split and (ii) an increase
in the number of shares of New Common Stock authorized. For the full text of
the Charter Amendment see "DISCUSSION OF THE PROPOSALS -- The Charter
Amendment" in the Proxy Statement/Prospectus. Magten has advised the Company
that it may request additional changes to the Company's Certificate of
Incorporation and, in such event, the Proxy Statement/Prospectus will, upon
approval of the Board, be amended to reflect such changes. Should the
Exchange Restructuring be accepted by the Stockholders and the requisite 100%
of Noteholders and thereafter consummated, an aggregate of 18,456,350 shares
of New Common Stock will be issued to the Noteholders in exchange for their
Senior Notes and 1,496,461 shares of New Common Stock will be issued to
existing Stockholders. In addition, 2,216,979 Warrants, exercisable for an
aggregate of 2,216,979 shares of New Common Stock (subject to adjustment),
will be issued to Stockholders.
The Charter Amendment will not be effective unless and until it is filed
with the Secretary of State of Delaware. Even if each of the Restructuring
Proposals is approved by the Stockholders, the Board has reserved the right
to abandon the Charter Amendment and each other Restructuring Proposal in the
event that any other condition to the Restructuring is not satisfied,
including, but not limited to, the Minimum Tender Condition. However, the
Board intends to file the Charter Amendment with the Secretary of State of
Delaware if the Exchange Restructuring is consummated.
The Charter Amendment, if filed with the Secretary of State of Delaware,
would amend the Certificate of Incorporation to effect a ten-to-one reverse
stock split of the Company's outstanding shares of Old Common Stock such that
each share of Old Common Stock immediately prior to the Exchange
Restructuring Date will automatically convert into one-tenth of one share of
New Common Stock immediately thereafter.
The Company currently has authorized 30,000,000 shares of common stock
(including 14,964,608 issued and outstanding shares of Old Common Stock), par
value $1.00 per share, and 5,000,000 shares of preferred stock, par value
$2.00 per share. As of the date of this Exchange Restructuring Prospectus,
there were no shares of preferred stock issued and outstanding. If the
Charter Amendment is effected pursuant to the Exchange Restructuring, the
number of shares of New Common Stock authorized will be increased to
45,000,000 shares. The Board is authorized to fix the relative rights and
preferences of the shares of preferred stock, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion
privileges. Pursuant to a resolution adopted by the Board on December 8,
1987, in connection with the Company's implementation of the Rights Plan the
Company created a series of 50,000 shares of preferred stock designated as
"Series A Junior Participating Preferred Stock" (the "Series A Preferred
Stock") having the powers, preferences and rights described in the
Certificate of Incorporation of the Company. See "DESCRIPTION OF RIGHTS
PLAN." Without Stockholder approval, the Board could adversely affect the
voting power of the holders of common stock and, by issuing shares of
preferred stock with certain voting, conversion and/or redemption rights,
could discourage any attempt to obtain control of the Company. As of
[__________], no shares of Series A Preferred Stock were issued and
outstanding.
The Charter Amendment is set forth in its entirety in the Proxy
Statement/Prospectus. The final text of the Charter Amendment is subject to
change in order to meet the requirements as to form that may be requested or
required by the Secretary of State's Office of the State of Delaware.
If the requisite approval by the Stockholders is obtained, the Charter
Amendment will be effective upon the close of business on the date of filing
of the Charter Amendment with the Delaware Secretary of State. Each
certificate representing shares of Old Common Stock immediately prior to the
Exchange Restructuring will be deemed automatically, without any action on
the part of the Stockholders, to represent one-tenth the number of shares of
New Common Stock immediately after the Exchange Restructuring Date. A
Stockholder's proportionate ownership interest in the Company will remain
unchanged by the Charter Amendment. The New Common Stock issued pursuant to
the Charter Amendment will be fully paid and nonassessable. The voting and
other rights of the Old Common Stock will not be altered by the Charter
Amendment except that each share of the Old Common Stock will represent
one-tenth of a share of New Common Stock.
When the Charter Amendment becomes effective, Stockholders will be asked
to surrender certificates representing shares of Old Common Stock in
accordance with the procedures set forth in a Letter of Transmittal to be
sent by the Company. Upon such surrender, a certificate representing the
shares of New Common Stock will be issued and forwarded to the Stockholders;
however, each certificate representing shares of Old Common Stock will
continue to be valid and represent shares of New Common Stock equal to
one-tenth the number of shares of Old Common Stock (rounded to the nearest
whole number). Persons who hold their shares in brokerage accounts or "street
name" will not be required to take any further actions to effect the exchange
of their certificates.
Each of the Restructuring Proposals is conditioned upon the approval by
the Stockholders of each of the other Restructuring Proposals. If any or all
of the Restructuring Proposals are not approved by the Stockholders at the
Stockholders' Meeting, then none of the Restructuring Proposals will become
effective.
SALANT CORPORATION 1998 STOCK AWARD AND INCENTIVE PLAN
Pursuant to a resolution of the Board, the Board has adopted the
Salant Corporation 1998 Stock Award and Incentive Plan (the "Stock Award
and Incentive Plan"), which provides for the grant of various types of
stock-based compensation to directors, officers and employees of the
Company and its subsidiaries. The Stock Award and Incentive Plan has become
effective as of the date of such resolution, however, the Stock Award and
Incentive Plan and any grants thereunder are subject to subsequent approval
by the Company's Stockholders. The Stock Award and Incentive Plan is
designed with the intention that compensation resulting from options, stock
appreciation rights and certain other awards may qualify as
"performance-based compensation" under Section 162(m) ("Section 162(m)") of
the Internal Revenue Code of 1986, as amended (the "Tax Code"), and to
comply with the conditions for exemption from the short-swing profit
recovery rules under Rule 16b-3 ("Rule 16b-3") of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The summary that follows is
not intended to be complete and is qualified in its entirety by the actual
terms of the Stock Award and Incentive Plan, a copy of which is attached
hereto as Annex III. Capitalized terms used but not otherwise defined in
the summary that follows shall have the respective meanings ascribed to
them in the Stock Award and Incentive Plan.
PURPOSE OF THE STOCK AWARD AND INCENTIVE PLAN
The purpose of the Stock Award and Incentive Plan is to strengthen the
Company by providing an incentive to its directors, officers and employees
and thereby encouraging them to devote their abilities and industry to the
success of the Company's business enterprise.
ELIGIBILITY
Awards may be made by the Committee, in its discretion, to directors,
officers and employees of the Company and its subsidiaries. Directors of the
Company who are not also employees of the Company or any of its subsidiaries
are entitled to automatic option grants as provided in the Stock Award and
Incentive Plan and described below.
PLAN ADMINISTRATION AND SHARES SUBJECT TO THE STOCK AWARD AND INCENTIVE PLAN
2,463,310 shares of New Common Stock (subject to adjustment as
provided in the Stock Award and Incentive Plan), representing, on a fully
diluted basis (inclusive of the Warrants), 10% of the aggregate shares of
New Common Stock to be issued and reserved on the Exchange Restructuring
Date, will be reserved for Awards to be granted under the Stock Award and
Incentive Plan. Subject to stockholder approval, these Awards will be
granted by a committee of the Board of Directors of the Company from and
after the Exchange Restructuring Date (the "Committee") comprised solely of
two or more "non-employee directors" within the meaning of Rule 16b-3(b)(3)
(or any successor rule) of the Exchange Act, and unless otherwise
determined by the Board of Directors of the Company, "outside directors"
within the meaning of Treasury Regulation Section 1.162-27(e)(3) and
Section 162(m) of the Tax Code, which will administer the Stock Award and
Incentive Plan. No individual may be granted Options or Awards with respect
to more than a total of 500,000 shares during any one calendar year period
under the Stock Award and Incentive Plan. In addition, the maximum dollar
amount of cash or the Fair Market Value of shares of New Common Stock that
any individual may receive in any calendar year in respect of Performance
Units denominated in dollars may not exceed $3,000,000. Shares of New
Common Stock subject to the Stock Award and Incentive Plan may either be
authorized and unissued shares or previously issued shares acquired or to
be acquired by the Company and held in its treasury. Subject to the terms
of the Stock Award and Incentive Plan, the Committee has the right to grant
Awards to eligible participants and to determine the terms and conditions
of Agreements evidencing Awards, including the vesting schedule and
exercise price of such Awards, and the effect, if any, of a Change in
Control (as defined in the Stock Award and Incentive Plan) on such Awards.
Upon the occurrence of a Change in Capitalization, the Stock Award and
Incentive Plan permits the Committee to make appropriate adjustments to the
type and aggregate number of shares subject to the Stock Award and Incentive
Plan or any Award, and to the purchase or exercise price to be paid or the
amount to be received in connection with the realization of any Award.
AWARDS
Stock Options. Stock options granted pursuant to the Stock Award and
Incentive Plan may either be incentive stock options within the meaning of
Section 422 of the Tax Code ("ISOs"), or non-qualified stock options
("NQSOs") as determined by the Committee. The exercise price for each share
of New Common Stock subject to an option will be determined by the
Committee at the time of grant and set forth in an Agreement, provided that
the exercise price may not be less than the Fair Market Value of the New
Common Stock on the date the option is granted. The option exercise price
may be paid in the discretion of the Committee on the date of the grant, in
cash or by the delivery of shares then owned by the participant or as
otherwise determined by the Committee. No option will be exercisable later
than ten years after the date on which it is granted, provided that the
Committee may (and in the case of a Formula Option shall) provide that an
NQSO may, upon the death of a participant, be exercised for up to one year
following the date of such participant's death, even if such period extends
beyond ten years from the date such option is granted. ISOs may not be
granted to any participant who owns stock possessing (after application of
the attribution rules of Section 424(d) of the Tax Code) more than 10% of
the total combined voting power of all outstanding classes of stock of the
Company, unless the option price is at least 110% of the Fair Market Value
at the date of grant and the option is not exercisable after five years
from the date of grant.
The Stock Award and Incentive Plan provides for automatic option grants
("Formula Options") to certain directors of the Company who are not also
employees of the Company and its subsidiaries. Such directors will be granted
initial Formula Options in respect of [ ] Shares (on the date of consummation
of the Restructuring or, if applicable, when becoming a director for the
first time) as well as annual Formula Options in respect of [ ] shares at
each subsequent annual stockholders meeting of the Company. Formula Options
will be granted with per share exercise prices equal to the Fair Market Value
on the date of grant, with ten year terms and subject to the vesting schedule
set forth in the Stock Award and Incentive Plan.
Stock Appreciation Rights. Under the Stock Award and Incentive Plan, a
stock appreciation right in respect of a share of New Common Stock represents
the right to receive payment in cash and/or New Common Stock in an amount
equal to the excess of the Fair Market Value of such share of New Common
Stock on the date the right is exercised over the Fair Market Value on the
date the right is granted. The Committee may grant stock appreciation rights
to the holders of any options under the Stock Award and Incentive Plan. Such
rights may also be granted independently of options.
Restricted Stock. The Committee will determine the terms and conditions
applicable to Restricted Stock at the time of grant, including the price, if
any, to be paid by the grantee for the Restricted Stock, the restrictions
placed on the shares, and the time or times when the restrictions will lapse.
In addition, at the time of grant, the Committee, in its discretion, may
decide: (i) whether any deferred dividends will be held for the account of
the grantee or deferred until the restrictions thereon lapse, (ii) whether
any deferred dividends will be reinvested in additional Shares or held in
cash, (iii) whether interest will be accrued on any dividends not reinvested
in additional shares of Restricted Stock and (iv) whether any stock dividends
paid will be subject to the restrictions applicable to the Restricted Stock
Award.
Performance Units and Performance Shares. Performance Units and
Performance Shares will be awarded as the Committee may determine, and the
vesting of Performance Units and Performance Shares will be based upon the
Company's attainment within an established period of specified performance
objectives to be determined by the Committee. Upon granting Performance Units
or Performance Shares, the Committee may provide, to the extent permitted
under Section 162(m) of the Code, the manner in which performance will be
measured against the performance objectives, or may adjust the performance
objectives to reflect the impact of specified corporate transactions,
accounting or tax law changes, and other similar extraordinary and
nonrecurring events. Performance Units may be denominated in dollars or in
Shares, and payments in respect of Performance Units will be made in cash,
Shares, shares of Restricted Stock or any combination of the foregoing, as
determined by the Committee. The Agreement evidencing Performance Shares or
Performance Units will set forth the terms and conditions thereof. Unless
otherwise determined by the Committee at the time of grant, such awards that
can be so granted, may be granted in a manner which is intended to qualify
for the performance based compensation exemption of Section 162(m). In such
event, either the granting or vesting of such awards will be based upon one
or more of the following factors: earnings per share, New Common Stock share
price, pre-tax profit, net earnings, return on stockholders' equity or assets
or any combination of the foregoing.
CHANGE IN CONTROL
In the event of a Change in Control, the vesting of options and stock
appreciation rights will accelerate and, if so provided by the Committee in
an Agreement, the restrictions on Restricted Stock, Performance Units and
Performance Shares will lapse.
TRANSFERABILITY
Awards under the Stock Award and Incentive Plan will not be transferable
except by will or the laws of descent or distribution. Awards will only be
exercisable during the lifetime of a participant by such participant only.
However, at the discretion of the Committee, any option, other than an ISO,
may permit the transfer of such option by a participant to certain family
members or trusts for the benefit of such family members by such persons.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION OF CERTAIN RELEVANT FEDERAL INCOME TAX
EFFECTS APPLICABLE TO CERTAIN AWARDS GRANTED UNDER THE STOCK AWARD AND
INCENTIVE PLAN IS A SUMMARY ONLY, AND REFERENCE IS MADE TO THE TAX CODE FOR
A COMPLETE STATEMENT OF ALL RELEVANT FEDERAL TAX PROVISIONS. HOLDERS OF
AWARDS SHOULD CONSULT THEIR TAX ADVISORS BEFORE REALIZATION OF ANY SUCH
AWARDS, AND HOLDERS OF COMMON STOCK PURSUANT TO AWARDS SHOULD CONSULT THEIR
TAX ADVISORS BEFORE DISPOSING OF ANY SUCH SHARES. SECTION 16 INDIVIDUALS
SHOULD NOTE THAT SOMEWHAT DIFFERENT RULES THAN THOSE DESCRIBED BELOW MAY
APPLY TO THEM.
ISOs. In general, a recipient will not recognize income upon the grant
or exercise of an ISO, and the Company will not be entitled to any business
expense deduction with respect to the grant or exercise of an ISO. However,
upon the exercise of an ISO, the excess of the fair market value on the
date of exercise of the shares received over the exercise price of the
option will be treated as an adjustment to alternative minimum taxable
income. In order for the exercise of an ISO to qualify as an ISO, a
recipient generally must be an employee of the Company or a subsidiary
(within the meaning of Section 422 of the Tax Code) from the date the ISO
is granted through the date three months before the date of exercise (one
year preceding the date of exercise in the case of a recipient whose
employment is terminated due to disability). The employment requirement
does not apply where a recipient's employment is terminated due to his or
her death.
If a recipient has held the shares acquired upon exercise of an ISO for
at least two years after the date of grant and for at least one year after
the date of exercise, when the recipient disposes of the shares, the
difference, if any, between the sales price of the shares and the exercise
price of the option will be treated as long-term capital gain or loss,
provided that any gain will be subject to reduced rates of tax if the shares
were held for more than twelve months and will be subject to further reduced
rates if the shares were held for more than eighteen months. If a recipient
disposes of the shares prior to satisfying these holding period requirements
(a "Disqualifying Disposition"), the recipient will recognize ordinary income
(treated as compensation) at the time of the Disqualifying Disposition,
generally in an amount equal to the excess of the fair market value of the
shares at the time the option was exercised over the exercise price of the
option. The balance of the gain realized, if any, will be short-term or
long-term capital gain, depending upon whether the shares have been held for
at least twelve months after the date of exercise. If the recipient sells the
shares in a Disqualifying Disposition at a price below the fair market value
of the shares at the time the option was exercised, the amount of ordinary
income (treated as compensation) will be limited to the amount realized on
the sale over the exercise price of the option. In general, the Company will
be allowed a business expense deduction to the extent a recipient recognizes
ordinary income.
NQSOs. In general, a recipient who receives a NQSO will not recognize
income at the time of the grant of the option. Upon exercise of a NQSO, a
recipient will recognize ordinary income (treated as compensation) in an
amount equal to the excess of the fair market value of the shares on the date
of exercise over the exercise price of the option. The basis in shares
acquired upon exercise of a NQSO will equal the fair market value of such
shares at the time of exercise, and the holding period of the shares (for
capital gain purposes) will begin on the date of exercise. In general, if the
Company complies with the applicable income reporting requirements, it will
be entitled to a business expense deduction in the same amount and at the
same time as the recipient recognizes ordinary income. In the event of a sale
of the shares received upon the exercise of a NQSO, any appreciation or
depreciation after the exercise date generally will be taxed as capital gain
or loss, provided that any gain will be subject to reduced rates of tax if
the shares were held for more than twelve months and will be subject to
further reduced rates if the shares were held for more than eighteen months.
The foregoing discussion assumes that at the time of exercise, the sale
of the shares at a profit would not subject a recipient to liability under
Section 16(b) of the Exchange Act. Special rules may apply with respect to
persons who may be subject to Section 16(b) of the Exchange Act. Participants
who are or may become subject to Section 16 of the Exchange Act should
consult with their own tax advisors in this regard.
Excise Taxes. Under certain circumstances, the accelerated vesting or
exercise of options in connection with a change in control of the Company
might be deemed an "excess parachute payment" for purposes of the golden
parachute tax provisions of Section 280G of the Code. To the extent it is so
considered, a recipient may be subject to a 20% excise tax and the Company
may be denied a tax deduction.
Section 162(m) Limitation. Section 162(m) generally disallows a federal
income tax deduction to any publicly held corporation for compensation paid
in excess of $1 million in any taxable year to the chief executive officer
and the four other most highly compensated executive officers (other than the
chief executive officer) who are employed by such corporation on the last day
of such corporation's taxable year. The Company has structured the Stock
Award and Incentive Plan with the intention that compensation resulting from
options, stock appreciation rights, Performance Shares and Performance Units
may qualify as "performance-based compensation" and, if so qualified, would
be deductible.
Options to purchase shares of Old Common Stock granted under the Old
Plans will be treated differently depending upon whether the Restructuring is
consummated by means of the Exchange Restructuring. For a discussion of such
treatment see "POST RESTRUCTURING STOCK OPTION GRANTS."
NEW PLAN BENEFITS
Except with respect to automatic option grants to Eligible Directors as
described above and in the Stock Award and Incentive Plan, benefits will be
granted under the Stock Award and Incentive Plan at the sole discretion of
the Committee and performance criteria, if any, may vary from year to year
and from participant to participant. Therefore, benefits under the Stock
Award and Incentive Plan are not determinable.
The approval of the Stock Award and Incentive Plan by the Stockholders
may be required by the applicable rules of the NYSE.
DESCRIPTION OF REGISTRATION RIGHTS PLAN
In connection with the Restructuring, the Company will also enter into,
on the date of consummation of the Restructuring, a registration rights
agreement in the form of Exhibit B to Appendix I to Part B (the "Registration
Rights Agreement"). Under the terms and conditions of the Registration Rights
Agreement, the Company must use commercially reasonable efforts to register
the New Common Stock pursuant to a "shelf-registration" and to keep such
shelf registration continuously effective for three years (subject to a
two-year extension of such period to the extent that a registration statement
on Form S-3 is available to the Company at the end of such initial three-year
period), subject to the right to suspend the use of the prospectus
constituting part of such registration statement for designated corporate
purposes. Thereafter, holders who did not resell New Common Stock during the
three-year period, but whose resales would have been covered by the
registration statement, will be entitled to exercise, over a two-year period,
up to three demand registrations and will be entitled to piggyback
registration rights as well during such period. In the event that the shelf
registration does not become effective within one hundred days after the date
that the registration statement is filed, holders whose resales would have
been covered by the registration statement will be entitled to exercise, over
a two-year period, up to four demand registrations and will be entitled to
piggyback registration rights as well during such period.
DESCRIPTION OF RIGHTS PLAN
The Company is a party to a shareholder rights plan, dated December 8,
1987, as amended on December 10, 1997 (the "Rights Plan"), which provides for
a dividend distribution of one right (collectively, the "Rights") for each
share of Old Common Stock to holders of record of the Old Common Stock at the
close of business on December 23, 1997. With certain exceptions, the Rights
will become exercisable only in the event that an acquiring party accumulates
20 percent or more of the Company's voting stock, or if a party announces an
offer to acquire 30 percent or more of such voting stock. Each Right, when
exercisable, will entitle the holder to buy one-hundredth of a share of the
Company's Series A Preferred Stock at a price of $30 per right or, upon the
occurrence of certain events, to purchase either common stock of the Company
or shares in an Acquiring Entity (as defined in the Rights Plan) at half the
market value thereof. The Company will generally be entitled to redeem the
Rights at a redemption price of $0.03 per Right at any time until the 10th
day following the acquisition of a 20 percent position in its shares of Old
Common Stock. In July 1993, the Rights Plan was amended to provide that an
acquisition or offer by Apollo, or any of Apollo's Subsidiaries (as defined
in the Rights Plan), will not cause the Rights to become exercisable.
Pursuant to the December 10, 1997 amendment to the Rights Plan, the
expiration date of the Rights was extended to December 23, 2002. On [ ],
1998, in connection with the Restructuring, consistent with the terms of the
Letter Agreement, the Company amended the Rights Plan to provide, among other
things, that the Rights will expire under the Rights Plan immediately prior
to consummation of the Restructuring.
DESCRIPTION OF CERTAIN EXISTING INDEBTEDNESS OF THE COMPANY
The following summary of the principal terms of certain of the existing
indebtedness of the Company does not purport to be complete and is qualified
in its entirety by reference to the documents governing such indebtedness,
including the definitions of certain terms therein, copies of which have been
filed or incorporated as exhibits to the Registration Statement of which this
Exchange Restructuring Prospectus is a part. Whenever particular provisions
of such documents are referred to herein, such provisions are incorporated by
reference, and the statements are qualified in their entirety by such
reference.
GENERAL
The following is a summary of certain existing indebtedness and other
financing arrangements of the Company or its Subsidiaries. The descriptions
of the loans outstanding under the Credit Agreement and the Senior Notes are
qualified in their entirety by reference to the agreements and instruments
governing such financing arrangements. Noteholders are referred to the Credit
Agreement and the Indenture for a statement of their terms.
REVOLVING CREDIT AGREEMENT
The Company is a party to a Revolving Credit, Factoring and Security
Agreement, dated as of September 20, 1993, with CIT. The Credit Agreement
provides the Company with general working capital financing, in the form of
direct borrowings and letters of credit, up to the Maximum Credit (as defined
in the Credit Agreement), subject to an asset-based borrowing formula. As
collateral for borrowings under the Credit Agreement, the Company has granted
to CIT a security interest in substantially all of the assets of the Company.
The Credit Agreement imposes a number of restrictive covenants that
affect the Company and its subsidiaries with respect to, among others things:
(i) creating liens; (ii) incurring indebtedness and contingent obligations;
(iii) paying dividends and redeeming capital stock; (iv) merging and selling
assets; (v) engaging in sale and lease back transactions; (vi) making
investments in other persons; (vii) engaging in certain affiliate
transactions; (viii) making capital expenditures; (ix) selling accounts
receivable; and (x) amending certain of its debt instruments and making
payment in respect of the obligations represented thereby.
The Credit Agreement contains a number of events of default, including
the following: (i) failure to make payments of interest and principal when
due; (ii) material error in any representation or warranty or certificate
made under the Credit Agreement; (iii) failure of the Company to perform any
of its respective agreements under the Credit Agreement; (iv) a default in
the payment of any obligation of the Company or its subsidiaries on
indebtedness in excess of $750,000 owing to any one person other than CIT;
(v) entry of a judgment in excess of $500,000 in the aggregate and the same
remains undischarged for a period in excess of 30 days; (vi) certain events
of insolvency and bankruptcy of the Company or its subsidiaries; (vii)
certain events in respect of pension plans; (viii) the incurrence of
environmental liability; (ix) certain change of control events; and (x) a
material adverse change in the condition (financial or otherwise) of the
Company.
On March 2, 1998, the Company entered into the Forbearance Agreement
with CIT, wherein CIT (i) waives, as of January 3, 1998, the Company's
failure to meet the financial covenants related to stockholders' equity and
maximum loss, as set forth in the Credit Agreement; (ii) agreed to forbear
(subject to certain conditions) from exercising any of its rights or remedies
arising under the Credit Agreement arising from the Company's failure to make
the interest payment on the Senior Notes due and payable on March 2, 1998;
(iii) agreed to continue making loans, advances and other financial
accommodations to the Company, subject to the terms and conditions of the
Forbearance Agreement; (iv) increased the borrowings allowed against eligible
inventory to 60%; (v) provided the Company with a discretionary $3 million
seasonal overadvance; and (vi) reduced the Maximum Credit from $135 million
to $120 million. Under the Forbearance Agreement, to the extent that the
Company fails to maintain certain levels of borrowing under its asset-based
borrowing formula, the Company is required to maintain a certain minimum
interest coverage ratio and is subject to a covenant limiting the maximum
loss the Company may incur in any twelve consecutive calendar months. In
consideration for CIT's entering into the Forbearance Agreement, the Company
agreed to pay CIT certain fees. See "BACKGROUND TO THE RESTRUCTURING -- The
Waiver and Forbearance Agreement Under the Credit Agreement." Under the
Forbearance Agreement, such agreement to forbear by CIT will terminate on
July 1, 1998 or earlier upon the happening of (a) the occurrence of any Event
of Default (as defined in the Credit Agreement) other than a Payment Default
(as defined in the Forbearance Agreement), or (b) the failure of the Company
to execute and deliver to CIT before June 1, 1998, (i) a commitment letter
executed by CIT providing for the agreement between CIT and the Company to
enter into a new $135 million syndicated credit facility (in replacement of
the financing and factoring arrangements provided by CIT pursuant to the
Credit Agreement) on terms and conditions satisfactory to CIT or (ii) a copy
of a commitment letter executed between another lender and the Company
providing for a credit facility to the Company which by its terms provides
for closing and funding thereof on or before July 1, 1998, and enabling the
Company upon such closing and funding to simultaneously terminate the Credit
Agreement and all other Financing Agreements (as defined in the Credit
Agreement) and to satisfy in full all of its then existing Obligations (as
defined in the Credit Agreement) to CIT; (c) the exercise of any right or
remedy with respect to any of the Collateral (as defined in the Credit
Agreement) by any holder of any Senior Notes or by the Trustee under the
Indenture; or (d) the payment of any interest on the Senior Notes in respect
of the Company's failure to make the March 2, 1998 interest payment or
otherwise.
In addition, the Forbearance Agreement creates two new Events of Default
under the Credit Agreement: (i) the termination of E&Y as business consultant
to the Company and the failure to replace E&Y with another business
consultant satisfactory to CIT within 5 business days, and (ii) any event
occurring after March 2, 1998 which materially and adversely affects the
Company's businesses.
THE SENIOR NOTES
The Company is the obligor on the Senior Notes outstanding pursuant to
the Indenture, dated September 20, 1993, as amended, between the Company and
Bankers Trust Company, as Trustee. Pursuant to the Indenture, the Senior
Notes bear interest at a rate of 10-1/2% per annum. As of March 2, 1998, the
aggregate principal face amount of Senior Notes outstanding was $104,879,000.
The Indenture requires that 100% of the principal be repaid on December
31, 1998. The Indenture also requires the Company to pay interest
semi-annually on the last day of February and August of each year, commencing
February 28, 1994. In addition, the Indenture also requires the Company to
use a portion of the proceeds from certain asset sales to pay amounts
outstanding under the Senior Notes.
The relative priority of liens in and upon the Company's collateral as
between CIT and the Noteholders is governed by the Intercreditor Agreement,
dated September 20, 1993 (the "Intercreditor Agreement"), by and between CIT
and Bankers Trust Company, as Trustee.
Pursuant to the Intercreditor Agreement, (i) CIT has a first priority
lien upon all of the Company's accounts, chattel paper, instruments,
documents (other than chattel paper, instruments and documents constituting
general intangibles), inventory, equipment, books and records and real
property (other than two parcels (the "Excepted Property")) and any proceeds
of the foregoing (collectively, the "CIT Priority Collateral"), and (ii) the
Noteholders have a first priority lien upon all of the Company's general
intangibles, certain pledged stock, the Excepted Property and any proceeds of
the foregoing (collectively, the "Noteholder Priority Collateral"). In
addition, CIT holds a junior lien on all of the Noteholder Priority
Collateral and the Noteholders hold a junior lien on all of the CIT Priority
Collateral. However, the Intercreditor Agreement provides that upon a written
declaration by CIT that an Event of Default under the Credit Agreement has
occurred and all obligations thereunder are due and payable and an exercise
by CIT of its rights and remedies, CIT is entitled to the first $15 million
of proceeds from the Company's general intangibles (the "CIT Intangibles
Limited Priority"). Under the agreement, the CIT Intangibles Limited Priority
is of no further force and effect (i) from and after the release by CIT of
its lien upon any of the CIT Priority Collateral (other than any such release
in consideration of the contemporaneous delivery to CIT of all of the net
proceeds arising from the sale, transfer or other disposition of such
released CIT Priority Collateral and the application of such net Proceeds by
CIT to payment to such extent of the then outstanding CIT Obligations) or
(ii) in the event that the Company refinances the CIT Obligations without
liens on all of the CIT Priority Collateral. The Intercreditor Agreement also
provides that, except as set forth in the immediately preceding sentence with
respect to the CIT Intangibles Limited Priority, the priority of liens set
forth in that agreement "shall not be altered or otherwise affected by any
modification, renewal, restatement, extension or refinancing" of any
obligations owed to CIT or the Noteholders.
The Indenture imposes a number of restrictive covenants that affect the
Company and its subsidiaries with respect to, among other things: (i)
incurring indebtedness; (ii) creating liens; (iii) merging and selling
assets; (iv) engaging in certain intercompany transactions; (v) permitting
changes of control to occur; and (vi) engaging in transactions with
stockholders and affiliates.
The Indenture contains a number of events of default, including the
following: (i) failure to make payments of interest when due, and the
continuation of such failure for 30 days; (ii) failure to pay principal when
due; (iii) default in the payment of any obligation of the Company or any of
its Subsidiaries on indebtedness in the aggregate principal amount of
$3,000,000 or more; (iv) failure of the Company to comply with any of its
covenants or agreements under the Indenture; (v) entry of a judgment in
excess of $3,000,000; and (vi) certain events of insolvency and bankruptcy of
the Company of any and its Subsidiaries.
On March 2, 1998, the Company elected not to pay the interest payment of
$5.5 million that was due and payable under the Senior Notes, subject to a 30
day grace period. Because the Company elected not to pay the interest due on
the Senior Notes by the expiration of the applicable grace period, an event
of default has occurred with respect to the Senior Notes entitling the
Noteholders to accelerate the maturity thereof. If holders of at least 25% in
the aggregate principal face amount of the Senior Notes accelerate all
outstanding indebtedness under the Senior Notes pursuant to the terms of the
Indenture, and, in the event that Stockholders fail to approve the
Restructuring Proposals and the Company does not immediately seek to
implement the Restructuring through the Prepackaged Plan, such an
acceleration of outstanding indebtedness under the Senior Notes could result
in the Company becoming subject to a proceeding under the Federal bankruptcy
laws. Pursuant to the Letter Agreement, Magten has, in accordance with
Section 6.5 of the Indenture, caused a written direction to be provided to
the Trustee, to forbear during the term of the Letter Agreement from taking
any action under the Indenture in connection with the failure by the Company
to make the interest payment on the Senior Notes that was due and payable on
March 2, 1998. On April 8, 1998, the Trustee issued a Notice of Default
stating that as a result of the Company's failure to make the interest
payment due on the Senior Notes, an event of default under the Indenture had
occurred on April 1, 1998.
MARKET FOR OLD COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Old Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the trading symbol SLT.
The high and low sale prices per share of Old Common Stock (based upon
the NYSE composite tape as reported in published financial sources) for each
quarter of 1996 and 1997 are set forth below. The Company did not declare or
pay any dividends during such years. The indenture governing the Senior Notes
and the Credit Agreement requires the satisfaction of certain net worth tests
prior to the payment of any cash dividends by the Company. As of January 3,
1998, the Company was prohibited from paying cash dividends under the most
restrictive of these provisions.
HIGH AND LOW SALE PRICES PER SHARE OF THE OLD COMMON STOCK
QUARTER HIGH LOW
1997
Fourth $3 3/8 $1 9/16
Third 3 1 15/16
Second 4 1/4 2 7/8
First 5 3/8 3
1996
Fourth $3 7/8 $3 1/8
Third 4 2 3/4
Second 4 7/8 3 1/2
First 5 3/4 3 1/8
On March 2, 1998, the day immediately prior to the date the Company
announced its intention to pursue the Restructuring, the closing market price
of the Old Common Stock was $1.6875 per share. On ____________, 1998, there
were _____ holders of record of shares of Old Common Stock, and the closing
market price was $______ per share.
The following chart indicates the effect of the Restructuring on the
amount and percentage of the holdings of the Company's common equity owned
beneficially by (i) each person (including any group as that term is used in
section 13(d)(3) of the Exchange Act) who is known to the Company to be the
beneficial owner of more than 5% of the Old Common Stock, (ii) each current
director and each Board nominee and (iii) all directors and officers as a
group.
New Common Stock
Issuable with Respect
Old Common Stock to Such Holdings of
Beneficially Old Common Stock
Owned as of Upon Consummation of
March 16, 1998 Restructuring**
---------------------- --------------------
No. Of % of No. Of % of
Holder Shares(a) Class(b) Shares Class
------ --------- -------- ------ -----
Apollo Apparel Partners, L.P. 5,924,352 39.6% 592,435 2.9%
DDJ Capital Management, LLC 1,615,730 (c) 10.8% 161,573 *
Robert Falk 5,925,652 (d) 39.6% 592,565 2.9%
Ann Dibble Jordan 2,200 (e) * 220 *
Robert Katz 5,925,952 (f) 39.6% 592,595 2.9%
Harold Leppo 2,200 (g) * 220 *
Jerald S. Politzer 145,000 (h) 1.0% 14,500 *
Bruce F. Roberts 6,200 (i) * 620 *
John S. Rodgers 433,787 (j) 2.9% 43,379 *
Marvin Schiller 16,134 (k) * 1,613 *
Edward M. Yorke 5,926,552 (l) 39.6% 592,655 2.9%
All directors and
executive officers as a
group (14 persons) 6,535,277 (m) 43.6% 653,528 3.2%
- ------------------------
* Represents less than one percent.
** Exclusive of any shares of New Common Stock issuable upon exercise of
any Warrants distributed to such holders in connection with the
Restructuring.
(a) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares of Old Common Stock which such
person has the right to acquire within 60 days following March 16, 1998.
(b) As of March 16, 1998, there were 14,964,608 shares outstanding,
excluding those shares held by or for the account of the Company. For
purposes of computing the percentage of outstanding shares of Old Common
Stock held by each person or group of persons named above, any security
which such person or persons has the right to acquire within 60 days
following March 16, 1998 is deemed to be outstanding, but is not deemed
to be outstanding for the purpose of computing the percentage ownership
of any other person.
(c) This amount reflects Old Common Stock beneficially owned by DDJ
Capital Management, LLC as of April 20, 1998.
(d) This amount includes 5,924,352 shares beneficially owned by Apollo and
1,300 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing general partner of which
is Apollo Advisors, L.P. Mr. Falk is a principal of Apollo Advisors,
L.P. He disclaims beneficial ownership of any shares of Old Common Stock
held by Apollo.
(e) This amount represents 2,200 shares issuable upon the exercise of stock
options.
(f) This amount includes 5,924,352 shares beneficially owned by Apollo and
1,600 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing general partner of which
is Apollo Advisors, L.P. Mr. Katz is an officer of Apollo Advisors, L.P.
He disclaims beneficial ownership of any shares of Old Common Stock held
by Apollo.
(g) This amount represents 2,200 shares issuable upon the exercise of stock
options.
(h) This amount includes 45,000 shares held directly and 100,000 shares
issuable upon the exercise of stock options.
(i) This amount includes 4,000 shares held directly and 2,200 shares
issuable upon the exercise of stock options.
(j) This amount includes 424,280 shares held directly by Mr. Rodgers, 1,300
shares issuable upon the exercise of stock options, 2,284 shares held
through the Company's Long Term Savings and Investment Plan (the
"Savings Plan") and 5,923 shares held by the Margaret S. Vickery Trust,
of which Mr. Rodgers is a co-trustee. As to the shares held by the
Margaret S. Vickery Trust, Mr. Rodgers shares voting and investment
power with a co-trustee. He disclaims beneficial ownership with respect
to the shares held by the Trust.
(k) This amount includes 11,234 shares held directly and 5,200 shares
issuable upon the exercise of stock options.
(l) This amount includes 5,924,352 shares beneficially owned by Apollo and
2,200 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing partner of which is
Apollo Advisors, L.P. Mr. Yorke is an officer of Apollo Advisors, L.P.
He disclaims beneficial ownership of any shares of Old Common Stock held
by Apollo.
(m) The 6,607,773 shares held by all directors and executive officers of the
Company as a group counts the 5,924,352 shares held by Apollo (discussed
in notes (d), (f) and (l) above) once. Such 6,607,773 shares include (i)
6,419,789 shares held directly by, or attributable to, directors and
executive officers, (ii) 2,284 shares held through the Savings Plan by
executive officers, and (iii) 185,700 shares issuable upon the exercise
of stock options held by all directors and executive officers that are
exercisable on, or may become exercisable within sixty days of, March
16, 1997.
All of the outstanding voting securities of the Company's subsidiaries
are owned beneficially and (except for shares of certain foreign subsidiaries
of the Company owned of record by others to satisfy local laws) of record by
the Company.
The Company has never declared or paid and does not expect to declare or
pay dividends on the outstanding Old Common Stock. Restrictions contained in
the instruments governing the outstanding indebtedness of the Company
restrict its ability to provide funds that might otherwise be used by the
Company for the payment of dividends on the Old Common Stock. The Company is
currently not in compliance with the net tangible assets test required for
continued listing on the NYSE. The Company has requested that the NYSE waive
compliance with such test until consummation of the Restructuring. Should the
Restructuring be consummated, the Company expects to be in full compliance
with all of the NYSE's requirements for continued listing on the NYSE. The
can be, however, no assurance that the NYSE will waive compliance of such
test.
MARKET PRICES OF THE SENIOR NOTES
The Senior Notes are traded in the over-the-counter market by certain
dealers who from time to time are willing to make a market in such
securities. Trading of the Senior Notes is, however, extremely limited.
Prices and trading volume of the Senior Notes in the over-the-counter market
are not reported and are difficult to monitor. To the extent that Senior
Notes are traded, prices may fluctuate widely depending on, among other
things, the trading volume and the balance between buy and sell orders.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain Federal income tax consequences
of the Restructuring to the Noteholders and the Company and is for general
information purposes only. This summary is based on the Federal income tax
law now in effect, which is subject to change, possibly retroactively. This
summary does not discuss all aspects of Federal income taxation which may
be important to particular Noteholders in light of their individual
investment circumstances or to Noteholders subject to special tax rules
(e.g., financial institutions, broker-dealers, insurance companies,
tax-exempt organizations and foreign taxpayers). In addition, this summary
does not address state, local or foreign tax consequences. This summary
assumes that Noteholders hold their Senior Notes, and will hold their New
Common Stock, as "capital assets" (generally, property held for investment)
under the Tax Code. No rulings have been or will be requested from the
Internal Revenue Service with respect to any of the matters discussed
herein, and no opinion of counsel has been sought or obtained by the
Company with respect thereto. Noteholders are urged to consult their tax
advisors regarding the specific Federal, state, local and foreign income
and other tax consequences of the Restructuring.
FEDERAL INCOME TAX CONSEQUENCES TO NOTEHOLDERS
GENERAL
The Restructuring, if consummated as described herein, should constitute
a tax-free recapitalization for purposes of the Code. Accordingly, for
Federal income tax purposes:
(i) no gain or loss will be recognized by a Noteholder upon the
receipt of New Common Stock pursuant to the Restructuring (except with
respect to cash, if any, received in lieu of any fractional share
settled in cash as described above) except that the Noteholder will
recognize income to the extent of the value of the shares of New Common
Stock received in the Restructuring which are allocable to any interest
on the Senior Notes that accrued on or after the beginning of the
Noteholder's holding period and which interest was not previously
included in the Noteholder's taxable income (the "Accrued Interest");
(ii) the aggregate tax basis of the New Common Stock received by a
Noteholder in the Restructuring will be the same as the aggregate tax
basis of the Senior Notes exchanged therefor (reduced by any basis
apportionable to any fractional share settled in cash as described
above), except that the basis of the shares of New Common Stock (or
fractions thereof) received which are treated as attributable to Accrued
Interest will be equal to the fair market value of the shares (or
fractions thereof) on the Exchange Restructuring Date; and
(iii) the holding period of the shares of New Common Stock in the
hands of the Noteholders will include the holding period of their Senior
Notes exchanged therefor, except that the holding period of the shares
of New Common Stock (or fractions thereof) treated as attributable to
Accrued Interest will begin the day after the Exchange Restructuring
Date.
MARKET DISCOUNT
Noteholders who acquired their Senior Notes at a "market discount"
subsequent to the initial offering of the Senior Notes may be required to
carry over any accrued (but unrecognized) market discount to the New Common
Stock received in the Restructuring, which discount will be recognized as
ordinary income upon disposition of such New Common Stock.
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY
CANCELLATION OF INDEBTEDNESS INCOME
The Company will realize cancellation of indebtedness ("COI") income,
for Federal income tax purposes, in an amount equal to the excess, if any,
of the adjusted issue price of the Senior Notes (including any accrued but
unpaid interest) over the fair market value of the New Common Stock
received by Noteholders pursuant to the Restructuring. The Company has
approximately $55 million of operating losses and net operating loss
carryovers ("NOLs") which are available to offset any COI income that may
be recognized. If (i) COI income is realized in a case under the Bankruptcy
Code (i.e., pursuant to the Prepackaged Restructuring) or (ii) if the
Company is insolvent on the Exchange Restructuring Date, to the extent of
the insolvency, under section 108 of the Tax Code such COI income would not
be included in the Company's gross income. In such event, the Company would
be required, however, to reduce certain of its tax attributes, such as its
NOLs, certain tax credits, and the basis of its assets, by the amount of
the COI income that is not included.
LIMITATION ON NET OPERATING LOSS CARRYOVERS
As a result of the receipt by Noteholders of New Common Stock in
exchange for the Senior Notes pursuant to the Restructuring, the Company
will undergo an "ownership change" (generally, a 50% change in ownership)
for purposes of section 382 of the Tax Code and, accordingly, the Company
will be limited in its ability to use its NOLs and certain tax credit
carryforwards (the "Section 382 Limitation") to offset future taxable
income. The Section 382 Limitation will generally be determined by
multiplying the value of the Company's equity before the ownership change
by the long-term tax-exempt rate (currently 5.04%). This is likely to limit
significantly the Company's use of its NOLs in any one year. If an
ownership change occurs in a case under the Bankruptcy Code, the value of a
corporation's equity for purposes of determining the Section 382 Limitation
would be adjusted to reflect any increase in such value arising from the
cancellation of debt as a result of the ownership change. Because the
Company anticipates that the value of its equity would be increased as a
result of the cancellation of the Senior Notes, the Company's ability to
use its NOLs would be significantly greater under the Prepackaged
Restructuring than under the Exchange Restructuring.
INFORMATION REGARDING NOMINEES
If the Restructuring is consummated and the Restructuring Proposal with
respect to the Election of the New Board is approved and implemented, the
existing members of the Board will resign, effective as of the Exchange
Restructuring Date and [ ] new Board members will be elected at the Annual
Meeting, subject to the occurrence of the Exchange Restructuring Date. Each
of the existing members of the Board have delivered to the Company a
resignation letter resigning from the Board effective as of the Exchange
Restructuring Date. In accordance with the Company's Certificate of
Incorporation, by resolution of the Board, the number of directors has been
fixed at [ ] effective as of the Exchange Restructuring Date. As provided for
in the Letter Agreement, the new Board will consist of: (i) Mr. Jerald
Politzer, as the Chairman of the Board, (ii) five members nominated by
Magten, subject to consultation with the Company and with other Noteholders
who may come forward prior to the commencement of the Solicitation, and (iii)
one member designated by the current Board. As described above, as
contemplated by the Letter Agreement, it is expected that Magten will provide
the Company with its Board nominees prior to the commencement of the
Solicitation. In addition, the current Board has designated Marvin
Schiller to be the current Board's nominee to the new Board. If any nominee
should be unavailable for election at the Stockholders' Meeting, the proxies
will vote for the election of such other person as may be recommended by the
Board.
The names, principal occupations and other information concerning
nominees proposed for election to the Board are presented below. Proxies will
be voted for all such nominees, unless marked to the contrary. The Company
believes that each nominee will serve as a director, but should any such
nominee be unable to serve as a director or withdraw from nomination, Proxies
will be voted for the election of such substitute nominee as the Board may
propose.
Jerald S. Politzer, age 52, joined the Company as a director on March
24, 1997 and Chief Executive Officer commencing April 1, 1997. From July 1989
to November 1996 he had been Executive Vice President of Melville
Corporation, a diversified retailer. Mr. Politzer is a director of Norton
McNaughton, Inc., a manufacturer of women's apparel.
Marvin Schiller, age 64, was Managing Director of A.T. Kearney, Inc., a
management consulting firm, from May 1983 until his retirement as of January
1995. Dr. Schiller is a director of LePercq-Istel Fund, Inc., a mutual fund;
Strategic Agricultural Management Corp., a software developer and marketer;
and Tutor Time Learning Systems Inc., a childcare and educational company.
Dr. Schiller has served as a director of the Company since May 1983.
Information regarding the remaining Board nominees will be provided once
Magten has advised the Company of its Board nominees.
POST RESTRUCTURING STOCK OPTION GRANTS
EXCHANGE RESTRUCTURING
In the event that the Plan Proposal is approved by the Stockholders, the
Minimum Tender Condition is satisfied and the Exchange Restructuring is
consummated, all options to purchase shares of Old Common Stock outstanding
granted under the Company's 1987 Stock Plan, 1988 Stock Plan, 1993 Stock Plan
and 1996 Stock Plan (the "Old Plans") and held by directors, officers and
employees of the Company (the "Old Options") will not be terminated but will
continue to remain outstanding, subject to adjustment (the "Adjustment") as
provided for in each of the Old Plans. Such Adjustment is intended to reflect
the effect of the Reverse Split on the Old Options. As of April 9, 1998,
there were outstanding Old Option which, in the aggregate, related to
1,823,443 shares of Old Common Stock (or 12% of the issued and outstanding
shares of Old Common Stock as of such date). Pursuant to the Exchange
Restructuring, after giving effect to the Adjustment, all of the outstanding
Old Options, in the aggregate, will relate to 182,344 shares of New Common
Stock (or approximately 1% of the issued and outstanding shares of New Common
Stock as of the Exchange Restructuring Date, exclusive of the Warrant
Shares). In connection with the Adjustment, the exercise price applicable to
such Old Options will be appropriately adjusted.
In addition, under the Stock Award and Incentive Plans, directors,
officers and employees of the Company will become eligible to receive
additional options to purchase shares of New Common Stock as determined by
the new Board after the Exchange Restructuring Date subject to the approval
by the Stockholders of the Company. See "DISCUSSION OF THE RESTRUCTURING
PROPOSALS" - Salant Corporation 1998 Stock Award and Incentive Plan" in the
Proxy Statement/Prospectus.
PREPACKAGED RESTRUCTURING
In the event that each of the Restructuring Proposals is not approved by
the Stockholders, or the Minimum Tender Condition is not satisfied or waived,
but the Company receives sufficient acceptances of the Prepackaged Plan to
obtain confirmation thereof by the Bankruptcy Court and the Company files the
Prepackaged Plan with the Bankruptcy Court, pursuant to the Prepackaged Plan
all options to purchase shares of Old Common Stock outstanding as of the
commencement of the Chapter 11 case granted under the Old Plans will be
terminated and of no further force or effect as of the consummation of the
Prepackaged Plan. In addition, each of the Old Plans shall be terminated and
of no further force or effect as of the consummation of the Prepackaged Plan.
The Stock Award and Incentive Plan will remain in effect after the
consummation of the Prepackaged Plan: provided, that, if the Stock Award and
Incentive Plan has not been approved by the Stockholders prior to the
Commencement of the Chapter 11 case, any awards granted thereunder shall be
subject to subsequent approval of the Stockholders of the Company. It is the
Company's intention that certain directors, officers and employees of the
Company will be granted new options to purchase shares of New Common Stock
under the Stock Award and Incentive Plan. The persons to receive such grants,
the number of shares of New Common Stock subject to such grants, and such
other terms and conditions applicable to such grants, shall be determined by
the Board of Reorganized Salant in its sole discretion, except for automatic
stock option grants to certain non-employee directors of the Company.
BENEFICIAL OWNERSHIP OF THE COMPANY'S OLD COMMON STOCK BY
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP (a) CLASS (b)
- ----------------------------------- ---------------------- -----------
Nicholas P. DiPaolo................ 0 *
Robert H. Falk..................... 5,925,652(c) 39.6%
Philip A. Franzel.................. 1,000(d) *
Ann Dibble Jordan.................. 2,000(e) *
Todd Kahn.......................... 71,500(f) *
Robert Katz........................ 5,925,952(g) 39.6%
Harold Leppo....................... 2,200(h) *
Michael A. Lubin................... 0 *
Jerald S. Politzer................. 145,000(i) 1.0%
Richard P. Randall................. 0 *
Bruce F. Roberts................... 6,200(j) *
John S. Rodgers.................... 433,787(k) 29.9%
Marvin Schiller.................... 16,434(l) *
Edward M. Yorke.................... 5,926,552(m) 39.6%
All directors and executive 43.6%
officers as a group (14 6,607,773(n)
persons).........................
- --------------
* Represents less than one percent.
(a) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares of Common Stock which such
person has the right to acquire within 60 days following March 16, 1998.
(b) As of March 16, 1998, there were 14,964,608 shares outstanding,
excluding those shares held by or for the account of Salant. For
purposes of computing the percentage of outstanding shares of Common
Stock held by each person or group of persons named above, any security
which such person or persons has the right to acquire within 60 days
following March 16, 1998 is deemed to be outstanding, but is not deemed
to be outstanding for the purpose of computing the percentage ownership
of any other person.
(c) This amount includes 5,924,352 shares beneficially owned by Apollo and
1,300 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing general partner of which
is Apollo Advisors, L.P. Mr. Falk is a principal of Apollo Advisors,
L.P. He disclaims beneficial ownership of any shares of Common Stock
held by Apollo.
(d) This amount represents 1,000 shares held directly by Mr. Franzel.
(e) This amount represents 2,200 issuable upon the exercise of stock
options.
(f) This amount represents 4,000 shares held directly and 67,500 shares
issuable upon the exercise of stock options.
(g) This amount includes 5,924,352 shares beneficially owned by Apollo and
1,600 shares issuable upon the exercise of stock options. Stock options.
The general partner of Apollo is AIF II, L.P., the managing general
partner of which is Apollo Advisors, L.P. Mr. Katz is an officer of
Apollo Advisors, L.P. He disclaims beneficial ownership of any shares of
Common Stock held by Apollo.
(h) This amount represents 2,200 issuable upon the exercise of stock
options.
(i) This amount represents 45,000 shares held directly and 100,000 shares
issuable upon the exercise of stock options.
(j) This amount includes 4,000 shares held directly and 2,200 shares
issuable upon the exercise of stock options.
(k) This amount includes 424,280 shares held directly by Mr. Rodgers, 1,300
shares issuable upon the exercise of stock options, 2,284 shares held
through the Company's Long Term Savings and Investment Plan (the
"Savings Plan") and 5,923 shares held by the Margaret S. Vickery Trust,
of which Mr. Rodgers is a co-trustee. As to the shares held by the
Margaret S. Vickery Trust, Mr. Rodgers shares voting and investment
power with a co-trustee. He disclaims beneficial ownership with respect
to the shares held by the Trust.
(l) This amount includes 11,234 shares held directly and 5,200 shares
issuable upon the exercise of stock options.
(m) This amount includes 5,924,352 shares beneficially owned by Apollo and
2,200 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing general partner of which
is Apollo Advisors, L.P. Mr. Yorke is an officer of Apollo Advisors,
L.P. He disclaims beneficial ownership of any shares of Common Stock
held by Apollo.
(i) This amount includes 4,000 shares held directly and 1,900 shares
issuable upon the exercise of stock options.
(j) The 6,607,773 shares held by all directors and executive officers of
Salant as a group counts the 5,924,352 shares held by Apollo (discussed
in notes (c), (g) and (m) above) once. Such 6,607,773 shares include (i)
6,419,789 shares held directly by, or attributable to, director and
executive officers, (ii) 2,284 shares held through the Savings Plan by
executive officers, and (iii) 185,700 shares issuable upon the exercise
of stock options held by all directors and executive officers that are
exercisable on, or may become exercisable within sixty days of, March
16, 1998.
CERTAIN AFFILIATE TRANSACTIONS
Except as described below, no transactions have occurred since December
31, 1996 to which the Company was or is to be a party and in which directors,
executive officers or control persons of the Company, or their associates,
had or are to have a direct or indirect material interest.
Pursuant to an agreement, dated December 1, 1995 (the "Lubin Delano
Consulting Agreement"), the Company has retained Lubin Delano to render
certain financial advisory and investment banking services to the Company for
a monthly retainer of $8,333.33. Under the Lubin Delano Consulting Agreement,
Lubin Delano may receive a bonus equal to 100% of its annual retainer if the
Company's pre-tax income for the year equals 100% of the pre-tax income
provided in the Company's annual business plan. Actual pre-tax income in
excess of the annual business plan increases Lubin Delano's bonus by 20% of
its retainer for each full five percentage point increment of increased
pre-tax income for the year. The term of Lubin Delano's engagement is
coterminous with the employment of Michael A. Lubin by the Company. Effective
with Mr. Lubin's resignation on July 31, 1997 the Lubin Delano Consulting
Agreement was terminated, and pursuant to the Lubin Agreement, a one-time
lump sum payment of $368,149 was made to Lubin Delano.
PAYMENTS TO MANAGEMENT
In accordance with the terms of the Letter Agreement, no payments will
be made to the members of management under existing severance, employment
and/or change-in-control agreements or arrangements solely by reason of the
consummation of the Restructuring.
ADVISORS AND REPRESENTATIVES
Pursuant to an agreement effective as of December 18, 1997, between E&Y
and the Company (the "E&Y Agreement"), the Company has engaged E&Y to act as
its financial advisor in connection with the Restructuring.
Pursuant to the E&Y Agreement, the Company has agreed to pay E&Y a
monthly advisory fee in the amount of $125,000, consisting of two components:
(i) $95,000 per month, and (ii) $90,000 at the end of every three month
period (representing $30,000 per month for the prior three months). The
Company has also agreed to pay E&Y its reasonable out-of-pocket costs. To
date, the Company has paid approximately $600,000 to E&Y in respect of its
services under the E&Y Agreement. The E&Y Agreement may be terminated by
either party at any time. Pursuant to the E&Y Agreement, E&Y performed
certain valuation services in connection with the Restructuring at the
request of the Company. In connection with those services, E&Y has been paid
$100,000 by the Company. Since E&Y's retention by the Company, Michael Gries
has served as the individual at E&Y principally involved in this matter. On
April 1, 1998, Mr. Gries withdrew as a partner at E&Y and is currently a
member of the financial advisory firm of Conway, Delgenio, Gries & Co., LLC
("CDG"). Since that time, Mr. Gries has continued to advise the Company and
is being compensated for such services pursuant to an agreement between E&Y
and CDG.
In connection with the rendering the E&Y Fairness Opinion, the Company
separately engaged E&Y pursuant to a letter agreement, dated March 25, 1998
(the "E&Y Opinion Agreement"). Pursuant to the E&Y Opinion Agreement, the
Company agreed to pay E&Y: (i) a fee of $75,000 payable in cash upon
execution of the E&Y Opinion Agreement; and (ii) $75,000 payable in cash on
the date that E&Y informs the Company that they were prepared to deliver the
E&Y Fairness Opinion. The Company also agreed to reimburse E&Y for its
reasonable out-of-pocket expenses. Payment of such fees and expenses are in
no way contingent or dependent upon the results of E&Y analyses or any
conclusions it may reach or the consummation of the Restructuring.
Additionally, the Company agreed to indemnify E&Y and certain related persons
for certain liabilities related to or arising out of its engagement,
including liabilities under Federal securities laws. To date, the Company has
paid $150,000 to E&Y in respect of its services pursuant to the E&Y Opinion
Agreement.
Pursuant to a fee agreement (the "H & G Agreement") effective as of
January 6, 1998, between the Company and Hebb & Gitlin, a Professional
Corporation ("H & G"), the Company agreed to retain H & G as special legal
counsel to Magten in connection with the Restructuring. Pursuant to the H & G
Agreement, the Company agreed to pay H & G's fees (based on certain hourly
rates) and disbursements incurred in rendering services in connection with
the Restructuring. Pursuant to the H & G Agreement, the Company also paid H &
G a $100,000 fee reserve. For services rendered through March 31, 1998, the
Company has paid $37,013.66 to H & G in respect of its services under the H &
G Agreement.
Pursuant to a fee agreement (the "Allen Agreement") effective as of
January 1, 1998, between the Company, Allen and Company ("Allen & Co."),
Magten and H & G, Allen & Co. was retained as financial advisor to H&G in
connection with the Restructuring until consummation of the Restructuring
unless otherwise earlier terminated by any party. Pursuant to the Allen
Agreement, the Company agreed to pay Allen & Co. financial advisory fees of
$100,000 per month until the Allen Agreement is terminated. Pursuant to the
Allen Agreement, the Company also paid Allen & Co. a $100,000 retainer fee,
and has agreed to pay its reasonable out-of-pocket costs. To date, the
Company has paid $[_____] to Allen & Co. in respect of its services under the
Allen Agreement.
Under the Allen Agreement, the Company agreed to indemnify Allen & Co.
and its affiliates from and against all claims, liabilities, losses, damages,
and expenses relating to its services to H&G as set forth in the Allen
Agreement, except, among other things, for any claims, liabilities, losses,
damages or expenses that result from Allen & Co.'s willful misconduct or
gross negligence or lack of good faith.
If the Company proceeds with the Prepackaged Restructuring, the Company
intends to assume the H & G Agreement and the Allen Agreement pursuant to the
Prepackaged Plan.
[ ] has been appointed as Information Agent in connection with the
Exchange Offer and the solicitation of acceptances of the Prepackaged Plan.
Any questions regarding how to tender in the Exchange Offer or how to vote on
the Prepackaged Plan and any requests for additional copies of this Exchange
Restructuring Prospectus, Letters of Transmittal, Ballots or Master Ballots
should be directed to the Information Agent at its address and telephone
number set forth on the back cover of this Exchange Restructuring Prospectus.
[ ] has been appointed as Depositary with respect to the Stockholders for the
Exchange Offer and as Voting Agent for the solicitation of acceptances of the
Prepackaged Plan with respect to the Stockholders. Questions and requests for
assistance may be directed to the Depositary at one of its addresses and
telephone numbers set forth on the back cover of this Exchange Restructuring
Prospectus.
ESTIMATED FEES AND EXPENSES
The Company estimates that fees and expenses incurred in connection with
the Restructuring will be approximately $[ ], including financial advisory
fees, commitment fees, legal fees, printing fees, accounting fees, Depositary
fees, Information Agent fees, out-of-pocket expenses, retention payments and
other fees and expenses. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Exchange Restructuring
Prospectus and related documents to the beneficial owners of the Senior Notes
and Old Common Stock and in handling or forwarding tenders of their
customers.
Below is a breakdown of the estimated fees and expenses related to the
Restructuring (in thousands):
Bank Fees and Expenses.....................
Financial Advisory Services................
Legal Services.............................
Accounting Services........................
Other Fees and Expenses....................
---------
Total...................................
=========
--------
As of ____ __, 1998, approximately $[ ] million of such fees and
expenses had been accrued by the Company. The Company intends to pay the fees
and expenses with cash from operations, cash on hand and additional
borrowings as necessary.
LEGAL MATTERS
Certain legal matters in connection with the New Common Stock (including
the Warrant Shares) and the Warrants offered hereby will be passed upon by
Fried, Frank, Harris, Shriver & Jacobson, special counsel to the Company.
EXPERTS
The Company's consolidated financial statements as of January 3, 1998
and December 28, 1996 and for the years ended January 3, 1998, December 28,
1996 and December 30, 1995 included in this Exchange Restructuring
Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and incorporated by
reference in the Registration Statement, and have been so included herein
in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
<PAGE>
PART B
THE PREPACKAGED RESTRUCTURING DISCLOSURE STATEMENT
IMPORTANT:
A BANKRUPTCY CASE HAS NOT BEEN COMMENCED AS OF THE
DATE OF THE DISTRIBUTION OF THIS DOCUMENT
DISCLOSURE STATEMENT WITH RESPECT TO
PREPACKAGED PLAN OF REORGANIZATION
DATED _______, 1998 OF SALANT CORPORATION
DATE: _________, 1998
IMPORTANT
A BANKRUPTCY CASE HAS NOT BEEN COMMENCED AS OF THE
DATE OF THE DISTRIBUTION OF THIS DOCUMENT
THIS DISCLOSURE STATEMENT 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.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT. IF
SALANT CORPORATION FILES A PETITION FOR RELIEF UNDER CHAPTER 11 OF THE
BANKRUPTCY CODE AND SEEKS CONFIRMATION OF ITS PREPACKAGED PLAN OF
REORGANIZATION, THIS DISCLOSURE STATEMENT WILL BE SUBMITTED TO THE BANKRUPTCY
COURT.
DISCLOSURE STATEMENT, DATED _________, 1998
SOLICITATION OF ACCEPTANCES WITH RESPECT TO THE
PREPACKAGED PLAN OF REORGANIZATION OF
SALANT CORPORATION
FROM THE HOLDERS OF SALANT CORPORATION'S OUTSTANDING
10-1/2% SENIOR SECURED NOTES DUE DECEMBER 31, 1998
AND
COMMON STOCK
- --------------------------------------------------------------------------------
THE VOTING DEADLINE TO ACCEPT OR REJECT
THE PREPACKAGED PLAN OF REORGANIZATION IS 5:00 P.M., NEW YORK CITY TIME,
ON _________, 1998, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
SALANT CORPORATION ("SALANT" OR THE "COMPANY") HAS NOT COMMENCED A CASE
UNDER THE BANKRUPTCY CODE AT THIS TIME, BUT IS SOLICITING ACCEPTANCES OF THE
ATTACHED PLAN OF REORGANIZATION (THE "PREPACKAGED PLAN") FROM THE FOLLOWING
HOLDERS OF IMPAIRED CLAIMS AGAINST AND IMPAIRED INTERESTS IN SALANT: HOLDERS
OF 10-1/2% SENIOR SECURED NOTES ("NOTEHOLDERS") AND HOLDERS OF COMMON STOCK
OF THE COMPANY ("STOCKHOLDERS"). SIMULTANEOUSLY WITH THE SOLICITATION OF
ACCEPTANCES OF THE PREPACKAGED PLAN FROM SALANT'S IMPAIRED CREDITORS AND
INTEREST HOLDERS, SALANT IN CONNECTION WITH AN OUT-OF-COURT RESTRUCTURING
(THE "EXCHANGE RESTRUCTURING") IS (i) SOLICITING TENDERS FROM THE NOTEHOLDERS
IN THE EXCHANGE OFFER AND (ii) SOLICITING PROXIES FROM STOCKHOLDERS TO
APPROVE, AMONG OTHER THINGS, EACH OF THE RESTRUCTURING PROPOSALS (AS DEFINED
HEREIN).
If less than 100% of the Noteholders tender their 10-1/2% Senior Secured
Notes (the "Senior Notes") pursuant to the Exchange Restructuring (as defined
herein) and/or if the Stockholders do not approve each of the Restructuring
Proposals, but the Company receives sufficient acceptances of the Prepackaged
Plan to obtain confirmation thereof by the Bankruptcy Court, then the Company
intends to pursue the financial restructuring (the "Prepackaged
Restructuring") by means of the filing of the Prepackaged Plan. Salant's
ability to seek confirmation of the Prepackaged Plan depends upon certain
minimum levels of acceptance thereof, as further set forth in this Disclosure
Statement. In the event that the requisite percentage and number of
Noteholders have executed acceptances of the Prepackaged Plan, but the
Minimum Tender Condition (as defined herein) has not been satisfied or any of
the Restructuring Proposals has not been approved or Salant determines in its
sole discretion that it is unlikely to be satisfied at or prior to the
Expiration Date (as defined herein), Salant may elect to terminate the
Exchange Offer at or prior to its scheduled expiration and proceed directly
to the Prepackaged Plan.
IN THE ABSENCE OF EITHER THE EXCHANGE RESTRUCTURING OR THE PREPACKAGED
RESTRUCTURING (IN EITHER CASE, THE "RESTRUCTURING"), SALANT DOES NOT BELIEVE
IT WILL BE ABLE TO SATISFY ITS OBLIGATIONS UNDER THE SENIOR NOTES WITHOUT A
REFINANCING OF ITS INDEBTEDNESS UNDER THE CREDIT AGREEMENT (AS DEFINED
HEREIN) AND/OR THE SENIOR NOTES OR AN ADDITIONAL CAPITAL INFUSION, AND IT IS
UNLIKELY THAT SALANT WILL BE ABLE TO OBTAIN SUCH REFINANCING OR ADDITIONAL
CAPITAL INFUSION. IF SALANT DETERMINES THAT IT IS OR WILL BE UNABLE TO
COMPLETE THE RESTRUCTURING, SALANT WILL CONSIDER ALL OTHER AVAILABLE
FINANCIAL ALTERNATIVES, INCLUDING THE SALE OF ALL OR A PART OF ITS
BUSINESSES, THE IMPLEMENTATION OF AN ALTERNATIVE RESTRUCTURING ARRANGEMENT
OUTSIDE OF BANKRUPTCY, OR THE COMMENCEMENT OF A CHAPTER 11 CASE WITHOUT A
PRE-BANKRUPTCY ACCEPTED PLAN OF REORGANIZATION. THERE CAN BE NO ASSURANCE,
HOWEVER, THAT ANY ALTERNATIVE WOULD BE ON TERMS AS FAVORABLE TO NOTEHOLDERS
AND STOCKHOLDERS AS THE RESTRUCTURING.
THE SUBSIDIARIES OF SALANT ARE NOT PARTIES TO THE PREPACKAGED PLAN, AND
WILL NOT BECOME DEBTORS IN CONNECTION WITH THE PREPACKAGED RESTRUCTURING.
THEREFORE, THE SUBSIDIARIES OF SALANT WILL CONTINUE TO OPERATE IN THE
ORDINARY COURSE OF BUSINESS DURING SALANT'S CHAPTER 11 CASE. AS SUCH, THE
PREPACKAGED PLAN DOES NOT AFFECT THE CONTINUING AND TIMELY PAYMENT IN FULL OF
THE SUBSIDIARIES' OBLIGATIONS TO SUPPLIERS, EMPLOYEES, AND OTHER CREDITORS.
IN ADDITION, THE PREPACKAGED PLAN PROVIDES FOR ALL PREPETITION UNSECURED
CREDITORS OF SALANT, INCLUDING, WITHOUT LIMITATION, TRADE CREDITORS, TO BE
PAID IN FULL IN ACCORDANCE WITH THEIR TERMS, AND SUCH CREDITORS WILL NOT,
THEREFORE, BE IMPAIRED BY, AND WILL BE DEEMED TO ACCEPT, THE PREPACKAGED
PLAN, AND THEIR VOTE ON THE PREPACKAGED PLAN WILL NOT BE SOUGHT.
THIS DISCLOSURE STATEMENT, WHICH HAS NOT BEEN REVIEWED OR APPROVED BY
THE BANKRUPTCY COURT, SOLICITS YOUR ACCEPTANCE OF THE ATTACHED PREPACKAGED
PLAN AND CONTAINS INFORMATION RELEVANT TO YOUR DECISION. PLEASE READ THIS
DISCLOSURE STATEMENT, THE PREPACKAGED PLAN AND THE OTHER MATERIALS COMPLETELY
AND CAREFULLY. SALANT BELIEVES THAT ACCEPTANCE OF THE PREPACKAGED PLAN IS IN
THE BEST INTERESTS OF ITS CREDITORS AND EQUITY HOLDERS. THE PREPACKAGED PLAN
IS ATTACHED AS APPENDIX I TO THIS DISCLOSURE STATEMENT. ALTHOUGH THIS
DISCLOSURE STATEMENT HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AS PART OF THE PROXY STATEMENT/PROSPECTUS (AS DEFINED HEREIN),
NEITHER THE PREPACKAGED PLAN NOR THE SECURITIES TO BE ISSUED THEREUNDER HAVE
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 FAIRNESS OR MERITS OF THE
PREPACKAGED PLAN OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DISCLOSURE STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE ONLY CLASSES OF CLAIMS AND INTERESTS IMPAIRED (AS DEFINED IN THE
BANKRUPTCY CODE) UNDER THE PREPACKAGED PLAN AND ENTITLED TO VOTE ON THE
PREPACKAGED PLAN, ARE CLASS 3 SENIOR NOTE CLAIMS AND CLASS 6 OLD COMMON STOCK
INTERESTS. CLASS 1 PRIORITY CLAIMS, CLASS 2 CIT CLAIMS, CLASS 4 MISCELLANEOUS
SECURED CLAIMS AND CLASS 5 GENERAL UNSECURED CLAIMS ARE UNIMPAIRED, AND
HOLDERS OF CLAIMS IN SUCH CLASSES ARE CONCLUSIVELY PRESUMED TO HAVE ACCEPTED
THE PREPACKAGED PLAN PURSUANT TO SECTION 1126(f) OF THE BANKRUPTCY CODE.
CLASS 7 OTHER INTERESTS IS IMPAIRED AND WILL NOT RECEIVE OR RETAIN ANY
PROPERTY UNDER THE PREPACKAGED PLAN AND HOLDERS OF INTERESTS IN CLASS 7 ARE
DEEMED NOT TO HAVE ACCEPTED THE PREPACKAGED PLAN PURSUANT TO SECTION 1126(g)
OF THE BANKRUPTCY CODE.
HOLDERS OF IMPAIRED CLASS 3 SENIOR NOTE CLAIMS AND CLASS 6 OLD COMMON
STOCK INTERESTS ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THE MATTERS
DESCRIBED IN THIS DISCLOSURE STATEMENT, INCLUDING THOSE UNDER "RISK FACTORS,"
PRIOR TO SUBMITTING BALLOTS OR MASTER BALLOTS PURSUANT TO THE SOLICITATION.
CLASS 3 (SENIOR NOTE CLAIMS) WILL BE DEEMED TO HAVE ACCEPTED THE
PREPACKAGED PLAN IF THE HOLDERS OF SENIOR NOTE CLAIMS (OTHER THAN ANY HOLDER
DESIGNATED UNDER SUBSECTION 1126(e) OF THE BANKRUPTCY CODE) WHO CAST VOTES IN
FAVOR OF THE PREPACKAGED PLAN HOLD AT LEAST TWO-THIRDS IN DOLLAR AMOUNT AND
MORE THAN ONE-HALF IN NUMBER OF THE ALLOWED CLAIMS ACTUALLY VOTING IN SUCH
CLASS. CLASS 6 (OLD COMMON STOCK INTERESTS) WILL BE DEEMED TO HAVE ACCEPTED
THE PREPACKAGED PLAN IF THE HOLDERS OF OLD COMMON STOCK INTERESTS (OTHER THAN
ANY HOLDER DESIGNATED UNDER SUBSECTION 1126(e) OF THE BANKRUPTCY CODE) WHO
CAST VOTES IN FAVOR OF THE PREPACKAGED PLAN HOLD AT LEAST TWO-THIRDS IN
AMOUNT OF ALLOWED INTERESTS ACTUALLY VOTING IN SUCH CLASS.
Salant will request that the Bankruptcy Court confirm the Prepackaged
Plan under Bankruptcy Code section 1129(b). Section 1129(b) permits
confirmation of the Prepackaged Plan despite rejection by one or more classes
if the Bankruptcy Court finds that the Prepackaged Plan" does not
discriminate unfairly" and is "fair and equitable" as to the class or classes
that do not accept the Prepackaged Plan. Because Class 7 is deemed not to
have accepted the Prepackaged Plan, Salant will request that the Bankruptcy
Court find that the Prepackaged Plan is fair and equitable and does not
discriminate unfairly as to Class 7 (and any other class that fails to accept
the Prepackaged Plan). For a more detailed description of the requirements
for acceptance of the Prepackaged Plan and of the criteria for confirmation
notwithstanding rejection by certain classes, see Section XXIII.D. herein,
entitled "FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF
CREDITORS TEST -- NONCONSENSUAL CONFIRMATION."
IF THE CHAPTER 11 CASE IS COMMENCED, THE REQUISITE ACCEPTANCES OF THE
PREPACKAGED PLAN ARE RECEIVED, THE PREPACKAGED PLAN IS CONFIRMED BY THE
BANKRUPTCY COURT AND THE EFFECTIVE DATE OCCURS, ALL HOLDERS OF ALLOWED SENIOR
NOTE CLAIMS (AS DEFINED IN THE PREPACKAGED PLAN) AND HOLDERS OF ALLOWED OLD
COMMON STOCK INTERESTS (AS DEFINED IN THE PREPACKAGED PLAN) (INCLUDING THOSE
WHO DO NOT SUBMIT BALLOTS OR MASTER BALLOTS TO ACCEPT OR TO REJECT THE
PREPACKAGED PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY) WILL BE BOUND BY
THE PREPACKAGED PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE
DATE HEREOF AND NEITHER THE DELIVERY OF THIS DISCLOSURE STATEMENT NOR ANY
DISTRIBUTION OF PROPERTY HEREUNDER PURSUANT TO THE PREPACKAGED PLAN WILL
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE
HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF
SALANT SINCE THE DATE HEREOF.
EACH CREDITOR AND EQUITY SECURITY HOLDER OF SALANT SHOULD CONSULT WITH
SUCH CREDITOR'S OR EQUITY SECURITY HOLDER'S LEGAL, BUSINESS, FINANCIAL AND
TAX ADVISORS AS TO ANY SUCH MATTERS CONCERNING THE SOLICITATION, THE
PREPACKAGED PLAN AND THE TRANSACTIONS CONTEMPLATED THEREBY.
GLOSSARY
As used in this Disclosure Statement, the following are the meanings for
the terms set forth below:
"Administrative Expense" ..........means (a) any cost or expense of
administration of the Chapter 11 Case
(including, without limitation,
professional fees and expenses) allowed
under Section 503(b) of the Bankruptcy
Code and (b) any fees or charges assessed
against Salant's estate under title 28,
United States Code, Section 1930.
"Affiliate" .......................means "affiliate" as defined in Section 101
of the Bankruptcy Code.
"Allowed" .........................means with respect to Claims and
Interests, (a) any Claim against, or
Interest in, the Company, proof of which
is timely filed or by order of the
Bankruptcy Court is not or will not be
required to be filed, (b) any Claim or
Interest that has been or is hereafter
listed in the Schedules as liquidated in
amount and not disputed or contingent or
(c) any Claim allowed pursuant to the
Prepackaged Plan and, in each such case in
(a) and (b) above, as to which either (i)
no objection to the allowance thereof has
been interposed within the applicable
period of time fixed by the Prepackaged
Plan, the Bankruptcy Code, the Bankruptcy
Rules or the Bankruptcy Court or (ii) such
an objection is so interposed and the
Claim or Interest shall have been allowed
by a Final Order (but only to the extent
so allowed).
"Apollo" ..........................means Apollo Apparel Partners, L.P., a
Delaware limited partnership, in its
capacity as the beneficial owner of
5,924,352 shares of Old Common Stock.
"Awards Committee" ................means the committee of the Board of the
Company from and after the Effective Date
which will grant Awards (as defined in the
Stock Award and Incentive Plan) pursuant
to the Stock Award and Incentive Plan
"Ballots" .........................means the forms to be distributed to vote
on the Prepackaged Plan, included
herewith.
"Bankruptcy Code" .................means title 11 of the United States Code,
as amended from time to time.
"Bankruptcy Court" ................means the United States Bankruptcy Court
for the Southern District of New York, or
any other court having jurisdiction over
the Chapter 11 Case.
"Bankruptcy Rules" ................means the Federal Rules of Bankruptcy
Procedure, as amended, promulgated under
Section 2075 of title 28 of the United
States Code and the Local Rules of the
Bankruptcy Court, as applicable from time
to time during the Chapter 11 Case.
"Board" ...........................means the Board of Directors of the
Company or Reorganized Salant, as
applicable.
"By-Laws" means the By-Laws, as amended, of the
Company.
"Canceled Security" ...............means a security, note or other instrument
evidencing a Claim or Interest outstanding
immediately prior to the Effective Date,
which security, note or other instrument
represents a Claim or Interest that is
Impaired under the Prepackaged Plan.
"Cash" ............................means currency, a certified check, a
cashier's check or a wire transfer of good
funds from any source, or a check drawn on
a domestic bank from the Company,
Reorganized Salant or other Entity making
any distribution under the Prepackaged
Plan.
"Cause of Action" .................means any and all actions, causes of
action, suits, accounts, controversies,
agreements, promises, rights to legal
remedies, rights to equitable remedies,
rights to payment, and claims, whether
known or unknown, reduced to judgment, not
reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, secured,
unsecured and whether asserted or
assertable directly or derivatively, in
law, equity or otherwise.
"Certificate of Incorporation" ....means the Amended and Restated Certificate
of Incorporation of the Company in effect
on the date hereof.
"Chapter 11 Case" .................means the case under Chapter 11 of the
Bankruptcy Code concerning the Company to
be commenced on the Filing Date.
"Charter Amendment" ...............means the proposed Certificate of
Amendment to the Company's Amended and
Restated Certificate of Incorporation, as
more fully described herein.
"CIT" .............................means The CIT Group/Commercial Services,
Inc., a New York corporation, the lender
under the Credit Agreement.
"CIT Claim" .......................means any and all Claims in respect of all
or any portion of the aggregate
outstanding and unpaid amount of principal
and interest due and owing under, and
subject to the terms and provisions of,
the Credit Agreement and all other
Financing Agreements (as defined in the
Credit Agreement), including, without
limitation, any and all interest, costs,
attorney's fees and other expenses owed by
Salant or for which Salant may be liable
in connection therewith.
"Claim" ...........................means any right to (a) payment from the
Company, whether or not such right is
reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal,
equitable, secured or unsecured or (b) an
equitable remedy for breach of performance
if such breach gives rise to a right to
payment from the Company, whether or not
such right to an equitable remedy is
reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed,
secured or unsecured.
"Class" ...........................means a class of Claims or Interests
designated pursuant to the Prepackaged
Plan.
"Commission" ......................means the Securities and Exchange
Commission.
"Company" .........................means, unless the context otherwise
requires, Salant Corporation, a Delaware
corporation, and its wholly owned
subsidiaries.
"Confirmation Date" ...............means the date on which the Confirmation
Order shall be entered on the docket
maintained by the Clerk of the Bankruptcy
Court with respect to the Chapter 11 Case.
"Confirmation Hearing" ............means the hearing before the Bankruptcy
Court regarding the confirmation of the
Prepackaged Plan pursuant to Section 1129
of the Bankruptcy Code.
"Confirmation Order" ..............means the order of the Bankruptcy Court
confirming the Prepackaged Plan.
"Credit Agreement" ................means the Revolving Credit, Factoring and
Security Agreement, dated as of September
20, 1993, as amended, modified or
supplemented from time to time, between
the Company and CIT.
"Creditors' Committee" ............Any official committee of unsecured
creditors appointed in the Chapter 11 Case
pursuant to Section 1102(a) of the
Bankruptcy Code, as the same may be
constituted from time to time.
"Deloitte & Touche" ...............means Deloitte & Touche LLP, independent
auditors to the Company.
"Disclosure Statement" ............means this Prepackaged Restructuring
Disclosure Statement, including the
appendices attached thereto.
"Disputed" ........................means with respect to Claims, any Claim
that is not Allowed.
"Distribution Record Date" ........means the date or dates fixed by the
Bankruptcy Court for determining the
Noteholders and Stockholders,
respectively, who are entitled to receive
distributions under the Prepackaged Plan,
or if the Bankruptcy Court does not fix
such date or dates, the Record Date.
"Effective Date" ..................means the date which is 11 days after the
Confirmation Date, or, if such date is not
a Business Day, the next succeeding
Business Day, or such earlier date after
the Confirmation Date as agreed to in
writing between the Company and Magten so
long as no stay of the Confirmation Order
is in effect on such date; provided,
however, that if, on or prior to such
date, all conditions to the Effective Date
set forth in Article Thirteen of the
Prepackaged Plan have not been satisfied,
or waived, then the Effective Date shall
be the first Business Day following the
day on which all such conditions to the
Effective Date have been satisfied or
waived.
"Election of the New Board" .......means the election of new directors to the
Board as of the Exchange Restructuring
Date.
"Entity" ..........................means any individual, corporation, limited
or general partnership, limited liability
company, joint venture, association, joint
stock company, estate, entity, trust,
trustee, United States trustee,
unincorporated organization, government,
governmental unit (as defined in the
Bankruptcy Code), agency or political
subdivision thereof.
"Exchange Act" ....................means the Securities Exchange Act of 1934,
as amended.
"Exchange Offer" ..................means the Company's offer to exchange
shares of New Common Stock for the Senior
Notes pursuant to the terms of the
Exchange Restructuring.
"Exchange Restructuring" ..........means the proposed out-of-court financial
restructuring of the Company, as more
fully set forth in the Exchange
Restructuring Prospectus.
"Exchange Restructuring Date" .....means the date of consummation of the
Exchange Restructuring.
"Exchange Restructuring
Prospectus" ......................means the Prospectus to be delivered to
the Noteholders in connection with the
Exchange Offer and the Prepackaged Plan,
included in the Proxy Statement/Prospectus
as Part A to Annex IV.
"Exercise Price" ..................means $6.2648 per share, subject to
adjustment.
"Existing Equity Based Plans" .....means all of Salant's existing equity-based
plans.
"Expiration Date" .................means, with respect to the Exchange Offer
and the solicitation of acceptances of the
Prepackaged Plan, 5:00 p.m., New York City
time, on ______ __, 1998, unless the
Company, in its sole discretion, extends
the Exchange Offer or solicitation period,
in which case the term "Expiration Date"
for the Exchange Offer or solicitation
period shall mean the last time and date
to which the Exchange Offer or
solicitation period is extended.
"E&Y" .............................means Ernst & Young LLP, financial advisor
to the Company in connection with the
Restructuring.
"Filing Date" .....................means the date on which the Company files
its voluntary petition for relief
commencing the Chapter 11 Case and files
the Prepackaged Plan with the Bankruptcy
Court.
"Final Decree" ....................means a final decree closing the Chapter
11 Case as described in Bankruptcy Rule
3022.
"Final Order" .....................means an order, ruling or judgment that:
(i) is in full force and effect; (ii) is
not stayed; and (iii) is no longer subject
to review, reversal, modification or
amendment, by appeal or writ of
certiorari.
"Fiscal 1997" .....................means the fiscal year of the Company for
accounting purposes which ended on January
3, 1998.
"Forbearance Agreement" ...........means the Twelfth Amendment and
Forbearance Agreement, dated as of March
2, 1998, by and between the Company and
CIT, and included as Exhibit 10.43 to the
Company's Registration Statement on Form
S-4, dated April 22, 1998.
"General Unsecured Claim" .........means any Claim against the Company (other
than the CIT Claim, a Miscellaneous
Secured Claim, a Senior Note Claim, a
Priority Claim, a Priority Tax Claim, or
an Administrative Expense).
"Holder" ..........................means any Entity that holds a Claim or
Interest. Where the identity of the Holder
of a Claim or Interest is set forth on a
register or other record maintained by or
at the direction of the Company, the
Holder of such Claim or Interest shall be
deemed to be the Holder as identified on
such register or record unless the Company
is otherwise notified in a writing
authorized by such Holder.
"Impaired" ........................means any Class of Claims or Interests
that is impaired within the meaning of
Section 1124 of the Bankruptcy Code.
"Indenture" .......................means the Indenture, dated September 20,
1993, as amended, between the Company and
Bankers Trust Company, as Trustee,
pursuant to which the Senior Notes were
issued.
"Instrument" ......................means any share of stock security,
promissory note or other "Instrument"
within the meaning of that term, as
defined in Section 9-105(1)(i) of the UCC.
"Interests" .......................means the equity interests in the Company,
including, but not limited to, shares of
common stock and shares of preferred stock
of the company and any rights, options,
warrants, calls, subscriptions or other
similar rights or agreements, commitments
or outstanding securities obligating the
Company to issue, transfer or sell any
shares of capital stock of the Company.
"Issuance" ........................means the issuance of (i) the shares of
New Common Stock to the Noteholders in
exchange for their Senior Notes and to the
Stockholders in exchange for their Old
Common Stock; (ii) the Warrants; and (iii)
the shares of New Common Stock to holders
of Warrants upon exercise of their
Warrants, pursuant to the Exchange
Restructuring.
"Letter Agreement" ................means that certain letter agreement, dated
March 2, 1998, among Magten, Apollo and
the Company regarding the basic terms and
conditions of the Restructuring, and filed
as Exhibit 10.42 to the Company's
Registration Statement on Form S-4, dated
April 22, 1998.
"Magten" ..........................means Magten Asset Management Corp., a New
York corporation, in its capacity as the
beneficial owner, or the investment
manager on behalf of the beneficial owners
of, not less than $70 million in aggregate
principal face amount of the Senior Notes
as of April 1, 1998.
"Market Rate" .....................means the rate of interest per annum
(rounded upward, if necessary, to the
nearest whole 1/100 of 1%) equal to the
yield equivalent (as determined by the
Secretary of the Treasury) of the average
accepted auction price for the last
auction of one-year United States Treasury
bills settled at least fifteen days prior
to the Effective Date.
"Master Ballots" ..................means ballots to be voted on behalf of
beneficial owners of Old Common Stock with
respect to the Prepackaged Plan by such
beneficial owners' broker or other record
holder of such shares.
"Minimum Tender Condition" ........means the condition to the Exchange Offer
requiring 100% of the aggregate principal
amount of the Senior Notes to be validly
tendered and not withdrawn prior to the
Expiration Date.
"Miscellaneous Secured Claim" .....means any Claim, other than the CIT Claim,
a Senior Note Claim, or an Administrative
Expense, that is a secured claim within
the meaning of, and to the extent provided
in, Section 506 of the Bankruptcy Code.
"NASD" ............................means the National Association of
Securities Dealers, Inc.
"New Common Stock" ................means the shares of common stock of
Reorganized Salant, par value $1.00 per
share, to be issued by Reorganized Salant
on and after the Effective Date pursuant
to the Prepackaged Plan.
"New Credit Agreement" ............means the agreement in respect of a new
working capital facility to be entered
into by the Company and either CIT or
another working capital lender on the
Effective Date, and which will replace the
Company's current working capital facility
under the Credit Agreement.
"Noteholders" .....................means the holders of the Senior Notes.
"NYSE" ............................means the New York Stock Exchange, Inc.
"Old Common Stock" ................means the issued and outstanding common
stock of the Company, par value $1.00 per
share, issued and outstanding as of the
Filing Date.
"Old Common Stock Interest" .......means any Interest evidenced by Old Common
Stock.
"Old Plans" .......................means the Company's 1987 Stock Plan, 1988
Stock Plan, 1993 Stock Plan and 1996 Stock
Plan.
"Other Interest" ..................means any Interest other than an Old
Common Stock Interest.
"Plan Proposal" ...................means the proposal to approve the adoption
of the Stock Award and Incentive Plan.
"Prepackaged Plan" ................means the prepackaged plan of
reorganization of the Company under
Chapter 11 of the Bankruptcy Code
contemplated by the Prepackaged
Restructuring and attached hereto as
Appendix I.
"Prepackaged Restructuring" .......means the proposed financial restructuring
of the Company pursuant to the Prepackaged
Plan, as more fully described herein.
"Priority Claim" ..................means any Claim, other than a Priority Tax
Claim or an Administrative Expense, which
is entitled to priority of payment under
Section 507(a) of the Bankruptcy Code.
"Priority Tax Claim" ..............means any Claim which is entitled to
priority of payment under Section
507(a)(8) of the Bankruptcy Code.
"Proposals" .......................means collectively, in connection with the
Exchange Restructuring, the (A) proposal
to ratify Deloitte & Touche as independent
auditors, (B) the Plan Proposal, and (C)
the Restructuring Proposals.
"Proxy" ...........................means, in connection with the Exchange
Restructuring, the proxy card mailed to
Stockholders, together with the Proxy
Statement/Prospectus which also serves as
a Letter of Transmittal for the
Stockholder.
"Proxy Statement/Prospectus" ......means the Proxy Statement/Prospectus of
the Company mailed to Stockholders in
connection with the Stockholders' Meeting.
"Record Date" .....................means _____ __, 1998.
"Registration Rights Agreement" ...means a registration rights agreement, in
substantially the form annexed to the
Prepackaged Plan as Exhibit B, to be
entered into on the Effective Date by and
among Reorganized Salant and certain
holders of the New Common Stock as of the
Effective Date.
"Registration Statement" ..........means the Registration Statement on Form
S-4 that the Company filed with the
Commission under the Securities Act, with
respect to the securities offered hereby.
"Related Documents" ...............means the Prepackaged Plan, this
Disclosure Statement and all documents
necessary to consummate the transactions
contemplated by the Prepackaged Plan.
"Reorganized Salant" ..............means Salant Corporation, from and after
the effectiveness of the Prepackaged Plan
on the Effective Date.
"Reorganized Salant By-Laws" ......means the by-laws of Reorganized Salant,
as amended and restated pursuant to the
Prepackaged Plan, to be filed with the
Bankruptcy Court prior to the Confirmation
Date.
"Reorganized Salant Certificate of
Incorporation" ...................means the certificate of incorporation of
Reorganized Salant, as amended and
restated pursuant to the Prepackaged Plan,
in substantially the form annexed to the
Prepackaged Plan as Exhibit F.
"Restructuring" ...................means the financial restructuring of the
Company pursuant to either the Exchange
Restructuring or the Prepackaged
Restructuring, as the case may be.
"Restructuring Proposals" .........means, in connection with the Exchange
Restructuring, the proposals of the Board
that are described herein (A) to approve
the Charter Amendment, (B) to approve the
Issuance, and (C) to elect new directors
pursuant to the Election of the New Board.
"Reverse Split" ...................means, with respect to the Exchange
Restructuring, the ten-to-one reverse
stock split of the Company's common stock
to be effected pursuant to the Charter
Amendment.
"Rights Plan" .....................means the shareholder rights plan between
the Company and Chase Manhattan Bank,
N.A., as rights agent, dated December 8,
1987, as amended.
"Salant" ..........................means Salant Corporation, a Delaware
corporation.
"Schedules" .......................means the schedule of assets and
liabilities filed by Salant with the
Bankruptcy Court in accordance with
Section 521(1) of the Bankruptcy Code, and
any supplements and amendments thereto.
"Securities Act" ..................means the Securities Act of 1933, as
amended.
"Senior Notes" ....................means the 10-1/2% Senior Secured Notes due
December 31, 1998, of the Company that
were issued pursuant to the Indenture.
"Senior Note Claims" ..............means any and all Claims in respect of all
or any portion of the aggregate
outstanding and unpaid amount of principal
and interest due and owing under, and
subject to the terms and provisions of,
the Senior Notes, and any other
indebtedness of the Company due and owing
under the Indenture or the Senior Notes
(including, without limitation, any and
all interest, costs, attorneys' fees and
other expenses owed by the Company or for
which the Company may be liable in
connection therewith).
"Series A Preferred Stock" ........means the 50,000 shares of preferred stock
designated as "Series A Junior
Participating Preferred Stock" authorized
pursuant to a resolution adopted by the
Board on December 8, 1987, in connection
with the Rights Plan.
"Solicitation" ....................means the solicitation of Stockholders'
acceptances of the Restructuring Proposals
and the Prepackaged Plan, as contemplated
under the Proxy Statement/Prospectus, or
the solicitation of acceptances of the
Prepackaged Plan in connection with the
Prepackaged Restructuring, as applicable.
"Stock Award and Incentive Plan" ..means the Company's 1998 Stock Award and
Incentive Plan, a copy of which is
attached to the Prepackaged Plan as
Exhibit C.
"Stockholders" ....................means the holders of Old Common Stock.
"Stockholders' Meeting" ...........means the Annual Meeting of Stockholders
of the Company to be held on _____ __,
1998 at __:__ _.m., New York City time, at
Fried, Frank, Harris, Shriver & Jacobson,
One New York Plaza, New York, New York
10004.
"Three-Year Business Plan" ........means the Company's Three-Year Operating
Plan for 1998-2000.
"Trustee" .........................means Bankers Trust Company, as trustee
under the Indenture, or its duly appointed
successor, if any.
"UCC" .............................means the Uniform Commercial Code, from
time to time in effect in the State of New
York.
"Unimpaired" ......................means any Class of Claims or Interests
that is not Impaired.
"Warrants" ........................means Warrants representing the right to
purchase, in the aggregate, up to
2,216,979 shares of New Common Stock, to
be issued by Reorganized Salant on the
Effective Date pursuant to the Warrant
Agreement. Each Warrant represents the
right to purchase one share of New Common
Stock.
"Warrant Agreement" ...............means the Warrant Agreement pursuant to
which the Warrants will be issued, in
substantially the form annexed to the
Prepackaged Pan as Exhibit A.
"Warrant Shares" ..................means shares of New Common Stock issued to
holders of Warrants upon exercise of their
Warrants.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
GLOSSARY..........................................................................................B-vi
I. INTRODUCTION................................................................................B-1
A. GENERAL................................................................................B-1
B. THE COMPANY............................................................................B-3
C. CONSUMMATION OF THE RESTRUCTURING......................................................B-3
1. Exchange Restructuring............................................................B-3
2. Prepackaged Restructuring.........................................................B-4
D. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS........................B-5
E. NOTICE TO HOLDERS OF CLAIMS AND INTERESTS..............................................B-8
II. BUSINESS AND PROPERTIES OF THE COMPANY......................................................B-9
A. GENERAL................................................................................B-9
1. Introduction......................................................................B-9
2. Men's Apparel.....................................................................B-9
3. Children's Sleepwear and Underwear................................................B-9
4. Retail Outlet Stores..............................................................B-10
5. Principal Product Lines...........................................................B-10
6. Trademarks Owned by the Company and Related Licensing Income......................B-11
7. Trademarks Licensed to the Company................................................B-11
8. Design and Manufacturing..........................................................B-12
9. Raw Materials.....................................................................B-12
10. Employees........................................................................B-12
11. Competition......................................................................B-13
12. Environmental Regulations........................................................B-13
13. Made in the Shade - Discontinued Operation.......................................B-13
14. Vera Scarf Division - Discontinued Operation.....................................B-13
15. Acquisition of JJ. Farmer........................................................B-13
16. Bankruptcy Court Cases...........................................................B-13
17. Recent Events....................................................................B-14
B. PROPERTIES.............................................................................B-14
C. LEGAL PROCEEDINGS......................................................................B-14
III. SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION......................................B-16
IV. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......B-16
A. OVERVIEW...............................................................................B-18
B. RESULTS OF OPERATIONS..................................................................B-18
C. LIQUIDITY AND CAPITAL RESOURCES........................................................B-26
D. YEAR 2000 COMPLIANCE...................................................................B-29
E. SEASONALITY............................................................................B-29
F. BACKLOG................................................................................B-30
G. FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION.........................B-30
1. Substantial Level of Indebtedness and the Ability to Restructure Debt.............B-30
2. Competition.......................................................................B-30
3. Apparel Industry Cycles and Other Economic Factors................................B-30
4. Retail Environment................................................................B-31
5. Seasonality of Business and Fashion Risk..........................................B-31
6. Foreign Operations................................................................B-31
7. Dependence on Contract Manufacturing..............................................B-31
V. BACKGROUND OF THE RESTRUCTURING.............................................................B-32
A. BACKGROUND OF THE RESTRUCTURING........................................................B-32
B. THE LETTER AGREEMENT...................................................................B-34
C. THE VOTING AGREEMENT...................................................................B-36
D. THE WAIVER AND FORBEARANCE UNDER THE CREDIT AGREEMENT..................................B-37
VI. PURPOSES AND EFFECTS OF THE PREPACKAGED RESTRUCTURING.......................................B-38
A. PURPOSE OF THE PREPACKAGED RESTRUCTURING...............................................B-38
B. EFFECTS OF THE PREPACKAGED RESTRUCTURING...............................................B-40
1. Dilution of Equity Interests......................................................B-40
2. Provisions For Employees..........................................................B-41
VII. THE CHAPTER 11 CASE.........................................................................B-41
A. TIMETABLE FOR THE CHAPTER 11 CASE......................................................B-41
B. COMMITTEES.............................................................................B-42
C. ACTIONS TO BE TAKEN UPON COMMENCEMENT OF CASE..........................................B-42
1. Applications to Retain Professionals..............................................B-42
2. Motion to Waive Filing of Schedules and Statement of Financial Affairs............B-42
3. Motion To Mail Notices And To Provide Only Publication Notice Of Meeting Of
Creditors To Unimpaired Creditors................................................B-43
4. Motion to Continue Using Existing Bank Accounts, Payroll Accounts and Business
Forms............................................................................B-43
5. Motion for Authority to Pay Prepetition Employee Wages and Associated Benefits....B-43
6. Motion for Authority to Maintain Workers' Compensation Insurance Policies
and to Pay Prepetition Workers' Compensation Claims..............................B-43
7. Chapter 11 Financing..............................................................B-43
8. Motion to Honor Commission and Expense Checks.....................................B-44
9. Motion Restraining and Enjoining Utilities from Discontinuing Service.............B-44
10. Motion to Pay Custom Duties, Broker Charges, Shipping Charges and Related
Possessory Liens.................................................................B-44
11. Disclosure Statement/Confirmation Hearings.......................................B-44
VIII. OFFICERS AND DIRECTORS......................................................................B-44
A. DIRECTORS..............................................................................B-44
B. EXECUTIVE OFFICERS.....................................................................B-46
IX. SUMMARY OF THE PREPACKAGED PLAN.............................................................B-47
A. BRIEF EXPLANATION OF CHAPTER 11........................................................B-47
B. GENERAL INFORMATION CONCERNING TREATMENT OF CLAIMS AND INTERESTS.......................B-47
C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS...................................B-48
1. Unclassified Claims...............................................................B-49
2. Classified Claims And Interests...................................................B-51
D. SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PREPACKAGED PLAN.....................B-53
1. The New Common Stock..............................................................B-53
2. The Warrants......................................................................B-54
3. Market And Trading Information....................................................B-56
E. SOURCES OF CASH TO MAKE PREPACKAGED PLAN DISTRIBUTIONS.................................B-56
F. EXECUTORY CONTRACTS AND UNEXPIRED LEASES...............................................B-56
1. Generally.........................................................................B-56
2. Assumption and Rejection..........................................................B-57
3. Bar Date for Rejection Damages....................................................B-57
G. IMPLEMENTATION OF THIS PLAN...........................................................B-57
1. Vesting of Property...............................................................B-57
2. Transactions on Business Days.....................................................B-57
3. Restated Certificate of Incorporation; Restated By-Laws...........................B-57
4. Implementation....................................................................B-58
5. Issuance of New Securities........................................................B-58
6. Cancellation of Existing Securities and Agreements................................B-58
7. Board of Directors of Reorganized Salant..........................................B-58
8. Employee Benefit Plans............................................................B-58
9. The Stock Award and Incentive Plan................................................B-58
10. Survival of Indemnification Obligations..........................................B-58
11. Listing of New Common Stock; Registration of Securities..........................B-59
12. Retention and Enforcement of Causes of Action....................................B-59
H. PROVISIONS COVERING DISTRIBUTIONS.....................................................B-59
1. Timing of Distributions Under the Prepackaged Plan................................B-59
2. Allocation of Consideration.......................................................B-59
3. Cash Payments.....................................................................B-60
4. Payment of Statutory Fees.........................................................B-60
5. No Interest.......................................................................B-60
6. Fractional Securities.............................................................B-60
7. Withholding of Taxes..............................................................B-60
8. Pro Rata Distribution.............................................................B-60
9. Distribution Record Date..........................................................B-61
10. Persons Deemed Holders of Registered Securities..................................B-61
11. Surrender of Existing Securities.................................................B-61
12. Special Procedures for Lost, Stolen, Mutilated or Destroyed Instruments..........B-61
13. Undeliverable or Unclaimed Distributions.........................................B-61
I. PROCEDURES FOR RESOLVING DISPUTED CLAIMS..............................................B-62
1. Objections to Claims..............................................................B-62
2. Procedure.........................................................................B-62
3. Payments and Distributions With Respect to Disputed Claims........................B-62
4. Timing of Payments and Distributions With Respect to Disputed Claims..............B-62
5. Individual Holder Proofs of Interest..............................................B-63
J. DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS.............................B-63
1. Discharge of All Claims and Interests and Releases................................B-63
2. Injunction........................................................................B-63
3. Exculpation.......................................................................B-64
4. Guaranties and Claims of Subordination............................................B-64
K. CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE.........................B-65
1. Conditions Precedent to Entry of the Confirmation Order...........................B-65
2. Conditions Precedent to the Effective Date........................................B-65
3. Waiver of Conditions..............................................................B-65
4. Effect of Failure of Conditions...................................................B-65
L. MISCELLANEOUS PROVISIONS..............................................................B-66
1. Bankruptcy Court to Retain Jurisdiction...........................................B-66
2. Binding Effect of this Plan.......................................................B-66
3. Nonvoting Stock...................................................................B-66
4. Authorization of Corporate Action.................................................B-66
5. Retiree Benefits..................................................................B-66
6. Withdrawal of the Prepackaged Plan................................................B-67
7. Dissolution of Statutory Committees...............................................B-67
8. Fees, Costs and Expenses of Trustee...............................................B-67
9. Amendments and Modifications to the Prepackaged Plan..............................B-67
10. Section 1125(e) of the Bankruptcy Code...........................................B-67
X. DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT................................................B-68
XI. DESCRIPTION OF NEW CREDIT AGREEMENT.........................................................B-68
XII. DESCRIPTION OF STOCK AWARD AND INCENTIVE PLAN...............................................B-68
A. PURPOSE OF THE STOCK AWARD AND INCENTIVE PLAN..........................................B-69
B. ELIGIBILITY............................................................................B-69
C. PLAN ADMINISTRATION AND SHARES SUBJECT TO THE STOCK AWARD AND INCENTIVE PLAN...........B-69
D. AWARDS.................................................................................B-69
E. CHANGE IN CONTROL......................................................................B-70
F. TRANSFERABILITY........................................................................B-71
G. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS..............................................B-71
H. TREATMENT OF OLD OPTIONS...............................................................B-72
XIV. RISK FACTORS................................................................................B-72
A. DISRUPTION OF OPERATIONS RELATING TO BANKRUPTCY FILING.................................B-72
B. CERTAIN RISKS OF NON-CONFIRMATION......................................................B-73
C. CERTAIN BANKRUPTCY CONSIDERATIONS......................................................B-74
1. Treatment Of The Warrants.........................................................B-74
2. Failure To File Prepackaged Plan..................................................B-74
3. Effect On Operations..............................................................B-75
4. Nonconsensual Confirmation........................................................B-75
D. ADDITIONAL RISK FACTORS................................................................B-75
1. Company Results of Operations Subject to Variable Influences; Intense
Competition......................................................................B-75
2. Dilution..........................................................................B-76
3. Limitation on Use of Net Operating Losses.........................................B-76
4. Lack of Trading Market for Warrants and New Common Stock; Volatility;
Potential De-Listing of the New Common Stock.....................................B-76
5. Possible Volatility of Stock Price; Effect of Prepackaged Restructuring on
Stock Price......................................................................B-77
6. Concentrated Ownership of New Common Stock........................................B-77
7. Absence of and/or Restriction on Dividends........................................B-77
8. History of Losses; Effect of Transaction..........................................B-77
9. Cash Flow From Operations.........................................................B-78
10. Declines in Net Sales and Gross Profits..........................................B-78
11. Retail Environment...............................................................B-79
12. Apparel Industry Cycles and Other Economic Factors...............................B-79
13. Seasonality and Fashion Risk.....................................................B-79
14. Dependence on Certain Customers and Licensees; Effect of Restructuring on
Licenses.........................................................................B-79
15. Foreign Operations and Sourcing; Import Restrictions.............................B-80
16. Dependence on Contract Manufacturing.............................................B-80
17. Information Systems and Control Procedures.......................................B-80
18. Leverage and Debt Service........................................................B-81
19. Restrictive Covenants............................................................B-81
20. Need for Sustained Trade Support.................................................B-82
XV. OWNERSHIP OF OLD COMMON STOCK...............................................................B-82
XVI. MARKET FOR OLD COMMON STOCK AND RELATED STOCKHOLDER MATTERS.................................B-83
XVII. MARKET PRICES OF THE SENIOR NOTES...........................................................B-86
XVIII.APPLICATION OF SECURITIES ACT...............................................................B-86
A. THE SOLICITATION.......................................................................B-86
B. ISSUANCE AND RESALE OF NEW SECURITIES UNDER THE PREPACKAGED PLAN.......................B-86
XIX. PRO FORMA FINANCIAL STATEMENTS..............................................................B-87
XX. DESCRIPTION OF INDEBTEDNESS OF THE COMPANY..................................................B-93
A. REVOLVING CREDIT AGREEMENT.............................................................B-93
B. THE SENIOR NOTES.......................................................................B-94
XXI. FINANCIAL PROJECTIONS AND ASSUMPTIONS USED..................................................B-95
A. GENERAL ASSUMPTIONS....................................................................B-95
B. THE THREE-YEAR BUSINESS PLAN...........................................................B-97
XXII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PREPACKAGED PLAN.............................B-102
A. FEDERAL INCOME TAX CONSEQUENCES TO SALANT..............................................B-102
1. Cancellation Of Indebtedness Income...............................................B-102
2. Limitation On Net Operating Loss Carryovers.......................................B-102
B. FEDERAL INCOME TAX CONSEQUENCES TO NOTEHOLDERS.........................................B-102
1. General...........................................................................B-102
2. Market Discount...................................................................B-103
C. FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS........................................B-103
1. General...........................................................................B-103
2. Disposition.......................................................................B-103
3. Exercise Or Lapse Of Warrants.....................................................B-103
4. Adjustment To Exercise Price......................................................B-104
XXIII.FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF CREDITORS TEST................B-104
A. CONFIRMATION HEARING...................................................................B-104
B. FEASIBILITY OF THE PREPACKAGED PLAN....................................................B-106
C. BEST INTERESTS TEST....................................................................B-106
D. NONCONSENSUAL CONFIRMATION.............................................................B-113
1. No Unfair Discrimination.........................................................B-114
2. Fair and Equitable Test..........................................................B-114
XXIV. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PREPACKAGED PLAN.......................B-114
A. CONTINUATION OF THE CHAPTER 11 CASE....................................................B-114
B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11..............................................B-115
XXV. VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN..............................................B-115
A. VOTING PROCEDURES FOR PREPACKAGED PLAN AND REQUIREMENTS................................B-116
B. WHO MAY VOTE...........................................................................B-117
C. PROCEDURES FOR HOLDERS OF OLD SECURITIES TO VOTE ON PREPACKAGED PLAN...................B-117
D. BENEFICIAL OWNERS OF OLD SECURITIES....................................................B-118
E. BROKERAGE FIRMS, BANKS AND OTHER NOMINEES..............................................B-118
F. SECURITIES CLEARING AGENT..............................................................B-119
G. IMPORTANCE OF PROPER AND TIMELY SUBMISSION OF COMPLETED BALLOTS........................B-119
H. VOTING DEADLINE AND EXTENSIONS.........................................................B-119
I. WITHDRAWAL OF VOTES ON THE PREPACKAGED PLAN............................................B-120
J. INFORMATION AGENT......................................................................B-120
XXVI. CONCLUSION..................................................................................B-120
APPENDIX I - PREPACKAGED PLAN
</TABLE>
I. INTRODUCTION
A. GENERAL
This Disclosure Statement is being furnished by Salant Corporation
("Salant" or the "Company"), a Delaware corporation, pursuant to sections
1125 and 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018(b), in
connection with the solicitation of acceptances, prior to the commencement of
the Chapter 11 Case, of the Prepackaged Plan attached as Appendix I hereto
(as it may be altered, amended, modified or supplemented as described herein)
from Holders of (i) Senior Notes and (ii) Old Common Stock. Salant
anticipates that by conducting the Solicitation in advance of commencing its
Chapter 11 Case, the pendency of the Chapter 11 Case will be significantly
shortened and its administration will be simplified and less costly.
The purpose of the Restructuring is to help ensure the long-term
viability and to contribute to the success of the Company by deleveraging the
Company's capital structure. Specifically, in accordance with the Company's
Three-Year Operating Prepackaged Plan for 1998-2000 (the "Three-Year Business
Plan") developed by the Company, the Restructuring is designed to
recapitalize the Company by converting all of the Company's long-term debt
obligations under the Senior Notes (which as of March 2, 1998, was $110.379
million, consisting of $104.879 million of principal amount, and $5.5 million
of accrued interest on, the Senior Notes) into New Common Stock. For a
detailed description of the Senior Notes, see Section XX herein, entitled
"DESCRIPTION OF INDEBTEDNESS OF THE COMPANY." Interest charges for the
Company should be substantially reduced and stockholders' equity should be
substantially increased as a result of the Restructuring. Upon consummation
of the Restructuring, the Company will not have any long-term debt, other
than the term loan portion of its working capital facility. This
significantly lower debt-to-equity ratio should help the Company to achieve
the objectives as described in the Three-Year Business Plan and make the
Company more attractive to investors. The Company believes that by reducing
the uncertainty surrounding its ability to pay or retire the Senior Notes
which are due in their entirety on December 31, 1998, the Restructuring
should maximize liquidity for the Company's business operations and thereby
provide a platform for future growth and enhance the Company's total
enterprise value. The achievement of the future operating results set forth
in the Three-Year Business Plan is predicated, in part, upon the current
senior management of Salant remaining with Reorganized Salant after the
Effective Date. The Company further believes that by providing the Company
with a deleveraged capital structure, the company that results from the
restructuring should be positioned favorably to withstand the normal market
fluctuations in the highly volatile apparel industry.
In contemplation of the Restructuring, the Company elected not to pay
the interest payment of approximately $5.5 million that was due and payable
under the Senior Notes on March 2, 1998, subject to a 30 day grace period.
Because the Company elected not to pay the interest due on the Senior Notes
by the expiration of the applicable grace period, an event of default has
occurred with respect to the Senior Notes entitling the Noteholders to
accelerate the maturity thereof. Pursuant to a certain letter agreement,
dated March 2, 1998 (the "Letter Agreement"), Magten Asset Management Corp.,
the beneficial owner of, or the investment manager on behalf of the
beneficial owners of not less than $70 million in aggregate principal face
amount of the Senior Notes (in such capacity "Magten"), has, in accordance
with Section 6.5 of the Indenture, dated September 20, 1993, as amended (the
"Indenture"), caused a written direction to be provided to the Trustee under
the Indenture (the "Trustee"), to forbear during the term of the Letter
Agreement from taking any action under the Indenture in connection with the
failure by the Company to make the interest payment on the Senior Notes that
was due and payable on March 2, 1998. On April 8, 1998, the Trustee issued a
Notice of Default stating that as a result of the Company's failure to make
the interest payment due on the Senior Notes, an event of default under the
Indenture had occurred on April 1, 1998. If holders of at least 25% in the
aggregate principal face amount of the Senior Notes accelerate all
outstanding indebtedness under the Senior Notes pursuant to the terms of the
Indenture, and in the event that Stockholders fail to approve the
Restructuring Proposals and the Company does not immediately seek to
implement the Restructuring through the Prepackaged Plan, such an
acceleration of outstanding indebtedness under the Senior Notes could result
in the Company becoming subject to a proceeding under Federal bankruptcy laws
without having solicited acceptances for the Prepackaged Plan prior to the
commencement of such proceeding. In addition, the Company's working capital
lender, The CIT Group/Commercial Services, Inc., agreed to forbear until July
1, 1998, subject to certain conditions, from exercising any of its rights or
remedies under the Revolving Credit, Factoring and Security Agreement, dated
as of September 20, 1993, as amended (the "Credit Agreement"), arising by
virtue of the Company's failure to pay such interest on the Senior Notes. For
a detailed description of the Credit Agreement, see Section XX herein,
entitled "DESCRIPTION OF INDEBTEDNESS OF THE COMPANY." Failure to consummate
the Restructuring could result in the acceleration of all of the indebtedness
under the Senior Notes and/or the Credit Agreement.
ABSENT THE RESTRUCTURING, SALANT DOES NOT BELIEVE IT WILL BE ABLE TO
SATISFY ITS OBLIGATIONS UNDER THE SENIOR NOTES WITHOUT A REFINANCING OF ITS
INDEBTEDNESS UNDER THE CREDIT AGREEMENT AND/OR THE SENIOR NOTES OR AN
ADDITIONAL CAPITAL INFUSION, AND IT IS UNLIKELY THAT SALANT WILL BE ABLE TO
OBTAIN SUCH REFINANCING OR ADDITIONAL CAPITAL INFUSION. IF SALANT DETERMINES
THAT IT IS OR WILL BE UNABLE TO COMPLETE THE RESTRUCTURING, SALANT WILL
CONSIDER ALL OTHER AVAILABLE FINANCIAL OPTIONS, INCLUDING THE SALE OF ALL OR
A PART OF ITS BUSINESSES, THE IMPLEMENTATION OF AN ALTERNATIVE RESTRUCTURING
ARRANGEMENT OUTSIDE OF BANKRUPTCY, OR THE COMMENCEMENT OF A CHAPTER 11 CASE
WITHOUT A PRE-BANKRUPTCY ACCEPTED PLAN OF REORGANIZATION. THERE CAN BE NO
ASSURANCE, HOWEVER, THAT ANY ALTERNATIVE WOULD BE ON TERMS AS FAVORABLE TO
NOTEHOLDERS AND STOCKHOLDERS AS THE RESTRUCTURING.
The Prepackaged Plan provides for, among other things: (i) the issuance
and distribution of New Common Stock to Noteholders; and (ii) the issuance
and distribution of New Common Stock and Warrants to Stockholders. In
consideration of such distributions, the Senior Notes held by the Noteholders
and the Old Common Stock held by the Stockholders will be canceled.
THE SUBSIDIARIES OF SALANT ARE NOT PARTIES TO THE PREPACKAGED PLAN, AND
WILL NOT BECOME DEBTORS IN CONNECTION WITH THE PREPACKAGED RESTRUCTURING.
THEREFORE, THE SUBSIDIARIES OF SALANT WILL CONTINUE TO OPERATE IN THE
ORDINARY COURSE OF BUSINESS. AS SUCH, THE PREPACKAGED PLAN DOES NOT AFFECT
THE CONTINUING AND TIMELY PAYMENT IN FULL OF THE SUBSIDIARIES' OBLIGATIONS TO
SUPPLIERS, EMPLOYEES, AND OTHER CREDITORS. IN ADDITION, THE PREPACKAGED PLAN
PROVIDES FOR ALL PREPETITION UNSECURED CREDITORS OF THE COMPANY, INCLUDING,
WITHOUT LIMITATION, TRADE CREDITORS, TO BE PAID IN FULL IN ACCORDANCE WITH
THEIR TERMS, AND SUCH CREDITORS WILL NOT, THEREFORE, BE IMPAIRED BY, AND WILL
BE DEEMED TO ACCEPT, THE PREPACKAGED PLAN, AND THEIR VOTE ON THE PREPACKAGED
PLAN WILL NOT BE SOUGHT.
Noteholders and Stockholders should read this Disclosure Statement,
together with the Prepackaged Plan, the form of Ballot and/or Master Ballot,
as applicable, and the applicable Voting Instructions (collectively, the
"Solicitation Materials"), in their entirety before voting on the Prepackaged
Plan.
Pursuant to the provisions of the Bankruptcy Code, only Impaired Classes
of Claims and Interests are entitled to vote to accept or reject the
Prepackaged Plan. The only Class of Claims impaired under the Prepackaged
Plan consists of the Holders of Class 3 Senior Note Claims. The only Classes
of Interests impaired under the Prepackaged Plan consists of the Holders of
Class 6 Old Common Stock Interests and Class 7 Other Interests. See Section
IX herein, entitled "SUMMARY OF THE PREPACKAGED PLAN" for a description of
these Classes. Salant is seeking acceptance of the Prepackaged Plan from
Holders of Class 3 Senior Note Claims and Holders of Class 6 Old Common Stock
Interests. CLASS 1 PRIORITY CLAIMS, CLASS 2 CIT CLAIMS, CLASS 4 MISCELLANEOUS
SECURED CLAIMS, AND CLASS 5 GENERAL UNSECURED CLAIMS ARE UNIMPAIRED, AND
HOLDERS OF CLAIMS IN SUCH CLASSES ARE CONCLUSIVELY PRESUMED TO HAVE ACCEPTED
THE PREPACKAGED PLAN PURSUANT TO SECTION 1126(f) OF THE BANKRUPTCY CODE.
CLASS 7 OTHER INTERESTS ARE IMPAIRED AND DO NOT RECEIVE OR RETAIN ANY
PROPERTY UNDER THE PREPACKAGED PLAN AND HOLDERS OF INTERESTS IN CLASS 7 ARE
DEEMED NOT TO HAVE ACCEPTED THE PREPACKAGED PLAN PURSUANT TO SECTION 1126(g)
OF THE BANKRUPTCY CODE.
UNLESS OTHERWISE DIRECTED BY THE BANKRUPTCY COURT, ONLY VOTES CAST BY OR
AT THE DIRECTION OF BENEFICIAL INTEREST HOLDERS OF SENIOR NOTES AND OLD
COMMON STOCK IN ACCORDANCE WITH THE VOTING INSTRUCTIONS WILL BE COUNTED FOR
PURPOSES OF VOTING ON THE PREPACKAGED PLAN. SEE SECTION XXV HEREIN, ENTITLED
"VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN."
The Solicitation will expire at 5:00 p.m., New York City time on
________, 1998 (the "Voting Deadline"), unless the Voting Deadline is
extended or waived by Salant. After carefully reviewing this Disclosure
Statement, the Prepackaged Plan and the other applicable Solicitation
Materials, each Holder of a Senior Note Claim and each Holder of an Old
Common Stock Interest should vote to accept or reject the Prepackaged Plan in
accordance with the Voting Instructions, and return the appropriate Ballot(s)
or Master Ballot(s) in accordance with the instructions set forth therein so
they are received prior to the Expiration Date. For further information, see
Section XXV herein, entitled "VOTING AND CONFIRMATION OF THE PREPACKAGED
PLAN."
B. THE COMPANY
Salant, which was incorporated in Delaware in 1987, is the successor to
a business founded in 1893 and incorporated in New York in 1919. Salant is a
leading designer, manufacturer, importer and marketer of a broad line of
men's apparel, neckwear and belts and children's sleepwear and underwear.
Salant's corporate headquarters are located at 1114 Avenue of the Americas,
New York, New York 10036 and its telephone number is (212) 221-7500. Salant's
apparel products are sold under internationally recognized owned and licensed
brand names, including Perry Ellis, Manhattan, John Henry and Joe Boxer
trademarks, as well as under retailers' private labels. Salant's collection
of Perry Ellis menswear, which includes collection sportswear, casual and
dress shirts, slacks, jeans, neckwear and belts, is Salant's largest product
offering. In fiscal 1997, products sold under the Perry Ellis, Perry Ellis
Portfolio and Perry Ellis America brand names represented 44% of the
Company's total fiscal 1997 net sales.
Salant's merchandise is sold throughout the United States to leading
retailers, including Federated Department Stores, Inc. ("Federated"), May
Company, Dillards Department Stores, Dayton Hudson, Sears, Roebuck & Co.
("Sears"), Wal-Mart and K-Mart. Salant believes its relationships with a wide
variety of leading retailers, design expertise, low-cost manufacturing and
sourcing relationships allow it to participate in numerous areas of the men's
apparel industry.
C. CONSUMMATION OF THE RESTRUCTURING
Salant is simultaneously proposing alternative means of accomplishing
its financial restructuring. The proposed financial restructuring of Salant
pursuant to the Prepackaged Plan is referred to as the "Prepackaged
Restructuring." The proposed financial restructuring of Salant in connection
with the Exchange Offer and the Proxy solicitation is referred to as the
"Exchange Restructuring." The term "Restructuring" as used herein means the
financial restructuring of Salant pursuant to either the Exchange
Restructuring or the Prepackaged Restructuring.
1. Exchange Restructuring
----------------------
The Exchange Restructuring is designed to accomplish the Restructuring
without the commencement of a bankruptcy case. Before the Exchange
Restructuring can be consummated (but subject to Salant's right to amend
and/or waive conditions to the Exchange Offer), (i) Noteholders must tender
(and not subsequently withdraw) by the Expiration Date for the Exchange Offer
one hundred percent (100%) of the aggregate principal amount of the Senior
Notes pursuant to Salant's offer to all such Noteholders (the "Minimum Tender
Condition") to effect the exchange described below, and (ii) the Stockholders
must approve each of the Restructuring Proposals at the Stockholders'
Meeting. Pursuant to the Letter Agreement, the prior written consent of
Magten is required for the Company to waive the Minimum Tender Condition. The
Exchange Restructuring would implement a financial restructuring of Salant
whereby (i) the Noteholders immediately prior to the Exchange Restructuring
would exchange their Senior Notes for, in the aggregate, 18,456,350 shares of
New Common Stock, constituting 92.5% of the New Common Stock issued and
outstanding immediately following consummation of the Exchange Restructuring
(subject to dilution for shares of New Common Stock issued under the Stock
Award and Incentive Plan, the Warrant Shares, and in the case of the Exchange
Restructuring only, the shares of New Common Stock issued under the Company's
1987 Stock Plan, 1988 Stock Plan, 1993 Stock Plan and 1996 Stock Plan (the
"Old Plans"), and (ii) Stockholders immediately prior to the Exchange
Restructuring would receive, in the aggregate, 1,496,461 shares of New Common
Stock, constituting 7.5% of the New Common Stock issued and outstanding
immediately following consummation of the Exchange Restructuring (subject to
dilution for shares of New Common Stock issued under the Stock Award and
Incentive Plan, the Warrant Shares, and in the case of the Exchange
Restructuring only, the shares of New Common Stock issued under the Old
Plans, plus an aggregate of 2,216,979 Warrants, representing the right to
purchase, in the aggregate, 2,216,979 additional shares of New Common Stock,
constituting 10% of the New Common Stock issued and outstanding immediately
after giving effect to the Exchange Restructuring (on a fully diluted basis),
subject to adjustment.
In connection with the Exchange Restructuring, Salant is soliciting
proxies from the Stockholders and is holding a Stockholders' Meeting to
consider and vote upon, among other things, the Issuance, the Charter
Amendment, the Stock Award and Incentive Plan and the Election of the New
Board. If the Stockholders approve the adoption of the Stock Award and
Incentive Plan, the Stock Award and Incentive Plan will become effective
regardless of whether the Exchange Restructuring is implemented or any of the
Restructuring Proposals are approved. For additional information concerning
the terms of the Exchange Restructuring, recipients of this Disclosure
Statement are referred to Part A of the Exchange Restructuring Prospectus.
However, the approval of the Stock Award and Incentive Plan is not a
condition to the consummation of the Restructuring.
2. Prepackaged Restructuring
-------------------------
The Prepackaged Restructuring would be accomplished by obtaining an
order of a bankruptcy court confirming the Prepackaged Plan as to which
acceptances in sufficient number and amount have been solicited and received
prior to filing the Chapter 11 Case. The Prepackaged Restructuring generally
would give effect to the same transactions contemplated in the Exchange
Restructuring, including (i) the exchange of Senior Notes for New Common
Stock, and (ii) the distribution of New Common Stock and Warrants to
Stockholders, each on similar terms as provided in the Exchange
Restructuring. See Section VI herein, entitled "PURPOSES AND EFFECTS OF THE
PREPACKAGED RESTRUCTURING" and Section IX herein, entitled "SUMMARY OF THE
PREPACKAGED PLAN."
If the Prepackaged Plan is confirmed and the Effective Date occurs, (i)
all Senior Notes will be canceled and deemed satisfied in full by the
issuance of New Common Stock to Noteholders, and (ii) all Old Common Stock
will be canceled and Stockholders will receive New Common Stock and the
Warrants.
Generally, for the Prepackaged Plan to be accepted by the two voting
classes, acceptances must be received from (i) the Holders of Class 3 Senior
Note Claims constituting at least two-thirds in dollar amount and more than
one-half in number of the Allowed Class 3 Senior Note Claims, in each case,
counting only Holders that vote, and (ii) the Holders of at least two-thirds
in amount of the Allowed Old Common Stock Interests in Class 6, counting only
Holders of such Interests that vote. See Section IX herein, entitled "SUMMARY
OF THE PREPACKAGED PLAN." For a discussion of the procedures for voting on
the Prepackaged Plan, see Section XXV herein, entitled "VOTING AND
CONFIRMATION OF THE PREPACKAGED PLAN."
Holders are not required to tender their Senior Notes and Old Common
Stock to vote on the Prepackaged Plan. It is important, however, that all
Holders of Senior Notes (whether or not they tender their Senior Notes in the
Exchange Offer) and all Holders of Old Common Stock vote to accept or reject
the Prepackaged Plan, because under the Bankruptcy Code, for purposes of
determining whether the requisite acceptance of Holders has been received
with respect to an Impaired Class of Claims or an Impaired Class of
Interests, the vote will be tabulated based on the ratio of accepting Holders
of each Class of Claims or Interests to all voting Holders of such Class of
Claims or Interests. In each case, only the votes of Holders of Allowed
Claims or Interests, as the case may be, are counted. Abstentions, as a
result of failing to submit a Ballot or Master Ballot (as applicable) or
submitting a Ballot or Master Ballot (as applicable) which has not been
properly executed and completed with respect to voting, will not be counted
as votes for or against the Prepackaged Plan. See Section XXV herein,
entitled "VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN."
If the Minimum Tender Condition is satisfied and the Stockholders vote
to approve each of the Restructuring Proposals at the Stockholders' Meeting,
the Company intends to consummate the Exchange Restructuring without
commencing a case under Chapter 11 of the Bankruptcy Code. If the Minimum
Tender Condition is not satisfied or waived and/or each of the Restructuring
Proposals is not approved by the Stockholders, but the Company does obtain
sufficient acceptances of the Prepackaged Plan to seek confirmation thereof
by a bankruptcy court, Salant expects to seek relief under Chapter 11 of the
Bankruptcy Code and to attempt to use such acceptances to obtain confirmation
of the Prepackaged Plan. If the requisite number and amount of votes needed
for confirmation of the Prepackaged Plan are not received (or if received,
are subsequently revoked or withdrawn) by the Expiration Date, Salant will
consider all financial alternatives available to it at such time, which may
include the sale of all or part of Salant's business or an equity interest in
Salant, the implementation of an alternative restructuring arrangement
outside of bankruptcy or the filing of a Chapter 11 case without a
preapproved plan of reorganization. See Section XXIV herein, entitled
"ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PREPACKAGED PLAN."
Salant intends to use any votes which have been received (and not
subsequently revoked or withdrawn) pursuant to the Solicitation to seek
confirmation of the Prepackaged Plan (or any modification thereof) pursuant
to Section 1129(b) of the Bankruptcy Code.
Confirmation of the Prepackaged Plan is conditioned on the satisfaction
of all of the confirmation requirements of Section 1129 of the Bankruptcy
Code, a Confirmation Order being acceptable in form and substance to Salant,
Magten and Apollo and entry of a Confirmation Order expressly authorizing and
directing Salant to perform thereunder. In addition, consummation of the
Prepackaged Plan is conditioned on, among other things, (i) the Confirmation
Order, in form and substance reasonably acceptable to Salant, Magten and
Apollo, becoming a Final Order, (ii) Reorganized Salant executing an
agreement for a working capital facility on terms reasonably satisfactory to
Apollo and Magten, (iii) the Reorganized Salant Certificate of Incorporation
being filed with the Secretary of State of Delaware, and (iv) Salant
obtaining all required authorizations, consents and regulatory approvals.
With the prior written consent (which shall not be unreasonably withheld) of
Magten and Apollo, but not otherwise, Salant may waive one or more of the
conditions to Confirmation, without notice or an order of the Bankruptcy
Court and without any formal action other than the proceeding to confirm
and/or consummate the Prepackaged Plan. See Section IX herein, entitled
"SUMMARY OF THE PREPACKAGED PLAN."
At the closing of the Prepackaged Restructuring, which would occur on
the Effective Date (i.e., the date that is at least 11 days after the
Confirmation Date, or, if such date is not a Business Day, the next
succeeding Business Day, or such earlier date after the Confirmation Date as
agreed to in writing between Salant and Magten so long as no stay of the
Confirmation Order is in effect on such date; provided, however, that if, on
or prior to such date, all conditions to the Effective Date set forth in
Article Thirteen of the Prepackaged Plan have not been satisfied or waived,
then the Effective Date shall be the first Business Day following the day on
which all such conditions to the Effective Date have been satisfied or
waived), among other things, the Prepackaged Plan would become effective, the
New Common Stock and Warrants would become issuable, the Senior Notes and the
Old Common Stock would be canceled and Salant's obligations thereunder would
be discharged.
D. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
The Prepackaged Plan categorizes into seven Classes the Claims against,
and Interests in, Salant which will exist on the Filing Date. The Prepackaged
Plan also (i) provides that Allowed Administrative Expenses incurred by
Salant during the Chapter 11 Case will be paid in full in Cash on the later
of (a) the Effective Date and (b) the date on which the Bankruptcy Court
enters an order allowing such Administrative Expense; provided, however, that
Allowed Administrative Expenses representing obligations incurred in the
ordinary course of business, consistent with past practice, or assumed by
Salant will be paid in full or performed by Salant or Reorganized Salant in
the ordinary course of business, consistent with past practice; provided
further, however, that Allowed Administrative Expenses incurred by Salant or
Reorganized Salant after the Confirmation Date, including (without
limitation) claims for professionals' fees and expenses, will not be subject
to application and may be paid by Salant or Reorganized Salant, as the case
any be, in the ordinary course of business and without further Bankruptcy
Court approval; (ii) provides that Allowed Priority Tax Claims will receive
(a) Cash payments made in equal annual installments beginning on or before
the first anniversary following the Effective Date with the final installment
being payable no later than the sixth anniversary of the date of the
assessment of such Allowed Priority Tax Claim together with interest on the
unpaid balance of such Allowed Priority Tax Claim from the Effective Date
calculated at the Market Rate, or (b) such other treatment agreed to by the
Holder of such Allowed Priority Tax Claim and Salant or Reorganized Salant,
as the case may be; and (iii) specifies the manner in which the Claims and
Interests in each Class are to be treated.
The table below provides a summary of the classification and treatment
of, and distributions in respect of Claims and Interests in each Class under
the Prepackaged Plan. For a more precise explanation, please refer to the
discussion in Section IX herein, entitled "SUMMARY OF THE PREPACKAGED PLAN"
and to the Prepackaged Plan itself.
TYPE OF CLAIM
CLASS OR EQUITY INTEREST DISTRIBUTION
- --------------------------------------------------------------------------------
1 Priority Claims (Unimpaired) On the latest of (i) the
Effective Date, (ii) the date
on which such Priority Claim
becomes an Allowed Claim, or
(iii) the date on which Salant
and the Holder of such Allowed
Priority Claim otherwise
agree, each Holder of an
Allowed Priority Claim will be
entitled to receive Cash in an
amount sufficient to render
such Allowed Priority Claim
Unimpaired under Section 1124
of the Bankruptcy Code.
- --------------------------------------------------------------------------------
2 CIT Claim (Unimpaired) At the election of the Company
prior to the Effective Date,
on the Effective Date or as
soon as practicable
thereafter, CIT will be
entitled to receive on account
of the Allowed CIT Claim one
of the following treatments:
(i) a distribution in Cash
equal to 100% of its Allowed
CIT Claim, (ii) the Allowed
CIT Claim will be otherwise
rendered Unimpaired in
accordance with Section 1124
of the Bankruptcy Code, or
(iii) such other treatment as
mutually agreed to by the
Company and CIT.
- --------------------------------------------------------------------------------
3 Senior Note Claims (Impaired) On the Effective Date or as
soon as practicable
thereafter, each Holder of an
Allowed Senior Note Claim will
be entitled to receive on
account of such Holder's
Allowed Senior Note Claim such
Holder's pro rata share
of 18,456,350 shares of
New Common Stock (or
175.977555 shares of New
Common Stock for each $1,000
principal face amount of
Senior Notes held by such
Holder).
- --------------------------------------------------------------------------------
4 Miscellaneous Secured Claims
(Unimpaired) At the election of Salant
prior to the Effective Date,
on the Effective Date or as
soon as practicable
thereafter, each Holder of an
Allowed Miscellaneous Secured
Claim will be entitled to
receive on account of such
Holder's Allowed Miscellaneous
Secured Claim one of the
following treatments: (i) the
legal, equitable and
contractual rights to which
such Allowed Miscellaneous
Secured Claim entitles such
Holder shall remain unaltered,
(ii) such Holder's Allowed
Miscellaneous Secured Claim
shall be reinstated and
rendered Unimpaired in
accordance with section 1124
of the Bankruptcy Code, or
(iii) such other treatment as
mutually agreed to by Salant
and such Holder.
- --------------------------------------------------------------------------------
5 General Unsecured Claims At the election of Salant
(Unimpaired) prior to the Effective Date,
on the Effective Date or as
soon as practicable
thereafter, each Holder of an
Allowed General Unsecured
Claim that has not been fully
paid or satisfied prior to the
Effective Date will be
entitled to receive on account
of such Holder's Allowed
General Unsecured Claim one of
the following treatments: (i)
the legal, equitable and
contractual rights to which
such Allowed General Unsecured
Claim entitles such Holder
shall remain unaltered, (ii)
such Holder's Allowed General
Unsecured Claim will be
reinstated and rendered
Unimpaired under section 1124
of the Bankruptcy Code, or
(iii) such other treatment as
mutually agreed to by Salant
and such Holder.
- --------------------------------------------------------------------------------
6 Old Common Stock Interests On the Effective Date or as
(Impaired) soon as practicable
thereafter, each Holder of an
Allowed Old Common Stock
Interest will be entitled to
receive on account of such
Holder's Allowed Old Common
Stock Interest such Holder's
pro rata share of (i)
1,496,461 shares of New Common
Stock, and (ii) the
Warrants.
- --------------------------------------------------------------------------------
7 Other Interests (Impaired) On the Effective Date, Other
Interests will be extinguished
and no distributions will be
made in respect of such Other
Interests.
- --------------------------------------------------------------------------------
For detailed historical and projected financial information and
valuation estimates, see Section XXI herein, entitled "FINANCIAL PROJECTIONS
AND ASSUMPTIONS USED."
For a more detailed description of the foregoing Classes of Claims and
Equity Interests, see Section IX herein, entitled "SUMMARY OF THE PREPACKAGED
PLAN."
E. NOTICE TO HOLDERS OF CLAIMS AND INTERESTS
This Disclosure Statement is being transmitted only to holders of
Impaired Claims against and Impaired Interests in Salant who are entitled to
vote to accept or reject the Prepackaged Plan.
WHEN CONFIRMED BY THE BANKRUPTCY COURT, THE PREPACKAGED PLAN WILL BIND
ALL HOLDERS OF CLAIMS AGAINST AND INTERESTS IN SALANT, WHETHER OR NOT THEY
ARE ENTITLED TO VOTE OR DID VOTE ON THE PREPACKAGED PLAN AND WHETHER OR NOT
THEY RECEIVE OR RETAIN ANY DISTRIBUTIONS OR PROPERTY UNDER THE PREPACKAGED
PLAN. THUS, ALL HOLDERS OF IMPAIRED CLAIMS AGAINST AND IMPAIRED INTERESTS IN
SALANT ARE ENCOURAGED TO READ THE PROXY STATEMENT/PROSPECTUS, THE EXCHANGE
RESTRUCTURING PROSPECTUS, AND THIS DISCLOSURE STATEMENT AND ITS EXHIBITS
CAREFULLY AND IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR TO REJECT THE
PREPACKAGED PLAN. THIS DISCLOSURE STATEMENT CONTAINS IMPORTANT INFORMATION
ABOUT THE PREPACKAGED PLAN, CONSIDERATIONS PERTINENT TO ACCEPTANCE OR
REJECTION OF THE PREPACKAGED PLAN, AND DEVELOPMENTS CONCERNING THE CHAPTER 11
CASE.
CERTAIN OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS BY
ITS NATURE FORWARD LOOKING AND CONTAINS ESTIMATES, ASSUMPTIONS, AND
PROJECTIONS THAT MAY BE MATERIALLY DIFFERENT FROM ACTUAL FUTURE RESULTS.
Except with respect to the projections referenced in Section XXI herein,
entitled "FINANCIAL PROJECTIONS AND ASSUMPTIONS USED" (the "Projections") and
except as otherwise specifically and expressly stated herein, this Disclosure
Statement does not reflect any events that may occur subsequent to the date
hereof. Such events may have a material impact on the information contained
in this Disclosure Statement. Salant and Reorganized Salant do not intend to
update the Projections. Thus, the Projections will not reflect the impact of
any subsequent events not already accounted for in the assumptions underlying
the Projections. Further, Salant does not anticipate that any amendments or
supplements to this Disclosure Statement will be distributed to reflect such
occurrences. Accordingly, the delivery of this Disclosure Statement shall not
under any circumstance imply that the information herein is correct or
complete as of any time subsequent to the date hereof.
EXCEPT WHERE SPECIFICALLY NOTED, THE FINANCIAL INFORMATION CONTAINED
HEREIN HAS NOT BEEN AUDITED BY A CERTIFIED PUBLIC ACCOUNTANT AND HAS NOT BEEN
PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
If you did not receive a Ballot in your package of Solicitation
Materials and believe that you should have, please contact the Information
Agent named below at the address or telephone number set forth in Section
XXV.J. of this Disclosure Statement entitled "VOTING AND CONFIRMATION OF THE
PREPACKAGED PLAN--INFORMATION AGENT."
II. BUSINESS AND PROPERTIES OF THE COMPANY
A. GENERAL
1. Introduction
------------
The Company which was incorporated in Delaware in 1987, is the successor
to a business founded in 1893 and incorporated in New York in 1919. The
Company designs, manufactures, imports and markets to retailers throughout
the United States brand name and private label apparel products primarily in
three product categories: (i) menswear; (ii) children's sleepwear and
underwear; and (iii) retail outlet stores, as described below. The Company
sells its products to department and specialty stores, national chains, major
discounters and mass volume retailers throughout the United States. (As used
herein, the "Company" includes Salant and its subsidiaries, but excludes
Salant's Made in the Shade and Vera Scarf divisions.)
2. Men's Apparel
-------------
The men's apparel business is comprised of the Perry Ellis division and
Salant Menswear Group. The Perry Ellis division markets dress shirts, slacks
and sportswear under the Perry Ellis, Portfolio By Perry Ellis and Perry
Ellis America trademarks. Salant Menswear Group is comprised of the
Accessories division, the Bottoms division and all dress shirt businesses
other than those selling products bearing the Perry Ellis trademarks. The
Accessories division markets neckwear, belts and suspenders under a number of
different trademarks, including Portfolio By Perry Ellis, John Henry, Save
The Children and Peanuts. The Bottoms division primarily manufactures men's
and boys' jeans, principally under the Sears Canyon River Blues trademark,
and men's casual slacks under Sears' Canyon River Blues Khakis trademark. The
Salant Menswear Group also markets dress shirts, primarily under the John
Henry and Manhattan trademarks.
3. Children's Sleepwear and Underwear
----------------------------------
The children's sleepwear and underwear business is conducted by the
Salant Children's Apparel Group (the "Children's Group"). The Children's
Group markets blanket sleepers primarily using a number of well-known
licensed cartoon characters created by, among others, Disney and Warner Bros.
The Children's Group also markets pajamas under the Oshkosh B'gosh trademark,
and sleepwear and underwear under the Joe Boxer trademark. At the end of the
first quarter of 1998, the Company determined not to continue with its Joe
Boxer sportswear line for Fall 1998. Instead, consistent with the approach
that the Joe Boxer Corporation (Salant's licensor of the Joe Boxer trademark)
has taken, the Company will focus on its core business of underwear and
sleepwear.
4. Retail Outlet Stores
--------------------
The retail outlet stores business of the Company consists of a chain of
factory outlet stores (the "Stores division"), through which it sells
products manufactured by the Company and other apparel manufacturers. In
December 1997, the Company announced the restructuring of the Stores
division, pursuant to which the Company closed all stores other than its
Perry Ellis outlet stores. This resulted in the closing of 42 outlet stores.
At the end of Fiscal 1997, the Company operated 17 Perry Ellis outlet stores.
Commencing with the 1998 fiscal year, as a result of the restructuring of
this division, the retail outlet stores will be reported as part of the men's
apparel segment of Salant.
5. Principal Product Lines
-----------------------
The following table sets forth, for fiscal years 1995 through 1997, the
percentage of the Company's total net sales contributed by each category of
product:
Fiscal Year
-----------
1995 1996 1997
---- ---- ----
Men's Apparel 86% 83% 82%
Children's Sleepwear and Underwear 8% 11% 12%
Retail Outlet Stores 6% 6% 6%
In Fiscal 1997, approximately 17% of the Company's net sales were made
to Sears, approximately 11% of the Company's net sales were made to Federated
and approximately 10% of the Company's net sales were made to TJX Corporation
("TJX"). In 1996, approximately 13% of the Company's net sales were made to
Sears. In 1996 and 1995, net sales to Federated represented approximately 11%
and 12% of the Company's net sales, respectively. In 1995, approximately 11%
of the Company's net sales were made to TJX. In 1995, approximately 13% of
the Children's Group's net sales were made to Dayton Hudson Corporation.
No other customer accounted for more than 10% of the net sales of the
Company or any of its business segments during 1995, 1996 or 1997.
The markets in which the Company operates are highly competitive. The
Company competes primarily on the basis of brand recognition, quality,
fashion, price, customer service and merchandising expertise.
A significant factor in the marketing of the Company's products is the
consumer perception of the trademark or brand name under which those products
are marketed. Approximately 76% of the Company's net sales for Fiscal 1997
was attributable to products sold under Company owned or licensed designer
trademarks and other internationally recognized brand names and the balance
was attributable to products sold under retailers' private labels, including
Sears' Canyon River Blues. The following table lists the principal owned or
licensed trademarks under which the Company's products were sold in Fiscal
1997 and the product lines associated with those trademarks. Trademarks used
under license are indicated with an asterisk; all other listed trademarks are
owned by the Company.
Trademark Product Lines
- --------- -------------
Disney characters * Children's sleepwear and underwear
Dr. Denton Children's sleepwear and underwear
Gant * Men's dress shirts, neckwear, belts and
suspenders
Joe Boxer * Children's sleepwear, underwear and
sportswear; men's neckwear
John Henry Men's dress shirts, neckwear, belts,
suspenders and jeans
Looney Tunes characters * Children's sleepwear
Manhattan Men's dress shirts
Oshkosh B'gosh * Children's sleepwear
Peanuts * Men's dress shirts and neckwear
Perry Ellis * Men's sportswear, dress shirts, neckwear,
belts and suspenders
Perry Ellis America * Men's casual sportswear and jeans
Portfolio By Perry Ellis * Men's dress slacks, dress shirts, neckwear,
belts and suspenders
Save The Children * Men's neckwear and suspenders
Thomson Men's casual and dress slacks
Unicef * Men's neckwear
During Fiscal 1997, 44% of the Company's net sales was attributable to
products sold under the Perry Ellis, Portfolio By Perry Ellis and Perry Ellis
America trademarks; these products are sold through leading department and
specialty stores. Products sold to Sears under its exclusive brand Canyon
River Blues accounted for 14% of the Company's net sales during Fiscal 1997.
No other line of products accounted for more than 10% of the Company's net
sales during Fiscal 1997.
6. Trademarks Owned by the Company and Related Licensing Income
------------------------------------------------------------
The Company owns the Dr. Denton, John Henry, Lady Manhattan, Manhattan
and Thomson trademarks, among others. All of the significant brand names
owned by the Company have been registered or are pending registration with
the United States Patent and Trademark Office.
The Company has sought to capitalize on the consumer recognition of and
interest in its trademarks by licensing various of those trademarks to
others. As of the end of Fiscal 1997, licenses were outstanding to
approximately 18 licensees to make or sell apparel products and accessories
in the United States and to 34 licensees in 30 other countries under the
Manhattan, Lady Manhattan, John Henry, and Vera trademarks, which produced
royalty income of approximately $5.6 million in Fiscal 1997. Products under
license include men's belts, dress shirts, leather accessories, neckwear,
optical frames, outerwear, pajamas, robes, scarves, shorts, slacks, socks,
sportcoats, sunglasses, suspenders and underwear, and women's blouses and
tops, gloves, intimate apparel, lingerie, optical frames, scarves and shirts.
7. Trademarks Licensed to the Company
----------------------------------
The name Perry Ellis and related trademarks are licensed to the Company
under a series of license agreements with Perry Ellis International, Inc.
("PEI"). The license agreements contain renewal options, which, subject to
compliance with certain conditions contained therein, permit the Company to
extend the terms of such license agreements. Assuming the exercise by the
Company of all available renewal options, the license agreements covering
men's apparel and accessories will expire on December 31, 2015. The Company
also has rights of first refusal worldwide for certain new licenses granted
by PEI for men's apparel and accessories.
The Company is also a licensee of various trademarks, including certain
Disney characters (including Disney Babies, Mickey For Kids, Winnie The Pooh
and The Lion King-Simba's Pride), Gant, Joe Boxer, Oshkosh B'gosh, Peanuts,
Save The Children, Unicef and certain Warner Bros. characters (including
certain Looney Tunes characters, such as Bugs Bunny, Daffy Duck and Porky
Pig), for various categories of products under license agreements expiring
between 1998 and 2002.
The agreements under which the Company is licensed to use trademarks
owned by others typically provide for royalties at varying percentages of net
sales under the licensed trademark, subject to a minimum annual royalty
payable irrespective of the level of net sales. The Company anticipates that
it should be able to extend, if it so desires, the term of any material
licenses when they expire.
8. Design and Manufacturing
------------------------
Products sold by the Company's various divisions are manufactured to the
designs and specifications (including fabric selections) of designers
employed by those divisions. In limited cases, the Company's designers may
receive input from one or more of the Company's licensors on general themes
or color palettes.
During Fiscal 1997, approximately 12% of the products produced by the
Company (measured in units) were manufactured in the United States, with the
balance manufactured in foreign countries. Facilities operated by the Company
accounted for approximately 75% of its domestic-made products and 37% of its
foreign-made products; the balance in each case was attributable to
unaffiliated contract manufacturers. In Fiscal 1997, approximately 47% of the
Company's foreign production was manufactured in Mexico, approximately 18%
was manufactured in Guatemala and approximately 12% was manufactured in the
Dominican Republic.
The Company's foreign sourcing operations are subject to various risks
of doing business abroad, including currency fluctuations (although the
predominant currency used is the U.S. dollar), quotas and, in certain parts
of the world, political instability. Although the Company's operations have
not been materially adversely affected by any of such factors to date, any
substantial disruption of its relationships with its foreign suppliers could
adversely affect its operations. Some of the Company's imported merchandise
is subject to United States Customs duties. In addition, bilateral agreements
between the major exporting countries and the United States impose quotas,
which limit the amounts of certain categories of merchandise that may be
imported into the United States. Any material increase in duty levels,
material decrease in quota levels or material decrease in available quota
allocations could adversely affect the Company's operations.
9. Raw Materials
-------------
The raw materials used in the Company's manufacturing operations consist
principally of finished fabrics made from natural, synthetic and blended
fibers. These fabrics and other materials, such as leathers used in the
manufacture of various accessories, are purchased from a variety of sources
both within and outside the United States. The Company believes that adequate
sources of supply at acceptable price levels are available for all such
materials. Substantially all of the Company's foreign purchases are
denominated in U.S. currency. No single supplier accounted for more than 10%
of Salant's raw material purchases during Fiscal 1997. In Fiscal 1997, the
Company entered into forward foreign exchange contracts, relating to 80% of
its projected 1998 Mexican peso needs, to fix its cost of acquiring pesos and
diminish the risk of foreign currency fluctuation.
10. Employees
---------
As of the end of Fiscal 1997, the Company employed approximately 3,800
persons, of whom 3,200 were engaged in manufacturing and distribution
operations and the remainder were employed in executive, marketing and sales,
product design, engineering and purchasing activities and in the operation of
the Company's retail outlet stores. Substantially all of the manufacturing
employees are covered by collective bargaining agreements with various
unions, which expire between 1998 and 2000. The Company believes that its
relations with its employees are satisfactory.
11. Competition
-----------
The apparel industry in the United States is highly competitive and
characterized by a relatively small number of multi-line manufacturers (such
as the Company) and a larger number of specialty manufacturers. The Company
faces substantial competition in its markets from manufacturers in both
categories. Many of the Company's competitors have greater financial
resources than the Company. The Company seeks to maintain its competitive
position in the markets for its branded products on the basis of the strong
brand recognition associated with those products and, with respect to all of
its products, on the basis of styling, quality, fashion, price and customer
service.
12. Environmental Regulations
-------------------------
Current environmental regulations have not had, and in the opinion of
the Company, assuming the continuation of present conditions, are not
expected to have a material effect on the business, capital expenditures,
earnings or competitive position of the Company.
13. Made in the Shade - Discontinued Operation
------------------------------------------
In June 1997, the Company discontinued the operations of the Made in the
Shade division, which produced and marketed women's junior sportswear under
the Company owned trademarks Made In The Shade and Prime Time. The financial
statements of the Company included in this report treat the Made in the Shade
division as a discontinued operation.
14. Vera Scarf Division - Discontinued Operation
--------------------------------------------
In February 1995, the Company discontinued its Vera Scarf division,
which imported and marketed women's scarves under (i) the Company-owned
trademarks Vera and Acute, (ii) trademarks licensed to the Company, including
Perry Ellis, and (iii) retailers' private labels. The Company closed the Vera
Scarf division in 1995. The financial statements of the Company included in
this report treat the Vera Scarf division as a discontinued operation.
15. Acquisition of JJ. Farmer
-------------------------
On June 10, 1994, the Company acquired all the capital stock of JJ.
Farmer Clothing Inc. (a Canadian corporation) and the assets of JJ. Farmer
International Limited (a Hong Kong corporation) (collectively "JJ. Farmer")
for approximately $5,311 in cash. The purchase price is subject to adjustment
based on a number of items, including the future profitability of JJ. Farmer.
As part of the acquisition, the Company agreed to pay to the former owners of
JJ. Farmer, certain minimum amounts in the years 1996 through 1999. The
present value of such future payments is $1,352, which is included in
long-term debt. Through December 28, 1996, the Company had made additional
payments of $1,157 in accordance with the acquisition agreement. The
acquisition has been accounted for as a purchase, and accordingly, JJ.
Farmer's operating results have been included in the Company's consolidated
results of operations commencing June 11, 1994. Pro forma results of
operations have not been presented as the effect would not be significant.
JJ. Farmer's net sales for the five months ended May 31, 1994 were $3,392.
The excess of cost over the book value of net assets acquired ($4,589 subject
to adjustment) was being amortized over a period of not more than 15 years on
a straight-line basis, prior to the write-off in the second quarter of 1996.
16. Bankruptcy Court Cases
----------------------
On February 22, 1985, Salant Corporation, a New York corporation
("Salant NY") and its two largest subsidiaries, Thomson Company, Inc.
("Thomson") and Obion Company, Inc. ("Obion"), filed with the Bankruptcy
Court separate voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code (Case Nos. 85-B-10229 (PBA) through 85-B-10231 (PBA),
inclusive). Salant NY's other United States, Canada and Mexico subsidiaries
did not seek relief under the Bankruptcy Code or other foreign insolvency
laws, respectively. On May 19, 1987, the Bankruptcy Court issued an order
confirming the Joint Chapter 11 Plan of Salant NY, Thomson and Obion (the
"1987 Chapter 11 Plan"). The 1987 Chapter 11 Plan was consummated on June 2,
1987. On June 2, 1987, pursuant to the provisions of the 1987 Chapter 11
Plan, the assets of Salant NY, Thomson and Obion were substantively
consolidated, and Salant NY, Thomson and Obion and the inactive subsidiaries
of Salant NY merged with a wholly-owned subsidiary of Salant NY. The Company
is the surviving corporation of such merger. Salant NY's other subsidiaries,
Clantexport Inc. and Carrizo Manufacturing Co., S.A. de C.V., became
subsidiaries of the Company. The common stock of Salant NY was converted
automatically into common stock of the Company. From June 2, 1987 to December
3, 1988, in connection with consummation of the 1987 Chapter 11 Plan, the
Company made payments of approximately $31 million in cash, issued $28,543
million principal amount of debentures and issued 228,346 shares of common
stock with a fair market value of $2.779 million to creditors and 133,800
shares of common stock with a fair market value of $1.601 million to
management. Of the shares issued to management, 100,000 shares were issued to
the president of the Company and 33,800 shares were issued to certain other
officers and key employees under the 1987 Stock Plan.
On June 27, 1990, Salant and its wholly owned subsidiary, Denton Mills,
Inc., each filed with the Bankruptcy Court a separate voluntary petition for
relief under Chapter 11 of the Bankruptcy Code (Case Nos. 90-B-12037 (CB) and
90-B-12038 (CB)) (the "1990 Chapter 11 Case"). The Company's other United
States subsidiaries did not seek relief under the Bankruptcy Code. On July
30, 1993, the Bankruptcy Court issued an order confirming the Third Amended
Joint Plan of Reorganization of Salant and Denton Mills (the "1993 Chapter 11
Plan"). The 1993 Chapter 11 Plan was consummated on September 20, 1993 (the
"Consummation Date"). Pursuant to the 1993 Chapter 11 Plan, the Company,
among other things, issued the Senior Notes, made certain cash payments, and
issued shares of common stock. For a further description of the 1990 Chapter
11 Case, see Section II.C., entitled "LEGAL PROCEEDINGS," below.
17. Recent Events.
--------------
For a discussion of recent events, see Section V herein, entitled
"BACKGROUND OF THE RESTRUCTURING."
B. PROPERTIES
The Company's principal executive offices are located at 1114 Avenue of
the Americas, New York, New York 10036. The Company's principal properties
consist of three domestic manufacturing facilities located in Alabama, New
York and Tennessee, four manufacturing facilities located in Mexico, and five
distribution centers; one in New York, two in South Carolina and two in
Texas. At the end of Fiscal 1997, the Company was in the process of closing
one distribution facility in South Carolina. The Company owns approximately
1,067,000 square feet of space devoted to manufacturing and distribution and
leases approximately 497,000 square feet of such space. The Company owns
approximately 69,000 square feet of office space and leases approximately
210,000 square feet of combined office, design and showroom space. The
Children's Group has exclusive use of the Tennessee manufacturing facility,
shares one of the Mexican manufacturing facilities with the Salant Menswear
Group Bottoms division and has its distribution center in a building in
Texas. As of the end of Fiscal 1997, the Company's Stores division operated
17 factory outlet stores, comprising approximately 45,000 square feet of
selling space, all of which are leased. Except as noted above, substantially
all of the owned and leased property of the Company is used in connection
with its men's apparel business or general corporate administrative
functions.
The Company believes that its plant and equipment are adequately
maintained, in good operating condition, and are adequate for the Company's
present needs.
C. LEGAL PROCEEDINGS
On June 27, 1990, the Company and Denton Mills each filed with the
Bankruptcy Court a separate voluntary petition for relief under Chapter 11 of
the Bankruptcy Code. On July 30, 1993, the Bankruptcy Court issued an order
confirming the 1993 Chapter 11 Plan. The 1993 Chapter 11 Plan was consummated
on September 20, 1993. From that date through January 3, 1998 (approximately
51 months), in accordance with the 1993 Chapter 11 Plan, the Company made
cash payments of $9.7 million, issued $111.9 million of Senior Notes, and
issued 11.1 million shares of common stock in settlement of certain
undisputed and disputed claims in the Chapter 11 proceedings. The Company
anticipates that an additional $1.8 million in cash and an additional
approximately 206,000 shares of Old Common Stock (or, after the consummation
of the Restructuring, approximately 20,600 shares of New Common Stock) will
ultimately be distributed in connection with the resolution of all remaining
claims. Provisions for such distributions were made in the consolidated
financial statements at the time of emergence from the bankruptcy during the
year ended January 1, 1994. The process of resolving claims is continuing
and, pursuant to the 1993 Chapter 11 Plan, remains under the jurisdiction of
the Bankruptcy Court.
The Company is a defendant in several other legal actions. In the
opinion of the Company's management, based upon the advice of the respective
attorneys handling such cases, such actions are not expected to have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flow.
III. SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(Amounts in thousands except share, per share and ratio data)
Set forth below are summary consolidated historical financial data of
the Company. The summary financial data for each of the years in the five
year period ended January 3, 1998 have been derived from the audited
Consolidated Financial Statements of the Company. The summary financial
data for the three month periods ended April 4, 1998 and March 29, 1997
have been derived from the unaudited financial statements of the Company
and include all adjustments of a normal recurring nature which are
necessary to present fairly such financial statements. The data presented
below is qualified by, and should be read in conjunction with, the
Consolidated Financial Statements and related notes thereto, and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" in Section IV of this Disclosure Statement. The
Company's fiscal year ends on the Saturday closest to December 31.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE FISCAL YEAR ENDED
-------------------------- -------------------------
APRIL 4, MARCH 29, JAN. 03, DEC. 28, DEC. 30, DEC. 31, JAN. 1,
1998 1997 1998 1996 1995 1994 1994
(52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
---------- ---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS:
Net sales $ 84,887 $ 88,209 $396,832 $417,711 $485,825 $398,990 $379,012
Reversal of /(Provision
for) Restructuring costs
(a) 160 754 (2,066) (11,730) (3,550) - (5,500)
Income/(loss) from
continuing operations (3,297) (2,737) (10,722) (8,958) (362) 3,398 7,865
DISCONTINUED OPERATIONS:
Loss from operations,
net of income taxes - (773) (8,136) (365) (136) (9,530) (638)
Estimated loss on
disposal, net of income
taxes - - (1,330) - - (1,796) -
Reversal of estimated
loss on disposal, net of
income taxes - - - - - - 11,772
Extraordinary gain (b) - - 2,100 - 1,000 63 24,707
Net income/(loss)(a) (3,297) (3,510) (18,088) (9,323) 502 (7,865) 43,706
BASIC EARNINGS/(LOSS) (PER
SHARE:
Earnings/(loss) per share
from continuing
operations before
extraordinary gain $ (.22) $ (.18) $ (0.71) $ (0.60) $ (0.02) $ (0.23) $ 1.18
Earnings/(loss) per share
from discontinued
operations - $ (.05) $ (0.62) (0.02) $ (0.01) $ (0.76) $ 1.68
Earnings per share from
extraordinary gain - - 0.14 - 0.06 - 3.72
Basic earnings/(loss) per (.22) (.23) (1.19) (0.62) 0.03 (0.53) 6.58
share (a)
DILUTED EARNINGS/(LOSS)
PER SHARE:
Earnings/(loss) per share
from continuing
operations before
extraordinary gain
Earnings/(loss) per share $ (.22) $ (.18) $ (0.71) $ (0.60) $ (0.02) $ 0.23 $ 1.10
from discontinued
operations - (.05) (0.62) (0.02) (0.01) (0.76) 1.57
Earnings per share from
extraordinary gain - - 0.14 - 0.06 - 3.48
Diluted earnings/(loss)
per share (a) (.22) (.23) (1.19) (0.62) 0.03 (0.53) 6.15
CASH DIVIDENDS PER SHARE - - - - - - -
WEIGHTED AVERAGE SHARES:
Shares used in computing
basic earnings per share 15,170 15,041 $ 15,139 $ 15,078 $ 15,008 $ 14,954 $ 6,638
Add - Common stock
equivalents (d) (d) (d) (d) 110 (d) 465
Shares used in computing
diluted earnings
per share 15,170 15,041 15,139 15,078 15,118 14,954 7,103
AT END OF PERIOD:
Current assets $ 156,094 $ 167,325 $148,899 $150,986 $163,799 $172,234 $161,375
Total assets 238,990 253,473 233,377 235,251 253,970 266,157 251,946
Current liabilities (c) 194,627 82,365 185,692 59,566 61,704 71,104 44,427
Long-term debt (c) - 104,879 - 106,231 110,040 109,908 111,851
Deferred liabilities 5,354 9,114 5,382 8,863 11,373 13,479 16,766
Working capital/(deficiency) (38,533) 84,960 (36,793) 91,420 102,095 101,130 116,948
Current ratio 0.8:1 2.0:1 0.8:1 2.5:1 2.7:1 2.4:1 3.61:1
Shareholders' equity $ 39,009 $ 57,115 $ 42,303 $ 60,591 $ 70,853 $ 71,666 $ 78,902
Book value per share $ 2.57 $ 3.78 $ 2.79 $ 4.01 $ 4.71 $ 4.78 $ 5.34
Number of shares
outstanding 15,170 15,104 15,170 15,094 15,041 15,008 14,781
</TABLE>
- ---------------
(a) Includes, for the three month periods ended April 4, 1998 and March
29, 1997, a reversal of a previously recorded restructuring provision
of $160 and $754, respectively, related to the excess portion of net
liabilities set up for the closure of all retail outlet stores other
than Perry Ellis outlet stores and the closure of the JJ Farmer
sportswear product line, respectively; for the year ended January 3,
1998, a provision of $2,066 (14 cents per share; tax benefit not
available) for restructuring costs principally related to (i) $3,530
related to the decision in the fourth quarter to close all retail
outlet stores other than Perry Ellis outlet stores and (ii) the
reversal of previously recorded restructuring provisions of $1,464,
primarily resulting from the settlement of liabilities for less than
the carrying amount, resulting in the reversal of the excess portion
of the provision; for the year ended December 28, 1996, a provision
of $11,730 (78 cents per share; tax benefit not available) for
restructuring costs principally related to (i) the write-off of
goodwill and the write-down of other assets for a product line which
has been put up for sale, (ii) the write-off of certain assets and
accrual for future royalties for a licensed product line and (iii)
employee costs related to closing certain facilities; for the year
ended December 30, 1995, a provision of $3,550 (24 cents per share;
tax benefit not available) for restructuring costs principally
related to (i) fixed asset write-downs at locations to be closed and
(ii) inventory markdowns for discontinued product lines; and for the
year ended January 1, 1994, a provision of $5,500 (basic loss per
share of 83 cents; tax benefit not available) for restructuring costs
principally related to the costs incurred in connection with the
closure of certain unprofitable operations, including (i) inventory
markdowns associated with those product lines and (ii) fixed asset
write-downs at closed locations.
(b) Includes, for the year ended January 3, 1998, a gain of $2,100 (14
cents per share) related to the reversal of excess liabilities
previously provided for the anticipated settlement of claims arising
from the Chapter 11 proceeding; for the year ended December 30, 1995,
a gain of $1,000 (6 cents per share) related to the reversal of
excess liabilities previously provided for the anticipated settlement
of claims arising from the Chapter 11 proceeding; for the year ended
December 31, 1994, a gain of $63 (no per share effect) related to the
purchase and retirement of a portion of the Senior Notes at a price
below the principal amount thereof; and for the year ended January 1,
1994, a gain of $24,707 (basic earnings per share of $3.72) related
to the settlement and anticipated settlement of claims arising from
the Chapter 11 proceeding.
(c) At April 4, 1998 and January 3, 1998, long-term debt of $104,879 had
been classified as a current liability. See Note 1 to the
Consolidated Financial Statements at page F-6 and page F-26 to the
Company's Registration Statement on Form S-4 of which this Disclosure
Statement is a part.
(d) Common stock equivalents have not been included in these periods as
their inclusion would be anti-dilutive to the calculation.
IV. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A. OVERVIEW
In Fiscal 1997, the Company continued to implement and enhance its plan
(i) to concentrate the Company's resources on a limited number of key
menswear brand names (including continuing to emphasize and cohesively market
the Company's leading Perry Ellis brand), (ii) to further expand the
Company's private label business and (iii) to correct operational issues that
have hampered the Company in the past.
In accordance with these objectives, in Fiscal 1997, the Company (i)
discontinued its Made in the Shade women's junior sportswear business, (ii)
closed all non-Perry Ellis retail outlet stores and (iii) made significant
changes to management. In Fiscal 1997, the Company hired a new Chairman and
Chief Executive Officer, Chief Financial Officer, Senior Vice President of
Human Resources, President of its Salant Menswear division, and Vice
Presidents for Distribution, Manufacturing and Information Services.
In March 1998, the Company announced that it had reached an agreement in
principle with its major note and equity holders to restructure its existing
indebtedness under the Senior Notes. Under this proposed Restructuring, the
Company would convert the entire $104.879 million outstanding aggregate
principal amount of, and all accrued and unpaid interest on, its Senior Notes
into New Common Stock.
B. RESULTS OF OPERATIONS
First Quarter of 1998 Compared with First Quarter of 1997
- ---------------------------------------------------------
Net Sales
The following table sets forth the net sales of each of the Company's
principal business segments for the three months ended April 4, 1998 and
March 29, 1997 and the percentage contribution of each of those segments to
total net sales:
Three Months Ended Percentage
------------------ Increase/
April 4, 1998 March 29, 1997 (Decrease)
------------- -------------- ----------
(dollars in millions)
Men's Apparel (a) $77.0 91% $83.8 95% (8.2%)
Children's Sleepwear and
Underwear 7.9 9% 4.4 5% 78.8%
--- -- ---- --
Total $84.9 100% $88.2 100% (3.8%)
===== ===== ===== ====
- -------------
(a) Includes the retail outlet stores.
Sales of men's apparel decreased by $6.8 million, or 8.2%, in the
first quarter of 1998, as compared to the first quarter of 1997. This
decrease resulted from (a) planned sales decreases of $8.7 million,
including (i) $3.5 million for jeans, both Canyon River Blues and other
labels, resulting from higher initial shipments for new programs, which
began in the first quarter of 1997, and reduced off-price sales resulting
from a lower excess inventory position in the first quarter of 1998, (ii)
$2.9 million for dress shirts (other than Perry Ellis) and (iii) $2.1
million related to the closure of the non-Perry Ellis retail stores in the
fourth quarter of 1997. In addition to the planned sales decreases, the
Company experienced approximately $2.8 million of other sales decreases in
various product categories, which were offset by sales increases of Perry
Ellis product lines of approximately $3.8 million.
Sales of children's sleepwear and underwear increased by $3.5 million,
or 78.8%, in the first quarter of 1998, as compared to the first quarter of
1997. This increase was primarily a result of (i) the continuing expansion
of the Joe Boxer children's sleepwear and underwear product lines and (ii)
an increase in the sale of prior season goods carried over from last year.
As previously announced, the Company determined not to continue with its
Joe Boxer sportswear line for Fall 1998. This line accounted for net sales
of $1.5 million in the first quarter of 1998. The Company will continue
with its Joe Boxer sleepwear and underwear product lines.
Gross Profit
The following table sets forth the gross profit and gross profit margin
(gross profit as a percentage of net sales) for each of the Company's
business segments for the three months ended April 4, 1998 and March 29,
1997:
Three Months Ended
------------------
April 4, 1998 March 29, 1997
------------- --------------
(dollars in millions)
Men's Apparel $16.4 21.3% $19.0 22.7%
Children's Sleepwear and
Underwear 0.5 6.5% 0.8 18.1%
---- -----
Total $16.9 19.9% $19.8 22.4%
===== =====
The decline in gross profit in the men's apparel segment was primarily
attributable to the reduction in net sales discussed above. The decline in
gross profit margin was primarily due to the change in sales mix, with
increased off-price sales in the first quarter of 1998. These off-price
sales are part of the Company's continuing plan to reduce excess and out of
season inventory more expeditiously than in prior years, which also helps
to improve liquidity.
The decline in gross profit margin in children's sleepwear and underwear
was primarily attributable to (i) the sale of prior season goods and (ii)
the underabsorption of manufacturing costs in the first quarter of 1998
related to the planned shift of production closer to the order taking
process. This shift has also resulted in better control over the inventory
position of the segment.
Selling, General and Administrative Expenses
As a result of initiatives begun in 1997, selling, general and
administrative ("SG&A") expenses for the first quarter of 1998 decreased to
$17.1 million (20.2% of net sales) from $20.6 million (23.3% of net sales)
for the first quarter of 1997. The decrease primarily resulted from (a) a
$2.0 million decrease related to the closure of the non-Perry Ellis retail
stores in the fourth quarter of 1997, and (b) a reduction in advertising
expenses of $0.8 million.
Reversal of Provision for Restructuring
In the first quarter of 1997, the Company reversed a previously recorded
restructuring provision of $0.8 million. The provision was for net
liabilities related to the closure of the JJ. Farmer sportswear product
line. These net liabilities were settled for less than the carrying amount.
The cash portion of the remaining reserve for restructuring is expected to
be expended in the following manner: $1.1 million in the last three
quarters of 1998 and $0.5 million in 1999.
Income from Operations Before Interest and Income Taxes
The following table sets forth income from operations before interest and
income taxes for each of the Company's business segments, expressed both in
dollars and as a percentage of net sales, for the three months ended April
4, 1998 and March 29, 1997:
Three Months Ended
------------------
April 4, 1998 March 29, 1997
------------- --------------
(dollars in millions)
Men's Apparel (a) $3.8 4.9% $3.0 3.6%
Children's Sleepwear and Underwear (1.5) (18.8%) (1.0) (22.5%)
---- -----
2.3 2.7% 2.0 2.3%
Corporate expenses (2.5) (2.1)
Licensing division income 0.9 0.8
---- ----
Income from operations before
interest and income taxes $0.7 0.8% $0.7 0.8%
==== ====
- ---------------
(a) Includes the reversal of restructuring charges of $0.2 million and $0.8
million in the first quarter of 1998 and 1997, respectively.
Interest Expense, Net
Net interest expense was $4.0 million for the first quarter of 1998
compared with $3.4 million for the first quarter of 1997. The increase in
interest expense resulted from higher average borrowings during the first
quarter of 1998, primarily due to the loss from operations over the past
year.
Discontinued Operations
In the first quarter of 1997, the Company recorded a loss of $0.8 million
related to the discontinuance of the Made in the Shade division. Net sales
of the division for the three months ended March 29, 1997 were $1.3
million.
Net Loss
In the first quarter of 1998, the Company reported a net loss of $3.3
million, or $0.22 per share, as compared with a net loss of $3.5 million,
or $0.23 per share, in the first quarter of 1997.
Earnings Before Interest, Taxes, Depreciation, Amortization and
Restructuring Charges
Earnings before interest, taxes, depreciation, amortization and
restructuring charges was $2.90 million (3.4% of net sales) in the first
quarter of 1998, compared to $2.15 million (2.4% of net sales) in the first
quarter of 1997, an increase of $0.75 million, or 35%. The Company believes
this information is helpful in understanding cash flow from operations that
is available for debt service and capital expenditures. This measure is not
contained in Generally Accepted Accounting Principles and is not a
substitute for operating income, net income or net cash flows from
operating activities.
Fiscal 1997 Compared with Fiscal 1996
- -------------------------------------
Net Sales
The following table sets forth the net sales of each of the Company's
three principal business segments for Fiscal 1997 and the fiscal year ended
December 28, 1996 ("Fiscal 1996") and the percentage contribution of each of
those segments to total net sales:
Percentage
Increase/
Fiscal 1997 Fiscal 1996 (Decrease)
-------------- -------------- --------
(dollars in millions)
Men's $ 325.8 82% $ 344.7 83% (5.5%)
Children's 49.2 12% 45.8 11% 7.5%
Retail Outlet Stores 21.8 6% 27.2 6% (19.8%)
-------- ---- -------- ----
Total $ 396.8 100% $ 417.7 100% (5.0%)
======== ==== ======== ====
Sales of men's apparel decreased by $18.9 million, or 5.5%, in Fiscal
1997. This decrease resulted from (a) a $12.4 million reduction in sales of
men's slacks, of which $8.4 reflected the elimination of unprofitable
programs and the balance was primarily due to operational difficulties
experienced in the first quarter of Fiscal 1997 related to the move of
manufacturing and distribution out of the Company's facilities in Thomson,
Georgia, (b) a $5.7 million reduction in sales of men's sportswear, which
includes the elimination of $16.7 million of the Company's JJ. Farmer and
Manhattan sportswear lines net sales, offset by an $11.0 million increase in
sales of Perry Ellis sportswear products, (c) a $5.1 million decrease in
sales of men's accessories, primarily due to the slow-down of the novelty
neckwear business and (d) a $4.7 million reduction in sales of certain dress
shirt lines, which reflected the elimination of unprofitable businesses.
These sales decreases were partially offset by a $9.5 million increase in
sales of Perry Ellis dress shirts due to the addition of new distribution and
the continued strong acceptance of these products by consumers. The total
sales reduction attributable to the elimination of unprofitable programs was
$29.8 million.
Sales of children's sleepwear and underwear increased by $3.4 million,
or 7.5%, in Fiscal 1997. This increase was primarily a result of the
continuing expansion of the Joe Boxer children's product lines in 1997. At
the end of the first quarter of 1998, the Company determined not to continue
with its Joe Boxer sportswear line for Fall 1998. Instead, consistent with
the approach that the Joe Boxer Corporation (Salant's licensor of the Joe
Boxer trademark) has taken, the Company will focus on its core business of
underwear and sleepwear.
Sales of the retail outlet stores division decreased by $5.4 million, or
19.8%, in Fiscal 1997. This decrease was due to (i) a decrease in the number
of stores in the first 10 months of Fiscal 1997 and (ii) the decision in
November 1997 to close all non-Perry Ellis outlet stores. The Company ceased
to operate the non-Perry Ellis outlet stores in November 1997.
Gross Profit
The following table sets forth the gross profit and gross profit margin
(gross profit as a percentage of net sales) for each of the Company's
business segments for each of Fiscal 1997 and Fiscal 1996:
Fiscal 1997 Fiscal 1996
------------------- ------------------
(dollars in millions)
Men's $ 69.5 21.3% $ 74.2 21.5%
Children's 7.5 15.2% 11.5 25.1%
Retail Outlet Stores 7.5 34.6% 9.2 33.9%
--------- ----- -------
Total $ 84.54 21.3% $ 94.9 22.7%
========= ===== =======
The decline in gross profit in the men's apparel segment was primarily
attributable to the reduction in net sales discussed above.
The gross profit margin of the children's sleepwear and underwear
segment declined as a result of (i) a slowdown in sales of certain licensed
products, requiring a greater percentage of off-price sales, as well as an
increase in discounts and allowances, (ii) an increase in reserves for
remaining inventory and (iii) higher distribution and product handling costs.
The gross profit of the retail outlet stores decreased primarily as a
result of inventory markdowns of $1.6 million (7.3% of net sales) related to
the closing of the non-Perry Ellis stores. Excluding these inventory
markdowns, the gross profit margin increased as a result of a decrease in the
transfer prices (from a negotiated rate to standard cost) charged to the
retail outlet stores for products made by other divisions of the Company.
Selling, General and Administrative Expenses
Selling, general and administrative ("S,G&A") expenses for Fiscal 1997
were $80.6 million (20.3% of net sales) compared with $83.1 million (19.9% of
net sales) for Fiscal 1996. While implementation of the Company's strategic
plan resulted in the elimination of certain S,G&A expenses in Fiscal 1997,
such eliminations were partially offset by higher amortization costs
attributable to the installation of new store fixtures for Perry Ellis
sportswear shops in department stores which commenced in 1995. The
amortization of these store fixtures accounted for approximately $2.5 million
of the total S,G&A expenses in Fiscal 1997, compared with $1.6 million in
Fiscal 1996.
Other Income
Other income for Fiscal 1996 included a gain of $2.7 million related to
the sale of a leasehold interest in a facility located in Glen Rock, New
Jersey.
Provision for Restructuring
In Fiscal 1997, the Company recorded a provision for restructuring
charge of $2.1 million, consisting of (i) $3.5 million related to the
decision in the fourth quarter to close all retail outlet stores other than
Perry Ellis outlet stores and (ii) the reversal of previously recorded
restructuring provisions of $1.4 million, including $300 thousand in the
fourth quarter, primarily resulting from the settlement of liabilities for
less than the carrying amount, as a result of a settlement agreement and
license arrangement with the former owners of the JJ. Farmer trademark,
resulting in the reversal of the excess portion of the provision.
The Company recorded a restructuring charge of $11.7 million in Fiscal
1996. Of this amount, (i) $5.7 million was primarily related to the write-off
of goodwill and the write-down of other assets of the JJ. Farmer product
line, (ii) $2.9 million was attributable to the write-off of certain assets
related to the licensing of the Gant brand name for certain of the Company's
dress shirt and accessories product lines and the accrual of a portion of
future royalties payable under the Gant licenses that are not expected to be
covered by future sales, (iii) $1.8 million was primarily related to employee
costs associated with the closing of a manufacturing and distribution
facility in Thomson, Georgia, (iv) $0.7 million was primarily related to
employee costs associated with the closing of a manufacturing facility in
Americus, Georgia and (v) $0.6 million related to other severance costs.
The Fiscal 1997 restructuring charge related to the retail outlet store
closings was comprised of $1.3 million of non-cash charges and $2.2 million
requiring cash payments over a period of time. Of the cash portion, $0.6
million was expended during Fiscal 1997 and the balance is expected to be
expended in 1998.
Income from Continuing Operations Before Interest, Income Taxes and
Extraordinary Gain
The following table sets forth income from continuing operations before
interest, income taxes and extraordinary gain for each of the Company's three
business segments, expressed both in dollars and as a percentage of net
sales, for each of Fiscal 1997 and Fiscal 1996:
Fiscal 1997 Fiscal 1996
----------------- ----------------
(dollars in millions)
Men's (a) $ 19.5 6.0% $ 6.2 1.8%
Children's (0.3) (0.6%) 5.4 11.8%
Retail Outlet Stores (b) (8.4) (38.4%) (4.2) (15.4%)
-------- -------
10.8 2.7% 7.4 1.8%
Corporate expenses (c) (9.3) (5.8)
Licensing division income 4.6 5.0
-------- -------
Income from continuing
operations before interest, income
taxes and extraordinary gain $ 6.1 1.5% $ 6.6 1.6%
======== =======
- ------------------
(a) Includes the reversal of restructuring charges of $1.5 million in Fiscal
1997 and restructuring charges of $11.7 million in Fiscal 1996.
(b) Includes restructuring charges of $3.5 million in Fiscal 1997.
(c) Includes other income of $2.7 million in Fiscal 1996 related to the sale
of a leasehold interest.
The $0.5 million decrease in income from continuing operations before
interest, income taxes and extraordinary gain in Fiscal 1997 was primarily a
result of the significant decline in profitability of the Children's segment.
This decline was a result of (i) the decline in gross profit as previously
noted and (ii) increased occupancy costs related to new office, design and
showroom space acquired in Fiscal 1997. The decline in retail outlet stores
operating income is due to the restructuring and inventory markdown costs
related to the closing of the non-Perry Ellis stores, offset by the higher
gross profit related to the change in transfer pricing, as previously
discussed. The increase in corporate expenses is primarily due to costs
associated with the significant management changes previously discussed.
Interest Expense, Net
Net interest expense was $16.7 million for Fiscal 1997 compared with
$15.5 million for Fiscal 1996. The $1.2 million increase is a result of
higher average borrowings during Fiscal 1997 primarily due to the loss from
operations and spending on capital expenditures and store fixtures.
Loss from Continuing Operations
In Fiscal 1997, the Company reported a loss from continuing operations
before extraordinary gain of $10.7 million, or $0.71 per share, compared with
a loss from continuing operations of $9.0 million, or $0.60 per share, in
Fiscal 1996.
Extraordinary Gain
The extraordinary gain of $2.1 million recorded in Fiscal 1997,
including $1.5 million in the fourth quarter, related to the reversal of
excess liabilities previously provided for the anticipated settlement of
claims arising from the Company's prior Chapter 11 cases.
Earnings Before Interest, Taxes, Depreciation, Amortization,
Restructuring Charges and Extraordinary Gain
Earnings before interest, taxes, depreciation, amortization,
restructuring charges and extraordinary gain was $17.1 million (4.3% of net
sales) in Fiscal 1997, compared to $26.5 million (6.4% of net sales) in
Fiscal 1996, a decrease of $9.4 million, or 35%. The Company believes this
information is helpful in understanding cash flow from operations that is
available for debt service and capital expenditures. This measure is not
contained in Generally Accepted Accounting Principles and is not a substitute
for operating income, net income or net cash flows from operating activities.
Fiscal 1996 Compared with Fiscal 1995
- -------------------------------------
Net Sales
The following table sets forth the net sales of each of the Company's
three principal business segments for Fiscal 1996 and the fiscal year ended
December 30, 1995 ("Fiscal 1995") and the percentage contribution of each of
those segments to total net sales:
Percentage
Increase/
Fiscal 1996 Fiscal 1995 (Decrease)
-------------- -------------- --------
(dollars in millions)
Men's $ 344.7 83% $ 416.7 86% (17.3%)
Children's 45.8 11% 39.9 8% 14.8%
Retail Outlet Stores 27.2 6% 29.2 6% (7.0%)
-------- ---- -------- ----
Total $ 417.7 100% $ 485.8 100% (14.0%)
======== ==== ======== ====
The decline in net sales in the men's apparel segment was $72.0 million.
Of this amount, $58.8 million was attributable to the planned discontinuation
of various product lines and the redirection of other product lines to
different channels of distribution. Of the balance, $7.4 million resulted
from a decision by Sears to source its knit and woven Canyon River Blues tops
through its own internal sourcing operations and $3.6 million was due to
reduced sales of Perry Ellis sportswear as a result of a reduction of $12.3
million in sales to off-price retailers, partially offset by an increase of
$8.7 million in sales to department stores.
Sales of children's sleepwear and underwear increased by $5.9 million,
or 14.8%, in Fiscal 1996. This increase was primarily a result of the
continuing expansion of the Joe Boxer children's product lines.
Gross Profit
The following table sets forth the gross profit and gross profit margin
(gross profit as a percentage of net sales) for each of the Company's
business segments for each of Fiscal 1996 and Fiscal 1995:
Fiscal 1996 Fiscal 1995
------------------- ---------------
(dollars in millions)
Men's $ 74.2 21.5% $ 79.1 19.0%
Children's 11.5 25.1% 10.8 26.9%
Retail Outlet Stores 9.2 33.9% 10.7 36.7%
------- ----- --------
Total $ 94.9 22.7% $ 100.6 20.7%
======= ===== ========
The decline in gross profit in the men's apparel segment and for the
Company as a whole was primarily attributable to the reduction in net sales
discussed above. The gross profit margin for the men's apparel segment and
the Company as a whole, however, improved significantly, primarily as a
result of (i) a greater percentage of sales of the Company's higher margin
Perry Ellis product lines as a percentage of net sales, (ii) planned
reductions in sales of lower-margin brands and products, (iii) increased
efficiencies at the Company's manufacturing facilities in Mexico, and (iv)
reduced markdowns of accessories due to improved consumer acceptance of the
Company's neckwear product lines. The gross profit margin for the men's
apparel segment was adversely affected, however, by charges of (i) $3.0
million (0.8% of men's apparel net sales) for markdowns related to the
discontinuation of the JJ. Farmer and Manhattan sportswear product lines and
a change in the primary channel of distribution for products sold under the
John Henry label and (ii) $1.9 million (0.5% of men's apparel net sales)
related to the closing of manufacturing and distribution facilities in
Americus and Thomson, Georgia.
The gross profit margin of the children's sleepwear and underwear
segment declined as a result of an increased percentage of off-price sales of
licensed character products in that segment's total sales mix. The gross
profit margin of the Company's retail outlet stores business declined
primarily as a result of margin pressures as well as charges of $0.3 million
(1.0% of net sales) due to markdowns of discontinued product lines at the
Company's outlet stores.
Selling, General and Administrative Expenses
S,G&A expenses for Fiscal 1996 were $83.1 million (19.9% of net sales)
compared with $82.6 million (17.0% of net sales) for Fiscal 1995. While
implementation of the Company's strategic plan resulted in the elimination of
certain S,G&A expenses in Fiscal 1996, such eliminations were partially
offset by higher amortization costs attributable to the installation of new
store fixtures for Perry Ellis sportswear shops in department stores and
Canyon River Blues shops in Sears stores, which installations commenced in
1995. The amortization of these store fixtures accounted for approximately
$1.6 million of the total S,G&A expenses in Fiscal 1996 as compared with $0.4
million in Fiscal 1995. The Company's merchandise coordinator and retail
specialist programs, which provide support for the presentation and
coordination of the Company's products in retail stores was also enlarged in
1996, primarily to support the expansion of the Perry Ellis sportswear shop
program; this increase accounted for a further $1.2 million of the S,G&A
expense increase in Fiscal 1996. Total expenses related to these programs
were $3.3 million in Fiscal 1996, as compared with $2.1 million in Fiscal
1995.
Other Income
Other income for Fiscal 1996 included a gain of $2.7 million related to
the sale of a leasehold interest in a facility located in Glen Rock, New
Jersey.
Provision for Restructuring
The Company recorded a restructuring charge of $11.7 million in Fiscal
1996. Of this amount, (i) $5.7 million was primarily related to the write-off
of goodwill and the write-down of other assets of the JJ. Farmer product
line, (ii) $2.9 million was attributable to the write-off of certain assets
related to the licensing of the Gant brand name for certain of the Company's
dress shirt and accessories product lines and the accrual of a portion of
future royalties payable under the Gant licenses that are not expected to be
covered by future sales, (iii) $1.8 million was primarily related to employee
costs associated with the closing of a manufacturing and distribution
facility in Thomson, Georgia, (iv) $0.7 million was primarily related to
employee costs associated with the closing of a manufacturing facility in
Americus, Georgia and (v) $0.6 million related to other severance costs.
Income from Continuing Operations Before Interest, Income Taxes and
Extraordinary Gain
The following table sets forth income from continuing operations before
interest, income taxes and extraordinary gain for each of the Company's three
business segments, expressed both in dollars and as a percentage of net
sales, for each of Fiscal 1996 and Fiscal 1995:
Fiscal 1996 Fiscal 1995
---------------- ---------------
(dollars in million)
Men's (a) $6.2 1.8% $19.6 4.7%
Children's 5.4 11.8% 5.2 13.0%
Retail Outlet Stores (4.2) (15.4%) (2.7) (9.2%)
------- ------- -----
7.4 1.8% 22.1 4.6%
Corporate expenses (b) (5.8) (8.8)
Licensing division income 5.0 5.6
------- -------
Income from continuing
operations before interest, income
taxes and extraordinary gain $6.6 1.6% $18.9 3.9%
==== ==== =====
- ----------------
(a) Includes restructuring charges of $11.7 million in Fiscal 1996 and $3.6
million in Fiscal 1995. (b) Includes other income of $2.7 million in Fiscal
1996 related to the sale of a leasehold interest.
The $12.3 million reduction in income from continuing operations
before interest, income taxes and extraordinary gain in Fiscal 1996 was
primarily a result of the $11.7 million restructuring charge (compared with
$3.6 million in Fiscal 1995) and $6.3 million of other charges associated
with the implementation of the strategic business plan, which was partially
offset by a $2.7 million gain on the sale of a leasehold interest, as
previously discussed.
Interest Expense, Net
Net interest expense was $15.5 million for Fiscal 1996 compared with
$19.0 million for Fiscal 1995. The $3.5 million decrease is a result of
lower average borrowings during Fiscal 1996 primarily due to reduced
average levels of inventory.
Loss from Continuing Operations
In Fiscal 1996, the Company reported a loss from continuing operations
of $9.0 million, or $0.60 per share, as compared with a loss from
continuing operations before extraordinary gain of $0.4 million, or $0.02
per share, in Fiscal 1995.
Extraordinary Gain
The extraordinary gain of $1.0 million recorded in the fourth quarter
of Fiscal 1995 related to the reversal of excess liabilities previously
provided for the anticipated settlement of claims arising from the
Company's prior Chapter 11 cases.
Earnings Before Interest, Taxes, Depreciation, Amortization,
Restructuring Charges and Extraordinary Gain
Earnings before interest, taxes, depreciation, amortization,
restructuring charges and extraordinary gain was $26.5 million (6.4% of net
sales) in Fiscal 1996, compared to $30.4 million (6.3% of net sales) in
Fiscal 1995, a decrease of $3.9 million, or 12.8%. The Fiscal 1996 amount
was negatively affected by $6.3 million of charges primarily associated
with the implementation of the Company's strategic business plan. The
Company believes this information is helpful in understanding cash flow
from operations that is available for debt service and capital
expenditures. This measure is not contained in Generally Accepted
Accounting Principles and is not a substitute for operating income, net
income or net cash flows from operating activities.
C. LIQUIDITY AND CAPITAL RESOURCES
The Company is a party to the Credit Agreement with CIT. The Credit
Agreement provides the Company with working capital financing, in the form
of direct borrowings and letters of credit, up to an aggregate of $120
million, subject to an asset-based borrowing formula. As collateral for
borrowings under the Credit Agreement, the Company has granted to CIT a
security interest in substantially all of the assets of the Company.
On March 3, 1998, the Company announced that it had reached an
agreement in principle with its major note and equity holders to
restructure its existing indebtedness under the Senior Notes pursuant to
the Letter Agreement upon which the Restructuring is based. Implementation
of the Restructuring will result in the elimination of $11.0 million of
annual interest expense to the Company. In connection with the execution of
the Letter Agreement, the Company and CIT executed the Forbearance
Agreement, See "BACKGROUND OF RESTRUCTURING -- The Waiver and Forbearance
Under the Credit Agreement."
Pursuant to the Credit Agreement, the interest rate charged on direct
borrowings is 0.75 percent in excess of the base rate of The Chase Manhattan
Bank, N.A. (the "Prime Rate", which was 8.5% at January 3, 1998 and April
4, 1998) or 3.00% above the London Late Eurodollar rate (the "Eurodollar
Rate", which was 5.7% at January 3, 1998 and at April 4, 1998). Pursuant to
the Credit Agreement, the Company sells to CIT, without recourse, certain
eligible accounts receivable. The credit risk for such accounts is thereby
transferred to CIT. The amounts due from CIT have been offset against the
Company's direct borrowings from CIT set forth in the condensed
consolidated interim unaudited balance sheet of the Company for the three
months ended April 4, 1998 and the consolidated annual audited balance
sheets of the Company for the year ended January 3, 1998. The amounts which
have been offset were $12.827 million at January 3, 1998 and $16.335
million at December 28, 1996 and $10.7 million at April 4, 1998 and $13.3
million at March 29, 1997.
On April 4, 1998, direct borrowings (including borrowings under the
Eurodollar option) and letters of credit outstanding under the Credit
Agreement were $44.6 million and $23.0 million, respectively, and the
Company had unused availability of $15.2 million. On March 29, 1997, direct
borrowings and letters of credit outstanding under the Credit Agreement
were $32.9 million and $32.8 million, respectively, and the Company had
unused availability of $12.4 million. During the first quarter of 1998, the
maximum aggregate amount of direct borrowings and letters of credit
outstanding under the Credit Agreement was $81.1 million at which time the
Company had unused availability of $15.2 million. During the first quarter
of 1997, the maximum aggregate amount of direct borrowings and letters of
credit outstanding under the Credit Agreement was $71.8 million at which
time the Company had unused availability of $11.9 million.
The Company's cash used in operating activities for the first quarter
of 1998 was $10.6 million, which primarily reflects a $5.5 million increase
in accounts receivable and the loss from operations of $3.3 million. Cash
used for investing activities in the first quarter of 1998 was $0.8
million, which represented capital expenditures of $0.5 million and the
installation of store fixtures in department stores of $0.3 million. During
1998, the Company plans to make capital expenditures of approximately $10
million and to spend an additional $1.6 million for the installation of
store fixtures in department stores. Cash provided by financing activities
in the first quarter of 1998 was $10.8 million, which represented
short-term borrowings under the Credit Agreement.
At the end of Fiscal 1997 direct borrowings and letters of credit
outstanding under the Credit Agreement were $33.8 million and $23.2 million
respectively, and the Company had unused availability of $17.5 million. At
the end of Fiscal 1996, direct borrowings and letters of credit outstanding
under the Credit Agreement were $7.7 million and $33.6 million,
respectively, and the Company had unused availability of $23.6 million.
During Fiscal 1997, the maximum aggregate amount of direct borrowings and
letters of credit outstanding at any one time under the Credit Agreement
was $112.9 million, at which time the Company had unused availability of
$10.5 million. During Fiscal 1996, the maximum aggregate amount of direct
borrowings and letters of credit outstanding at any one time under the
Credit Agreement was $101.0 million, at which time the Company had unused
availability of $19.6 million.
The Company's cash used in operating activities for Fiscal 1997 was
$9.8 million, which primarily reflects the operating loss of $10.7 million
and an increase in accounts receivable of $5.7 million, offset by non-cash
charges, such as depreciation and amortization, of $8.9 million.
Cash used in Fiscal 1997 for investing activities was $10.2 million,
of which $7.1 million was related to capital expenditures and $3.1 million
to the installation of store fixtures in department stores. During Fiscal
1998, the Company plans to make capital expenditures of approximately $6.4
million and to spend an additional $2.0 million for the installation of
store fixtures in department stores.
Cash provided by financing activities in Fiscal 1997 was $22.9
million, which represented short-term borrowings under the Credit Agreement
of $26.1 million, offset by the retirement of long-term debt of $3.4
million.
On October 28, 1996, the Company completed the sale of a leasehold
interest in a facility located in Glen Rock, New Jersey. Pursuant to the
indenture governing the Senior Notes, the $3,372,000 net cash proceeds of
that sale were applied to the repurchase of a like principal amount of the
Senior Notes immediately following the end of the 1996 fiscal year. See
"DESCRIPTION OF EXISTING INDEBTEDNESS OF THE COMPANY -- The Senior Notes.
The instruments governing the Company's outstanding debt contain
numerous financial and operating covenants, including restrictions on
incurring indebtedness and liens, making investments in or purchasing the
stock or all or a substantial part of the assets of another person, selling
property and paying cash dividends. In addition, under the Credit
Agreement, the Company is required, during the year, to maintain a minimum
level of stockholders' equity and to satisfy a maximum cumulative net loss
test. At January 3, 1998, the Company was not in compliance with the two
financial covenants contained in the Credit Agreement, and has obtained a
waiver from CIT, as of January 3, 1998, as provided by the Forbearance
Agreement. See "DESCRIPTION OF EXISTING INDEBTEDNESS OF THE COMPANY -- The
Senior Notes."
The Indenture governing the Company's outstanding Senior Notes
requires the Company to reduce its outstanding indebtedness (excluding
outstanding letters of credit) to $20 million or less for fifteen
consecutive days during each twelve month period commencing on the first
day of February. This covenant has been satisfied for the balance of the
term of the Senior Notes. See "DESCRIPTION OF EXISTING INDEBTEDNESS OF
THE COMPANY -- The Senior Notes.
In contemplation of the Restructuring, the Company elected not to pay
the interest payment of approximately $5.5 million that was due and payable
under the Senior Notes on March 2, 1998, subject to a 30 day grace period.
Because the Company elected not to pay the interest due on the Senior Notes
by the expiration of the applicable grace period, an event of default has
occurred with respect to the Senior Notes entitling the Noteholders to
accelerate the maturity thereof. Pursuant to the Letter Agreement, Magten
has, in accordance with Section 6.5 of the Indenture, caused a written
direction to be provided to the Trustee under the Indenture, to forbear
during the term of the Letter Agreement from taking any action under the
Indenture in connection with the failure by the Company to make the
interest payment on the Senior Notes that was due and payable on March 2,
1998. On April 8, 1998, the Trustee issued a Notice of Default stating that
as a result of the Company's failure to make the interest payment due on
the Senior Notes, an event of default under the Indenture had occurred on
April 1, 1998. Holders of at least 25% in the aggregate principal face
amount of the Senior Notes may accelerate all indebtedness under the Senior
Notes pursuant to the terms of the Indenture, and in the event that
Stockholders fail to approve the Restructuring Proposals and the Company
does not immediately seek to implement the Restructuring through the
Prepackaged Plan, such an acceleration of indebtedness under the Senior
Notes could result in the Company becoming subject to a proceeding under
the Federal bankruptcy laws without having solicited acceptances for the
Prepackaged Plan prior to the commencement of such proceeding. In addition,
the Company's working capital lender, CIT, agreed to forbear until July 1,
1998, subject to certain conditions, from exercising any of its rights or
remedies under the Credit Agreement, arising by virtue of the Company's
failure to pay such interest on the Senior Notes. Failure to consummate the
Restructuring could result in the acceleration of all of the indebtedness
under the Senior Notes and/or the Credit Agreement.
The Company's principal sources of liquidity, both on a short-term and
a long-term basis, are cash flow from operations and borrowings under the
Credit Agreement. Based upon its analysis of its consolidated financial
position, its cash flow during the past twelve months and the cash flow
anticipated from its future operations, the Company believes that its
future cash flows together with funds available under the Credit Agreement,
will be adequate to meet the financing requirements it anticipates during
the next twelve months, provided that the Company consummates the
Restructuring and secures an extension of the Credit Agreement or a new
working capital facility. There can be no assurance, however, (i) that the
Company will consummate the Restructuring and secure an extension of the
Credit Agreement or a new working capital facility, or (ii) that future
developments and general economic trends will not adversely affect the
Company's operations and, hence, its anticipated cash flow.
The Company is required to adopt Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," during the
year ending January 2, 1999. SFAS 130 establishes standards for reporting
comprehensive income and its components in a full set of general-purpose
financial statements. This Statement requires that an enterprise (i)
classify items of other comprehensive income by their nature in a financial
statements, and (ii) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in
the equity section of a statement of financial position. Adoption of this
Statement will require the Company to report changes in the excess of
additional pension liability over unrecognized prior service cost and
foreign currency translation adjustment accounts, currently shown in the
stockholders' equity section of the balance sheet, as an increase or
decrease to reported net income in arriving at comprehensive income.
The Company is required to adopt SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" during the year ending
January 2, 1999. The Statement establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. This Statement supersedes FASB Statement No. 14, "Financial
Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to
remove the special disclosure requirements for previously unconsolidated
subsidiaries. The Company is currently considering what effect adoption of
this statement will have on the Company.
The Company is required to adopt SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," for the period ended
January 2, 1999. This statement revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful.
The statement is effective for fiscal year ending January 2, 1999.
Restatement of disclosures for earlier periods provided for comparative
purposes is required. The Company has not yet determined the impact the
adoption of this statement will have on the Company's financial statements.
D. YEAR 2000 COMPLIANCE
The Company has completed an assessment of its information systems
("IS"), including its computer software and hardware, and the impact that
the year 2000 will have on such systems and the Company's overall
operations. The Company's current software systems, without modification,
will be adversely affected by the inability of the systems to appropriately
interpret date information after 1999. As part of the process of improving
the Company's IS to provide enhanced support to all operating areas, the
Company has entered into an interim working agreement with Electronic Data
Systems Corporation ("EDS"), which constitutes the initial phase of a
long-term contract to outsource its IS. Such long-term outsourcing contract
will provide for or eliminate any issues involving year 2000 compliance
because all software provided under the outsourcing contract will be year
2000 compliant. The Company anticipates that its cost for such outsourcing
will be approximately $9.0 million annually, which is consistent with the
Company's current IS expenditures. The Company anticipates that it will
complete its outsourcing and systems conversion in time to accommodate year
2000 issues. If the Company fails to complete such conversion in a timely
manner, such failure will have a material adverse effect on the business,
financial condition and results of operations of the Company.
E. SEASONALITY
Although the Company typically introduces and withdraws various
individual products throughout the year, its principal products are
organized into the customary retail Spring, Fall and Holiday seasonal
lines. The Company's products are designed as much as one year in advance
and manufactured approximately one season in advance of the related retail
selling season.
F. BACKLOG
The Company does not consider the amount of its backlog of orders to
be significant to an understanding of its business primarily due to
increased utilization of EDI technology, which provides for the electronic
transmission of orders from customers' computers to the Company's
computers. As a result, orders are placed closer to the required delivery
date than had been the case prior to EDI technology. As of March 7, 1998,
the Company's backlog of orders was approximately $94.9 million, 2.3% less
than the backlog of orders of approximately $97.1 million that existed at
March 1, 1997.
G. FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
This Disclosure Statement contains or incorporates by reference
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Where any such forward-looking statement
includes a statement of the assumptions or bases underlying such
forward-looking statement, the Company cautions that assumed facts or bases
almost always vary from the actual results, and the differences between
assumed facts or bases and actual results can be material, depending on the
circumstances. Where, in any forward-looking statement, the Company or its
management expresses an expectation or belief as to future results, there
can be no assurance that the statement of the expectation or belief will
result or be achieved or accomplished. The words "believe," "expect,"
"estimate," "project," "seek," "anticipate" and similar expressions may
identify forward-looking statements. The Company's future operating results
and financial condition are dependent upon the Company's ability to
successfully design, manufacture, import and market apparel. Taking into
account the foregoing, the following are identified as important factors
that could cause results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company:
1. Substantial Level of Indebtedness and the Ability to
Restructure Debt
----------------------------------------------------
The Company had current indebtedness of $149.5 million and $138.7
million as of April 4, 1998 and January 3, 1998, respectively. Of this
amount, $104.879 million represents the aggregate principal amount of the
Senior Notes. The Company will not generate sufficient cash flow from
operations to repay this amount at maturity. Accordingly, the Company has
entered into the Letter Agreement as described above. Given the Company's
past inconsistent operating performance, together with the reluctance of
investors to invest in companies suffering from high debt-to-equity ratios
and the Company's inability to raise funds in the capital markets to
recapitalize the Company, absent the Restructuring, the Company does not
believe it will be able to refinance its indebtedness under the Senior
Notes. Failure by the Company to consummate the Restructuring as
contemplated could result in the acceleration of all of the indebtedness
under the Senior Notes and/or the Credit Agreement, and, thus, would be
likely to have a material adverse effect on the Company.
2. Competition
-----------
The apparel industry in the United States is highly competitive and
characterized by a relatively small number of multi-line manufacturers
(such as the Company) and a large number of specialty manufacturers. The
Company faces substantial competition in its markets from manufacturers in
both categories. Many of the Company's competitors have greater financial
resources than the Company. The Company also competes for private label
programs with the internal sourcing organizations of many of its own
customers.
3. Apparel Industry Cycles and Other Economic Factors
--------------------------------------------------
The apparel industry historically has been subject to substantial
cyclical variation, with consumer spending on apparel tending to decline
during recessionary periods. A decline in the general economy or
uncertainties regarding future economic prospects may affect consumer
spending habits, which, in turn, could have a material adverse effect on
the Company's results of operations and financial condition.
4. Retail Environment
------------------
Various retailers, including some of the Company's customers, have
experienced declines in revenue and profits in recent periods and some have
been forced to file for bankruptcy protection. To the extent that these
financial difficulties continue, there can be no assurance that the
Company's financial condition and results of operations would not be
adversely affected.
5. Seasonality of Business and Fashion Risk
----------------------------------------
The Company's principal products are organized into seasonal lines for
resale at the retail level during the Spring, Fall and Holiday Seasons.
Typically, the Company's products are designed as much as one year in
advance and manufactured approximately one season in advance of the related
retail selling season. Accordingly, the success of the Company's products
is often dependent on the ability of the Company to successfully anticipate
the needs of the Company's retail customers and the tastes of the ultimate
consumer up to a year prior to the relevant selling season.
6. Foreign Operations
------------------
The Company's foreign sourcing operations are subject to various risks
of doing business abroad, including currency fluctuations (although the
predominant currency used is the U.S. dollar), quotas and, in certain parts
of the world, political instability. Any substantial disruption of its
relationship with its foreign suppliers could adversely affect the
Company's operations. Some of the Company's imported merchandise is subject
to United States Customs duties. In addition, bilateral agreements between
the major exporting countries and the United States impose quotas, which
limit the amount of certain categories of merchandise that may be imported
into the United States. Any material increase in duty levels, material
decrease in quota levels or material decrease in available quota allocation
could adversely affect the Company's operations. The Company's operations
in Asia, including those of its licensees, are subject to certain political
and economic risks including, but not limited to, political instability,
changing tax and trade regulations and currency devaluations and controls.
The Company's risks associated with the Company's Asian operations may be
higher in 1998 than has historically been the case, due to the fact that
financial markets in East and Southeast Asia have recently experienced and
continue to experience difficult conditions, including a currency crisis.
As a result of recent economic volatility, the currencies of many countries
in this region have lost value relative to the U.S. dollar. Although the
Company has experienced no material foreign currency transaction losses
since the beginning of this crisis, its operations in the region are
subject to an increased level of economic instability. The impact of these
events on the Company's business, and in particular its sources of supply
and royalty income cannot be determined at this time.
7. Dependence on Contract Manufacturing
------------------------------------
The Company currently produces 59% of all of its products (in units)
through arrangements with independent contract manufacturers. The use of
such contractors and the resulting lack of direct control could subject the
Company to difficulty in obtaining timely delivery of products of
acceptable quality. In addition, as is customary in the industry, the
Company does not have any long-term contracts with its fabric suppliers or
product manufacturers. While the Company is not dependent on one particular
product manufacturer or raw material supplier, the loss of several such
product manufacturers and/or raw material suppliers in a given season could
have a material adverse effect on the Company's performance.
Because of the foregoing factors, as well as other factors affecting
the Company's operating results and financial condition, past financial
performance should not be considered to be a reliable indicator of future
performance, and investors are cautioned not to use historical trends to
anticipate results or trends in the future. In addition, the Company's
participation in the highly competitive apparel industry often results in
significant volatility in the Company's common stock price.
V. BACKGROUND OF THE RESTRUCTURING
The following summary of the background of the Restructuring,
including the principal terms of the Letter Agreement, the Forbearance
Agreement and the Voting Agreement, does not purport to be complete and is
qualified in its entirety by reference to those documents, including the
definitions of certain terms contained therein. Copies of the Letter
Agreement and the Forbearance Agreement are filed as Exhibit 10.42 and
Exhibit 10.43, respectively, to the Company's Registration Statement on
Form S-4. The form of the Voting Agreement is attached to the Company's
Registration Statement on Form S-4, of which this Disclosure Statement is a
part, as Exhibit 9.1. Whenever particular provisions of such documents are
referred to herein, such provisions are incorporated herein by reference,
and the statements are qualified in their entirety by such reference.
A. BACKGROUND OF THE RESTRUCTURING
On February 22, 1985, Salant NY and its two largest subsidiaries,
Thomson and Obion filed with the Bankruptcy Court separate voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code (Case Nos.
85-B-10229 (PBA) through 85-B-10231 (PBA), inclusive). Salant NY's other
United States, Canada and Mexico subsidiaries did not seek relief under the
Bankruptcy Code or other foreign insolvency laws, respectively. On May 19,
1987, the Bankruptcy Court issued an order confirming the 1987 Chapter 11
Plan. The 1987 Chapter 11 Plan was consummated on June 2, 1987. On June 2,
1987, pursuant to the provisions of the 1987 Chapter 11 Plan, the assets
and liabilities of Salant NY, Thomson and Obion were substantively
consolidated, and Salant NY, Thomson and Obion and the inactive
subsidiaries of Salant NY merged with a wholly-owned subsidiary of Salant
NY. The Company is the surviving corporation of such merger.
On June 27, 1990, the Company and its wholly-owned subsidiary, Denton
Mills, each filed with the Bankruptcy Court a separate voluntary petition
for relief under Chapter 11 of the Bankruptcy Code (the "1990 Chapter 11
Case"). On July 30, 1993, the Bankruptcy Court issued an order confirming
the Third Amended Joint Plan of Reorganization of the Company and Denton
Mills (the "1993 Chapter 11 Plan"). The 1993 Chapter 11 Plan was
consummated on September 20, 1993. Pursuant to the 1993 Chapter 11 Plan, on
September 20, 1993, the Company issued the Senior Notes. While issuance of
the Senior Notes facilitated the Company's emergence from Chapter 11, the
Company, as a result, was capitalized with a significant amount of
long-term debt. In connection with the formulation of the 1993 Chapter 11
Plan, management of the Company believed that, based upon projected
operating results, the Company would be able to refinance the Senior Notes
prior to their final maturity. The entire aggregate principal amount of the
Senior Notes (which is currently in the aggregate amount of $104.879
million) becomes due on December 31, 1998. Since emerging from bankruptcy
in September 1993, the Company has from time to time explored various
strategies regarding its overall business operations, and in particular,
various possible transactions that would result in a refinancing of its
long-term debt obligations. In that connection, during the period from the
beginning of Fiscal 1997 through the date of the Registration Statement of
which this Disclosure Statement is a part, including since the announcement
of the proposed Restructuring on March 3, 1998, the Company has from time
to time received indications of interest from various third parties to
purchase all or a portion of the Company's businesses or assets. During
this period, the Company's refinancing efforts have been significantly
hampered by its inconsistent operating results and the fact that investors
in the marketplace generally do not look favorably upon investing in
highly-leveraged apparel companies.
In the latter half of Fiscal 1997, the Company, working with the
Company's various investment banking firms, the Board and management
analyzed and assessed its financial situation and explored with the Board
and management the availability of capital in both the private and public
debt and equity markets for the purpose of recapitalizing the Company . The
investment banking firms advised the Company that they did not believe the
Company could recapitalize by use of the capital markets, in light of the
Company's past inconsistent operating performance, together with the
reluctance of investors to invest in companies suffering from high
debt-to-equity ratios.
The Company's unfavorable operating results continued throughout the
fourth quarter of Fiscal 1997. Net sales for the fourth quarter of Fiscal
1997 were $116.4 million, a 1.1% increase from the comparable quarter in
1996, however, the Company's net losses amounted to $5.6 million (as
compared to a net income of $6.1 million in 1996), and the loss from
continuing operations before interest, income taxes and extraordinary gain
was $2.4 million (as compared to $10.6 million of income from continuing
operations before interest and income taxes for the same quarter of 1996).
These results heightened the Company's concern that, absent a restructuring
or other extraordinary transaction, it would be difficult for the Company
to make the principal payment under its Senior Notes due on December 31,
1998 of $104.879 million. Moreover, during the fourth quarter of Fiscal
1997, the Company closed 42 of its retail outlets (representing all retail
outlets other than the Perry Ellis outlet stores), determined to close one
of its distribution centers and changed the sourcing of a portion of its
Perry Ellis product line. While these changes were essential to streamline
the Company by eliminating non-core businesses and correcting certain
operational issues, these actions had a detrimental affect on the Company's
earnings and profitability in Fiscal 1997. As a result, heading into fiscal
year 1998, the Company was concerned that, in light of its inconsistent
operating performance and the Company's inability to access the capital
markets in order to refinance or retire its indebtedness under the Senior
Notes, the Company's ability to maintain the support and confidence of its
trade vendors was at risk. In that connection, the Company, in consultation
with its financial advisors, decided that it needed to immediately address
the Company's high level of indebtedness in order to avoid any permanent
adverse effects on its business operations, future productivity and growth
potential. In addition, as a result of the Company's performance during
Fiscal 1997, as of January 3, 1998, the Company had failed to meet certain
of the financial covenants contained in the Credit Agreement (the "CIT
Financial Covenants"). In this connection, the Company reviewed the
advisability of making the $5.5 million interest payment on the Senior
Notes due and payable on March 2, 1998 with a view towards maximizing
liquidity in order to appropriately fund operations during the pendency of
the restructuring transactions. Commencing in December 1997, the Company
began discussions with CIT regarding a possible restructuring of the
Company's indebtedness under the Senior Notes (including various issues
relating to the Company's failure to meet the CIT Financial Covenants and
the upcoming March 1998 interest payment on the Senior Notes). The Company
believed that given the potential instability that is associated with any
restructuring process, it would be most productive to adopt a strategy to
maximize liquidity and thereby protect the total enterprise value of the
Company. The Company also concluded that the Noteholders and the
Stockholders would best be served by converting the Senior Notes into
equity of the Company, thus allowing the Company to eliminate a significant
portion of its debt and substantially improve its balance sheet.
In furtherance of the Company's continuing efforts to deleverage, the
Company approached Magten to discuss the possible terms and conditions of a
restructuring of the indebtedness under the Senior Notes, including the
Senior Notes held by Magten (the "Magten Notes"). In addition, in
connection with the Company's efforts to restructure, the Company developed
the Three-Year Business Plan. See Section XXI.B. herein, entitled
"FINANCIAL PROJECTIONS AND ASSUMPTIONS USED -- THE THREE-YEAR BUSINESS
PLAN." During the months of January and February, 1998, the Company
continued to actively discuss a restructuring of the Company with Magten
and Apollo, the beneficial owner of 5,924,352 shares (the "Apollo Shares")
of Old Common Stock, representing approximately 39.6% of the issued and
outstanding shares. During this period, the Company continued its
negotiations with CIT to ensure its support of the Restructuring. The
efforts culminated in the Letter Agreement.
In connection with the discussions concerning the Restructuring by the
parties, and in order to determine the allocation of the equity of the
Company among the Stockholders and Noteholders upon consummation of the
Restructuring, the parties assumed total enterprise value for the Company
of $185 million. The parties also assumed that the average outstanding
balance under the Company's working capital facility for the
post-restructured Company would be $60 million. Thus, the total net equity
value of the Company after giving effect to the Restructuring was assumed
to be $125 million. Neither the Company, Magten nor Apollo has expressed
any opinion as to the accuracy of any of the foregoing assumptions,
including, without limitation, the enterprise value of the Company. Such
assumptions were made solely for purposes of allocating the equity of the
Company post-Restructuring among the Noteholders and Stockholders pursuant
to the Restructuring and should not in any way be viewed as indicative of
any party's opinion as to the total enterprise value of the Company.
As a result of the foregoing assumptions and calculations, the parties
agreed in the Letter Agreement that they would each support the
Restructuring (subject to certain conditions), pursuant to which (i)
Noteholders would receive 92.5% of the New Common Stock, which value would
imply a distribution of equity to Noteholders valued at $110 million after
giving effect to the conversion of the Senior Notes and after taking into
consideration the value of the Warrants as determined below (which is
approximately the aggregate outstanding amount under the Senior Notes -
i.e., $104.879 million in aggregate principal amount and $5.5 million in
accrued and unpaid interest as of March 2, 1998); and (ii) Stockholders
would receive (a) 7.5% of the New Common Stock, which value would imply a
distribution of equity to Stockholders valued at $8.9 million after taking
into consideration the value of the Warrants as determined below, and (b)
seven year Warrants representing the right to purchase 10% of the New
Common Stock (on a fully diluted basis). Using the Black-Scholes option
pricing formula, which incorporates such factors as the relationship of the
underlying stock's price to the strike price of the Warrants and the time
remaining until the Warrants expire, a value of $6.1 million is implied for
the Warrants.
B. THE LETTER AGREEMENT
On March 2, 1998, Magten, Apollo and the Company entered into the
Letter Agreement setting forth the basic terms and conditions of the
Restructuring. Pursuant to the Letter Agreement, the parties agreed, among
other things, to support the Restructuring on the following terms: (i) the
entire long term debt (which, as of March 2, 1998, was $110.379 million,
consisting of $104.879 million of aggregate principal amount of, and $5.5
million of accrued interest on, the Senior Notes) would be converted into
92.5% of the Company's issued and outstanding New Common Stock immediately
following consummation of the Restructuring, subject to dilution for shares
of New Common Stock issued under the Stock Award and Incentive Plan and the
Warrant Shares and, in the case of the Exchange Restructuring only, the
shares of New Common Stock issued under the Old Plans, and (ii) the Old
Common Stock would be converted into 7.5% of the Company's issued and
outstanding New Common Stock immediately following consummation of the
Restructuring, subject to dilution for shares of New Common Stock issued
under the Stock Award and Incentive Plan and the Warrant Shares and, in the
case of the Exchange Restructuring only, the shares of New Common Stock
issued under the Old Plans, plus Stockholders would receive seven year
Warrants to purchase up to 10% of the Company's New Common Stock, on a
fully diluted basis. In addition, pursuant to the Letter Agreement and in
order to effect the Restructuring, the Company agreed to (a) effectuate the
Reverse Split in order to "normalize" the post-restructuring trading of the
New Common Stock by reducing the number of outstanding shares and, thus,
increasing the per share stock price; (b) elect a new Board, consisting of
between five and seven members comprised of Mr. Jerald Politzer, as
Chairman, between three and five members nominated by Magten, subject to
consultation with the Company and other Noteholders who may come forward
prior to the commencement of the Exchange Offer, and one member nominated
by the current Board; (c) enter into a registration rights agreement for
the benefit of Noteholders who will hold 10% or more of the New Common
Stock immediately after consummation of the Restructuring, on terms and
conditions reasonably acceptable to Magten and the Company; (d) enter into
a New Credit Agreement to replace the Company's existing working capital
facility under the Credit Agreement on terms reasonably satisfactory to
Magten and Apollo; (e) adjust all existing stock options and other equity
based plans to reflect the Restructuring and/or adopt the Stock Award and
Incentive Plan; and (f) amend the Company's existing Rights Plan to permit
the Restructuring to be consummated without causing any rights thereunder
to become exercisable as a result. Pursuant to the Letter Agreement, Magten
agreed, among other things, to tender (or with respect to managed accounts,
use its reasonable best efforts to cause to be tendered) all of the Magten
Notes in acceptance of the Exchange Offer, provided that certain conditions
are satisfied, including that (i) all applicable federal and state
securities laws are complied with, and (ii) the terms of the Exchange Offer
and the remaining components of the Restructuring are consistent with the
terms of the Exchange Offer and Restructuring as described in the Letter
Agreement. As contemplated by the Letter Agreement, Magten has, in
accordance with Section 6.5 of the Indenture, caused a written direction to
be provided to the Trustee, to forbear during the term of the Letter
Agreement from taking any action under the Indenture in connection with the
failure by the Company to make the interest payment on the Senior Notes
that was due and payable on March 2, 1998.
In connection with the Restructuring, each of the existing members of
the Board has delivered to the Company a resignation letter resigning from
the Board effective as of the Effective Date. In accordance with the
Company's Certificate of Incorporation, by resolution of the Board, the
number of directors has been fixed at [____], effective as of the Effective
Date. As provided for in the Letter Agreement, the new Board will consist
of: (i) Mr. Jerald Politzer, as the Chairman of the Board; (ii) between
three and five members to be nominated by Magten, subject to consultation
with the Company and other Noteholders who may come forward prior to the
commencement of the Solicitation, and (iii) one member designated by the
current Board. As described above, as contemplated by the Letter Agreement,
it is expected that Magten will provide the Company with its Board nominees
prior to the commencement of the Solicitation. In addition, the current
Board has designated Marvin Schiller to be the current Board's nominee to
the new Board. If any nominee should be unavailable for election at the
Stockholders' Meeting, the proxies will be voted for the election of such
other person as may be recommended by the Board. See Section IX.G. herein,
entitled "SUMMARY OF THE PREPACKAGED PLAN -- IMPLEMENTATION OF THIS PLAN."
Magten's obligations under the Letter Agreement will terminate upon
the occurrence of any of the following events (a "Magten Agreement
Termination Event") unless waived in writing by Magten:
(a) the Company has not obtained the requisite shareholder
approval for the Restructuring Proposals at the
Stockholders' Meeting on or before July 31, 1998;
(b) the Exchange Offer shall not have commenced on or before
June 15, 1998;
(c) the Exchange Restructuring Date shall not have occurred on
or before July 31, 1998;
(d) the Company or Apollo shall have disclaimed publicly in
writing (or in a writing sent to Magten) its intention to
pursue the Restructuring;
(e) there occurs any material change in the terms or the
feasibility of the Restructuring that materially affects the
Noteholders, not previously consented to in writing by
Magten;
(f) the Company shall be the subject of a voluntary or
involuntary petition under the Bankruptcy Code priorto the
occurrence of the Exchange Restructuring Date, other than
the Prepackaged Restructuring, provided, however, that the
filing of an involuntary petition will only be deemed to
constitute a Magten Agreement Termination Event when and if
such involuntary petition for relief has continued
undismissed for 60 days or an order or decree approving the
involuntary petition has continued unstayed and in effect
for 60 days; and
(g) to the extent the right of Magten to vote or direct the
disposition of the Senior Notes results from an arrangement
in existence as of March 2, 1998 under which Magten has been
engaged to perform investment management services on behalf
of a beneficial owner of Senior Notes, (i) such engagement
will be terminated by such beneficial owner or as a result
of any statutory, regulatory or bona ---- fide business
requirement or condition not related to the Letter
Agreement, or (ii) such beneficial owner directs Magten to
dispose of some or all of the Senior Notes beneficially
owned by such beneficial owner; provided that, in any case,
the Magten Agreement Termination Event only applies to
Senior Notes held by the beneficial owner as to which
engagement has been terminated or as to which such disposal
direction has been issued.
Apollo's obligations under the Letter Agreement will terminate upon
the occurrence of any of the following events (an "Apollo Agreement
Termination Event") unless waived in writing by Apollo:
(a) the Exchange Restructuring Date shall not have occurred on
or before July 31, 1998;
(b) there occurs any material change in the terms or the
feasibility of the Restructuring that materially and
adversely affects the Stockholders, not previously consented
to by Apollo; and
(c) the Company shall be the subject of a voluntary or
involuntarily petition under the Bankruptcy Code prior to
the occurrence of the Exchange Restructuring Date other than
the Prepackaged Restructuring, provided, however, that the
filing of an involuntary petition will only be deemed to
constitute an Apollo Agreement Termination Event when and if
such involuntary petition for relief has continued
undismissed for 60 days or an order or decree approving the
involuntary petition has continued unstayed and in effect
for 60 days.
In addition, the respective obligations of Magten, Apollo and the
Company to consummate each of the transactions contemplated by the
Restructuring are also subject to the satisfaction of each of the following
conditions:
(a) neither Magten, the Company nor Apollo has failed to comply
with any of its obligations set forth in the Letter
Agreement;
(b) the negotiation, preparation and execution of mutually
satisfactory definitive transaction agreements and other
documents incorporating the terms and conditions of each of
the transactions contemplated by the Restructuring set forth
in the Letter Agreement and such other terms and conditions
as the parties may reasonably require;
(c) all authorizations, consents and regulatory approvals
required, if any, in connection with the consummation of the
transactions contemplated by the Restructuring and the
continuation of the Company's businesses as currently
constituted shall have been obtained; and
(d) the holders of 100% (or such lesser percentage as agreed
upon by Magten) of the Senior Notes shall have tendered
their Senior Notes in connection with the Exchange Offer.
In the event that less than 100% of the aggregate principal amount of
the Senior Notes are tendered in the Exchange Offer but at least two-thirds
in principal amount and a majority in number of the Noteholders voting and
at least two-thirds of the Stockholders voting have voted in favor of the
Prepackaged Plan, the Company intends to file the Prepackaged Plan under
Chapter 11 of the Bankruptcy Code. Pursuant to the Letter Agreement, Magten
has agreed to tender (or with respect to managed accounts, use its
reasonable best efforts to cause to be tendered), subject to certain
conditions, all of the Magten Notes pursuant to the Exchange Offer and, in
the event the Prepackaged Plan is pursued, to vote all of the Magten Notes
in favor of the Prepackaged Plan. In addition, pursuant to the Letter
Agreement, Apollo has entered into a Voting Agreement with the Company
pursuant to which Apollo has agreed to vote all of the Apollo Shares in
favor of each of the Restructuring Proposals and, in the event the
Prepackaged Plan is pursued, to vote all of the Apollo Shares in favor of
the Prepackaged Plan.
C. THE VOTING AGREEMENT
In accordance with the terms of the Letter Agreement, on May _,
1998, Apollo and the Company entered into the Voting Agreement. Pursuant to
the Voting Agreement, Apollo agreed that, subject to Apollo's receipt of
proxy or other solicitation in respect of the Restructuring that are
consistent with the terms of the Letter Agreement, (A) at any meeting of
the Stockholders, however called, and in any action by consent of the
Stockholders, Apollo will vote all of the Apollo Shares in favor of each of
the transactions contemplated by the Restructuring with respect to which a
vote of the Stockholders is called, including, without limitation, each of
the Restructuring Proposals; (B) Apollo will vote all of the Apollo Shares
in favor of any plan of reorganization for which votes to accept or reject
such plan of reorganization have been solicited; provided, that, such plan
of reorganization is consistent with the terms of the Restructuring set
forth in the Letter Agreement; (C) so long as it is the beneficial owner of
the Apollo Shares, Apollo will not at any time prior to the termination of
the Letter Agreement, support or encourage, directly or indirectly, any
financial restructuring concerning the Company other than the Restructuring
or any transaction or other action that is inconsistent with the terms of
the Restructuring; and (D) Apollo will not sell, transfer or assign any of
the Apollo Shares or any voting interest therein during the term of the
Letter Agreement except to a purchaser who agrees in writing prior to such
acquisition to be bound by the terms of this Agreement and by all the terms
of the Letter Agreement with respect to the Apollo Shares being acquired by
such purchaser.
In addition, pursuant to the Voting Agreement, Apollo also agreed that
if it fails to comply with the provisions of the Letter Agreement, as
determined by the Company in its sole discretion, such failure will result,
without any further action by Apollo, in the irrevocable appointment of the
Company, until termination of the Voting Agreement, as Apollo's attorney
and proxy pursuant to the provisions of Section 212(c) of the Delaware
General Corporation Law ("DGCL"), with full power of substitution, to vote,
and otherwise act (by written consent or otherwise) with respect to the
Apollo Shares which Apollo is entitled to vote at any meeting of
Stockholders (whether annual or special and whether or not an adjourned or
postponed meeting) or consent in lieu of any such meeting or otherwise, on
the matters and in the manner specified in the Voting Agreement.
The Company's refinancing efforts during Fiscal 1997 included
discussions with DDJ Capital Management, LLC ("DDJ") regarding a possible
refinancing transaction. As of April 20, 1998, DDJ was the beneficial owner
of 1,615,730 shares of Old Common Stock, which represents approximately
10.8% of the issued and outstanding shares of Old Common Stock. In
connection with these discussions, DDJ entered into a confidentiality
agreement (the "DDJ Confidentiality Agreement") with the Company relating
to DDJ's review of various materials relative to such proposed refinancing.
The DDJ Confidentiality Agreement contained certain restrictions on the
ability of DDJ to buy or sell shares of Old Common Stock. In accordance
with the terms of the Letter Agreement, the Company requested that DDJ
enter into a voting agreement with the Company similar to the Voting
Agreement entered into with Apollo. DDJ, however, informed the Company that
it does not wish to enter into such a voting agreement. In addition, on or
about March 3, 1998, DDJ requested that the Company terminate the
restrictions on DDJ's ability to buy or sell shares of Old Common Stock set
forth in the DDJ Confidentiality Agreement. On March 4, 1998, the Company
granted this request by DDJ.
D. THE WAIVER AND FORBEARANCE UNDER THE CREDIT AGREEMENT
CIT agreed to support the Company's restructuring efforts under the
Letter Agreement and, on March 2, 1998, the Company entered into the
Forbearance Agreement with CIT, wherein CIT (i) waived certain existing
financial covenant defaults under the Credit Agreement as of January 3,
1998; (ii) agreed to forbear (subject to certain conditions) from
exercising any of its rights or remedies arising under the Credit Agreement
arising from the Company's failure to make the interest payment on the
Senior Notes due and payable on March 2, 1998; (iii) agreed to continue
making loans, advances and other financial accommodations to the Company;
and (iv) agreed to amend certain provisions of the Credit Agreement,
including an increase in the advance rate for revolving loans made pursuant
to the Credit Agreement. Under the Forbearance Agreement, such agreement to
forbear by CIT will terminate on July 1, 1998 or earlier upon the happening
of (a) the occurrence of any Event of Default (as defined in the Credit
Agreement) other than a Payment Default (as defined in the Forbearance
Agreement); or (b) the failure of the Company to execute and deliver to CIT
before June 1, 1998, (i) a commitment letter executed by CIT providing for
the agreement between CIT and the Company to enter into a new $135 million
syndicated credit facility (in replacement of the financing and factoring
arrangements provided by CIT pursuant to the Credit Agreement) on terms and
conditions satisfactory to CIT or (ii) a copy of a commitment letter
executed between another lender and the Company providing for a credit
facility to the Company which by its terms provides for closing and funding
thereof on or before July 1, 1998, and enabling the Company upon such
closing and funding to simultaneously terminate the Credit Agreement and
all other Financing Agreements (as defined in the Credit Agreement) and to
satisfy in full all of its then existing Obligations (as defined in the
Credit Agreement) to CIT; or (c) the exercise of any right or remedy with
respect to any of the Collateral (as defined in the Credit Agreement) by
any holder of any Senior Notes or by the Trustee under the Indenture; or
(d) the payment of any interest on the Senior Notes in respect of the
Company's failure to make the March 2, 1998 interest payment or otherwise.
If the Company fails to execute and deliver to CIT, prior to June 1, 1998,
a commitment letter with CIT or another lender providing for an agreement
to enter into a New Credit Agreement, the Company intends to request an
extension of such deadline from CIT. However, there is no assurance that
such an extension would be granted. In addition, while the Company expects
that the Restructuring will be consummated prior to July 1, 1998, if the
Restructuring is not consummated by such date, the Company intends to
request an extension of the forbearance period referred to above from CIT.
However, there is no assurance that such an extension would be granted.
In consideration for CIT's agreement to enter into the Forbearance
Agreement, pursuant thereto, the Company agreed to pay CIT a forbearance
and waiver fee in the amount of $150,000. In addition, in consideration of
a New Credit Agreement proposed by CIT, the Company agreed to pay CIT a
non-refundable and fully earned fee of $1,050,000, payable in three equal
installments of $350,000 each on April 1, May 1 and June 1, 1998. This fee
is non-refundable in whole or in part, provided, however, that
notwithstanding the foregoing, (a) if the Company does execute a New Credit
Agreement with CIT, such fee will be applied to satisfy any and all closing
fees and facility fees under such New Credit Agreement, or (b) if CIT does
not extend a New Credit Agreement to the Company because CIT's Executive
Credit Committee fails to give credit approval for such facility, then
$600,000 of such fee shall be refunded to the Company. In the event that
CIT becomes the lender under the New Credit Agreement or under a
debtor-in-possession working capital facility, if the Prepackaged
Restructuring is pursued, the Forbearance Agreement provides that no other
closing fee or facility fee shall be due and payable in connection with any
such replacement credit facility provided by CIT.
VI. PURPOSES AND EFFECTS OF THE PREPACKAGED RESTRUCTURING
A. PURPOSE OF THE PREPACKAGED RESTRUCTURING
The purpose of the Prepackaged Restructuring is to help ensure the
long-term viability and to contribute to the success of Salant by
deleveraging Salant's capital structure. Specifically, in accordance with
the Three-Year Business Plan developed by Salant, the Prepackaged
Restructuring is designed to recapitalize Salant by converting all of its
long-term debt under the Senior Notes (which as of March 2, 1998 was
$110.379 million, consisting of $104.879 million of principal amount and
$5.5 million of accrued interest on, the Senior Notes) into New Common
Stock. Interest charges for the Company should be substantially reduced and
Stockholders' equity should be substantially increased as a result of the
Prepackaged Restructuring. Upon consummation of the Prepackaged
Restructuring, Salant believes it will not have any long-term debt, other
than the term loan portion of its working capital facility. The
significantly lower debt-to-equity ratio should help Salant to achieve the
objectives as described in the Three-Year Business Plan and make it more
attractive to investors. Salant believes that by reducing the uncertainty
surrounding its ability to pay or retire the Senior Notes which are due in
their entirety on December 31, 1998, the Prepackaged Restructuring should
maximize liquidity for its business operations and thereby provide a
platform for future growth and enhance its total enterprise value. The
achievement of the future operating results set forth in the Three-Year
Business Plan is predicated, in part, upon the current senior management of
Salant remaining with Reorganized Salant after the Effective Date. The
Company further believes that by providing the Company with a deleveraged
capital structure, the company that results from the Prepackaged
Restructuring should be positioned favorably to withstand the normal market
fluctuations in the highly volatile apparel industry.
In contemplation of the Prepackaged Restructuring, Salant elected not
to pay the interest payment of approximately $5.5 million that was due and
payable under the Senior Notes on March 2, 1998, subject to a 30-day grace
period. Because Salant elected not to pay the interest due on the Senior
Notes by the expiration of the applicable grace period, an event of default
has occurred with respect to the Senior Notes entitling the Noteholders to
accelerate the maturity thereof. Pursuant to the Letter Agreement, Magten
has, in accordance with Section 6.5 of the Indenture, caused a written
direction to be provided to the Trustee, to forbear during the term of the
Letter Agreement from taking any action under the Indenture in connection
with the failure by Salant to make the interest payment on the Senior Notes
that was due and payable on March 2, 1998. On April 8, 1998, the Trustee
issued a Notice of Default stating that as a result of Salant's failure to
make the interest payment due on the Senior Notes, an event of default
under the Indenture had occurred on April 1, 1998. Holders of at least 25%
in aggregate principal face amount of the Senior Notes may accelerate all
outstanding indebtedness under the Senior Notes pursuant to the terms of
the Indenture, and in the event the Stockholders fail to approve the
Restructuring Proposals and Salant does not immediately seek to implement
the Restructuring through the Prepackaged Plan, such an acceleration of
outstanding indebtedness under the Senior Notes could result in Salant
becoming subject to a proceeding under Federal bankruptcy laws without
having solicited acceptances for the Prepackaged Plan prior to the
commencement of such proceeding. In addition, Salant's working capital
lender, CIT, agreed to forbear until July 1, 1998, subject to certain
conditions, from exercising any of its rights or remedies under the Credit
Agreement arising by virtue of Salant's failure to pay such interest on the
Senior Notes. Failure to consummate the Prepackaged Restructuring could
result in the acceleration of all of the indebtedness under the Senior
Notes and/or the Credit Agreement.
ABSENT THE RESTRUCTURING, SALANT DOES NOT BELIEVE IT WILL BE ABLE TO
SATISFY ITS OBLIGATIONS UNDER THE SENIOR NOTES WITHOUT A REFINANCING OF
SALANT'S INDEBTEDNESS UNDER THE CREDIT AGREEMENT AND/OR THE SENIOR NOTES OR
AN ADDITIONAL CAPITAL INFUSION, AND IT IS UNLIKELY THAT SALANT WILL BE ABLE
TO OBTAIN SUCH REFINANCING OR ADDITIONAL CAPITAL INFUSION. IF SALANT
DETERMINES THAT IT IS OR WILL BE UNABLE TO COMPLETE THE RESTRUCTURING,
SALANT WILL CONSIDER ALL OTHER AVAILABLE FINANCIAL ALTERNATIVES, INCLUDING
THE SALE OF ALL OR A PART OF ITS BUSINESSES, THE IMPLEMENTATION OF AN
ALTERNATIVE RESTRUCTURING ARRANGEMENT OUTSIDE OF BANKRUPTCY, OR THE
COMMENCEMENT OF A CHAPTER 11 CASE WITHOUT A PRE-BANKRUPTCY ACCEPTED PLAN OF
REORGANIZATION. THERE CAN BE NO ASSURANCE, HOWEVER, THAT ANY ALTERNATIVE
WOULD BE ON TERMS AS FAVORABLE TO NOTEHOLDERS AND STOCKHOLDERS AS THE
RESTRUCTURING.
The Prepackaged Plan provides for, among other things, (i) the
issuance and distribution of New Common Stock to Noteholders and (ii) the
issuance and distribution of New Common Stock and Warrants to Stockholders.
In consideration of such distribution, the Senior Notes held by the
Noteholders and the Old Common Stock held by the Stockholders will be
canceled.
THE SUBSIDIARIES OF SALANT ARE NOT PARTIES TO THE PREPACKAGED PLAN,
AND WILL NOT BECOME DEBTORS IN CONNECTION WITH THE PREPACKAGED
RESTRUCTURING. THEREFORE, THE SUBSIDIARIES OF SALANT WILL CONTINUE TO
OPERATE IN THE ORDINARY COURSE OF BUSINESS. AS SUCH, THE PREPACKAGED PLAN
DOES NOT AFFECT THE CONTINUING AND TIMELY PAYMENT IN FULL OF THE
SUBSIDIARIES' OBLIGATIONS TO SUPPLIERS, EMPLOYEES, AND OTHER CREDITORS. IN
ADDITION, THE PREPACKAGED PLAN PROVIDES FOR ALL PREPETITION UNSECURED
CREDITORS OF SALANT, INCLUDING, WITHOUT LIMITATION, TRADE CREDITORS, TO BE
PAID IN FULL IN ACCORDANCE WITH THEIR TERMS, AND SUCH CREDITORS WILL NOT,
THEREFORE, BE IMPAIRED BY, AND WILL BE DEEMED TO ACCEPT, THE PREPACKAGED
PLAN, AND THEIR VOTE ON THE PREPACKAGED PLAN WILL NOT BE SOUGHT.
Salant believes that the Prepackaged Restructuring is a significantly
more attractive alternative than a bankruptcy case without a preaccepted
plan of reorganization. Salant believes that acceptance of the Prepackaged
Plan before a bankruptcy case is commenced would be more beneficial to
Salant and all of its creditors, equity security holders and other
constituents than seeking to obtain confirmation of a plan having the same
terms as the Prepackaged Plan after a bankruptcy case is commenced, because
the Prepackaged Plan should minimize disputes during such case concerning
the reorganization of Salant, significantly shorten the time required to
accomplish the reorganization, reduce the expenses of a case under Chapter
11 of the Bankruptcy Code, maximize available liquidity by avoiding the
disruption of a protracted Chapter 11 case, minimize the disruption of
Salant's business that would result from a protracted and contested
bankruptcy case, and therefore result in a larger distribution to Salant's
creditors and equity security holders than would any non-prepackaged
reorganization under Chapter 11 of the Bankruptcy Code or a liquidation
under Chapter 7 of the Bankruptcy Code. See Section XXIII herein, entitled
"FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF CREDITORS
TEST."
There can be no assurance, however, that even if all requisite
acceptances of the Prepackaged Plan are received and the Chapter 11 Case is
commenced, the Prepackaged Restructuring would ever be completed, that
Salant could successfully be reorganized under Chapter 11 of the Bankruptcy
Code, that Salant would not suffer a disruption in its business operations
as a result of filing the Chapter 11 Case or, even if the Prepackaged
Restructuring were eventually completed, that the time period which it
would take Salant to emerge from the Chapter 11 Case in connection with the
Prepackaged Plan would be significantly shorter than under a
non-prepackaged Chapter 11 case. This potential for disruption in Salant's
business operations is heightened as a result of the fact that Salant has
been a debtor in bankruptcy on two prior occasions. If Salant determines
that it is or will be unable to complete the Prepackaged Restructuring,
Salant will consider all financial alternatives available to it at such
time, which may include the sale of all or part of Salant's business or an
equity interest in Salant, the implementation of an alternative
restructuring arrangement outside of bankruptcy or the commencement of a
Chapter 11 case without a preaccepted plan of reorganization. See Section
XXIV herein, entitled "ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE
PREPACKAGED PLAN." There can be no assurance, however, that any alternative
restructuring would result in a reorganization of Salant rather than a
liquidation, or that any such reorganization would be on terms as favorable
to the Holders of Claims and Holders of Interests as the terms of the
Prepackaged Restructuring. If a liquidation or a protracted and non-orderly
reorganization were to occur, there is a risk that the ability of the
Holders of Claims and Interests to recover their investments would be even
more impaired than under the Prepackaged Restructuring and would be
substantially delayed and a non-consensual restructuring would likely have
a material adverse impact on the Company and its employees, suppliers and
customers. See Section XIV herein, entitled "RISK FACTORS."
B. EFFECTS OF THE PREPACKAGED RESTRUCTURING
If confirmed, the Prepackaged Plan will implement the Prepackaged
Restructuring by providing for, among other things (i) the issuance of New
Common Stock to the Noteholders in exchange for Senior Notes, and (ii) the
issuance of New Common Stock and Warrants to Stockholders in exchange for
Old Common Stock.
If the Chapter 11 Case is commenced and the Prepackaged Plan is
confirmed, all Noteholders and Stockholders will be bound by the terms of
the Prepackaged Plan, whether or not they have voted to accept the
Prepackaged Plan in accordance with the Prepackaged Plan and the Voting
Instructions. To be counted, Ballots and Master Ballots to vote to accept
or reject the Prepackaged Plan described herein must be submitted in
accordance with the voting instructions accompanying the Ballots and Master
Ballots (the "Voting Instructions"). See Section XXV herein, entitled
"VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN."
1. Dilution of Equity Interests
----------------------------
Under the Prepackaged Plan, each Noteholder of record will be entitled
to receive, in full and final satisfaction of such Holder's Allowed Class 3
Senior Note Claim, 175.977555 shares of New Common Stock for each $1,000
principal face amount of Senior Notes held by such Holder, thus enabling
such Holder to participate in the economic results and any future growth of
Reorganized Salant. The issuance to Noteholders of shares of New Common
Stock upon consummation of the Prepackaged Plan will result in significant
dilution of the equity interests of the existing holders of Old Common
Stock. Following consummation of the Prepackaged Plan, the 18,456,350
shares of New Common Stock issued directly to Holders of Allowed Class 3
Senior Note Claims pursuant to the Prepackaged Plan will represent 92.5% of
the total issued and outstanding shares of New Common Stock as of the
Effective Date (subject to dilution for shares of New Common Stock issued
under the Stock Award and Incentive Plan and the Warrant Shares). See
Section IX.D. herein, entitled "SUMMARY OF THE PREPACKAGED PLAN --
SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PREPACKAGED PLAN."
Under the Prepackaged Plan, each Holder of a Class 6 Old Common Stock
Interest will be entitled to receive, in full and final satisfaction of
such Holder's Allowed Class 6 Old Common Stock Interest, (i) one-tenth of a
share of New Common Stock for each share of Old Common Stock held by such
Holder and (ii) .14814815 Warrants. As of March 16, 1998, there were
14,964,608 shares of Old Common Stock issued and outstanding. Assuming
consummation of the Prepackaged Restructuring, the Stockholders will
receive, in exchange for their shares of Old Common Stock, an aggregate of
1,496,461 shares of New Common Stock, constituting 7.5% of the New Common
Stock issued and outstanding immediately after the Effective Date (subject
to dilution for shares of New Common Stock issued under the Stock Award and
Incentive Plan and the Warrant Shares). As a result, upon consummation of
the Prepackaged Restructuring, the equity interests of the Stockholders
represented by the Old Common Stock, as a percentage of the total number of
issued and outstanding shares of the New Common Stock, will be
significantly diluted from 100% of the Old Common Stock to 7.5% of the New
Common Stock (subject to further dilution as a result of the issuance of
shares of New Common Stock under the Stock Award and Incentive Prepackaged
Plan and the Warrant Shares). In addition, the Stockholders will receive
the Warrants, which in the aggregate represent the right to purchase up to
10% of the New Common Stock issued and outstanding immediately after the
Effective Date (on a fully diluted basis). The Warrants would be
exercisable for seven years from the Effective Date. Each Stockholder would
receive, for each share of Old Common Stock held, .14814815 Warrants. The
Warrants would have an Exercise Price of $6.2648 and each Warrant would be
exercisable for one share of New Common Stock, in each case, subject to
adjustment. If all of the Warrants are exercised, the percentage of New
Common Stock held by exchanging Noteholders would be reduced from 92.5% to
83.25% and the percentage of New Common Stock held by Stockholders would be
reduced from 7.5% to 6.75% (assuming that none of the Warrants are held by
the Stockholders at the time the Warrants are exercised). In addition,
there can be no assurance that Salant will not need to issue additional
shares of New Common Stock in the future in order to achieve its Three-Year
Business Plan or if it does not achieve its projected results, which could
lead to further dilution to holders of Reorganized Salant's New Common
Stock.
2. Provisions For Employees
------------------------
If Salant files the Prepackaged Plan, Salant intends for salaries or
wages, as the case may be, accrued paid vacation, health-related benefits,
severance benefits and similar employee benefits to be unaffected. Employee
benefit claims that accrue prior to the Filing Date will receive unimpaired
treatment under the terms of the Prepackaged Plan. See Section IX herein,
entitled "SUMMARY OF THE PREPACKAGED PLAN."
In order to ensure the continuity of its work force and to further
accommodate the unimpaired treatment of employee benefits, Salant intends
to seek the approval of the Bankruptcy Court, immediately upon commencement
of the Chapter 11 Case, to honor payroll checks outstanding as of the
Filing Date, to permit Salant employees to utilize their paid vacation time
which was accrued prior to the commencement of the Chapter 11 Case and to
continue paying medical benefits under applicable employee health plans.
Salant also intends to seek authorization from the Bankruptcy Court to
honor, pay and/or perform in the ordinary course, wages, salaries, paid
vacation and other employee benefits which accrue after the Filing Date.
There can be no assurance, however, that any necessary approval will be
obtained. Employee claims and benefits not paid or honored, as the case may
be, prior to the consummation of the Prepackaged Plan, will be paid or
honored upon consummation or as soon thereafter as such payment or other
obligation becomes due or payable. Salant also intends to leave unaltered
all other legal, equitable and contractual rights of employees under its
employment and severance policies, compensation and benefit plans and all
other agreements, contracts and programs applicable to its employees, other
than any equity or equity-based incentive plans (the "Existing Equity-Based
Plans"). See Section IX herein, entitled "SUMMARY OF THE PREPACKAGED PLAN."
VII. THE CHAPTER 11 CASE
A. TIMETABLE FOR THE CHAPTER 11 CASE
Following the Filing Date, Salant expects the Chapter 11 Case to
proceed on the following estimated timetable. There can be no assurance,
however, that the Bankruptcy Court's orders to be entered on or after the
Filing Date or actions that may be taken by various parties-in-interest
will permit the Chapter 11 Case to proceed as expeditiously as anticipated.
On the Filing Date, Salant intends to seek an order that the
Disclosure Statement hearing, at which the Bankruptcy Court would consider
whether the Solicitation complied with Section 1126(b) of the Bankruptcy
Code so as to permit the prepetition votes on the Prepackaged Plan to be
counted towards confirmation, be held immediately prior to the hearing on
the Confirmation of the Prepackaged Plan. Salant anticipates that the
hearing on confirmation of the Prepackaged Plan would occur on or about 30
days after the commencement of the Chapter 11 Case. Salant anticipates that
at least 25 days' notice of the Confirmation Hearing and of the time for
filing objections to confirmation of the Prepackaged Plan will be given to
all creditors and interest holders.
Assuming that the Prepackaged Plan is confirmed at the initial
Confirmation Hearing, the Prepackaged Plan provides that the Effective Date
will be a date which is 11 days after the Confirmation Date, or, if such
date is not a Business Day, the next succeeding Business Day, or such
earlier date after the Confirmation Date as agreed to in writing between
Salant and Magten so long as no stay of the Confirmation Order is in effect
on such date; provided, however, that if, on or prior to such date, all
conditions to the Effective Date set forth in Article Thirteen of the
Prepackaged Plan have not been satisfied, or waived, then the Effective
Date will be the first Business Day following the day on which all such
conditions to the Effective Date have been satisfied or waived.
Under the foregoing timetable, Salant would emerge from the Chapter 11
Case within 45 to 60 days after the Filing Date. There can be no assurance,
however, that this projected timetable will be achieved.
B. COMMITTEES
To facilitate negotiations and otherwise provide for a unified and
efficient representation of unsecured creditors and equity interest holders
with similar rights and interests, the United States Trustee will generally
appoint one or more statutory committees as soon as practicable after the
Filing Date, pursuant to section 1102 of the Bankruptcy Code. Ordinarily,
one committee will be appointed to represent unsecured creditors, but the
United States Trustee may appoint additional committees to represent equity
interest holders and/or creditors if deemed necessary to assure adequate
representation of creditors or equity interest holders. A creditors'
committee will ordinarily consist of those creditors willing to serve who
hold the seven largest unsecured claims against the debtor of those claims
to be represented by the committee, or of the members of a prepetition
committee if it was fairly chosen and is representative. The fees and
expenses of such committees, including those of legal counsel and financial
advisors, are paid for from the debtor's estate subject to Bankruptcy Court
approval. However, given the prepackaged nature of the Prepackaged Plan and
the unimpaired treatment of unsecured creditors, the United States Trustee
may elect not to appoint an unsecured Creditors' Committee in the Chapter
11 Case.
Holders of equity interests are not ordinarily represented by an
official committee, but such a committee may be appointed if the United
States Trustee deems it appropriate or if the Bankruptcy Court determines
such an official committee to be necessary to assure the adequate
representation of interest holders. Committees appointed by the United
States Trustee would be considered parties-in-interest and would have a
right to be heard on all matters concerning the Chapter 11 cases, including
the confirmation of a plan of reorganization and, additionally, would be
entitled to consult with the debtor concerning the administration of the
Chapter 11 case and perform such other functions and services that would
further the interests of those creditors or interest holders they
represent.
C. ACTIONS TO BE TAKEN UPON COMMENCEMENT OF CASE
Salant does not expect the Chapter 11 Case to be protracted. To
expedite its emergence from Chapter 11, Salant intends to seek the relief
detailed below, among other relief, from the Bankruptcy Court on the Filing
Date. Such relief, if granted, will facilitate the administration of the
Chapter 11 Case, but there can be no assurance, however, that the
Bankruptcy Court will grant the relief sought.
1. Applications to Retain Professionals
------------------------------------
Upon commencement of the Chapter 11 Case, Salant intends to file
applications to retain the reorganization professionals who will assist and
advise Salant in connection with administration of the Chapter 11 Case.
Salant also may seek authority to retain certain professionals to assist
with the operation of its businesses in the ordinary course. Such so-called
"ordinary course professionals" will not be involved in the administration
of the Chapter 11 Case.
2. Motion to Waive Filing of Schedules and Statement of
Financial Affairs
----------------------------------------------------
Section 521 of the Bankruptcy Code and Bankruptcy Rule 1007 direct
that debtors must prepare and file certain schedules of claims, executory
contracts and unexpired leases and related information (the "Schedules")
and a statement of financial affairs (the "Statement") when a Chapter 11
case is commenced. The purpose of filing the Schedules and the Statement is
to provide a debtor's creditors, equity interest holders and other
interested parties with sufficient information to make informed decisions
regarding the debtor's reorganization. However, a bankruptcy court may
modify or dispense with the filing of the Schedules and the Statement
pursuant to Section 521 of the Bankruptcy Code. Salant believes that the
Chapter 11 Case constitutes an ideal case wherein the filing of the
Statement and the Schedules should not be required. Therefore, Salant
intends to request that the Bankruptcy Court order that Salant not be
required to file the Schedules and the Statement.
3. Motion To Mail Notices And To Provide Only Publication
Notice Of Meeting Of Creditors To Unimpaired Creditors
------------------------------------------------------
Pursuant to the Bankruptcy Rules, the Clerk of the Bankruptcy Court,
or another party that the Bankruptcy Court may direct, must provide notice
of the commencement of the Chapter 11 Case and of the meeting of creditors
held pursuant to section 341 of the Bankruptcy Code (the "Section 341
Meeting") to all creditors. In addition, at least two other notices, notice
of the hearing on approval of confirmation of the Prepackaged Plan and
notice of the entry of an Order confirming the Prepackaged Plan, must be
given to all creditors and equity security holders. Due to the size of the
Chapter 11 Case and the large number of creditors and equity security
holders, Salant will request that Salant, or its noticing agent, be
authorized to mail all required notices in the Chapter 11 Case.
4. Motion to Continue Using Existing Bank Accounts, Payroll
Accounts and Business Forms
--------------------------------------------------------
Because Salant expects the Chapter 11 Case to be pending for less than
two months, and because of the administrative hardship that any operating
changes would impose on it, Salant intends to seek authority to continue
using its existing bank accounts, payroll accounts and business forms and
to follow its internal investment and deposit guidelines. Absent the
Bankruptcy Court's authorization of the continued use of Salant's current
bank accounts, payroll accounts and business forms, Salant's normal
business activities would be disrupted, to the detriment of Salant's estate
and its creditors.
Continued use of its existing bank accounts, payroll accounts and
business forms will facilitate Salant's smooth and orderly transition into
Chapter 11, minimize the disruption to its businesses while in Chapter 11,
and expedite Salant's emergence from Chapter 11. Requiring Salant to cancel
its existing bank accounts, payroll accounts and establish new accounts or
create new business forms would likely increase the costs of the Chapter 11
Case and only frustrate Salant's efforts to reorganize expeditiously.
5. Motion for Authority to Pay Prepetition Employee Wages and
Associated Benefits
------------------------------------------------------------
Salant believes that any delay in paying prepetition compensation or
benefits to its employees would destroy Salant's relationships with
employees and irreparably harm employee morale at a time when the
dedication, confidence and cooperation of Salant's employees are most
critical. Accordingly, Salant will seek authority to pay compensation and
benefits to its employees which were accrued but unpaid as of the Filing
Date.
6. Motion for Authority to Maintain Workers' Compensation
Insurance Policies and to Pay Prepetition Workers'
Compensation Claims
------------------------------------------------------
To ensure that Salant's workers' compensation, automobile and general
liability insurance coverages remain in effect, Salant shall seek authority
to maintain its workers' compensation, automobile and general liability
insurance policies. Likewise, to the extent necessary, Salant shall also
seek authority to pay retroactive prepetition premiums on certain other
workers' compensation insurance policies and to honor prepetition workers'
compensation claims. The failure to maintain such insurance by the payment
of the premiums could subject Salant or their officers to criminal
penalties.
7. Chapter 11 Financing
--------------------
In order to ensure that Salant's business operations can continue
without interruption during the Chapter 11 Case, Salant intends, subject to
Bankruptcy Court approval, to enter into a debtor-in-possession financing
arrangement with CIT on the same terms and conditions as its existing
pre-bankruptcy working capital facility with CIT under the Credit
Agreement. CIT has indicated to Salant its willingness to provide such a
debtor-in-possession facility to Salant.
8. Motion to Honor Commission and Expense Checks
---------------------------------------------
Prior to the commencement of the Chapter 11 Case and in the ordinary
course of business, Salant owed its sales agents (the "Agents") certain
prepetition commissions and expenses accrued in the rendition of services
of its Agents, Salant needs to be authorized to pay and reimburse its
Agents for all current, accrued and unpaid commissions and expenses. Salant
believes that it is essential to the continued operation of its business
and to a successful restructuring that it retain its Agents, therefore,
Salant will request that it be allowed to pay those certain prepetition
commissions and expenses.
9. Motion Restraining and Enjoining Utilities from
Discontinuing Service
-----------------------------------------------
In connection with its ongoing business operations, Salant obtains
electricity, natural gas, water, telephone services, trash removal and
other utility services from various utility companies. Salant will seek an
order directing the utility companies not to refuse or discontinue service.
If services are disrupted, even for a brief period, irreparable harm will
be caused to Salant's efforts to restructure, therefore, Salant will
request that the utilities be enjoined from interrupting and discontinuing
service.
10. Motion to Pay Custom Duties, Broker Charges, Shipping
Charges and Related Possessory Liens
-----------------------------------------------------
It is essential to Salant's efforts to reorganize that the flow of
goods into the United States continue uninterrupted. Any failure to pay
custom duties, broker charges, shipping charges and related possessory
liens will likely result in a refusal by the U.S. Customs Service to clear
goods and, in addition, overseas carriers, storage facilities and port
authorities may refuse to release goods, thereby hindering the delivery of
merchandise to Salant or its customers at a critical point in its
Restructuring. Salant intends to forestall any break in the flow of goods
by requesting that it be allowed to pay the appropriate charges described
herein.
11. Disclosure Statement/Confirmation Hearings
------------------------------------------
As discussed above, Salant anticipates that as soon as practicable
after commencing its Chapter 11 Case, it will seek an order of the
Bankruptcy Court scheduling concurrent hearings to consider (i) the
adequacy of this Disclosure Statement and Salant's solicitation of votes
under ss. 1126 of the Bankruptcy Code and (ii) confirmation of the
Prepackaged Plan. Salant anticipates that notice of these hearings will be
published in [The Wall Street Journal (National Edition)], and will be
mailed to all known Holders of Claims and Interests, at least twenty-five
days before the date by which objections must be filed with the Bankruptcy
Court. See Section XXIII herein, entitled "FEASIBILITY OF THE PREPACKAGED
PLAN AND THE BEST INTERESTS OF CREDITORS TEST."
VIII. OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
persons who are members of the Board or executive officers of the Company.
The Board consists of ten members, divided into three classes, the first
class consists of three members, the second class consists of two members
and the third class consists of four members.
A. DIRECTORS
Presently, there is one vacancy on the Board. The term of office of
Class One will expire at the 2000 Annual Meeting; the term of office of
Class Two will expire at the 1999 Annual Meeting; and the term of office of
Class Three will expire at the 2001 Annual Meeting.
DIRECTOR/OFFICER
NAME AGE POSITIONS AND OFFICES OF SALANT SINCE
---- --- --------------------- ---------------
Jerald S. Politzer... 52 Director - Class One,
Chairman of the Board April 1997
and Chief Executive Officer
Harold Leppo.......... 61 Director - Class One September 1993
Edward M. Yorke...... 39 Director - Class One September 1993
Bruce F. Roberts..... 74 Director - Class Two September 1993
Marvin Schiller....... 64 Director - Class Two May 1983
Robert H. Falk....... 59 Director - Class Three May 1996
Ann Dibble Jordan..... 63 Director - Class Three September 1993
Robert Katz........... 31 Director - Class Three August 1995
John S. Rodgers...... 68 Director - Class Three March 1973
Philip A. Franzel.... 50 Executive Vice President and
Chief Financial August 1997
Officer
Todd Kahn............. 34 Executive Vice President,
General Counsel June 1993
and Secretary
No arrangement or understanding exists between any director or officer
and any other person or persons pursuant to which any such person was or is
to be selected as a director or officer. None of the directors or officers
has any family relationship between them.
The business experience, principal occupations and employment during
the past five years of each of the directors, together with their periods
of service as directors and executive officers of the Company, as
applicable, are set forth below.
Jerald S. Politzer, age 52, joined the Company as a director on March
24, 1997, Chief Executive Officer commencing April 1, 1997 and Chairman of
the Board on May 13, 1997. From July 1989 to November 1996 he had been
Executive Vice President of Melville Corporation, a diversified retailer.
Mr. Politzer is a director of Norton McNaughton, Inc., a manufacturer of
women's apparel.
Harold Leppo, age 61, has been an independent retail consultant for
more than the past five years. Mr. Leppo is a director of Filene's
Basement, an operator of retail clothing stores; Napier Co., a jewelry
manufacturer; and Royce Hosiery Mills, Inc., a hosiery manufacturer. Mr.
Leppo has served as a director of the Company since September 1993.
Edward M. Yorke, age 39, has been an officer, since 1992, of Apollo
Advisors, L.P., which, together with an affiliate, serves as managing
general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo
Investment Fund III, L.P., private securities investment funds. AIF II,
L.P. is the general partner of Apollo, the largest stockholder of the
Company. From 1990 to 1992, Mr. Yorke was a vice president in the high
yield capital markets group of BT Securities Corp. Mr. Yorke is a director
of Aris Industries, Inc., an apparel manufacturer; Big Flower Press, Inc.,
a commercial printer; and Telemundo Group, Inc., an operator of television
stations. Mr. Yorke has served as a director of the Company since September
1993.
Robert H. Falk, age 59, has been a principal, since April 1992, of
Apollo Advisors, L.P., which, together with an affiliate, serves as
managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and
Apollo Investment Fund III, L.P., private securities investment funds. AIF
II, L.P. is the general partner of Apollo, the largest stockholder of the
Company. Mr. Falk is a director of Converse, Inc., a manufacturer of
athletic and leisure footwear; Culligan Water Technologies, Inc., a
manufacturer of water purification and treatment products; and Samsonite
Corporation, a luggage manufacturer. Mr. Falk has served as a director of
the Company since May 1996.
Ann Dibble Jordan, age 63, has been an independent consultant for the
last five years. Ms. Dibble Jordan is a director of Johnson & Johnson
Corporation, a manufacturer and marketer of consumer healthcare products;
The Travelers Corporation, a financial services and insurance firm; The
Hechinger Company, a retailer of home improvement products; and Automatic
Data Processing, Inc., a computer services company. Ms. Dibble Jordan has
served as a director of the Company since September 1993.
Robert Katz, age 31, has been associated since 1990 with and is an
officer of Apollo Advisors, L.P., which, together with an affiliate, serves
as managing general partner of Apollo Investment Fund, L.P., AIF II, L.P.
and Apollo Investment Fund III, L.P., private securities investment funds.
AIF II, L.P. is the general partner of Apollo, the largest stockholder of
the Company. Mr. Katz is a director of Alliance Imaging, Inc., a medical
imaging company; Aris Industries, Inc., an apparel manufacturer; and Vail
Resorts Inc., a resort operator. Mr. Katz has served as a director of the
Company since August 1995.
John S. Rodgers, age 68, is an independent consultant. From September
1993 until July 1995, Mr. Rodgers was Executive Vice President, Secretary
and Senior Counsel of the Company. Prior to that time, Mr. Rodgers was
Chairman of the Board of the Company since March 1991. Prior to June 1993,
Mr. Rodgers had been General Counsel for more than the previous five years
and prior to August 1995 he had been Secretary for more than the previous
five years. Mr. Rodgers has served as a director of the Company since 1973.
Bruce F. Roberts, age 74, has been Executive Director of the Textile
Distributors Association, a trade association, from September 1990. Prior
to that time, Mr. Roberts was Senior Vice President--Corporate Relations at
Spring Industries, a textile manufacturer. Mr. Roberts has served as a
director of the Company since September 1993.
Marvin Schiller, age 64, was Managing Director of A.T. Kearney, Inc.,
a management consulting firm, from May 1983 until his retirement as of
January 1995. Dr. Schiller is a director of LePercq-Istel Fund, Inc., a
mutual fund; Strategic Agricultural Management Corp., a software developer
and marketer; and Tutor Time Learning Systems Inc., a childcare and
educational company. Dr. Schiller has served as a director of the Company
since May 1983.
Mr. Franzel, age 50, was elected Executive Vice President and Chief
Financial Officer on August 18, 1997. From June 1993 until joining the
Company, Mr. Franzel was Executive Vice President and Chief Financial
Officer for Ermenegildo Zegna Corp., a leading international manufacturer
and marketer of men's apparel. Prior to June 1993, Mr. Franzel was Group
Chief Financial Officer for GJM International, Inc.
Mr. Kahn, age 34, was elected Vice President and General Counsel on
June 1, 1993, Assistant Secretary on September 22, 1993, Secretary on
August 15, 1995 and Executive Vice President on May 13, 1997. Prior to June
1993, Mr. Kahn was an attorney with the law firm of Fried, Frank, Harris,
Shriver & Jacobson, outside counsel to the Company.
B. EXECUTIVE OFFICERS
Executive officers of the Company are elected by and serve at the
discretion of the Board. For a brief description of the business experience
for the previous five years of all executive officers who are directors,
see "DIRECTORS" above.
As of the Effective Date, the directors identified in Exhibit D to the
Prepackaged Plan will serve as the initial members of the Board of
Reorganized Salant. Such directors shall be elected or appointed, as the
case may be, pursuant to the Confirmation Order, but shall not take office
and shall not be deemed to be elected or appointed until the occurrence of
the Effective Date. Those directors and officers not continuing in office
shall be deemed removed therefrom as of the Effective Date pursuant to the
Confirmation Order.
IX. SUMMARY OF THE PREPACKAGED PLAN
A. BRIEF EXPLANATION OF CHAPTER 11
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under Chapter 11 of the Bankruptcy Code, a debtor is
authorized to reorganize its business for the benefit of itself and its
creditors and stockholders. In addition to permitting rehabilitation of the
debtor, another goal of Chapter 11 is to promote equality of treatment of
creditors and equity security holders, respectively, who hold substantially
similar claims or interests with respect to the distribution of the value
of a debtor's assets. In furtherance of these two goals, upon the filing of
a petition for relief under Chapter 11, Section 362 of the Bankruptcy Code
generally provides for an automatic stay of substantially all acts and
proceedings against the debtor and its property, including all attempts to
collect claims or enforce liens that arose prior to the commencement of the
debtor's Chapter 11 case.
The consummation of a plan of reorganization is the principal
objective of a Chapter 11 case. A plan of reorganization sets forth the
treatment of claims against and interests in a debtor. Confirmation of a
plan of reorganization by the Bankruptcy Court makes the plan binding upon
the debtor, any issuer of securities under the plan, any person or entity
acquiring property under the plan and any creditor of or equity security
holder in the debtor, whether or not such creditor or equity security
holder (i) is impaired under or has accepted the plan or (ii) receives or
retains any property under the plan. Subject to certain limited exceptions,
and except as provided in the plan itself or the confirmation order,
confirmation discharges the debtor from any debt that arose prior to the
date of confirmation of the plan and substitutes therefor the obligations
specified under the confirmed plan, and terminates all rights and interests
of prepetition equity security holders.
The following is an overview of certain material provisions of the
Prepackaged Plan. The following summaries of the material provisions of the
Prepackaged Plan do not purport to be complete and are qualified in their
entirety by reference to all the provisions of the Prepackaged Plan,
including all exhibits thereto, all documents described therein and the
definitions therein of certain terms used below.
B. GENERAL INFORMATION CONCERNING TREATMENT OF CLAIMS AND INTERESTS
The Prepackaged Plan provides for (i) payment in full or other
treatment as agreed upon by the Holders of Allowed Administrative Expenses,
Allowed Priority Tax Claims, Allowed Priority Claims, and the Allowed CIT
Claim, and; (ii) reinstatement or other treatment as agreed upon by the
Holders of Allowed Miscellaneous Secured Claims and Allowed General
Unsecured Claims or the Miscellaneous Secured Claims and/or General
Unsecured Claims will remain unaltered. The Prepackaged Plan provides that
Holders of Allowed Senior Note Claims will receive New Common Stock in
exchange for their Allowed Senior Note Claims. The Prepackaged Plan also
provides that Holders of Allowed Old Common Stock Interests, which will be
canceled pursuant to the Prepackaged Plan, will receive New Common Stock
and Warrants on account of their Allowed Old Common Stock Interests.
Holders of Other Interests will receive no distribution under the
Prepackaged Plan. See "SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE
PREPACKAGED PLAN" in this Section IX.D. for a description of the New Common
Stock and the Warrants. The Company intends that pre-Filing Date Claims of
vendors will be paid in full in Cash no later than on the Effective Date or
the date after the Effective Date that such payment is due in the ordinary
course of business, consistent with past practice.
To allow Salant to complete a financial restructuring in the manner
which will maximize its enterprise value, Salant is soliciting prepetition
acceptances of the Prepackaged Plan from Holders of Senior Notes Claims and
Old Common Stock Interests prior to filing the Chapter 11 Case. Holders of
Other Interests do not receive or retain any property under the Prepackaged
Plan. Under Section 1126(g) of the Bankruptcy Code, the Holders of Other
Interests are deemed not to have accepted the Prepackaged Plan, and the
acceptance of such Holders will not be solicited. Salant presently intends
to seek to consummate the Prepackaged Plan and to cause the Effective Date
to occur as soon as practicable. There can be no assurance, however, as to
when the Effective Date will actually occur. Procedures for the
distribution of cash and securities pursuant to the Prepackaged Plan,
including matters that are expected to affect the timing of the receipt of
distributions by Holders of Claims and Interests in certain Classes and
that could affect the amount of distributions ultimately received by such
Holders, are described in "DISTRIBUTIONS UNDER THE PREPACKAGED PLAN" in
this Section IX.D.
Management of Salant believes that the Prepackaged Plan provides
treatment for all Classes of Claims and Interests reflecting an appropriate
resolution of their Claims and Interests, taking into account the differing
nature of such Claims and Interests. The Bankruptcy Court must find,
however, that a number of statutory tests are met before it may confirm the
Prepackaged Plan. Many of these tests are designed to protect the interest
of Holders of Claims or Interests who do not vote to accept the Prepackaged
Plan, but who will be bound by the provisions of the Plan if it is
confirmed by the Bankruptcy Court. The "cramdown" provisions of Section
1129(b) of the Bankruptcy Code, for example, permit confirmation of a
Chapter 11 plan of reorganization in certain circumstances even if the plan
is not accepted by all impaired classes of claims and interests. See
Section XXV herein, entitled "VOTING AND CONFIRMATION OF THE PREPACKAGED
PLAN."
Salant will request that the Bankruptcy Court confirm the Prepackaged
Plan under Bankruptcy Code section 1129(b). Section 1129(b) permits
confirmation of the Prepackaged Plan despite rejection by one or more
impaired classes if the Bankruptcy Court finds that the Prepackaged Plan
"does not discriminate unfairly" and is "fair and equitable" as to the
rejecting class or classes. Because Class 7 is deemed not to have accepted
the Prepackaged Plan, Salant will request that the Bankruptcy Court find
that the Prepackaged Plan is fair and equitable and does not discriminate
unfairly as to Class 7 (and any other class that fails to accept the
Prepackaged Plan). For a more detailed description of the requirements for
acceptance of the Prepackaged Plan and of the criteria for confirmation
notwithstanding rejection by certain classes, see Section XXIII herein,
entitled "FEASIBILITY OF THE PREPACKAGED PLAN AND BEST INTERESTS OF
CREDITORS TEST."
C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
One of the key concepts under the Bankruptcy Code is that only claims
and equity interests that are "allowed" may receive distributions under a
Chapter 11 plan. The term is used throughout the Prepackaged Plan and the
descriptions below. In general, an "allowed" claim or "allowed" equity
interest simply means that the debtor agrees, or in the event of a dispute,
that the Bankruptcy Court determines, that the claim or equity interest,
including the amount, is in fact a valid obligation of the debtor; in other
words, that the "claim" or equity interest exists. Section 502(a) of the
Bankruptcy Code provides that a timely-filed claim or equity interest is
automatically "allowed" unless the debtor or other party-in-interest
objects. However, section 502(b) of the Bankruptcy Code specifies certain
claims that may not be "allowed" in bankruptcy even if a proof of claim is
filed. These include claims that are unenforceable under the governing
agreement or applicable nonbankruptcy law, claims for unmatured interest,
property tax claims in excess of the debtor's equity in the property,
certain claims for services that exceed their reasonable value, lease and
employment contract rejection damage claims in excess of specified amounts,
late-filed claims, and contingent claims for contribution and
reimbursement. In addition, Bankruptcy Rule 3003(c)(2) prohibits the
allowance of any claim or equity interest that either is not listed on the
debtor's schedules or is listed as disputed, contingent, or unliquidated,
if the holder has not filed a proof of claim or equity interest before the
established deadline. Senior Note Claims in Class 3 shall be deemed Allowed
as provided below.
Section 1123 of the Bankruptcy Code requires that, for purposes of
treatment and voting, a Chapter 11 plan divide the different claims
against, and equity interests in, the debtor into separate classes based
upon their legal nature. In accordance with Section 1123 of the Bankruptcy
Code, claims of a substantially similar legal nature are usually classified
together, as are equity interests which give rise to the same legal rights;
the "claims" and "equity interests" themselves, rather than their holders,
are classified.
Under a Chapter 11 plan, the separate classes of claims and equity
interests must be designated either as "impaired" or "unimpaired" by the
plan. If a class of claims is "impaired," the Bankruptcy Code affords
certain rights to the holders of such claims, such as the right to vote on
the plan (unless the plan provides for no distribution to the holders, in
which case, the holder is deemed to reject the plan), and the right to
receive under the Chapter 11 plan, no less value than the holder would
receive if the debtor were liquidated under Chapter 7. Under Section 1124
of the Bankruptcy Code, a class of claims or interests is "impaired" unless
the plan (i) does not alter legal, equitable, and contractual rights of the
holders or (ii) irrespective of the holders' acceleration rights, cures all
defaults (other than those arising from the debtor's insolvency, the
commencement of the case, or nonperformance of a nonmonetary obligation),
reinstates the maturity of the claims or interests in the class,
compensates the holders for actual damages incurred as a result of their
reasonable reliance upon any acceleration rights, and does not otherwise
alter their legal, equitable, and contractual rights. Typically, this means
the holder of an unimpaired claim will receive on the later of the
effective date or the date on which amounts owing are due and payable,
payment in full, in cash, with postpetition interest to the extent
appropriate and provided under the governing agreement (or if there is no
agreement, under applicable nonbankruptcy law), and the remainder of the
debtor's obligations, if any, will be performed as they come due in
accordance with their terms. Thus, other than its right to accelerate the
debtor's obligations, the holder of an unimpaired claim will be placed in
the position it would have been in had the debtor's case not been
commenced.
As discussed above, Section 1123 of the Bankruptcy Code provides that
a plan of reorganization shall classify the claims of a debtor's creditors
and equity interest holders. In compliance therewith, the Prepackaged Plan
divides Claims and Interests into seven Classes and sets forth the
treatment for each Class. In accordance with Section 1123(a),
Administrative Expenses and Priority Tax Claims have not been classified.
Salant also is required, as discussed above under Section 1122 of the
Bankruptcy Code, to classify Claims against and Interests in Salant into
Classes that contain Claims and Interests that are substantially similar to
the other Claims and Interests in such Classes. Salant believes that the
Prepackaged Plan has classified all Claims and Interests in compliance with
the provisions of Section 1122 of the Bankruptcy Code, but once the Chapter
11 Case has been commenced, it is possible that a Holder of a Claim or
Interest may challenge the classification of Claims and Interests and that
the Bankruptcy Court may find that a different classification is required
for the Prepackaged Plan to be confirmed. In such event, Salant intends, to
the extent permitted by the Bankruptcy Court and the Prepackaged Plan, to
make such reasonable modifications of the classifications under the
Prepackaged Plan to permit confirmation and to use the Prepackaged Plan
acceptances received in this Solicitation for the purpose of obtaining the
approval of the reconstituted Class or Classes of which the accepting
Holder is ultimately deemed to be a member. Any such reclassification could
adversely affect the Class in which such Holder was initially a member, or
any other Class under the Prepackaged Plan, by changing the composition of
such Class and the vote required of that Class for approval of the
Prepackaged Plan. Furthermore, a reclassification of a Claim or Interest
after solicitation of acceptances of the Prepackaged Plan could necessitate
a resolicitation of acceptances of the Prepackaged Plan.
The classification of Claims and Interests and the nature of
distributions to Holders of Impaired Claims or Impaired Interests in each
Class are summarized below. See "SECURITIES TO BE ISSUED AND TRANSFERRED
UNDER THE PREPACKAGED PLAN" in this Section IX.D. for a description of the
manner in which the number of shares of New Common Stock and number of
Warrants will be determined and Section XIV herein, entitled "RISK
FACTORS," for a discussion of various other factors that could materially
affect the value of the New Common Stock, Warrants and Warrant Shares
distributed pursuant to the Prepackaged Plan.
Except for Disputed Claims, distributions will be deemed made on the
Effective Date if made on the Effective Date or as soon as practicable
thereafter. See "PROVISIONS COVERING DISTRIBUTIONS" in this Section IX.H.
for a discussion of Prepackaged Plan provisions that may affect the timing
of distributions under the Prepackaged Plan. Distributions on account of
Claims that become Allowed Claims after the Effective Date will be made
pursuant to Article Ten of the Prepackaged Plan (relating to timing and
calculation of amounts to be distributed under the Prepackaged Plan) and
Article Eleven of the Prepackaged Plan (relating to distributions on
account of Disputed Claims once they are Allowed).
1. Unclassified Claims
-------------------
The Bankruptcy Code does not require classification of certain
priority claims against a debtor. In this case, these unclassified claims
include Administrative Expenses and Priority Tax Claims. All distributions
referred to below that are scheduled for the Effective Date will be made on
the Effective Date or as soon as practicable thereafter.
(a) Administrative Expenses
Administrative Expenses are the actual and necessary costs and
expenses of Salant's Chapter 11 Case that are Allowed under Sections 503(b)
and 507(a)(1) of the Bankruptcy Code. Those expenses will include the
postpetition salaries and other employee benefits, postpetition rents,
amounts owed to vendors providing goods and services to Salant during the
Chapter 11 Case, tax obligations incurred after the Filing Date, and
certain statutory fees and charges assessed under section 1930 of title 28
of the United States Code. Other Administrative Expenses include the
actual, reasonable fees and expenses of Salant's advisors and the advisors
to any official committees appointed in, and incurred during, the Chapter
11 Case.
Administrative Expenses representing liabilities incurred in the
ordinary course of business, consistent with past practice, by Salant or
liabilities arising under loans or advances to Salant after the Filing
Date, whether or not incurred in the ordinary course of business, will be
paid by Salant in accordance with the terms and conditions of the
particular transaction and any related agreements and instruments. All
other Allowed Administrative Expenses will be paid, in full, in cash, on
the Effective Date or as soon thereafter as is practicable, or on such
other terms to which Salant and the Holder of such Administrative Expense
agree.
Salant anticipates that most Administrative Expenses will be paid as
they come due during the Chapter 11 Case and that the Administrative
Expenses to be paid on the Effective Date of the Prepackaged Plan will, for
the most part, comprise the allowed fees and expenses incurred by
professionals retained in the case and the costs attendant to Salant's
assumption of executory contracts and unexpired leases under the
Prepackaged Plan. Salant estimates that, assuming the Effective Date occurs
forty-five days after the commencement of the Chapter 11 Case, Allowed
Administrative Expenses will approximate $[______] (of which approximately
$[______] is estimated for the fees and expenses of Salant's
professionals). In the event an official committee of unsecured
creditors is appointed, that estimate would be increased by approximately
$[______].
All payments to professionals for compensation and reimbursement of
expenses and all payments to reimburse expenses of members of statutory
committees will be made in accordance with the procedures established by
the Bankruptcy Code and the Bankruptcy Rules relating to the payment of
interim and final compensation and expenses. The Bankruptcy Court will
review and determine all such requests. In addition to the foregoing,
Section 503(b) of the Bankruptcy Code provides for payment of compensation
to creditors, indenture trustees, and other persons making a "substantial
contribution" to a Chapter 11 case, and to attorneys for, and other
professional advisors to, such persons. Requests for such compensation must
be approved by the Bankruptcy Court after notice and a hearing at which
Salant and other parties-in-interest may participate, and if appropriate,
object to the allowance thereof.
Under the Prepackaged Plan, each Holder of an Allowed Administrative
Expense will be paid in full in Cash on the later of (i) the Effective Date
and (ii) the date on which the Bankruptcy Court enters an order allowing
such Administrative Expense; provided, however, that Allowed Administrative
Expenses representing obligations incurred in the ordinary course of
business, consistent with past practice, or assumed by Salant shall be paid
in full or performed by Salant or Reorganized Salant in the ordinary course
of business, consistent with past practice; provided further, however, that
Allowed Administrative Expenses incurred by Salant or Reorganized Salant
after the Confirmation Date, including (without limitation) claims for
professionals' fees and expenses, shall not be subject to application and
may be paid by Salant or Reorganized Salant, as the case may be, in the
ordinary course of business and without further Bankruptcy Court approval.
(b) Priority Tax Claims
Priority Tax Claims essentially consist of unsecured claims by federal
and state governmental units for taxes specified in Section 507(a)(8) of
the Bankruptcy Code, such as certain income taxes, property taxes, excise
taxes, and employment and withholding taxes. These unsecured claims are
given a statutory priority in right of payment. Salant estimates that on
the Effective Date, the Allowed Priority Tax Claims will aggregate no more
than $[____].
At the sole option of Salant, each Holder of an Allowed Priority Tax
Claim shall receive (i) Cash payments made in equal annual installments
beginning on or before the first anniversary following the Effective Date
with the final installment being payable no later than the sixth
anniversary of the date of the assessment of such agreed Allowed Priority
Tax Claim together with interest on the unpaid balance of such Allowed
Priority Tax Claim from the Effective Date calculated at the Market Rate;
or (ii) such other treatment agreed to by the Holder of such Allowed
Priority Tax Claim and Salant or Reorganized Salant, as the case may be.
The foregoing treatment of Allowed Priority Tax Claims is consistent with
the provisions of Section 1129(a)(9)(C) of the Bankruptcy Code, and the
Holders of Allowed Priority Tax Claims are not entitled to vote on the
Prepackaged Plan.
2. Classified Claims And Interests
-------------------------------
(a) Class 1-Priority Claims
Class 1 Claims are Unimpaired. Class 1 consists of all Allowed
Priority Claims. A Priority Claim is a Claim for an amount entitled to
priority under Sections 507(a)(3), 507(a)(4), 507(a)(5) or 507(a)(6) of the
Bankruptcy Code, and does not include any Administrative Expense or
Priority Tax Claim. These Priority Claims include, among others: (a)
unsecured Claims for accrued employee compensation earned within 90 days
prior to the Filing Date, to the extent of $4,300 per employee; and (b)
contributions to employee benefit plans arising from services rendered
within 180 days prior to the Filing Date, but only for such plans to the
extent of (i) the number of employees covered by such plans multiplied by
$4,300, less (ii) the aggregate amount paid to such employees under Section
507(a)(3) of the Bankruptcy Code, plus the aggregate amount paid by the
estate on behalf of such employees to any other employee benefit plan.
The Prepackaged Plan provides that, on the latest of (i) the Effective
Date, (ii) the date on which such Priority Claim becomes an Allowed
Priority Claim, or (iii) the date on which Salant and the Holder of such
Allowed Priority Claims otherwise agree, each Holder of an Allowed Priority
Claim will be entitled to receive Cash in an amount sufficient to render
such Allowed Priority Claim Unimpaired under Section 1124 of the Bankruptcy
Code. Allowed Priority Claims in Class 1 are not Impaired under the
Prepackaged Plan and the Holders of Allowed Priority Claims in Class 1 will
be deemed to have accepted the Prepackaged Plan.
(b) Class 2-CIT Claim
Class 2 Claims are Unimpaired. Class 2 consists of the CIT Claim. The
CIT Claim is any and all Claims in respect of all or any portion of the
aggregate outstanding and unpaid amount of principal and interest due and
owing under, and subject to the terms and provisions of, the Credit
Agreement and any and all related documents. Under the Prepackaged Plan, at
the election of Salant prior to the Effective Date, on the Effective Date
or as soon as practicable thereafter, CIT will be entitled to receive on
account of the CIT Claim one of the following treatments: (i) CIT will
receive a distribution in Cash equal to 100% of its Allowed CIT Claim, (ii)
the Allowed CIT Claim shall be otherwise rendered Unimpaired in accordance
with Section 1124 of the Bankruptcy Code, or (iii) such other treatment as
mutually agreed to by Salant and CIT. The Class 2 CIT Claim is Unimpaired
and, accordingly, the Holder of such Claims are not entitled to vote for or
against the Prepackaged Plan and will be deemed to have accepted the
Prepackaged Plan.
(c) Class 3- Senior Notes Claims
Class 3 Claims are Impaired. Class 3 consists of all Senior Note
Claims. The Senior Note Claims are any and all Claims in respect of all or
any portion of the aggregate outstanding and unpaid principal and interest
due and owing under, and subject to the terms and provisions of, the Senior
Notes, and any other indebtedness of Salant due and owing under the
Indenture or the Senior Notes as of the Filing Date. Under the Prepackaged
Plan, each Holder of an Allowed Class 3 Senior Note Claim will receive on
the Effective Date, or as soon as practicable thereafter, on account of
such Holder's Allowed Senior Note Claim, such Holder's pro rata share of
18,456,350 shares of New Common Stock (or 175.977555 shares of New Common
Stock for each $1,000 principal face amount of Senior Notes held by such
Holder).
The aggregate Senior Note Claims in Class 3 shall be deemed Allowed in
the aggregate amount of $110,379,000, plus interest in the amount of
$30,590 for each day after February 28, 1998, until and including the
Filing Date. The Senior Note Claims are not disputed, contingent or
unliquidated, and no Holder of a Senior Note Claim or the Trustee shall be
required to file a proof of claim in order for such Claims to be Allowed
pursuant to the Prepackaged Plan. Any Claims filed with respect to the
Senior Note Claims shall be disallowed as duplicative of the Claim deemed
filed and Allowed as provided in Section 6.3(c) of the Prepackaged Plan.
The reasonable fees, costs and expenses of the Trustee as provided for
pursuant to the Indenture shall be paid in cash in accordance with Section
14.10 of the Prepackaged Plan.
(d) Class 4-Miscellaneous Secured Claims
Class 4 Claims are Unimpaired. Class 4 consists of all Miscellaneous
Secured Claims. Miscellaneous Secured Claims are any Claims, other than the
CIT Claim and the Senior Note Claims, that is a Secured Claim within the
meaning of, and to the extent provided in, Section 506 of the Bankruptcy
Code. To the extent, if any, that the value of the collateral securing a
Class 4 Miscellaneous Secured Claim is less than the amount of such Allowed
Miscellaneous Secured Claim, the difference will be treated as a Class 5
General Unsecured Claim.
Under the Prepackaged Plan, at the election of Salant prior to the
Effective Date, on the Effective Date, or as soon as practicable
thereafter, each Holder of an Allowed Class 4 Miscellaneous Secured Claim,
will be entitled to receive one of the following treatments: (i) the legal,
equitable and contractual rights to which such Allowed Miscellaneous
Secured Claim entitles such Holder will remain unaltered, (ii) such
Holder's Allowed Class 4 Miscellaneous Secured Claim will be reinstated and
rendered Unimpaired in accordance with Section 1124(2) of the Bankruptcy
Code, or (iii) such other treatment as mutually agreed to by Salant and
such Holder. Class 4 Miscellaneous Secured Claims are Unimpaired and,
accordingly, are not entitled to vote for or against the Prepackaged Plan
and will be deemed to have accepted the Prepackaged Plan.
(e) Class 5--General Unsecured Claims
Class 5 Claims are Unimpaired. Class 5 consists of all General
Unsecured Claims. General Unsecured Claims are any Claim against Salant
other than the CIT Claim, a Miscellaneous Secured Claim, a Senior Note
Claim, a Priority Claim, a Priority Tax Claim or an Administrative Expense.
The Prepackaged Plan provides that, at the election of Salant, prior
to the Effective Date, on the Effective Date or as soon as practicable
thereafter, each Holder of an Allowed General Unsecured Claim that has not
been fully paid or satisfied prior to the Effective Date will be entitled
to receive on account of such Holder's Allowed General Unsecured Claim one
of the following treatments: (i) the legal, equitable and contractual
rights to which such Allowed General Unsecured Claim entitles such Holder
will remain unaltered; (ii) such Holder's Allowed General Unsecured Claim
will be reinstated and rendered Unimpaired in accordance with Section 1124
of the Bankruptcy Code; or (iii) such other treatment as mutually agreed to
by Salant and such Holder. Allowed General Unsecured Claims in Class 5 are
not Impaired under the Prepackaged Plan and the Holders of General
Unsecured Claims in Class 5 will be deemed to have accepted the Prepackaged
Plan.
Class 5 also includes any Claims of the Pension Benefit Guaranty
Corporation (the "PBGC"). The Company intends that any such Claims of the
PBGC will continue and remain unaffected by confirmation and consummation
of the Prepackaged Plan.
(f) Class 6--Holders of Old Common Stock Interests
Class 6 Interests are Impaired. Class 6 consists of all Old Common
Stock Interests. Old Common Stock Interests are any Interests evidenced by
Old Common Stock. Under the Prepackaged Plan, on the Effective Date or as
soon as practicable thereafter, each Holder of an Allowed Class 6 Old
Common Stock Interest will receive on account of such Holder's Allowed Old
Common Stock Interest such Holder's pro rata share of: (i) 1,496,461 shares
of New Common Stock, and (ii) the Warrants. Each Warrant entitles the
holder to purchase one share of New Common Stock for $6.2648 per share,
subject to adjustment.
(g) Class 7--Other Interests
Class 7 Interests are Impaired. Class 7 consists of all Other
Interests. Other Interests consist of any equity interests in Salant,
including, without limitation, any rights, options, warrants, calls,
subscriptions or other similar rights or agreements, commitments or
outstanding securities obligating Salant to issue, transfer or sell any
shares of capital stock of Salant, but excluding any Old Common Stock
Interest. Under the Prepackaged Plan, on the Effective Date, all Other
Interests will be extinguished and no distributions will be made in respect
of such Other Interests.
Class 7 Other Interests do not receive or retain any property under
the Prepackaged Plan. Under Section 1126(g) of the Bankruptcy Code, the
Holders of Other Interests are deemed not to have accepted the Prepackaged
Plan, and the acceptance of such Holders will not be solicited.
Upon commencement of the Chapter 11 Case, Salant intends that salaries
or wages, as the case may be, accrued paid vacation, health related
benefits, severance benefits, field management and executive/administrative
management incentive plans and similar employee benefits will be
unaffected. Employee benefit claims that accrue prior to the Filing Date
will receive unimpaired treatment under the terms of the Prepackaged Plan.
To ensure the continuity of Salant's work force and to further accommodate
the unimpaired treatment of employee benefits, Salant intends to seek
immediate authorization from the Bankruptcy Court to honor payroll checks
outstanding as of the Filing Date (or to issue replacement checks), to
permit employees to utilize paid vacation time accrued prior to the Filing
Date (so long as they remain employees of Salant) and to continue paying
medical and other benefits under all applicable insurance plans. Salant
also intends to seek authorization from the Bankruptcy Court to honor, pay
and/or perform in the ordinary course, wages, salaries, paid vacation and
other employee benefits which accrue after the Filing Date. There can be no
assurance, however, that any necessary approval will be obtained. Employee
claims and benefits not paid or honored, as the case may be, prior to
consummation of the Prepackaged Plan will be paid or honored upon
consummation of the Prepackaged Plan or as soon thereafter as such payment
or other obligation becomes due or performable. Salant also intends to
leave unaltered all other legal, equitable and contractual rights of
employees under its employment and severance policies, compensation and
benefit plans and all other agreements, contracts and programs applicable
to its employees, other than any employee stock options or stock
appreciation rights agreement.
D. SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PREPACKAGED PLAN
As of the Effective Date, Reorganized Salant will issue the New Common
Stock and the Warrants. The New Common Stock will be issued for
distribution in accordance with the Prepackaged Plan to Holders of Allowed
Class 3 Senior Note Claims and Allowed Class 6 Old Common Stock Interests.
The Warrants will be issued for distribution in accordance with the
Prepackaged Plan to Holders of Allowed Class 6 Old Common Stock Interests.
1. The New Common Stock
--------------------
In accordance with the Reorganized Salant Certificate of
Incorporation, Reorganized Salant will have 50,000,000 authorized shares of
stock, consisting of 45,000,000 shares of New Common Stock, par value $1.00
per share and 5,000,000 authorized shares of preferred stock, par value
$2.00 per share. Following consummation of the Prepackaged Plan, 19,952,811
shares of New Common Stock will be issued and outstanding to approximately
[ ] holders of record, and no shares of preferred stock will be issued and
outstanding. 18,456,350 shares of New Common Stock will be issued to
Noteholders as of immediately after the Effective Date and 1,496,461 shares
of New Common Stock will be issued to Stockholders as of immediately after
the Effective Date in connection with the Prepackaged Restructuring (not
including Warrant Shares and shares issuable upon the exercise of stock
options granted to the Company's employees and directors under the Stock
Award and Incentive Plan). All of the New Common Stock issued and
outstanding as of the Effective Date will be fully paid and nonassessable.
(a) Distributions
Subject to such preferential rights as may be granted by the Board in
connection with future issuances of preferred stock, holders of shares of
New Common Stock will be entitled to receive ratably such dividends as may
be declared by the Board in its discretion from funds legally available
therefor. The Credit Agreement contains negative covenants that restrict,
among other things, the ability of the Company to pay dividends and the
Company believes that the New Credit Agreement will contain similar
restrictions. In the event of a liquidation, dissolution or winding up of
the Company, the holders of New Common Stock will be entitled to share
ratably in all assets remaining after payment of liabilities and any
liquidation preference owed to holders of any preferred stock. Holders of
New Common Stock will have no preemptive rights and have no rights to
convert their New Common Stock into any other securities.
(b) Voting
Subject to any preferential rights of holders of preferred stock,
holders of shares of New Common Stock will be entitled to one vote per
share on all matters to be voted on by stockholders. Matters submitted for
stockholder approval require a majority vote of the shares, except where
the vote of a greater number is required by the DGCL. Article Sixth of the
Reorganized Salant's Certificate of Incorporation provides that any action
required or permitted to be taken by the stockholders of the Company must
be effected at a duly called annual or special meeting of such holders and
may not be effected by written consent of the stockholders. Article Sixth
may not be repealed or amended in any respect except with the approval of
67% of the outstanding shares of New Common Stock.
(c) Election of Directors
Article Fifth of the Reorganized Salant's Certificate of Incorporation
divides the Board into three classes, with each class serving a three year
term. Any vacancies in the Board, for any reason, and any directorships
resulting from any increase in the number of directors, may be filled only
by the affirmative vote of a majority of the Board, although less than a
quorum. Article Fifth may not be repealed or amended in any respect except
with the approval of 67% of the outstanding shares of New Common Stock and
subject to the provisions of any preferred stock outstanding.
(d) Shares Reserved In Connection with the 1993 Chapter 11
Plan
In accordance with the 1993 Chapter 11 Plan, the Company reserved for
issuance a certain number of shares of Old Common Stock in order to satisfy
certain claims that had been asserted in the 1990 Chapter 11 Case pursuant
to the terms and conditions of the 1993 Chapter 11 Plan. As of the date
hereof, the Company continues to have 206,392 shares of Old Common Stock
reserved for such purpose. Upon the consummation of the Restructuring, such
shares will be canceled and the Company intends to reserve for issuance
approximately 20,639 shares of New Common Stock for the purpose of settling
any remaining claims in the 1990 Chapter 11 Case for which a settlement of
stock may be appropriate.
2. The Warrants
------------
The following is a summary of certain provisions of the Warrant
Agreement and the Warrants (as defined below) to be issued thereunder. For
more complete information regarding the Warrant Agreement and the Warrants,
reference is made to the Warrant Agreement, a copy of which is attached to
the Prepackaged Plan as Exhibit A and which is incorporated herein by
reference. Capitalized terms used but not defined herein shall have the
meanings assigned to them in the Warrant Agreement.
(a) General
Pursuant to the Prepackaged Plan, the Company will issue to the
Stockholders upon surrender of such Stockholders' Old Common Stock
certificates, shares of New Common Stock and Warrants to purchase
additional shares of New Common Stock at an exercise price of $6.2648 per
share. Stockholders will receive, for each share of Old Common Stock held,
one-tenth of a share of New Common Stock and .14814815 Warrants. The
Stockholders will receive, in the aggregate, 2,216,979 Warrants
exercisable, for 2,216,979 shares of New Common Stock or 10% of the New
Common Stock after the Effective Date, based on 14,964,608 outstanding
shares of Old Common Stock as of the Record Date. The Company, will not be
required to issue any fractional shares of New Common Stock or Warrants.
Whenever any distribution of Warrants exercisable into fractional shares of
New Common Stock would otherwise be called for, the actual distribution
will reflect a rounding up or a rounding down to the nearest share of New
Common Stock, provided that, whenever any distribution of a Warrant that is
exercisable into exactly one-half of a share of New Common Stock, the
actual distribution will reflect a rounding up to the nearest share of New
Common Stock. The Exercise Price and the number of Warrant Shares are both
subject to adjustment in certain cases referred to below. Following the
consummation of the Prepackaged Plan, holders of Old Common Stock will be
issued Warrants upon receipt by the Company or its designee of a duly
completed Letter of Transmittal (to be sent to the Stockholders by the
Company promptly after consummation of the Prepackaged Plan).
The Warrants will be exercisable immediately after the Effective Date
and prior to 5:00 p.m., New York City time, on the seventh anniversary of
the date of issuance. The exercise and transfer of the Warrants will be
subject to applicable Federal and state securities laws.
The Warrants may be exercised by surrendering warrant certificates
("Warrant Certificates") evidencing the Warrants to be exercised to the
Company at the Warrant Agent's principal office, (i) a written notice of
such holder's election to exercise such Warrant, which notice will include
the number of shares of New Common Stock to be purchased, (ii) payment of
the Warrant Price (as defined in the Warrant Agreement) for the account of
the Company, and (iii) such Warrant. Payment of the aggregate Warrant Price
may be made by certified or official bank check or wire transfer payable to
the order of the Warrant Agent on account of the Company. Upon surrender of
the Warrant Certificate and payment of the Warrant Price, the Warrant Agent
will deliver or cause to be delivered, to or upon the written order of such
holder, an executed certificate or certificates representing the aggregate
number of full shares of New Common Stock issuable upon such exercise. If
any Warrant is exercised in part, the Warrant Agent will, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to the holder a new Warrant evidencing the rights of such holder to
purchase the unpurchased shares of New Common Stock called for by such
Warrant.
The holders of the Warrants will have no right to vote on matters
submitted to the stockholders of the Company and will have no right to
receive dividends. In the event of the liquidation, dissolution or winding
up of the affairs of the Company, the holders of the Warrants will be
entitled to receive, in lieu of each share of New Common Stock such holders
would otherwise be entitled to receive upon exercise of the Warrants, the
same kind and amount of any stock, securities or assets as may be issuable,
distributable or payable in such event with respect to each share of New
Common Stock. In the event a bankruptcy or reorganization subsequent to the
Restructuring is commenced by or against the Company, a bankruptcy court
may hold that unexercised Warrants are executory contracts which may be
subject to rejection by the Company with approval of the bankruptcy court,
and the holders of the Warrants may, even if sufficient funds are
available, receive nothing or a lesser amount as a result of any such
bankruptcy case than they would be entitled to if they had exercised their
Warrants prior to the commencement of any such case.
In the event of a taxable distribution to holders of New Common Stock
that results in an adjustment to the number of shares of New Common Stock
or other consideration for which a Warrant may be exercised, the holders of
the Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States Federal income tax as a dividend. See
Section XXII herein, entitled "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE PREPACKAGED PLAN."
(b) Adjustments
The number of shares of New Common Stock purchasable, among others,
that upon exercise of Warrants and the Exercise Price will be subject to
adjustment in certain events including, among others, that if the Company:
(i) pays a dividend or makes a distribution on its New Common Stock in
shares of its New Common Stock, (ii) subdivides its New Common Stock into a
greater number of shares, (iii) combines its outstanding shares of New
Common Stock into a smaller number of shares, and (iv) makes a distribution
on New Common Stock in shares of its capital stock other than the New
Common Stock; or (v) issues by reclassification of New Common Stock any
shares of its capital stock.
(c) Amendment
No provision of the Warrant Agreement may be amended without the
consent of the Company, holders of 66 2/3% of the then issued and
outstanding New Common Stock, the Warrant Agent and a majority of the
holders of the Warrants; provided that no Warrant may be modified or
amended to reduce the number of shares of New Common Stock for which such
Warrant is exercisable or to increase the price at which such shares may be
purchased upon exercise of such Warrant without the prior written consent
of the holder thereof.
(d) Governing Law
The Warrant Agreement and the Warrants will be governed by and
construed in accordance with the laws of the State of New York, without
regard to the provisions thereof relating to conflicts of law.
3. Market And Trading Information
------------------------------
The Old Common Stock is currently traded on the NYSE and is quoted
under the symbol "SLT." On March 2, 1998, the day immediately prior to the
date that the Company announced its intention to pursue the Restructuring,
the closing sale price for the Old Common Stock was $1.6875 per share. On
__________, the closing sale price for the Old Common Stock was $[ ] per
share. See Section XVI herein, entitled "MARKET FOR OLD COMMON STOCK AND
RELATED STOCKHOLDER MATTERS" and see Section IV herein, entitled
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS."
Application will be made to list the Warrants and the Warrant Shares
for trading on the NYSE. There can be no assurance that such application
will be approved or that an active market for the Warrants and the Warrant
Share will develop or as to the prices at which they might be traded. If
the Company is unable to have the New Common Stock and Warrants listed for
trading on the NYSE, the Company will use its best efforts to cause all New
Common Stock and Warrants to be quoted on the National Market System of
NASDAQ or to be listed on another national security exchange. See Section
XIV herein, entitled "RISK FACTORS."
E. SOURCES OF CASH TO MAKE PREPACKAGED PLAN DISTRIBUTIONS
Except as otherwise provided in the Prepackaged Plan or the
Confirmation Order, all Cash necessary for Reorganized Salant to make
payments pursuant to the Prepackaged Plan will be obtained from Reorganized
Salant's New Credit Facility.
F. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. Generally
---------
Under Section 365 of the Bankruptcy Code, Salant has the right,
subject to Bankruptcy Court approval, to assume or reject any executory
contracts or unexpired leases. If an executory contract or unexpired lease
entered into before the Filing Date is rejected by Salant, it will be
treated as if Salant breached such contract or lease on the date
immediately preceding the Filing Date, and the other party to the agreement
may assert a General Unsecured Claim for damages incurred as a result of
the rejection. In the case of rejection of employment agreements and real
property leases, damages are subject to certain limitations imposed by
Sections 365 and 502 of the Bankruptcy Code. See Article Eight of the
Prepackaged Plan.
2. Assumption and Rejection
------------------------
Pursuant to the Prepackaged Plan, each executory contract or unexpired
lease that is not listed on Exhibit E to the Prepackaged Plan or has not
been expressly assumed or rejected by order of the Bankruptcy Court on or
prior to the Confirmation Date will, as of the Confirmation Date (subject
to the occurrence of the Effective Date), be deemed to have been assumed by
Salant unless there is then pending before the Bankruptcy Court a motion to
reject such unexpired lease or executory contract. Each unexpired lease and
executory contract listed on Exhibit E to the Prepackaged Plan will be
specifically rejected pursuant to the Prepackaged Plan as of the Effective
Date. Entry of the Confirmation Order by the clerk of the Bankruptcy Court
will constitute an order approving such assumptions and rejections, as the
case may be, pursuant to Section 365(a) of the Bankruptcy Code. Given that
the achievement of the future operating results set forth in the Three-Year
Business Plan is predicated upon, among other things, the current senior
management of Salant remaining with Reorganized Salant after the Effective
Date, Salant intends that the existing employment agreements with its
senior management will be assumed pursuant to the Prepackaged Plan.
3. Bar Date for Rejection Damages
------------------------------
Pursuant to the Prepackaged Plan, unless otherwise provided by an
order of the Bankruptcy Court entered prior to the Confirmation Date, proof
of any Claim against Salant arising from the rejection of any executory
contract or unexpired lease pursuant to an order of the Bankruptcy Court
must be filed with the Bankruptcy Court within the later of (a) the time
period established by the Bankruptcy Court in an order of the Bankruptcy
Court approving such rejection, or (b) if no such time period is or was
established, thirty (30) days from the date of entry of such order of the
Bankruptcy Court approving such rejection. Any Entity that fails to file
proof of its Claim arising from such a rejection within the period set
forth above will be forever barred from asserting a Claim against Salant,
Reorganized Salant, or the property or interests in property of Salant or
Reorganized Salant. All Allowed Claims arising from the rejection of
executory contracts or unexpired leases will be classified as a General
Unsecured Claim (Class 5) under the Prepackaged Plan.
G. IMPLEMENTATION OF THIS PLAN
1. Vesting of Property
-------------------
Except as otherwise provided in the Prepackaged Plan, on the Effective
Date, title to all property of Salant's estate shall pass to Reorganized
Salant free and clear of all Claims, Interests and liens (including,
without limitation, all liens securing the Senior Note Claims).
Confirmation of the Prepackaged Plan (subject to the occurrence of the
Effective Date) will be binding and Salant's debts, without in any way
limiting the discharge and release provisions contained in Article Twelve
of the Prepackaged Plan, will be discharged as provided in Section 1141 of
the Bankruptcy Code.
2. Transactions on Business Days
-----------------------------
Pursuant to the Prepackaged Plan, if the Effective Date or any other
date on which a transaction may occur under the Prepackaged Plan will occur
on a day that is not a Business Day, the transactions contemplated by the
Prepackaged Plan to occur on such day will instead occur on the next
succeeding Business Day.
3. Restated Certificate of Incorporation; Restated By-Laws
-------------------------------------------------------
Pursuant to the Prepackaged Plan, on the Effective Date or as soon
thereafter as is practicable, Reorganized Salant will file with the
Secretary of State of the State of Delaware, in accordance with Sections
103 and 303 of the DGCL, the Reorganized Salant Certificate of
Incorporation and such certificate will be the certificate of incorporation
for Reorganized Salant. Pursuant to the Prepackaged Plan, on the Effective
Date, the Reorganized Salant By-Laws will become the by-laws of Reorganized
Salant.
4. Implementation
--------------
Pursuant to the Prepackaged Plan, Salant will be authorized to take
all necessary steps, and perform all necessary acts, to consummate the
terms and conditions of the Prepackaged Plan. Pursuant to the Prepackaged
Plan, on or before the Effective Date, the Company may file with the
Bankruptcy Court such agreements and other documents as may be necessary or
appropriate to effectuate or further evidence the terms and conditions of
the Prepackaged Plan and the other agreements referred to herein. Salant or
Reorganized Salant, as the case may be, may, and will, execute such
documents and take such other actions as are necessary to effectuate the
transactions provided for in the Prepackaged Plan.
5. Issuance of New Securities
--------------------------
Pursuant to the Prepackaged Plan, the issuance and distribution of the
New Common Stock and the Warrants by Reorganized Salant is authorized and
directed without the need for any further corporate action, under
applicable law, regulation, order, rule or otherwise.
6. Cancellation of Existing Securities and Agreements
--------------------------------------------------
Pursuant to the Prepackaged Plan, on the Effective Date, the Senior
Notes, the Old Common Stock, and any rights, options, warrants, calls,
subscriptions, or other similar rights or other agreements or commitments,
contractual or otherwise, obligating Salant to issue, transfer, or sell any
shares of Old Common Stock or any other capital stock of Salant will be
canceled. Except for purposes of effectuating the distributions under the
Prepackaged Plan, on the Effective Date, the Indenture will be canceled.
7. Board of Directors of Reorganized Salant
----------------------------------------
Pursuant to the Prepackaged Plan, on the Effective Date, the operation
of Reorganized Salant will become the general responsibility of its Board,
subject to, and in accordance with, the Reorganized Salant Certificate of
Incorporation and the Reorganized Salant By-Laws. The initial Board of
Reorganized Salant will consist of the individuals identified on Exhibit D
to the Prepackaged Plan. Such directors will be deemed elected or
appointed, as the case may be, pursuant to the Confirmation Order, but will
not take office and will not be deemed to be elected or appointed until the
occurrence of the Effective Date. Those directors not continuing in office
will be deemed removed therefrom as of the Effective Date pursuant to the
Confirmation Order.
8. Employee Benefit Plans
----------------------
Pursuant to the Prepackaged Plan and subject to the occurrence of the
Effective Date, all employee benefit plans, policies, and programs of
Salant, and Salant's obligations thereunder, will survive confirmation of
the Prepackaged Plan, remain unaffected thereby, and not be discharged.
Employee benefit plans, policies, and programs will include, without
limitation, all savings plans, retirement pension plans, health care plans,
disability plans, severance benefit plans, life, accidental death, and
dismemberment insurance plans (to the extent not executory contracts
assumed under the Prepackaged Plan), but will exclude all Existing
Equity-Based Plans.
9. The Stock Award and Incentive Plan
----------------------------------
Pursuant to the Prepackaged Plan, the Stock Award and Incentive Plan
will remain in effect after the Effective Date; provided, that, if the
Stock Award and Incentive Plan has not previously been approved by the
stockholders of Salant, the Stock Award and Incentive Plan and any grants
made thereunder shall be subject to the subsequent approval of the
stockholders of Reorganized Salant.
10. Survival of Indemnification Obligations
---------------------------------------
Notwithstanding anything to the contrary contained in the Prepackaged
Plan, the obligations of Salant to indemnify (i) its present or former
directors, officers, agents, employees and representatives, pursuant to the
Certificate of Incorporation, By-Laws, applicable statutes or contractual
obligations, in respect of all past, present and future actions, suits and
proceedings against any of such directors, officers, agents, employees and
representatives, based upon any act or omission related to service with,
for or on behalf of Salant, and (ii) Magten in accordance with and pursuant
to paragraph 8 of the Letter Agreement, shall not be discharged or impaired
by confirmation or consummation of the Prepackaged Plan but shall survive
unaffected by the reorganization contemplated by the Prepackaged Plan and
shall be performed and honored in full, pursuant to the Reorganized Salant
By-Laws and Certificate of Incorporation, applicable statutes or
contractual obligations, by Reorganized Salant regardless of such
confirmation, consummation and reorganization.
11. Listing of New Common Stock; Registration of Securities
-------------------------------------------------------
Pursuant to the Prepackaged Plan, Reorganized Salant will use its best
efforts to (i) maintain its status as a reporting company under the
Exchange Act and cause, on the Effective Date, the shares of New Common
Stock issued hereunder to be listed on the NYSE, or, if Reorganized Salant
is unable to have the shares of New Common Stock listed on the NYSE, on
another national securities exchange, or, as to the New Common Stock,
quoted in the national market system of the National Association of
Securities Dealers' Automated Quotation System, (ii) in accordance with the
terms of the Registration Rights Agreement, file and have declared
effective as soon as possible thereafter a registration statement or
registration statements under the Securities Act, for the offering on a
continuous or delayed basis in the future of the shares of New Common Stock
(the "Shelf Registration"), (iii) cause to be filed with the Commission on
the Effective Date a registration statement on Form 10 under the Exchange
Act with respect to the New Common Stock, (iv) keep the Shelf Registration
effective for a three-year period, and (v) supplement or make amendments to
the Shelf Registration, if required under the Securities Act or by the
rules or regulations promulgated thereunder or in accordance with the terms
of the Registration Rights Agreement, and have such supplements and
amendments declared effective as soon as practicable after filing. In
addition, on the Effective Date, Reorganized Salant will enter into the
Registration Rights Agreement in the form of Exhibit B attached to the
Prepackaged Plan. See Section X herein, entitled "DESCRIPTION OF
REGISTRATION RIGHTS AGREEMENT."
12. Retention and Enforcement of Causes of Action
---------------------------------------------
Pursuant to the Prepackaged Plan and pursuant to Section 1123(b)(3) of
the Bankruptcy Code, Reorganized Salant will retain and will have the
exclusive right, in its discretion, to enforce against any Entity any and
all Causes of Action of Salant, including all Causes of Action of a trustee
and debtor-in-possession under the Bankruptcy Code, other than those
released or compromised as part of, or under, the Prepackaged Plan.
H. PROVISIONS COVERING DISTRIBUTIONS
1. Timing of Distributions Under the Prepackaged Plan
--------------------------------------------------
Pursuant to the Prepackaged Plan, except as otherwise provided
therein, payments and distributions in respect of Allowed Claims and
Allowed Interests which are required by the Prepackaged Plan to be made on
the Effective Date will be made by Salant, Reorganized Salant or its
designee or, in the case of the distributions to the Noteholders, by
Reorganized Salant or its designee (with the assistance of the Trustee, if
necessary), on, or as soon as practicable following, the Effective Date.
Distributions of New Common Stock to the Noteholders will be made at the
addresses of the registered Holders of the Senior Notes last provided in
writing to the Trustee. Distributions of New Common Stock and Warrants to
the Stockholders will be made at the addresses of the holders of record of
the Old Common Stock as of the Distribution Record Date.
2. Allocation of Consideration
---------------------------
Pursuant to the Prepackaged Plan, the aggregate consideration to be
distributed to the Holders of Allowed Claims in each Class under the
Prepackaged Plan will be treated as first satisfying an amount equal to the
stated principal amount of the Allowed Claim for such Holders and any
remaining consideration as satisfying accrued, but unpaid, interest, if
any.
3. Cash Payments.
-------------
Pursuant to the Prepackaged Plan, cash payments made pursuant to the
Prepackaged Plan will be in U.S. dollars. Cash payments of $1,000,000 or
more to be made pursuant to the Prepackaged Plan will, to the extent
requested in writing no later than five days after the Confirmation Date,
be made by wire transfer from a domestic bank. Cash payments to foreign
creditors may be made, at the option of Salant or Reorganized Salant, in
such funds and by such means as are necessary or customary in a particular
foreign jurisdiction. Cash payments made pursuant to the Prepackaged Plan
in the form of checks issued by Reorganized Salant shall be null and void
if not cashed within 120 days of the date of the issuance thereof. Requests
for reissuance of any check shall be made directly to Reorganized Salant or
its designee as set forth in the Prepackaged Plan.
4. Payment of Statutory Fees
-------------------------
Pursuant to the Prepackaged Plan, all fees payable to the United
States Trustee pursuant to 28 U.S.C. ss. 1930 as determined by the
Bankruptcy Court at the Confirmation Hearing will be paid by Salant on or
before the Effective Date.
5. No Interest
-----------
Pursuant to the Prepackaged Plan, except with respect to holders of
Unimpaired Claims entitled to interest under applicable non-bankruptcy law
or as expressly provided herein, no Holder of an Allowed Claim or Interest
will receive interest on the distribution to which such Holder is entitled
hereunder, regardless of whether such distribution is made on the Effective
Date or thereafter.
6. Fractional Securities
---------------------
Pursuant to the Prepackaged Plan, and notwithstanding any other
provision of the Prepackaged Plan, only whole numbers of shares of New
Common Stock and Warrants will be issued or transferred, as the case may
be, pursuant to the Prepackaged Plan. Reorganized Salant will not
distribute any fractional shares of New Common Stock or fractional
interests in Warrants. For purposes of distribution, fractional shares of
New Common Stock and fractional Warrants will be rounded up or down to the
nearest share of New Common Stock or Warrant, as the case may be; provided,
that, whenever any distribution would result in a distribution of exactly
one-half of a share of New Common Stock or one-half of a Warrant, the
actual distribution shall reflect a rounding up to the nearest share of New
Common Stock or Warrant, as the case may be.
7. Withholding of Taxes
--------------------
Pursuant to the Prepackaged Plan, Reorganized Salant will withhold
from any property distributed under the Prepackaged Plan any property which
must be withheld for taxes payable by the Entity entitled to such property
to the extent required by applicable law. As a condition to making any
distribution under the Prepackaged Plan, Reorganized Salant or its
designee, as the case may be, may request that the Holder of any Allowed
Claim provide such Holder's taxpayer identification number and such other
certification as may be deemed necessary to comply with applicable tax
reporting and withholding laws.
8. Pro Rata Distribution
---------------------
Pursuant to the Prepackaged Plan, where the Prepackaged Plan provides
for pro rata distribution, the property to be distributed under the
Prepackaged Plan will be divided pro rata among the Holders of Allowed
Claims or Allowed Interests of the relevant Class based on the Allowed
amount of all of such Claims or Interests in such Class.
9. Distribution Record Date
------------------------
Pursuant to the Prepackaged Plan, as of the close of business on the
Distribution Record Date, the transfer registers for the Senior Notes and
Old Common Stock maintained by Salant, or its respective agents, will be
closed. Reorganized Salant, and its designees and the Trustee will have no
obligation to recognize the transfer of any Senior Notes or Old Common
Stock occurring after the Distribution Record Date and will be entitled for
all purposes relating to the Prepackaged Plan to recognize and deal only
with those Holders of record as of the close of business on the
Distribution Record Date.
10. Persons Deemed Holders of Registered Securities
-----------------------------------------------
Pursuant to the Prepackaged Plan, except as otherwise provided
therein, Salant, Reorganized Salant or its designee or, in the case of the
Noteholders, the Trustee, shall be entitled to treat the record holder of a
registered security as the Holder of the Claim or Interest in respect
thereof for purposes of all notices, payments or other distributions under
the Prepackaged Plan unless Salant, Reorganized Salant, its designee or the
Trustee, as the case may be, has received written notice specifying the
name and address of any new Holder thereof (and the nature and amount of
the interest of such new Holder) at least ten (10) Business Days prior to
the date of such notice, payment or other distribution. In the event of any
dispute regarding the identity of any party entitled to any payment or
distribution in respect of any Claim or Interest under the Prepackaged
Plan, no payments or distributions will be made in respect of such Claim or
Interest until the Bankruptcy Court resolves that dispute pursuant to a
Final Order.
11. Surrender of Existing Securities
--------------------------------
Pursuant to the Prepackaged Plan, as a condition to receiving any
distribution under the Prepackaged Plan, each Holder of a Senior Note, Old
Common Stock Interest, or other instrument evidencing a Claim or Interest
must surrender such Senior Note, Old Common Stock Interest, or other
instrument to Reorganized Salant or its designee. Reorganized Salant
appoints the Trustee under the Indenture as its designee to receive the
Senior Notes. Any Holder of a Claim or Interest that fails to (a) surrender
such instrument or (b) execute and deliver an affidavit of loss and/or
indemnity reasonably satisfactory to Reorganized Salant and furnish a bond
in form, substance, and amount reasonably satisfactory to Reorganized
Salant before the later to occur of (i) the second anniversary of the
Effective Date and (ii) six months following the date such Holder's Claim
becomes an Allowed Claim, will be deemed to have forfeited all rights,
Claims, and/or Interests and may not participate in any distribution under
the Prepackaged Plan.
12. Special Procedures for Lost, Stolen, Mutilated or Destroyed
Instruments
-----------------------------------------------------------
Pursuant to the Prepackaged Plan, in addition to any requirements
under Salant's Certificate of Incorporation or By-laws, any Holder of a
Claim or an Interest evidenced by an Instrument that has been lost, stolen,
mutilated or destroyed will be required to, in lieu of surrendering such
Instrument, deliver to Reorganized Salant or its designee: (a) evidence
satisfactory to Reorganized Salant or its designee, as the case may be, of
the loss, theft, mutilation or destruction; and (b) such security or
indemnity as may be required by Reorganized Salant or its designee, as the
case may be, to hold Reorganized Salant and/or its designee, as applicable,
harmless from any damages, liabilities or costs incurred in treating such
individual as a Holder of an Instrument. Upon compliance with the foregoing
provision of the Prepackaged Plan, the Holder of a Claim or Interest
evidenced by any such lost, stolen, mutilated or destroyed Instrument will,
for all purposes under the Prepackaged Plan, be deemed to have surrendered
such Instrument.
13. Undeliverable or Unclaimed Distributions
----------------------------------------
Pursuant to the Prepackaged Plan, any Entity that is entitled to
receive a Cash distribution under the Prepackaged Plan but that fails to
cash a check within 120 days of its issuance will be entitled to receive a
reissued check from Reorganized Salant for the amount of the original
check, without any interest, if such Entity requests Reorganized Salant or
its designee to reissue such check and provides Reorganized Salant or its
designee, as the case may be, with such documentation as Reorganized Salant
or its designee requests to verify that such Entity is entitled to such
check, prior to the second anniversary of the Effective Date. If an Entity
fails to cash a check within 120 days of its issuance and fails to request
reissuance of such check prior to the later to occur of (i) the second
anniversary of the Effective Date and (ii) six months following the date
such Holder's Claim becomes an Allowed Claim, such Entity will not be
entitled to receive any distribution under the Prepackaged Plan. If the
distribution to any Holder of an Allowed Claim or Allowed Interest is
returned to Reorganized Salant or its designee as undeliverable, no further
distributions will be made to such Holder unless and until Reorganized
Salant or its designee is notified in writing of such Holder's then-current
address. Undeliverable distributions will remain in the possession of
Reorganized Salant or its designee pursuant to the Prepackaged Plan until
such time as a distribution becomes deliverable. All claims for
undeliverable distributions will have to be made on or before the later to
occur of (i) the second anniversary of the Effective Date and (ii) six
months following the date such Holder's Claim or Interest becomes an
Allowed Claim or Allowed Interest. After such date, all unclaimed property
will revert to Reorganized Salant and the claim of any Holder or successor
to such Holder with respect to such property will be discharged and forever
barred notwithstanding any federal or state escheat laws to the contrary.
I. PROCEDURES FOR RESOLVING DISPUTED CLAIMS
1. Objections to Claims
--------------------
Pursuant to the Prepackaged Plan, only Salant and Reorganized Salant
will have the authority to file objections to Claims after the Effective
Date. Subject to an order of the Bankruptcy Court providing otherwise,
Reorganized Salant may object to a Claim by filing an objection with the
Bankruptcy Court and serving such objection upon the Holder of such Claim
not later than one hundred and twenty (120) days after the Effective Date
or one hundred and twenty (120) days after the filing of the proof of such
Claim, whichever is later, or such other date determined by the Bankruptcy
Court upon motion to the Bankruptcy Court without further notice or
hearing. Notwithstanding the foregoing, neither Salant nor Reorganized
Salant shall object to the allowance of the Senior Note Claims as described
in Section 6.3(c) of the Prepackaged Plan.
2. Procedure
---------
Pursuant to the Prepackaged Plan, unless otherwise ordered by the
Bankruptcy Court or agreed to by written stipulation of Salant or
Reorganized Salant, or until an objection thereto by Salant or by
Reorganized Salant is withdrawn, Salant or Reorganized Salant will litigate
the merits of each Disputed Claim until determined by a Final Order;
provided, however, that, (a) prior to the Effective Date, Salant, subject
to the approval of the Bankruptcy Court, and (b) after the Effective Date,
Reorganized Salant, subject to the approval of the Bankruptcy Court, may
compromise and settle any objection to any Claim.
3. Payments and Distributions With Respect to Disputed Claims
----------------------------------------------------------
Pursuant to the Prepackaged Plan, no payments or distributions will be
made in respect of a Disputed Claim until such Disputed Claim becomes an
Allowed Claim.
4. Timing of Payments and Distributions With Respect to
Disputed Claims
----------------------------------------------------
Pursuant to the Prepackaged Plan, and subject to the provisions of the
Prepackaged Plan, payments and distributions with respect to each Disputed
Claim that becomes an Allowed Claim that would have otherwise been made had
the Disputed Claim been an Allowed Claim on the Effective Date will be made
within thirty (30) days after the date that such Disputed Claim becomes an
Allowed Claim. Holders of Disputed Claims that become Allowed Claims will
be bound, obligated and governed in all respects by the provisions of the
Prepackaged Plan.
5. Individual Holder Proofs of Interest
------------------------------------
Pursuant to the Prepackaged Plan, individual Holders of Allowed Old
Common Stock Interests are not required to file proofs of such Interests
unless they disagree with the number of shares set forth on the Company's
stock register.
J. DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS
1. Discharge of All Claims and Interests and Releases
--------------------------------------------------
Pursuant to the Prepackaged Plan and except as otherwise specifically
provided by the Prepackaged Plan, the confirmation of the Prepackaged Plan
(subject to the occurrence of the Effective Date) will discharge and
release Salant, Reorganized Salant, its successors and assigns and their
respective assets and properties from any debt, charge, Cause of Action,
liability, encumbrances, security interest, Claim, Interest, or other cause
of action of any kind, nature or description (including, but not limited
to, any claim of successor liability) that arose before the Confirmation
Date, and any debt of the kind specified in Sections 502(g), 502(h) or
502(i) of the Bankruptcy Code, whether or not a proof of Claim is filed or
is deemed filed, whether or not such Claim is Allowed, and whether or not
the Holder of such Claim has accepted the Prepackaged Plan.
Furthermore, except as otherwise specifically provided by the
Prepackaged Plan, the distributions and rights that are provided in the
Prepackaged Plan to Class 3 and Class 6 will be in complete satisfaction,
discharge and release, effective as of the Effective Date of (i) all Claims
and Causes of Action against, liabilities of, liens on, charges,
encumbrances, security interests, obligations of and Interests in Salant,
Reorganized Salant, or the direct or indirect assets and properties of
Salant or Reorganized Salant, whether known or unknown, and (ii) all Causes
of Action, whether known or unknown, either directly or derivatively
through Salant or Reorganized Salant, against successors and assigns of
Salant, present and former Affiliates of Salant, and its partners,
directors, officers, agents, attorneys, advisors, financial advisors,
investment bankers, independent accountants and employees of Salant and its
Affiliates, and any Affiliate of any of the foregoing, and Magten, and its
attorneys, advisors, and financial advisors, based on the same subject
matter as any Claim or Interest, or based on any act or omission,
transaction or other activity or security, instrument or other agreement of
any kind or nature occurring, arising or existing prior to the Effective
Date that was or could have been the subject of any Claim or Interest, in
each case regardless of whether a proof of Claim or Interest was filed,
whether or not Allowed and whether or not the Holder of the Claim or
Interest has voted to accept or reject the Prepackaged Plan.
In addition, except as otherwise specifically provided by the
Prepackaged Plan, any Holder of a Claim in Class 3 or Class 6 accepting any
distribution pursuant to the Prepackaged Plan will be presumed conclusively
to have released Salant, Reorganized Salant, successors and assigns of
Salant, the present and former Affiliates of Salant, directors, officers,
agents, attorneys, independent accountants, advisors, financial advisors,
investment bankers and employees of Salant and its Affiliates, and any
Entity claimed to be liable derivatively through any of the foregoing, from
any Cause of Action based on the same subject matter as the Claim on which
the distribution is received. The release described in the preceding
sentence shall be enforceable as a matter of contract against any Entity
that accepts any distribution pursuant to the Prepackaged Plan.
All injunctions or stays entered in the Chapter 11 Case and existing
immediately prior to the Confirmation Date will remain in full force and
effect until the Effective Date.
2. Injunction
----------
Pursuant to the Prepackaged Plan, the satisfaction, release and
discharge provisions of the Prepackaged Plan, will act as an injunction
against any Entity commencing or continuing any action, employment of
process, or act to collect, offset or recover any Claim or Cause of Action
satisfied, released or discharged under the Prepackaged Plan. The
injunction, discharge and releases provisions of the Prepackaged Plan will
apply regardless of whether or not a proof of Claim or Interest based on
any Claim, debt, liability or Interests is filed or whether or not a Claim
or Interest based on such Claim, debt, liability or Interest is Allowed, or
whether or not such Entity voted to accept or reject the Prepackaged Plan.
3. Exculpation
-----------
Pursuant to the Prepackaged Plan, in consideration of the
distributions under the Prepackaged Plan, upon the Effective Date, each
Holder of a Claim or Interest will be deemed to have released the Company
and its directors, officers, employees, agents, attorneys, independent
accountants, financial advisors, investment bankers and employees and
representatives (as applicable) employed by the Company from and after the
Filing Date and Magten and its attorneys, advisors, and financial advisors
employed by Magten from and after the Filing Date, from any and all Causes
of Action (other than the right to enforce the Company's obligations under
the Prepackaged Plan and the right to pursue a Claim based on any willful
misconduct) arising out of actions or omissions during the administration
of Salant's estate.
4. Guaranties and Claims of Subordination
--------------------------------------
(a) Guaranties
Pursuant to the Prepackaged Plan, the classification and the manner of
satisfying all Claims under the Prepackaged Plan takes into consideration
the possible existence of any alleged guaranties by Salant of obligations
of any Entity or Entities, and that Salant may be joint obligors with
another Entity or Entities with respect to the same obligation. All Claims
against Salant based upon any such guaranties will be satisfied, discharged
and released in the manner provided in the Prepackaged Plan and the Holders
of Claims will be entitled to only one distribution with respect to any
given obligation of Salant.
(b) Claims of Subordination
Pursuant to the Prepackaged Plan, except as expressly provided for in
the Prepackaged Plan, to the fullest extent permitted by applicable law,
all Claims against and Interests in Salant, and all rights and Claims
between or among Holders of Claims and Interests relating in any manner
whatsoever to Claims against or Interests in Salant, based on any
contractual, legal or equitable subordination rights, will be terminated on
the Effective Date and discharged in the manner provided in the Prepackaged
Plan, and all such Claims, Interests and rights so based and all such
contractual, legal and equitable subordination rights to which any Entity
may be entitled will be irrevocably waived by the acceptance by such Entity
(or, unless the Confirmation Order provides otherwise, the Class of which
such Entity is a member) of the Prepackaged Plan or of any distribution
pursuant to the Prepackaged Plan. Except as otherwise provided in the
Prepackaged Plan and to the fullest extent permitted by applicable law, the
rights afforded and the distributions that are made in respect of any
Claims or Interests hereunder will not be subject to levy, garnishment,
attachment or like legal process by any Holder of a Claim or Interest by
reason of any contractual, legal or equitable subordination rights, so
that, notwithstanding any such contractual, legal or equitable
subordination, each Holder of a Claim or Interest will have and receive the
benefit of the rights and distributions set forth in the Prepackaged Plan.
Pursuant to the Prepackaged Plan, and pursuant to Bankruptcy Rule 9019
and any applicable state law and as consideration for the distributions and
other benefits provided under the Prepackaged Plan, the provisions
regarding Claims of subordination of the Prepackaged Plan will constitute a
good faith compromise and settlement of any Causes of Action relating to
the matters described in such provisions of the Prepackaged Plan which
could be brought by any Holder of a Claim or Interest against or involving
another Holder of a Claim or Interest, which compromise and settlement is
in the best interests of Holders of Claims and Interests and is fair,
equitable and reasonable. This settlement will be approved by the
Bankruptcy Court as a settlement of all such Causes of Action. Entry of the
Confirmation Order will constitute the Bankruptcy Court's approval of this
settlement pursuant to Bankruptcy Rule 9019 and its finding that this is a
good faith settlement pursuant to any applicable state law, including,
without limitation, the laws of the States of New York and Delaware, given
and made after due notice and opportunity for hearing, and will bar any
such Cause of Action by any Holder of a Claim or Interest against or
involving another Holder of a Claim or Interest.
K. CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE
1. Conditions Precedent to Entry of the Confirmation Order
-------------------------------------------------------
Pursuant to the Prepackaged Plan, the following condition must occur
and be satisfied or waived in accordance with the Prepackaged Plan on or
before the Confirmation Date for the Prepackaged Plan to be confirmed on
the Confirmation Date: the Confirmation Order is in form and substance
reasonably acceptable to Salant, Magten and Apollo.
2. Conditions Precedent to the Effective Date
------------------------------------------
Pursuant to the Prepackaged Plan, the following conditions must occur
and be satisfied or waived by Salant on or before the Effective Date for
the Prepackaged Plan to become effective on the Effective Date.
1. Final Order. The Confirmation Order will have become a
Final Order;
2. Working Capital Facility. Reorganized Salant will have
executed an agreement for a working capital facility on
terms reasonably satisfactory to Apollo and Magten;
3. Certificate of Incorporation. The Reorganized Salant
Certificate of Incorporation, in the form of Exhibit I,
attached to the Prepackaged Plan, will have been filed
with the Secretary of State of the State of Delaware,
in accordance with Sections 103 and 303 of the DGCL;
and
4. Authorizations, Consents and Approvals. All
authorizations, consents and regulatory approvals
required (if any) in connection with the Prepackaged
Plan's effectiveness will have been obtained.
3. Waiver of Conditions
--------------------
Pursuant to the Prepackaged Plan, with the prior written consent
(which consent will not be unreasonably withheld) of Magten and Apollo, but
not otherwise, Salant may waive one or more of the conditions precedent to
the confirmation or effectiveness of the Prepackaged Plan set forth in the
Prepackaged Plan.
4. Effect of Failure of Conditions
-------------------------------
Pursuant to the Prepackaged Plan, if each of the conditions to
effectiveness and the occurrence of the Effective Date has not been
satisfied or duly waived on or before the first Business Day that is more
than 179 days after the date the Bankruptcy Court enters an order
confirming the Prepackaged Plan, or by such later date as is proposed and
approved, after notice and a hearing, by the Bankruptcy Court, then upon
motion by Salant or any party in interest made before the time that each of
the conditions has been satisfied or duly waived, the order confirming the
Prepackaged Plan may be vacated by the Bankruptcy Court; provided, however,
that notwithstanding the filing of such a motion, the order confirming the
Prepackaged Plan shall not be vacated if each of the conditions to
consummation is either satisfied or duly waived before the Bankruptcy Court
enters an order granting the relief requested in such motion. If the order
confirming the Prepackaged Plan is vacated pursuant to the foregoing
provision of the Prepackaged Plan, the Prepackaged Plan will be null and
void in all respects, and nothing contained in the Prepackaged Plan will
(a) constitute a waiver or release of any claims against or equity
interests in Salant or (b) prejudice in any manner the rights of the Holder
of any claim or equity interest in Salant.
L. MISCELLANEOUS PROVISIONS
1. Bankruptcy Court to Retain Jurisdiction
---------------------------------------
Pursuant to the Prepackaged Plan, the business and assets of Salant
will remain subject to the jurisdiction of the Bankruptcy Court until the
Effective Date. From and after the Effective Date, the Bankruptcy Court
will retain and have exclusive jurisdiction of all matters arising out of,
and related to the Chapter 11 Case or the Prepackaged Plan pursuant to, and
for purposes of, Subsection 105(a) and Section 1142 of the Bankruptcy Code
and for, among other things, the following purposes: (a) to determine any
and all disputes relating to Claims and Interests and the allowance and
amount thereof; (b) to determine any and all disputes among creditors with
respect to their Claims; (c) to consider and allow any and all applications
for compensation for professional services rendered and disbursements
incurred in connection therewith; (d) to determine any and all
applications, motions, adversary proceedings and contested or litigated
matters pending on the Effective Date and arising in or related to the
Chapter 11 Case or this Plan; (e) to remedy any defect or omission or
reconcile any inconsistency in the Confirmation Order; (f) to enforce the
provisions of the Prepackaged Plan relating to the distributions to be made
hereunder; (g) to issue such orders, consistent with Section 1142 of the
Bankruptcy Code, as may be necessary to effectuate the consummation and
full and complete implementation of the Prepackaged Plan; (h) to enforce
and interpret any provisions of the Prepackaged Plan; (i) to determine such
other matters as may be set forth in the Confirmation Order or that may
arise in connection with the implementation of the Prepackaged Plan; (j) to
determine the amounts allowable as compensation or reimbursement of
expenses pursuant to Section 503(b) of the Bankruptcy Code; (k) to hear and
determine disputes arising in connection with the interpretation,
implementation, or enforcement of the Prepackaged Plan and the Related
Documents; (l) to hear and determine any issue for which the Prepackaged
Plan or any Related Document requires a Final Order of the Bankruptcy
Court; (m) to hear and determine matters concerning state, local, and
federal taxes in accordance with Sections 346, 505, and 1146 of the
Bankruptcy Code; (n) to hear and determine any issue related to the
composition of the initial Board of Reorganized Salant; (o) to hear any
other matter not inconsistent with the Bankruptcy Code; and (p) to enter a
Final Decree closing the Chapter 11 Case.
2. Binding Effect of this Plan
---------------------------
Pursuant to the Prepackaged Plan, the provisions of the Prepackaged
Plan will be binding upon and inure to the benefit of Salant, Reorganized
Salant, Magten, Apollo, any Holder of a Claim or Interest, their respective
predecessors, successors, assigns, agents, officers, managers and directors
and any other Entity affected by the Prepackaged Plan.
3. Nonvoting Stock
---------------
Pursuant to the Prepackaged Plan, and in accordance with Section
1123(a)(6) of the Bankruptcy Code, the Reorganized Salant Certificate of
Incorporation will contain a provision prohibiting the issuance of
nonvoting equity securities by Reorganized Salant for a period of one year
following the Effective Date.
4. Authorization of Corporate Action
---------------------------------
Pursuant to the Prepackaged Plan, the entry of the Confirmation Order
will constitute a direction and authorization to and of Salant to take or
cause to be taken any action necessary or appropriate to consummate the
provisions of the Prepackaged Plan and the Related Documents prior to and
through the Effective Date (including, without limitation, the filing of
the Reorganized Salant Certificate of Incorporation), and all such actions
taken or caused to be taken will be deemed to have been authorized and
approved by the Bankruptcy Code.
5. Retiree Benefits
----------------
Pursuant to the Prepackaged Plan, on and after the Effective Date, to
the extent required by Section 1129(a)(13) of the Bankruptcy Code,
Reorganized Salant will continue to pay all retiree benefits (if any), as
the term "retiree benefits" is defined in Section 1114(a) of the Bankruptcy
Code, maintained or established by the Company prior to the Confirmation
Date.
6. Withdrawal of the Prepackaged Plan
----------------------------------
Pursuant to the Prepackaged Plan, Salant reserves the right, at any
time prior to the entry of the Confirmation Order, to revoke or withdraw
the Prepackaged Plan. If the Company revokes or withdraws the Prepackaged
Plan, if the Confirmation Date does not occur, or if the Effective Date
does not occur then (i) the Prepackaged Plan will be deemed null and void
and (ii) the Prepackaged Plan will be of no effect and will be deemed
vacated, and the Chapter 11 Case will continue as if the Prepackaged Plan
and the Disclosure Statement had never been filed and, in such event, the
rights of any Holder of a Claim or Interest will not be affected nor will
such Holder be bound by, for purposes of illustration only, and not
limitation, (a) the Prepackaged Plan, (b) any statement, admission,
commitment, valuation or representation contained in the Prepackaged Plan,
this Disclosure Statement or the Related Documents or (c) the
classification and proposed treatment (including any allowance) of any
Claim in the Prepackaged Plan.
7. Dissolution of Statutory Committees
-----------------------------------
Pursuant to the Prepackaged Plan, on the Effective Date, any statutory
committees appointed in the Chapter 11 Case pursuant to Section 1102 of the
Bankruptcy Code will cease to exist and its members and employees or agents
(including, without limitation, attorneys, investment bankers, financial
advisors, accountants and other professionals) shall be released and
discharged from further duties, responsibilities and obligations relating
to and arising from and in connection with this Chapter 11 Case.
8. Fees, Costs and Expenses of Trustee
-----------------------------------
Pursuant to the Prepackaged Plan, and subject to applicable provisions
of the Bankruptcy Code and Bankruptcy Court authorization and approval to
the extent necessary, the Trustee will be entitled to payment for its
reasonable fees, costs and expenses as provided for pursuant to the
Indenture; provided, however, that if Salant or Reorganized Salant decides,
in its sole discretion, that the fees, costs and expenses of the Trustee
are reasonable, Salant or Reorganized Salant may pay the same without
application to or further order of the Bankruptcy Court unless the
Confirmation Order provides otherwise.
9. Amendments and Modifications to the Prepackaged Plan
----------------------------------------------------
Pursuant to the Prepackaged Plan, the Prepackaged Plan may be altered,
amended or modified by Salant, after consultation with Magten, before or
after the Confirmation Date, as provided in Section 1127 of the Bankruptcy
Code.
10. Section 1125(e) of the Bankruptcy Code
--------------------------------------
The Prepackaged Plan provides that upon confirmation of the
Prepackaged Plan, (i) Salant will be deemed to have solicited acceptances
of the Prepackaged Plan in good faith and in compliance with the applicable
provisions of the Bankruptcy Code and (ii) Salant, Magten, Apollo, and each
of the members of the Creditors' Committee, if any (and each of their
respective affiliates, agents, directors, officers, employees, advisors,
and attorneys) will be deemed to have participated in good faith and in
compliance with the applicable provisions of the Bankruptcy Code in the
offer, issuance, sale, and purchase of the securities offered and sold
under the Prepackaged Plan, and therefore will have no liability for the
violation of any applicable law, rule, or regulation governing the
solicitation of acceptances or rejections of the Prepackaged Plan or the
offer, issuance, sale, or purchase of the securities offered and sold under
the Prepackaged Plan.
Pursuant to the Prepackaged Plan, on the Effective Date or as soon
thereafter as is practicable, Reorganized Salant will file with the
Secretary of State of the State of Delaware, in accordance with Sections
103 and 303 of the DGCL, the Reorganized Salant Certificate of
Incorporation and such certificate will be the certificate of incorporation
for Reorganized Salant. Pursuant to the Prepackaged Plan, on the Effective
Date, the Reorganized Salant By-Laws will become the by-laws of Reorganized
Salant.
X. DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT
On the Effective Date, Reorganized Salant will enter into a
registration rights agreement (the "Registration Rights Agreement"), in the
form of Exhibit B to the Prepackaged Plan, with the holders of the New
Common Stock. Under the terms and conditions of the Registration Rights
Agreement, the Company must use commercially reasonable efforts to register
the New Common Stock pursuant to a "shelf registration," and to keep such
shelf registration continuously effective for three years (subject to a
two-year extension of such period to the extent that a registration
statement on Form S-3 is available to the Company at the end of such
initial three-year period), subject to the right to suspend the use of the
prospectus constituting part of such registration statement for designated
corporate purposes. Thereafter, holders who did not resell New Common Stock
during the three-year period, but whose resales would have been covered by
the registration statement, will be entitled to exercise, over a two-year
period, up to three demand registrations and will be entitled to piggyback
registration rights as well during such period. In the event that the shelf
registration does not become effective within one hundred days after the
date that the registration statement is filed, holders of the New Common
Stock whose resales would have been covered by the registration statement
will be entitled to exercise, over a two-year period, up to four demand
registrations and will be entitled to piggyback registration rights as well
during such period.
XI. DESCRIPTION OF NEW CREDIT AGREEMENT
On the Effective Date, Reorganized Salant intends to enter into a New
Credit Agreement with either CIT or another working capital lender, which
will replace the Company's current working capital facility under the
Credit Agreement. The Company has received and is currently reviewing
proposals for a New Credit Agreement which have been submitted by CIT as
well as various other prospective lenders. Based upon the proposals that
have been received by the Company as of the date of this Disclosure
Statement, the Company expects that it will be able to obtain a new working
capital facility under a New Credit Agreement as of the Effective Date
which contains terms and conditions significantly more favorable than those
currently existing under the Credit Agreement with CIT.
The Company currently anticipates no difficulty in obtaining the
credit facility under a New Credit Agreement on satisfactory terms on or
prior to the Effective Date. The Company further believes that the
financing available pursuant to such facility should be adequate to permit
the Company to operate its business in accordance with the Three-Year
Business Plan. However, there is no assurance that such facility will be
obtained in light of, among other things, the possibility of the occurrence
of potentially materially adverse conditions in the private and public
capital and/or debt markets and potentially materially adverse operating
results for the Company. Under the Letter Agreement, the credit facility
under the New Credit Agreement must be on terms and conditions reasonably
satisfactory to Magten, Apollo and the Company.
XII. DESCRIPTION OF STOCK AWARD AND INCENTIVE PLAN
Prior to the Filing Date, pursuant to a resolution of the Board, the
Board has adopted the Stock Award and Incentive Plan, which provides for
the grant of various types of stock-based compensation to directors,
officers and employees of the Company and its subsidiaries. The Stock Award
and Incentive Plan has become effective as of the date of such resolution,
however, if the Stock Award and Incentive Plan was not approved prior to
the Filing Date, the Stock Award and Incentive Plan and any grants
thereunder are subject to subsequent approval by the Company's
stockholders. The Stock Award and Incentive Plan is designed with the
intention that compensation resulting from options, stock appreciation
rights and certain other awards may qualify as "performance-based
compensation" under Section 162(m) ("Section 162(m)") of the Internal
Revenue Code of 1986, as amended (the "Tax Code"), and to comply with the
conditions for exemption from the short-swing profit recovery rules under
Rule 16b-3 ("Rule 16b-3") of the Exchange Act. The summary that follows is
not intended to be complete and is qualified in its entirety by the actual
terms of the Stock Award and Incentive Plan, a copy of which is attached to
the Prepackaged Plan as Exhibit C. Capitalized terms used but not otherwise
defined in the summary that follows shall have the respective meanings
ascribed to them in the Stock Award and Incentive Plan.
A. PURPOSE OF THE STOCK AWARD AND INCENTIVE PLAN
The purpose of the Stock Award and Incentive Plan is to strengthen the
Company by providing an incentive to its directors, officers and employees
and thereby encouraging them to devote their abilities and industry to the
success of the Company's business enterprise.
B. ELIGIBILITY
Awards may be made by the Awards Committee (as defined below), in its
discretion, to directors, officers and employees of the Company and its
subsidiaries. Directors of the Company who are not also employees of the
Company or any of its subsidiaries are entitled to automatic option grants
as provided in the Stock Award and Incentive Plan and described below.
C. PLAN ADMINISTRATION AND SHARES SUBJECT TO THE STOCK AWARD AND
INCENTIVE PLAN
2,463,310 shares of New Common Stock (subject to adjustment as
provided in the Stock Award and Incentive Plan), representing, on a fully
diluted basis (inclusive of the Warrants), 10% of the aggregate shares of
New Common Stock to be issued and reserved on the Effective Date, will be
reserved for Awards to be granted under the Stock Award and Incentive Plan.
These Awards will be granted (subject to stockholder approval if not
previously obtained) by a committee of the Board of the Company from and
after the Effective Date (the "Awards Committee") comprised solely of two
or more "non-employee directors" within the meaning of Rule 16b-3(b)(3) (or
any successor rule) of the Exchange Act, and unless otherwise determined by
the Board of the Company, "outside directors" within the meaning of
Treasury Regulation Section 1.162-27(e)(3) and Section 162(m) of the Tax
Code, which will administer the Stock Award and Incentive Plan. No
individual may be granted Options or Awards with respect to more than a
total of 500,000 shares during any one calendar year period under the Stock
Award and Incentive Plan. In addition, the maximum dollar amount of cash or
the Fair Market Value of shares of New Common Stock that any individual may
receive in any calendar year in respect of Performance Units denominated in
dollars may not exceed $3,000,000. Shares of New Common Stock subject to
the Stock Award and Incentive Plan may either be authorized and unissued
shares or previously issued shares acquired or to be acquired by the
Company and held in its treasury. Subject to the terms of the Stock Award
and Incentive Plan, the Awards Committee has the right to grant Awards to
eligible participants and to determine the terms and conditions of
Agreements evidencing Awards, including the vesting schedule and exercise
price of such Awards, and the effect, if any, of a Change in Control (as
defined in the Stock Award and Incentive Plan) on such Awards.
Upon the occurrence of a Change in Capitalization, the Stock Award and
Incentive Plan permits the Awards Committee to make appropriate adjustments
to the type and aggregate number of shares subject to the Stock Award and
Incentive Plan or any Award, and to the purchase or exercise price to be
paid or the amount to be received in connection with the realization of any
Award.
D. AWARDS
Stock Options. Stock options granted pursuant to the Stock Award and
Incentive Plan may either be incentive stock options within the meaning of
Section 422 of the Tax Code ("ISOs"), or non-qualified stock options
("NQSOs") as determined by the Awards Committee. The exercise price for
each share of New Common Stock subject to an option will be determined by
the Awards Committee at the time of grant and set forth in an Agreement,
provided that the exercise price may not be less than the Fair Market Value
of the New Common Stock on the date the option is granted. The option
exercise price may be paid in the discretion of the Awards Committee on the
date of the grant, in cash or by the delivery of shares then owned by the
participant or as otherwise determined by the Awards Committee. No option
will be exercisable later than ten years after the date on which it is
granted, provided that the Awards Committee may (and in the case of a
Formula Option shall) provide that an NQSO may, upon the death of a
participant, be exercised for up to one year following the date of such
participant's death, even if such period extends beyond ten years from the
date such option is granted. ISOs may not be granted to any participant who
owns stock possessing (after application of the attribution rules of
Section 424(d) of the Tax Code) more than 10% of the total combined voting
power of all outstanding classes of stock of the Company, unless the option
price is at least 110% of the Fair Market Value at the date of grant and
the option is not exercisable after five years from the date of grant.
The Stock Award and Incentive Plan provides for automatic option
grants ("Formula Options") to certain directors of the Company who are not
also employees of the Company and its subsidiaries. Such directors will be
granted initial Formula Options in respect of [ ] Shares (on the Effective
Date or, if applicable, when becoming a director for the first time) as
well as annual Formula Options in respect of [ ] shares at each subsequent
annual stockholders meeting of the Company. Formula Options will be granted
with per share exercise prices equal to the Fair Market Value on the date
of grant, with ten year terms and subject to the vesting schedule set forth
in the Stock Award and Incentive Plan.
Stock Appreciation Rights. Under the Stock Award and Incentive Plan, a
stock appreciation right in respect of a share of New Common Stock
represents the right to receive payment in cash and/or New Common Stock in
an amount equal to the excess of the Fair Market Value of such share of New
Common Stock on the date the right is exercised over the Fair Market Value
on the date the right is granted. The Awards Committee may grant stock
appreciation rights to the holders of any options under the Stock Award and
Incentive Plan. Such rights may also be granted independently of options.
Restricted Stock. The Awards Committee will determine the terms and
conditions applicable to Restricted Stock at the time of grant, including
the price, if any, to be paid by the grantee for the Restricted Stock, the
restrictions placed on the shares, and the time or times when the
restrictions will lapse. In addition, at the time of grant, the Awards
Committee, in its discretion, may decide: (i) whether any deferred
dividends will be held for the account of the grantee or deferred until the
restrictions thereon lapse, (ii) whether any deferred dividends will be
reinvested in additional Shares or held in cash, (iii) whether interest
will be accrued on any dividends not reinvested in additional shares of
Restricted Stock and (iv) whether any stock dividends paid will be subject
to the restrictions applicable to the Restricted Stock Award.
Performance Units and Performance Shares. Performance Units and
Performance Shares will be awarded as the Awards Committee may determine,
and the vesting of Performance Units and Performance Shares will be based
upon the Company's attainment within an established period of specified
performance objectives to be determined by the Awards Committee. Upon
granting Performance Units or Performance Shares, the Awards Committee may
provide, to the extent permitted under Section 162(m) of the Tax Code, the
manner in which performance will be measured against the performance
objectives, or may adjust the performance objectives to reflect the impact
of specified corporate transactions, accounting or tax law changes, and
other similar extraordinary and nonrecurring events. Performance Units may
be denominated in dollars or in Shares, and payments in respect of
Performance Units will be made in cash, Shares, shares of Restricted Stock
or any combination of the foregoing, as determined by the Awards Committee.
The Agreement evidencing Performance Shares or Performance Units will set
forth the terms and conditions thereof. Unless otherwise determined by the
Awards Committee at the time of grant, such awards that can be so granted,
may be granted in a manner which is intended to qualify for the performance
based compensation exemption of Section 162(m). In such event, either the
granting or vesting of such awards will be based upon one or more of the
following factors: earnings per share, New Common Stock share price,
pre-tax profit, net earnings, return on stockholders' equity or assets or
any combination of the foregoing.
E. CHANGE IN CONTROL
In the event of a Change in Control, the vesting of options and stock
appreciation rights will accelerate and, if so provided by the Awards
Committee in an Agreement, the restrictions on Restricted Stock,
Performance Units and Performance Shares will lapse.
F. TRANSFERABILITY
Awards under the Stock Award and Incentive Plan will not be
transferable except by will or the laws of descent or distribution. Awards
will only be exercisable during the lifetime of a participant by such
participant only. However, at the discretion of the Awards Committee, any
option, other than an ISO, may permit the transfer of such option by a
participant to certain family members or trusts for the benefit of such
family members by such persons.
G. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION OF CERTAIN RELEVANT FEDERAL INCOME TAX
EFFECTS APPLICABLE TO CERTAIN AWARDS GRANTED UNDER THE STOCK AWARD AND
INCENTIVE PLAN IS A SUMMARY ONLY, AND REFERENCE IS MADE TO THE TAX CODE FOR
A COMPLETE STATEMENT OF ALL RELEVANT FEDERAL TAX PROVISIONS. HOLDERS OF
AWARDS SHOULD CONSULT THEIR TAX ADVISORS BEFORE REALIZATION OF ANY SUCH
AWARDS, AND HOLDERS OF COMMON STOCK PURSUANT TO AWARDS SHOULD CONSULT THEIR
TAX ADVISORS BEFORE DISPOSING OF ANY SUCH SHARES. SECTION 16 INDIVIDUALS
SHOULD NOTE THAT SOMEWHAT DIFFERENT RULES THAN THOSE DESCRIBED BELOW MAY
APPLY TO THEM.
ISOs. In general, a recipient will not recognize income upon the grant
or exercise of an ISO, and the Company will not be entitled to any business
expense deduction with respect to the grant or exercise of an ISO. However,
upon the exercise of an ISO, the excess of the fair market value on the
date of exercise of the shares received over the exercise price of the
option will be treated as an adjustment to alternative minimum taxable
income. In order for the exercise of an ISO to qualify as an ISO, a
recipient generally must be an employee of the Company or a subsidiary
(within the meaning of Section 422 of the Tax Code) from the date the ISO
is granted through the date three months before the date of exercise (one
year preceding the date of exercise in the case of a recipient whose
employment is terminated due to disability). The employment requirement
does not apply where a recipient's employment is terminated due to his or
her death.
If a recipient has held the shares acquired upon exercise of an ISO
for at least two years after the date of grant and for at least one year
after the date of exercise, when the recipient disposes of the shares, the
difference, if any, between the sales price of the shares and the exercise
price of the option will be treated as long-term capital gain or loss,
provided that any gain will be subject to reduced rates of tax if the
shares were held for more than twelve months and will be subject to further
reduced rates if the shares were held for more than eighteen months. If a
recipient disposes of the shares prior to satisfying these holding period
requirements (a "Disqualifying Disposition"), the recipient will recognize
ordinary income (treated as compensation) at the time of the Disqualifying
Disposition, generally in an amount equal to the excess of the fair market
value of the shares at the time the option was exercised over the exercise
price of the option. The balance of the gain realized, if any, will be
short-term or long-term capital gain, depending upon whether the shares
have been held for at least twelve months after the date of exercise. If
the recipient sells the shares in a Disqualifying Disposition at a price
below the fair market value of the shares at the time the option was
exercised, the amount of ordinary income (treated as compensation) will be
limited to the amount realized on the sale over the exercise price of the
option. In general, the Company will be allowed a business expense
deduction to the extent a recipient recognizes ordinary income.
NQSOs. In general, a recipient who receives a NQSO will not recognize
income at the time of the grant of the option. Upon exercise of a NQSO, a
recipient will recognize ordinary income (treated as compensation) in an
amount equal to the excess of the fair market value of the shares on the
date of exercise over the exercise price of the option. The basis in shares
acquired upon exercise of a NQSO will equal the fair market value of such
shares at the time of exercise, and the holding period of the shares (for
capital gain purposes) will begin on the date of exercise. In general, if
the Company complies with the applicable income reporting requirements, it
will be entitled to a business expense deduction in the same amount and at
the same time as the recipient recognizes ordinary income. In the event of
a sale of the shares received upon the exercise of a NQSO, any appreciation
or depreciation after the exercise date generally will be taxed as capital
gain or loss, provided that any gain will be subject to reduced rates of
tax if the shares were held for more than twelve months and will be subject
to further reduced rates if the shares were held for more than eighteen
months.
The foregoing discussion assumes that at the time of exercise, the
sale of the shares at a profit would not subject a recipient to liability
under Section 16(b) of the Exchange Act. Special rules may apply with
respect to persons who may be subject to Section 16(b) of the Exchange Act.
Participants who are or may become subject to Section 16 of the Exchange
Act should consult with their own tax advisors in this regard.
Excise Taxes. Under certain circumstances, the accelerated vesting or
exercise of options in connection with a change in control of the Company
might be deemed an "excess parachute payment" for purposes of the golden
parachute tax provisions of Section 280G of the Tax Code. To the extent it
is so considered, a recipient may be subject to a 20% excise tax and the
Company may be denied a tax deduction.
Section 162(m) Limitation. Section 162(m) generally disallows a
federal income tax deduction to any publicly held corporation for
compensation paid in excess of $1 million in any taxable year to each of
the chief executive officer and the four other most highly compensated
executive officers (other than the chief executive officer) who are
employed by such corporation on the last day of such corporation's taxable
year. The Company has structured the Stock Award and Incentive Plan with
the intention that compensation resulting from options, stock appreciation
rights, Performance Shares and Performance Units may qualify as
"performance-based compensation" and, if so qualified, would be deductible.
The approval of the Stock Award and Incentive Plan by the Stockholders
may be required by the applicable rules of the NYSE.
H. TREATMENT OF OLD OPTIONS
Pursuant to the Prepackaged Plan, all Old Options held by directors,
officers and employees of the Company to purchase shares of Old Common
Stock outstanding as of the commencement of the Chapter 11 Case granted
under the Old Plans will be terminated and of no further force or effect as
of the consummation of the Prepackaged Plan. In addition, each of the Old
Plans shall be terminated and of no further force or effect as of the
consummation of the Prepackaged Plan.
XIV. RISK FACTORS
THE HOLDER OF AN IMPAIRED CLAIM AGAINST OR IMPAIRED INTEREST IN SALANT
SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE DECIDING WHETHER TO
VOTE TO ACCEPT OR TO REJECT THE PREPACKAGED PLAN.
A. DISRUPTION OF OPERATIONS RELATING TO BANKRUPTCY FILING
Salant's solicitation of acceptances of the Prepackaged Plan, or any
subsequent commencement of the Chapter 11 Case, even in connection with the
Prepackaged Plan, could adversely affect Salant's and its subsidiaries'
relationships with their customers, suppliers or employees. If Salant's and
its subsidiaries' relationships with customers, suppliers or employees are
adversely affected, Salant's operations could be materially affected.
Weakened operating results could adversely affect Salant's ability to
obtain confirmation of the Prepackaged Plan or to avoid financial
difficulties after consummation of the Prepackaged Plan. Salant
anticipates, however, that it will have sufficient cash to service the
obligations that it intends to pay during the period prior to and through
the consummation of the Prepackaged Plan.
THE SUBSIDIARIES OF SALANT ARE NOT PARTIES TO THE PREPACKAGED PLAN,
AND WILL THEREFORE CONTINUE TO OPERATE IN THE ORDINARY COURSE OF BUSINESS.
AS SUCH, THE PREPACKAGED PLAN DOES NOT AFFECT THE CONTINUING AND TIMELY
PAYMENT IN FULL OF THE SUBSIDIARIES' OBLIGATIONS TO SUPPLIERS, EMPLOYEES,
AND OTHER CREDITORS. IN ADDITION, THE PREPACKAGED PLAN PROVIDES FOR ALL
PREPETITION UNSECURED CREDITORS OF THE COMPANY, INCLUDING, WITHOUT
LIMITATION, TRADE CREDITORS, TO BE PAID IN FULL IN ACCORDANCE WITH THEIR
TERMS, AND SUCH CREDITORS WILL NOT, THEREFORE, BE IMPAIRED AND WILL BE
DEEMED TO ACCEPT THE PREPACKAGED PLAN.
B. CERTAIN RISKS OF NON-CONFIRMATION
Even if the requisite acceptances are received, there can be no
assurance that the Bankruptcy Court will confirm the Prepackaged Plan. A
creditor or an interest holder might challenge the adequacy of the
disclosure or the balloting procedures and results as not being in
compliance with the Bankruptcy Code. Even if the Bankruptcy Court were to
determine that the disclosure and the balloting procedures and results were
appropriate, the Bankruptcy Court could still decline to confirm the
Prepackaged Plan if it were to find that any statutory conditions to
confirmation had not been met. Section 1129 of the Bankruptcy Code sets
forth the requirements for confirmation and requires, among other things, a
finding by the Bankruptcy Court that the confirmation of the Prepackaged
Plan is not likely to be followed by a liquidation or a need for further
financial reorganization and that the value of distributions to
non-accepting creditors and interest holders will not be less than the
value of distributions such creditors and interest holders would receive if
the debtor were liquidated under Chapter 7 of the Bankruptcy Code. See
Section XXIII herein, entitled "FEASIBILITY OF THE PREPACKAGED PLAN AND THE
BEST INTERESTS OF THE CREDITORS TEST." There can be no assurance that the
Bankruptcy Court will conclude that these requirements have been met, but
Salant believes that the Bankruptcy Court should be able to find that the
Prepackaged Plan will not be followed by a need for further financial
reorganization and that non-accepting creditors and Interest Holders will
receive distributions at least as great as would be received following a
liquidation pursuant to Chapter 7 of the Bankruptcy Code. See Section XXV
herein, entitled "VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN."
Additionally, even if the required acceptances of each of Class 3 and
Class 6 are received, the Bankruptcy Court might find that the Solicitation
did not comply with the solicitation requirements made applicable by
subsection 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018(b). In
such an event, Salant may seek to resolicit acceptances, but confirmation
of the Prepackaged Plan could be substantially delayed and possibly
jeopardized. Salant believes that its Solicitation of acceptances of the
Prepackaged Plan complies with the requirements of subsection 1126(b) of
the Bankruptcy Code and Bankruptcy Rule 3018(b), that duly executed Ballots
and Master Ballots will be in compliance with applicable provisions of the
Bankruptcy Code and the Bankruptcy Rules, and that, if sufficient
acceptances are received, the Prepackaged Plan should be confirmed by the
Bankruptcy Court. Salant, however, expressly reserves the right not to file
the Prepackaged Plan and to pursue other alternatives.
Should the Bankruptcy Court fail to confirm the Prepackaged Plan after
the Chapter 11 Case has been filed, Salant would then consider all
financial alternatives available to it at the time, which may include an
effort to sell in the Chapter 11 Case all or a part of Salant's business or
an equity interest in Salant and the negotiation and filing of an
alternative reorganization plan. Pursuit of any such alternative could
result in a protracted and non-orderly reorganization with all the
attendant risk of adverse consequences to its and its subsidiaries
businesses, operations, employees, customers and supplier relations and
their ultimate ability to function effectively and competitively.
Even if the Prepackaged Plan is confirmed by the Bankruptcy Court,
there can be no assurance that Salant would not thereafter suffer a
disruption in its business operations as a result of filing the Chapter 11
Case, particularly in light of the fact that Salant has been a debtor in
bankruptcy on two prior occasions.
The confirmation and consummation of the Prepackaged Plan are also
subject to certain conditions. See Section IX.K. above, entitled "SUMMARY
OF THE PREPACKAGED PLAN -- CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND
EFFECTIVE DATE."
If the Prepackaged Plan, or a plan determined by the Bankruptcy Court
not to require resolicitation of acceptances by Classes, were not to be
confirmed, it is unclear whether a reorganization could be implemented and
what Holders of Claims and Interests would ultimately receive with respect
to their Claims and Interests. If an alternative reorganization could not
be agreed to, it is possible that Salant would have to liquidate its
assets, in which case Holders of Claims and Interests could receive less
than they would have received pursuant to the Prepackaged Plan.
C. CERTAIN BANKRUPTCY CONSIDERATIONS
1. Treatment Of The Warrants
-------------------------
In the event of a subsequent bankruptcy case involving Salant, the
Warrants, which will be received by Holders of Old Common Stock in partial
consideration for dilution of their ownership interest in Salant, would be
treated as equity securities. Moreover, the Warrants may receive less
favorable treatment than the New Common Stock in a subsequent bankruptcy
case, because the equity interests in Reorganized Salant represented by the
Warrants would not be so direct as the equity interests in Reorganized
Salant represented by the New Common Stock.
2. Failure To File Prepackaged Plan
--------------------------------
Absent the Restructuring, Salant does not believe it will be able to
satisfy its debt obligations under the Senior Notes without a refinancing
of its indebtedness under the Credit Agreement and/or the Senior Notes or
an additional capital infusion and it is unlikely that Salant will be able
to obtain such refinancing or capital infusion. If Salant determines that
it is or will be unable to complete the Restructuring, Salant will consider
all other available financial alternatives, including the sale of all or a
part of Salant's business, the implementation of an alternative
restructuring arrangement outside of bankruptcy, or the commencement of a
Chapter 11 case without a preapproved plan of reorganization. There can be
no assurance, however, that any alternative would be on terms as favorable
to Holders of Senior Notes, Old Common Stock or General Unsecured Claims as
the Restructuring. If the Exchange Restructuring is not consummated, but
Ballots and Master Ballots containing votes to accept the Prepackaged Plan
are received in sufficient amounts and numbers, in Salant's judgment, to
confirm the Prepackaged Plan, Salant expects to (but expressly reserves the
right not to) file a prepackaged Chapter 11 case and use such Ballots and
Master Ballots to confirm the Prepackaged Plan. Salant believes that
obtaining sufficient acceptances before commencing a bankruptcy case would
be preferable from the point of view of its creditors, stockholders and
other constituents because such acceptances can reduce disputes during such
a case concerning the reorganization of Salant and should, therefore,
substantially reduce the time and costs of such a case, result in a larger
distribution to Salant's creditors and stockholders than would be available
under a non-prepackaged reorganization under Chapter 11 of the Bankruptcy
Code or a liquidation under Chapter 7 of the Bankruptcy Code (in the
absence of other alternatives) and afford Salant the best opportunity to
accomplish the Restructuring in a bankruptcy case. If the Exchange
Restructuring is not consummated and Salant does not have the necessary
acceptances from Holders of Interests to confirm the Prepackaged Plan,
Salant might nevertheless file a petition for relief under Chapter 11 of
the Bankruptcy Code and seek confirmation of the Prepackaged Plan
notwithstanding the dissent of certain Holders of Interests. See Section
XXIII.D. herein, entitled "FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST
INTERESTS OF CREDITORS TEST -- NONCONSENSUAL CONFIRMATION." In such event,
Salant would seek to satisfy the Bankruptcy Code standards for confirmation
by means of a "cramdown" against such Holders of Interests. Alternatively,
Salant may seek to accomplish an alternative restructuring of its
capitalization and its obligations to its Stockholders and creditors and
obtain their consent to any such restructuring plan with or without a
pre-approved plan of reorganization or otherwise. See Section XXIV herein,
entitled "ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PREPACKAGED
PLAN." However, there can be no assurance that any alternative
restructuring arrangement or plan would result in a reorganization of
Salant other than a liquidation, or that any such reorganization would be
on terms as favorable to the Holders of Claims and Holders of Interests as
the terms of the Prepackaged Plan. There is a risk that distributions to
Holders of Claims and Interests under a liquidation or under a protracted
and non-orderly reorganization would be substantially delayed and
diminished.
For purposes of comparison with the anticipated distributions under
the Prepackaged Plan, Salant has prepared an analysis of estimated
recoveries in a liquidation under Chapter 7 of the Bankruptcy Code. See
Section XXIII herein, entitled "FEASIBILITY OF THE PREPACKAGED PLAN AND THE
BEST INTERESTS OF CREDITORS TEST." A description of procedures followed and
the assumptions and qualifications in connection with this analysis is set
forth in the notes thereto.
3. Effect On Operations
--------------------
Salant believes that the Solicitation and any subsequent commencement
of a Chapter 11 case in connection with the Prepackaged Plan should not
materially adversely affect Salant's and its subsidiaries' relationships
with customers, employees and suppliers, provided that Salant can
demonstrate sufficient liquidity to continue to operate the business and a
likelihood of success for the Prepackaged Restructuring in a reasonably
short time frame. Salant believes that the Solicitation offers the most
expeditious means to achieve the Prepackaged Restructuring.
It is possible that despite the belief and intent of the Company, the
Solicitation or any subsequent commencement of a Chapter 11 case could
adversely affect the relationships between Salant, its subsidiaries and
their employees, customers and suppliers. There is a risk that, due to
uncertainty about Salant's future, (i) employees may be distracted from
performance of their duties or more easily attracted to other career
opportunities, (ii) customers may seek alternative sources of supply or
require financial assurances of future performance and (iii) suppliers may
restrict ordinary credit terms or require financial assurances of
performance. This risk is exacerbated by the fact that Salant has been a
debtor in bankruptcy on two prior occasions. If such relationships were
adversely affected, Salant and its subsidiaries' financial performance and
working capital position could materially deteriorate. This deterioration
could adversely affect Salant's ability to complete the Solicitation or, if
such Solicitation is successfully completed, to obtain confirmation of the
Prepackaged Plan.
4. Nonconsensual
-------------
Confirmation Salant will request that the Bankruptcy Court confirm the
Prepackaged Plan under Bankruptcy Code Section 1129(b). Section 1129(b)
permits confirmation of the Prepackaged Plan despite rejection by one or
more impaired classes if the Bankruptcy Court finds that the Prepackaged
Plan "does not discriminate unfairly" and is "fair and equitable" as to the
non-accepting class or classes. Because Class 7 is deemed not to have
accepted the Prepackaged Plan, Salant will request that the Bankruptcy
Court find that the Prepackaged Plan is fair and equitable and does not
discriminate unfairly as to Class 7 (and any other class that fails to
accept the Prepackaged Plan). For a more detailed description of the
requirements for acceptance of the Prepackaged Plan and of the criteria for
confirmation notwithstanding rejection by certain classes, see Section
XXIII.D. herein, entitled "FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST
INTERESTS OF CREDITORS TEST -- NONCONSENSUAL CONFIRMATION." Salant,
however, will not seek confirmation of the Prepackaged Plan unless it is
accepted by Class 3.
D. ADDITIONAL RISK FACTORS
1. Company Results of Operations Subject to Variable
Influences; Intense Competition
-------------------------------------------------
The Company's business is sensitive to changes in consumer spending
patterns, consumer preferences and overall economic conditions. The Company
is also subject to fashion trends affecting the desirability of its
merchandise. The apparel industry in the United States is highly
competitive and characterized by a relatively small number of multi-line
manufacturers (such as the Company) and a large number of specialty
manufacturers. The Company faces substantial competition in its markets
from manufacturers in both categories. Many of the Company's competitors
have significantly greater financial resources than the Company. The
Company also competes for private label programs with the internal sourcing
organizations of its own customers. The Company's future performance will
be subject to such factors, most of which are beyond its control, and there
can be no assurance that such factors would not have a material adverse
effect on the Company's results of operations and financial condition.
2. Dilution
--------
Pursuant to the Prepackaged Plan, on or after the Effective Date, the
Company will issue 18,456,350 shares of New Common Stock directly to
exchanging Noteholders, and 1,496,461 shares of New Common Stock to
Stockholders, and will reserve 2,216,979 shares of New Common Stock for
issuance upon exercise of the Warrants. The issuance of the 18,456,350
shares to Noteholders will result in a significant dilution of the existing
equity interests of the Stockholders (as a percentage of outstanding shares
of common stock) which could adversely affect the market price and the
value of the New Common Stock. Immediately following the consummation of
the Prepackaged Restructuring, the 18,456,350 shares issued directly to
Noteholders will, after the Effective Date, represent 92.5% of the total
outstanding shares of New Common Stock, excluding the Warrant Shares based
on the number of shares of Old Common Stock outstanding as of the Record
Date. Upon consummation of the Prepackaged Restructuring, Stockholders will
receive, for each share of Old Common Stock held, .14814815 Warrants with
an exercise price of $6.2648 per share (subject to adjustment). Based upon
the current market price of the Old Common Stock (after giving effect to
the Reverse Split), the Warrants may be "out of the money" immediately
following the Prepackaged Restructuring, and no assurance can be made that
the Warrants will ever be "in the money." If all Warrants are exercised,
the percentage of New Common Stock held by exchanging Noteholders would be
reduced from 92.5% to 83.25%, and the percentage of New Common Stock held
by Stockholders would be reduced from 7.5% to 6.75% (assuming that none of
the Warrants are held by the Stockholders at the time the Warrants are
exercised). See Section VI above, entitled "PURPOSES AND EFFECTS OF THE
PREPACKAGED RESTRUCTURING." In addition, there can be no assurance that the
Company will not need to issue additional Common Stock in the future in
order to achieve its business plan or if it does not achieve its projected
results, which could lead to further dilution to holders of the Company's
Common Stock.
3. Limitation on Use of Net Operating Losses
-----------------------------------------
As a result of the receipt by Noteholders of New Common Stock in
exchange for the Senior Notes pursuant to the Restructuring, the Company
will undergo an "ownership change" for Federal income tax purposes.
Accordingly, the Company will be limited in its ability to use its net
operating loss carryovers and certain tax credit carryforwards to offset
future taxable income. Under the Exchange Restructuring, the limitation
imposed upon the Company's use of its net operating loss carryovers would
be more restrictive than under the Prepackaged Restructuring. See Section
XXII.A. herein, entitled "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
PREPACKAGED PLAN -- FEDERAL INCOME TAX CONSEQUENCES TO SALANT."
4. Lack of Trading Market for Warrants and New Common Stock;
Volatility; Potential De-Listing of the New Common Stock
--------------------------------------------------------
There can be no assurance that an active market for the Warrants
and/or the New Common Stock will develop or, if any such market does
develop, that it will continue to exist. Further, the degree of price
volatility in any such market that does develop may be significant.
Accordingly, no assurance can be given as to the liquidity of the market
for any of the Warrants and/or the New Common Stock or the price at which
any sales may occur.
The Company has fallen below the continued listing criteria of the
NYSE for net tangible assets available to common stock together with
average net income after taxes for the past three years. The Company has
requested that the NYSE waive compliance with such test until consummation
of the Restructuring. There can be no assurance, however, that the NYSE
will waive compliance with such test. If the common stock of the Company
were de-listed, there could be an adverse effect on the liquidity of the
market for such common stock. Should the Restructuring be consummated, the
Company expects to be in full compliance with all of the NYSE's
requirements for continued listing on the NYSE. See Section XIX herein,
entitled "PREPACKAGED RESTRUCTURING ACCOUNTING TREATMENT."
The Company expects that the New Common Stock and the Warrants will be
eligible for listing and will be listed for trading on the NYSE. There can
be no assurance, however, that the Company will maintain its status as a
reporting Company under the Exchange Act or that the New Common Stock
and/or the Warrants will be listed for trading on the NYSE. If the Company
is unable to have the New Common Stock and Warrants listed for trading on
the NYSE, the Company will use its best efforts to cause all New Common
Stock and Warrants to be quoted on the National Market System of NASDAQ or
to be listed on another national securities exchange. However, there is no
assurance that the Company would be successful in such efforts.
5. Possible Volatility of Stock Price; Effect of Prepackaged
Restructuring on Stock Price
---------------------------------------------------------
Since March 3, 1998, the market price of the Old Common Stock has
experienced some degree of volatility. There can be no assurance that such
volatility will not continue for the New Common Stock or become more
pronounced. In addition, the stock market has recently experienced, and is
likely to experience in the future, significant price and volume
fluctuations which could materially adversely effect the market price of
the New Common Stock without regard to the operating performance of the
Company. The Company believes that factors such as the Prepackaged
Restructuring, quarterly fluctuations in the financial results of the
Company or its competitors and general conditions in the industry, the
overall economy, the financial markets and other risks described herein
could cause the price of the New Common Stock to fluctuate substantially.
6. Concentrated Ownership of New Common Stock
------------------------------------------
Following consummation of the Prepackaged Restructuring, the ownership
of the New Common Stock will likely be significantly more concentrated than
was the ownership of the Old Common Stock. Assuming that the current
holders of the Senior Notes do not significantly change prior to the
Effective Date, the Company will be controlled by a few stockholders who
are currently holders of the Senior Notes. These holders of New Common
Stock may seek to influence the direction of the Company. For instance,
following consummation of the Prepackaged Restructuring, Magten will own in
excess of 60% of the issued and outstanding shares of New Common Stock. As
a result, Magten may have the ability to control the Company's management,
policies and financing decisions, to elect a majority of the members of the
Company's Board and to control the vote on all matters coming before the
stockholders of the Company. Pursuant to the Letter Agreement, the Company
has agreed that three to five out of seven to nine members of the initial
new Board members will be nominated by Magten, subject to consultation with
the Company and other Noteholders who may come forward prior to the
commencement of the Solicitation for election to the Board following the
Prepackaged Restructuring. The Company does not have complete information
regarding the beneficial ownership of the Senior Notes and is not aware of
any stated intention by Magten or any agreement among Noteholders generally
to seek to influence the direction of the Company or to otherwise act in
concert following the Prepackaged Restructuring. There can be no assurance,
however, that no such agreements exist.
7. Absence of and/or Restriction on Dividends
------------------------------------------
The Company did not pay any dividends on the Old Common Stock in 1995,
1996 or 1997 and does not anticipate paying dividends on the New Common
Stock at any time in the foreseeable future. Moreover, the Credit Agreement
places restrictions on the Company's ability to declare or pay cash
dividends on the Old Common Stock and the Company believes that the New
Credit Agreement will similarly restrict the payment of dividends on the
New Common Stock. For a description of the limitations contained in the
Credit Agreement, see Section XX herein, entitled "DESCRIPTION OF
INDEBTEDNESS OF THE COMPANY."
8. History of Losses; Effect of Transaction
----------------------------------------
Although the Company was profitable for the fiscal year ended December
30, 1995, for the fiscal years ended December 31, 1994, December 28, 1996
and January 3, 1998, the Company reported net losses of $7,865,000,
$9,323,000 and $18,088,000, respectively. The net losses were primarily
attributable to the write-off of goodwill, the write-down of other assets,
facility shut-downs and the closure of certain unprofitable operations.
There can be no assurance that the Company will regain its profitability,
or have earnings or cash flow sufficient to cover its fixed charges.
9. Cash Flow From Operations
-------------------------
During the fiscal years ended December 28, 1996 and January 3, 1998,
the Company had a positive cash flow from operating activities of $17.1
million and a negative cash flow from operating activities of $9.8 million,
respectively. The Fiscal 1996 figure reflects a $17.5 million reduction in
inventories due to improved inventory management, and the effects of the
implementation of a strategic business plan for the men's apparel group.
The lower inventory balance was partially offset by an increase in accounts
receivable, due to changes in the Company's factoring arrangements with CIT
which reduced the amount of accounts receivable sold to CIT and the related
factoring costs. The Fiscal 1997 figure reflects an operating loss of $10.7
million and an increase in accounts receivable of $5.7 million, offset by
non-cash charges, such as depreciation and amortization, of $8.9 million.
The Company's principal sources of liquidity, both on a short-term and
a long-term basis, are cash flow from operations and borrowings under the
Credit Agreement. Based upon its analysis of its consolidated financial
position, its cash flow during the past twelve months and the cash flow
anticipated from its future operations, the Company believes that its
future cash flows together with funds available under the Credit Agreement
should be adequate to meet the financing requirements it anticipates during
the next twelve months provided that the Company consummates the
Restructuring and secures a New Credit Agreement. See Section XI above,
entitled "DESCRIPTION OF NEW CREDIT AGREEMENT." There can be no assurance,
however, (i) that the Company will consummate the Prepackaged
Restructuring, (ii) the Company will obtain a New Credit Agreement on
favorable terms, or (iii) that future developments and general economic
trends will not adversely affect the Company's operations and, hence, its
anticipated cash flow.
10. Declines in Net Sales and Gross Profits
---------------------------------------
Sales of men's apparel decreased by $18.9 million, or 5.5%, in Fiscal
1997. This decrease resulted from (a) a $12.4 million reduction in sales of
men's slacks, of which $8.4 million reflected the elimination of
unprofitable programs and the balance was primarily due to operational
difficulties experienced in the first quarter of Fiscal 1997 related to the
move of manufacturing and distribution out of the Company's facilities in
Thomson, Georgia, (b) a $5.7 million reduction in sales of men's
sportswear, which included a $16.7 million reduction for the elimination of
the company's JJ. Farmer and Manhattan sportswear lines, as offset by an
$11.0 million increase in sales of Perry Ellis sportswear product, (c) a
$5.1 million decrease in sales of men's accessories, primarily due to the
slow-down of the novelty neckwear business and (d) a $4.7 million reduction
in sales of certain dress shirt lines, which reflected the elimination of
unprofitable businesses. These sales decreases were partially offset by a
$9.5 million increase in sales of Perry Ellis dress shirts due to the
addition of new distribution and the continued strong acceptance of these
products by consumers. The total sales reduction attributable to the
elimination of unprofitable programs was $29.8 million. Sales of children's
sleepwear, underwear and sportswear increased by $3.4 million, or 7.5%, in
Fiscal 1997. This increase was primarily a result of the continuing
expansion of the Joe Boxer children's product lines. Sales of the retail
outlet stores division decreased by $5.4 million, or 19.8%, in Fiscal 1997.
This decrease was due to (i) a decrease in the number of stores in the
first 10 months of Fiscal 1997 and (ii) the decision in November 1997 to
close all non-Perry Ellis outlet stores. The Company ceased to operate the
non-Perry Ellis outlet stores in November 1997.
The gross profit margin of the children's sleepwear and underwear
segment declined as a result of (i) slowdown in sales of certain licensed
products, requiring a greater percentage of off-price sales, as well as an
increase in discounts and allowances, (ii) an increase in reserves for
remaining inventory and (iii) higher distribution and product handling
costs. The gross profit of the retail outlet stores decreased primarily as
a result of inventory markdowns of $1.6 million (7.3% of net sales) related
to the closing of the non-Perry Ellis stores. Excluding these inventory
markdowns, the gross profit margin increased as a result of a decrease in
the transfer prices (from a negotiated rate to standard cost) charged to
the retail outlet stores for products made by other divisions of the
Company.
11. Retail Environment
------------------
The retail industry has experienced significant consolidation and
other ownership changes resulting in a decrease in the number of retailers.
In addition, various retailers, including some of the Company's customers,
have experienced declines in revenue and profits in recent periods and some
have been forced to file for protection under the federal bankruptcy laws.
In the future, other retailers in the United States and in foreign markets
may consolidate, undergo restructurings or reorganizations, or realign
their affiliations, any of which could decrease the number of stores that
carry the Company's products or increase the ownership concentration within
the retail industry. There can be no assurance that such changes would not
have a material adverse effect on the Company's results of operations and
financial condition.
12. Apparel Industry Cycles and Other Economic Factors
--------------------------------------------------
The apparel industry historically has been subject to substantial
cyclical variations, with consumer spending on apparel tending to decline
during recessionary periods. A decline in the general economy or
uncertainties regarding future economic prospects may affect consumer
spending habits, which, in turn, could have a material adverse effect on
the Company's results of operations and financial condition.
13. Seasonality and Fashion Risk
----------------------------
The Company's principal products are organized into seasonal lines for
resale at the retail level during the Spring, Fall and Holiday seasons.
Typically, the Company's products are designed as much as one year in
advance and manufactured approximately one season in advance of the related
retail selling season. Accordingly, the success of the Company's products
is often dependent on the ability of the Company to successfully anticipate
the needs of the Company's retail customers and the tastes of the ultimate
consumer up to a year prior to the relevant selling season. In addition,
the Company experiences seasonal fluctuations in its net sales and net
income, with a disproportional amount of the Company's net sales and a
majority of its net income typically realized during the fourth quarter.
Net sales and net income are generally weakest during the first quarter.
The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of other factors, including the
Company's ability to source, manufacture and distribute its products.
14. Dependence on Certain Customers and Licensees; Effect of
Restructuring on Licenses
--------------------------------------------------------
Certain of the Company's customers, including some under common
ownership, have accounted for significant portions of the Company's gross
revenues.
In Fiscal 1997, approximately 17% of the Company's net sales were made
to Sears, approximately 11% of the Company's net sales were made to
Federated and approximately 10% of the Company's net sales were made to
TJX. In 1996, approximately 13% of the Company's net sales were made to
Sears. In 1996 and 1995, net sales to Federated represented approximately
11% and 12% of the Company's net sales, respectively. In 1995,
approximately 11% of the Company's net sales were made to TJX. In 1995,
approximately 13% of the Company's Children's Group's net sales were made
to Dayton Hudson Corporation. No other customers accounted for more than
10% of the net sales of the Company or any of its business segments during
1995, 1996, or 1997.
A decision by the controlling owner of a group of stores or any
substantial customer, whether motivated by fashion concerns, financial
difficulties, or otherwise, to decrease the amount of merchandise purchased
from the Company or to cease carrying the Company's products could
materially adversely affect the Company.
In Fiscal 1997, approximately 44% of the Company's net sales was
attributable to products sold under the Perry Ellis Portfolio by Perry
Ellis and Perry Ellis America trademarks which are licensed to the Company
under a series of license agreements with PEI. The license agreements
contain renewal options which, subject to compliance with certain
conditions contained therein, permit the Company to extend the terms of
such license agreements. Assuming the exercise by the Company of all
available renewal options, the license agreements covering men's apparel
and accessories will expire on December 31, 2015. If the Company were
unable to exercise its right to renew the agreements or the agreements were
terminated by their terms (as a result of, among other things, the failure
of the Company to make payments to PEI in accordance with the agreements
and the expiration of the applicable grace periods or the failure by the
Company to perform any of its other obligations under the agreements,
including its obligations in respect of the production of the products
licensed thereunder), the resulting inability to sell products bearing a
Perry Ellis trademark would have a material adverse affect on the Company.
In addition to the license agreement with PEI, the Company is also a
party to several other license agreements. Certain of these license
agreements, including the license agreements with PEI and The Walt Disney
Company, contain "change of control" provisions which may be triggered by
the Prepackaged Restructuring, or otherwise contain provisions that enable
the licensor to terminate the license or exercise other remedies thereunder
as a result of the Prepackaged Restructuring. The Company intends to seek a
waiver of any such provisions from the applicable licensors. However, there
can be no assurance that any such waivers will be obtained, or to the
extent such waivers are obtained, on what terms they would be granted.
15. Foreign Operations and Sourcing; Import Restrictions
----------------------------------------------------
During Fiscal 1997, approximately 12% of the products produced by the
Company (measured in units) were manufactured in the United States, with
the balance manufactured in foreign countries. Facilities operated by the
Company accounted for approximately 75% of its domestic-made products and
37% of its foreign-made products; the balance in each case was attributable
to unaffiliated contract manufacturers. In Fiscal 1997, approximately 47%
of the Company's foreign production was manufactured in Mexico,
approximately 18% was manufactured in Guatemala and approximately 12% was
manufactured in the Dominican Republic.
Some of the Company's imported merchandise is subject to United States
customs duties. In addition, bilateral agreements between the major
exporting countries and the United States impose quotas which limit the
amount of certain categories of merchandise that may be imported into the
United States. As a result, the Company's operations would be significantly
adversely affected by political instability resulting in the disruption of
trade from the countries in which the Company's contractors or suppliers
are located, the imposition of additional regulations relating to imports,
the imposition of additional duties, taxes, and other charges on imports,
decreases in quota levels or available quota allocations, significant
fluctuations of the value of the dollar against foreign currencies
(although predominately all of the Company's contracts are designated in
U.S. dollars) or restrictions on the transfer of funds. The inability of a
contractor to ship orders of the Company's products in a timely manner
could cause the Company to miss the delivery date requirements of its
customers for those items, which could result in cancellation of orders,
refusal to accept deliveries, or a reduction in sales prices. Further,
since the Company is generally unable to return merchandise to its
suppliers, it could be faced with a significant amount of unsold
merchandise, which could have a material adverse effect on the Company.
There can be no assurance that such factors would not have a material
adverse effect on the Company's results of operations.
16. Dependence on Contract Manufacturing
------------------------------------
In Fiscal 1997, the Company produced 59% of all of its products (in
units) through arrangements with independent contract manufacturers. The
use of such contractors and the resulting lack of direct control could
subject the Company to difficulty in obtaining timely delivery of products
of acceptable quality. In addition, as is customary in the industry, the
Company does not have any long-term contracts with its fabric suppliers or
product manufacturers. While the Company is not dependent on one particular
product manufacturer or raw materials supplier, the loss of several such
product manufacturers and/or raw material suppliers in a given season could
have a material adverse effect on the Company's performance.
17. Information Systems and Control Procedures
------------------------------------------
The Company has completed an assessment of its IS, including its
computer software and hardware, and the impact that the year 2000 will have
on such systems and the Company's overall operations. The Company's current
software systems, without modification, will be adversely affected by the
inability of the systems to appropriately interpret date information after
1999. As part of the process of improving the Company's IS to provide
enhanced support to all operating areas, the Company has entered into an
interim working agreement with EDS, which constitutes the initial phase of
a long-term contract to outsource its IS. Such long-term outsourcing
contract will provide for or eliminate any issues involving year 2000
compliance because all software provided under the outsourcing contract
will be year 2000 compliant. The Company anticipates that its cost for such
outsourcing will be approximately $9.0 million annually, which is
consistent with the Company's current IS expenditures. The Company
anticipates that it will complete its outsourcing and systems conversion in
time to accommodate year 2000 issues. If the Company fails to complete such
conversion in a timely manner, such failure will have a material adverse
effect on the business, financial condition and results of operations of
the Company.
While the Company believes its current IS is generally adequate to
support the Company's business operations, certain deficiencies relating to
the age and design of the systems, including, without limitation,
difficulties in planning, forecasting, allocating and measuring performance
through an integrated financial system, may adversely affect the business
operations of the Company in the near and long-term. There can be no
assurance that the Company's efforts to improve upon and enhance its
present IS will resolve or eliminate any such existing or potential
deficiencies.
As noted above, the Company has implemented a program designed to
ensure that all the Company's software will manage and manipulate data
involving the transition of dates from 1999 to 2000 without functional or
data abnormality and without inaccurate results to such dates. Any failure
on the part of the Company to ensure that any such software complies with
year 2000 requirements could have a material adverse effect on the
business, financial condition, and results of operations of the Company.
Likewise, any failure on the part of suppliers and customers of the Company
to implement a year 2000 compliance program could have a material adverse
effect on the business, financial condition and results of operations of
the Company if such lack of compliance interrupts the Company's daily
business interactions and relationships with such suppliers and customers.
18. Leverage and Debt Service
-------------------------
As of January 3, 1998, the Company had outstanding total interest
bearing indebtedness of approximately $151.9 million and a total
debt-to-total capital ratio of 0.761. The amount of indebtedness of the
Company will be reduced by the principal amount of Senior Notes as a result
of the Restructuring. The Company will continue to have annual
fixed debt service requirements under the term loan portion of the New
Credit Agreement. The Company expects that the New Credit Agreement will
have a term loan component in the maximum principal amount of $25 million.
The ability of the Company to make principal and interest payments under
the Company's working capital facility, including the term loan component,
will be dependent upon the Company's future performance, which is subject
to financial, economic and other factors affecting the Company, some of
which are beyond its control. There can be no assurance that the Company
will be able to meet its fixed charges as such charges become due.
19. Restrictive Covenants
---------------------
The Credit Agreement contains certain restrictive covenants which
impose prohibitions or limitations on the Company with respect to, among
other things, (i) the incurrence of indebtedness, (ii) capital
expenditures, (iii) the creation or incurrence of liens, (iv) the
declaration or payment of dividends or other distributions on, or the
acquisition, redemption or retirement of, any shares of capital stock of
the Company, and (v) mergers, consolidations and sales or purchases of
substantial assets. The Credit Agreement also requires that the Company
satisfy certain financial tests, maintain certain financial ratios, and
satisfy a maximum net loss test. Failure to comply with such covenants
could result in a default under the Credit Agreement which could have a
material adverse effect on the financial condition and results of
operations of the Company. The Company anticipates that the New Credit
Agreement will contain restrictive covenants similar to those contained in
the Credit Agreement.
20. Need for Sustained Trade Support
--------------------------------
The Company's ability to achieve sales growth and profitability
includes significant reliance on continued support from its vendors. If the
Company's major vendors reduce their credit lines or product availability
to the Company, it could have a material adverse effect on the Company's
sales, cash position and liquidity.
XV. OWNERSHIP OF OLD COMMON STOCK
The following table sets forth certain information as of April 20,
1998, with respect to each person who is known to the Company to be the
"beneficial owner" (as defined in regulations of the Commission) of more
than 5% of the outstanding shares of Common Stock.
BENEFICIAL OWNERS OF MORE THAN 5% OF THE
OUTSTANDING SHARES OF SALANT COMMON STOCK
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS(a)
- ------------------- -------------------- -------------------
Apollo Apparel Partners, L.P. 5,924,352 39.6%
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, New York 10577
DDJ Capital Management, LLC 1,615,730 10.8%
141 Linden Street, Suite 4
Wellesley, MA 02181
- ----------------------------------
(a) This percentage is calculated on the basis of 14,964,608 shares
outstanding as of March 16, 1998, excluding those shares held by or
for the account of the Company.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of March 16,
1998 with respect to the beneficial ownership of Old Common Stock by each
of the directors of the Company, the Chief Executive Officer and each of
the four most highly compensated other executives of the Company (the
"Named Executive Officers") and all directors and executive officers of the
Company as a group.
BENEFICIAL OWNERSHIP OF SALANT COMMON STOCK BY
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP (a) CLASS (b)
- ------------------------ ------------- ---------
Nicholas P. DiPaolo................ 0 *
Robert H. Falk..................... 5,925,652 (c) 39.6%
Philip A. Franzel.................. 1,000 (d) *
Ann Dibble Jordan.................. 2,200 (e) *
Todd Kahn.......................... 71,500 (f) *
Robert Katz........................ 5,925,952 (g) 39.6%
Harold Leppo....................... 2,200 (h) *
Michael A. Lubin................... 0 *
Jerald S. Politzer................. 145,000 (i) 1.0%
Richard P. Randall................. 0 *
Bruce F. Roberts................... 6,200 (j) *
John S. Rodgers.................... 433,787 (k) 2.9%
Marvin Schiller.................... 16,134 (l) *
Edward M. Yorke.................... 5,926,552 (m) 39.6%
All directors and executive
officers as a group
(14 persons)..................... 6,607,773 (n) 43.6%
- ------------------------
* Represents less than one percent.
(a) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares of Old Common Stock which
such person has the right to acquire within 60 days following March
16, 1998.
(b) As of March 16, 1998, there were 14,964,608 shares outstanding,
excluding those shares held by or for the account of the Company. For
purposes of computing the percentage of outstanding shares of Old
Common Stock held by each person or group of persons named above, any
security which such person or persons has the right to acquire within
60 days following March 16, 1998 is deemed to be outstanding, but is
not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(c) This amount includes 5,924,352 shares beneficially owned by Apollo and
1,300 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing general partner of
which is Apollo Advisors, L.P. Mr. Falk is a principal of Apollo
Advisors, L.P. He disclaims beneficial ownership of any shares of Old
Common Stock held by Apollo.
(d) This amount represents 1,000 shares held directly by Mr. Franzel.
(e) This amount represents 2,200 shares issuable upon the exercise of
stock options.
(f) This amount includes 4,000 shares held directly and 67,500 shares
issuable upon the exercise of stock options.
(g) This amount includes 5,924,352 shares beneficially owned by Apollo and
1,600 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing general partner of
which is Apollo Advisors, L.P. Mr. Katz is an officer of Apollo
Advisors, L.P. He disclaims beneficial ownership of any shares of Old
Common Stock held by Apollo.
(h) This amount represents 2,200 shares issuable upon the exercise of
stock options.
(i) This amount includes 45,000 shares held directly and 100,000 shares
issuable upon the exercise of stock options.
(j) This amount includes 4,000 shares held directly and 2,200 shares
issuable upon the exercise of stock options.
(k) This amount includes 424,280 shares held directly by Mr. Rodgers,
1,300 shares issuable upon the exercise of stock options, 2,284 shares
held through the Company's Long Term Savings and Investment Plan (the
"Savings Plan") and 5,923 shares held by the Margaret S. Vickery
Trust, of which Mr. Rodgers is a co-trustee. As to the shares held by
the Margaret S. Vickery Trust, Mr. Rodgers shares voting and
investment power with a co-trustee. He disclaims beneficial ownership
with respect to the shares held by the Trust.
(l) This amount includes 11,234 shares held directly and 5,200 shares
issuable upon the exercise of stock options.
(m) This amount includes 5,924,352 shares beneficially owned by Apollo and
2,200 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing partner of which is
Apollo Advisors, L.P. Mr. Yorke is an officer of Apollo Advisors, L.P.
He disclaims beneficial ownership of any shares of Old Common Stock
held by Apollo.
(n) The 6,607,773 shares held by all directors and executive officers of
the Company as a group counts the 5,924,352 shares held by Apollo
(discussed in notes (c), (g) and (m) above) once. Such 6,607,773
shares include (i) 6,419,789 shares held directly by, or attributable
to, directors and executive officers, (ii) 2,284 shares held through
the Savings Plan by executive officers, and (iii) 185,700 shares
issuable upon the exercise of stock options held by all directors and
executive officers that are exercisable on, or may become exercisable
within sixty days of, March 16, 1997.
XVI. MARKET FOR OLD COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Old Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the trading symbol SLT.
The high and low sale prices per share of Old Common Stock (based upon
the NYSE composite tape as reported in published financial sources) for
each quarter of 1996 and 1997 are set forth below. The Company did not
declare or pay any dividends during such years. The indenture governing the
Senior Notes and the Credit Agreement requires the satisfaction of certain
net worth tests prior to the payment of any cash dividends by the Company.
As of January 3, 1998, the Company was prohibited from paying cash
dividends under the most restrictive of these provisions.
HIGH AND LOW SALE PRICES PER SHARE OF THE OLD COMMON STOCK
QUARTER HIGH LOW
------- ---- ---
1997
Fourth $3 3/8 $1 9/16
Third 3 1 15/16
Second 4 1/4 2 7/8
First 5 3/8 3
1996
Fourth $3 7/8 $3 1/8
Third 4 2 3/4
Second 4 7/8 3 1/2
First 5 3/4 3 1/8
On March 2, 1998, the day immediately prior to the date the Company
announced its intention to pursue the Restructuring, the closing market
price of the Old Common Stock was $1.6875 per share. On ____________, 1998,
there were _____ holders of record of shares of Old Common Stock, and the
closing market price was $______ per share.
The following chart indicates the effect of the Prepackaged
Restructuring on the amount and percentage of the holdings of the Company's
common equity owned beneficially by (i) each person (including any group as
that term is used in section 13(d)(3) of the Exchange Act) who is known to
the Company to be the beneficial owner of more than 5% of the Old Common
Stock, (ii) each current director and each Board nominee and (iii) all
directors and officers as a group.
<TABLE>
<CAPTION>
New Common Stock Issuable with Respect
Old Common Stock Beneficially to Such Holdings of Old Common Stock
Owned as of March 16, 1998 Upon the Effective Date of Prepackaged Plan**
----------------------------- ---------------------------------------------
Holder No. Of Shares(a) % of Class(b) No. Of Shares % of Class
------ ---------------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
Apollo Apparel 5,924,352 39.6% 592,435 2.9%
Partners, L.P.
DDJ Capital 1,615,730 (c) 10.8% 161,573 *
Management, LLC
Robert Falk 5,925,652 (d) 39.6% 592,565 2.9%
Ann Dibble Jordan 2,200 (e) * 220 *
Robert Katz 5,925,952 (f) 39.6% 592,595 2.9%
Harold Leppo 2,200 (g) * 220 *
Jerald S. Politzer 145,000 (h) 1.0% 14,500 *
Bruce F. Roberts 6,200 (i) * 620 *
John S. Rodgers 433,787 (j) 2.9% 43,379 *
Marvin Schiller 16,134 (k) * 1,613 *
Edward M. Yorke 5,926,552 (l) 39.6% 592,655 2.9%
All directors and
executive officers as
a group (14 persons) 6,535,277 (m) 43.6% 653,528 3.2%
- ------------------------
<FN>
* Represents less than one percent.
** Exclusive of any shares of New Common Stock issuable upon exercise of
any Warrants distributed to such holders in connection with the
Restructuring.
(a) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares of Old Common Stock which
such person has the right to acquire within 60 days following March
16, 1998.
(b) As of March 16, 1998, there were 14,964,608 shares outstanding,
excluding those shares held by or for the account of the Company. For
purposes of computing the percentage of outstanding shares of Old
Common Stock held by each person or group of persons named above, any
security which such person or persons has the right to acquire within
60 days following March 16, 1998 is deemed to be outstanding, but is
not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(c) This amount reflects Old Common Stock beneficially owned by DDJ
Capital Management, LLC as of April 20, 1998.
(d) This amount includes 5,924,352 shares beneficially owned by Apollo and
1,300 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing general partner of
which is Apollo Advisors, L.P. Mr. Falk is a principal of Apollo
Advisors, L.P. He disclaims beneficial ownership of any shares of Old
Common Stock held by Apollo.
(e) This amount represents 2,200 shares issuable upon the exercise of
stock options.
(f) This amount includes 5,924,352 shares beneficially owned by Apollo and
1,600 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing general partner of
which is Apollo Advisors, L.P. Mr. Katz is an officer of Apollo
Advisors, L.P. He disclaims beneficial ownership of any shares of Old
Common Stock held by Apollo.
(g) This amount represents 2,200 shares issuable upon the exercise of
stock options.
(h) This amount includes 45,000 shares held directly and 100,000 shares
issuable upon the exercise of stock options.
(i) This amount includes 4,000 shares held directly and 2,200 shares
issuable upon the exercise of stock options.
(j) This amount includes 424,280 shares held directly by Mr. Rodgers,
1,300 shares issuable upon the exercise of stock options, 2,284 shares
held through the Company's Long Term Savings and Investment Plan (the
"Savings Plan") and 5,923 shares held by the Margaret S. Vickery
Trust, of which Mr. Rodgers is a co-trustee. As to the shares held by
the Margaret S. Vickery Trust, Mr. Rodgers shares voting and
investment power with a co-trustee. He disclaims beneficial ownership
with respect to the shares held by the Trust.
(k) This amount includes 11,234 shares held directly and 5,200 shares
issuable upon the exercise of stock options.
(l) This amount includes 5,924,352 shares beneficially owned by Apollo and
2,200 shares issuable upon the exercise of stock options. The general
partner of Apollo is AIF II, L.P., the managing partner of which is
Apollo Advisors, L.P. Mr. Yorke is an officer of Apollo Advisors, L.P.
He disclaims beneficial ownership of any shares of Old Common Stock
held by Apollo.
(m) The 6,607,773 shares held by all directors and executive officers of
the Company as a group counts the 5,924,352 shares held by Apollo
(discussed in notes (d), (f) and (l) above) once. Such 6,607,773
shares include (i) 6,419,789 shares held directly by, or attributable
to, directors and executive officers, (ii) 2,284 shares held through
the Savings Plan by executive officers, and (iii) 185,700 shares
issuable upon the exercise of stock options held by all directors and
executive officers that are exercisable on, or may become exercisable
within sixty days of, March 16, 1997.
</FN>
</TABLE>
All of the outstanding voting securities of the Company's subsidiaries
are owned beneficially and (except for shares of certain foreign
subsidiaries of the Company owned of record by others to satisfy local
laws) of record by the Company.
The Company has never declared or paid and does not expect to declare
or pay dividends on the outstanding Old Common Stock. Restrictions
contained in the instruments governing the outstanding indebtedness of the
Company restrict its ability to provide funds that might otherwise be used
by the Company for the payment of dividends on the Old Common Stock. The
Company has fallen below the continued listing criteria of the NYSE for net
tangible assets available to common stock together with average net income
after taxes for the past three years. The Company has requested that the
NYSE waive compliance with such test until consummation of the Prepackaged
Restructuring. Should the Prepackaged Restructuring be consummated, the
Company expects to be in full compliance with all of the NYSE's
requirements for continued listing on the NYSE. The can be, however, no
assurance that the NYSE will waive compliance of such test.
XVII. MARKET PRICES OF THE SENIOR NOTES
The Senior Notes are traded in the over-the-counter market by certain
dealers who from time to time are willing to make a market in such
securities. Trading of the Senior Notes is, however, extremely limited.
Prices and trading volume of the Senior Notes in the over-the-counter
market are not reported and are difficult to monitor. To the extent that
Senior Notes are traded, prices may fluctuate widely depending on, among
other things, the trading volume and the balance between buy and sell
orders.
XVIII. APPLICATION OF SECURITIES ACT
A. THE SOLICITATION
Salant has registered under the Securities Act the offer to exchange
New Common Stock and Warrants for Senior Notes and Old Common Stock which
may be deemed to be made by Salant pursuant to the Solicitation.
B. ISSUANCE AND RESALE OF NEW SECURITIES UNDER THE PREPACKAGED PLAN
Section 1145 of the Bankruptcy Code generally exempts from
registration under the Securities Act (and any equivalent state securities
or "blue sky" laws) the offer of a debtor's securities under a Chapter 11
plan if such securities are offered or sold in exchange for a claim
against, or equity interest in, such debtor. In reliance upon this
exemption, the New Common Stock and Warrants to be issued on the Effective
Date as provided in the Prepackaged Plan generally will be exempt from the
registration requirements of the Securities Act, and state and local
securities laws. Accordingly, such securities may be resold without
registration under the Securities Act or other federal securities laws
pursuant to the exemption provided by Section 4(l) of the Securities Act,
unless the holder is an "underwriter" with respect to such securities, as
that term is defined in the Bankruptcy Code. In addition, such securities
generally may be resold without registration under state securities laws
pursuant to various exemptions provided by the respective laws of the
several states. However, recipients of securities issued under the
Prepackaged Plan are advised to consult with their own counsel as to the
availability of any such exemption from registration under state law in any
given instance and as to any applicable requirements or conditions to such
availability.
Section 1145(b) of the Bankruptcy Code defines "underwriter" under
section 2(11) of the Securities Act of 1933 as an entity who (A) purchases
a claim against, interest in, or claim for an administrative expense in the
case concerning, the debtor, if such purchase is with a view to
distribution of any security received or to be received in exchange for
such a claim or interest; (B) offers to sell securities offered or sold
under a plan for the holders of such securities; (C) offers to buy
securities offered or sold under a plan from the holders of such securities
if, such offer to buy is (i) with a view to distribution of such
securities, and (ii) under an agreement made in connection with the plan,
with the consummation of a plan, or with the offer or sale of securities
under a plan; or (D) is an issuer, as used in section 2(11) of the
Securities Act of 1933, with respect to such securities.
Notwithstanding the foregoing, statutory underwriters may be able to
sell securities without registration pursuant to the resale limitations of
Rule 144 under the Securities Act which, in effect, permits the resale of
securities received by statutory underwriters pursuant to a Chapter 11
plan, subject to applicable volume limitation, notice and manner of sale
requirements, and certain other conditions. Parties which believe they may
be statutory underwriters as defined in section 1145 of the Bankruptcy Code
are advised to consult with their own counsel as to the availability of the
exemption provided by Rule 144. For a description of the Registration
Rights Agreement, see Section X above, entitled "DESCRIPTION OF
REGISTRATION RIGHTS AGREEMENT."
There can be no assurance that an active market for any of the
securities to be distributed under the Prepackaged Plan will develop and no
assurance can be given as to the prices at which they might be traded.
BECAUSE OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A
PARTICULAR HOLDER MAY BE AN UNDERWRITER, SALANT MAKES NO REPRESENTATION
CONCERNING THE ABILITY OF ANY PERSON TO DISPOSE OF THE SECURITIES TO BE
DISTRIBUTED UNDER THE PREPACKAGED PLAN.
MOREOVER, SUCH SECURITIES, OR THE DOCUMENTS THAT ESTABLISH THE TERMS
AND PROVISIONS THEREOF, MAY CONTAIN TERMS AND LEGENDS THAT RESTRICT OR
INDICATE THE EXISTENCE OF RESTRICTIONS ON THE TRANSFERABILITY OF SUCH
SECURITIES.
SALANT RECOMMENDS THAT RECIPIENTS OF SECURITIES UNDER THE PREPACKAGED
PLAN CONSULT WITH LEGAL COUNSEL CONCERNING THE LIMITATIONS ON THEIR ABILITY
TO DISPOSE OF SUCH SECURITIES.
XIX. UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Balance Sheet as of
April 4, 1998 and the Unaudited Pro Forma Consolidated Statements of
Operations for the three month period ended April 4, 1998 and for the year
ended January 3, 1998 are based upon the historical financial position and
results of operations as of and for the periods then ended. The following
pro forma adjustments (based on the assumptions set forth below) give
effect to the Restructuring transactions, including (i) the issuance of
18,456,350 shares, after giving affect to the Reverse Split, of New Common
Stock to Noteholders, (ii) the issuance of 1,517,100 shares of New Common
Stock to Stockholders, after giving effect to the Reverse Split, which
includes 1,496,461 shares of New Common Stock to be issued upon
consummation of the Restructuring and 20,639 shares of New Common Stock
reserved for issuance in order to settle claim asserted in the 1990 Chapter
11 Case, and (iii) the issuance of Warrants representing the right to
purchase up to 2,216,979 shares, after giving effect to the Reverse Split,
of New Common Stock to Stockholders. The following Unaudited Pro Forma
Consolidated Balance Sheet as of April 4, 1998 includes pro forma
adjustments as if the Restructuring had been completed on that date. The
following Unaudited Pro Forma Consolidated Statement of Operations for the
three month period ended April 4, 1998 and the year ended January 3, 1998
includes pro forma adjustments as if the Restructuring had been completed
at December 29, 1996.
The pro forma adjustments are based on available information and upon
certain assumptions that the Company believes are reasonable under the
circumstances. The unaudited pro forma condensed consolidated financial
statements and accompanying notes should be read in conjunction with the
historical consolidated financial statements of the Company, including the
notes thereto, and the other information pertaining to the Company
appearing elsewhere in this Disclosure Statement or incorporated herein.
THESE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS ARE
PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED TO BE
INDICATIVE OF THE FINANCIAL CONDITIONS OR RESULTS OF OPERATIONS OF THE
COMPANY HAD THE TRANSACTIONS DESCRIBED THEREIN BEEN CONSUMMATED ON THE
RESPECTIVE DATES INDICATED AND ARE NOT INTENDED TO BE PREDICTIVE OF THE
FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF THE COMPANY AT ANY FUTURE
DATE OR FOR ANY FUTURE PERIOD.
<PAGE>
<TABLE>
<CAPTION>
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
HISTORICAL PRO FORMA PRO FORMA
APRIL 4, 1998 ADJUSTMENTS APRIL 4, 1998
------------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,683 $ $ 1,683
Accounts receivable, net 51,329 51,329
Inventories 97,274 97,274
Prepaid expenses and other current
assets 5,808 5,808
------------ ------------
Total current assets 156,094 156,094
Property, plant & equipment, net 25,743 25,743
Other assets 57,153 57,153
------------ ------------
$ 238,990 $ 238,990
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable $44,625 $44,625
Accounts payable 24,973 24,973
Reserve for business restructuring 1,582 1,582
Accrued salaries, wages and other
liabilities 18,568 (6,650) (b) 17,505
5,587 (c)
Current portion of long term debt 104,879 (104,879)(b) --
------------ ------------ -----------
Total Current Liabilities 194,627 (105,942) 88,685
Deferred Liabilities 5,354 5,354
Shareholders' equity:
Preferred stock -- --
Common stock 15,405 (234) (d) 20,227
(15,171) (e)
1,517 (e)
18,710 (b)
Additional paid-in capital 107,249 15,171 (e) 208,135
(1,517) (e)
6,100 (b)
86,719 (b)
(5,587) (c)
Deficit (78,532) (1,380) (d) (79,912)
Accumulated other comprehensive income (3,499) (3,499)
Treasury stock (1,614) 1,614 (d) --
------------ ------------- ------------
Total stockholders' equity 39,009 105,942 144,951
------------ ------------- ------------
$238,990 0 $238,990
============ ============= ============
</TABLE>
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 4, 1998
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
--------------- -------------- ---------------
<S> <C> <C> <C>
Net sales $ 84,887 $ $ 84,887
Costs of sales 67,977 67,977
-------- --------- --------
Gross profit 16,910 16,910
Selling, general and
administrative expenses (17,116) (17,116)
Royalty Income 1,121 1,121
Goodwill amortization (470) (470)
Other income, net 160 160
Reversal of Division
restructuring costs 61 61
--------- --------- ---------
Income from continuing
operations before interest,
income taxes and
extraordinary gain 666 666
Interest expense, net (3,960) 2,753 (f) (1,207)
-------- ------ --------
Income/(loss) from continuing
operations before income taxes (3,294) 2,753 (541)
Income taxes 3 -- (g) 3
-------- --------- -------
Income/(loss) from continuing
operations $ (3,297) $ 2,753 $ (544)
======== ========= ========
Basic earnings/(loss) per share
from continuing operations (0.22) $ 0.03
========= =========
Weighted average common stock
outstanding 15,170 20,227
======== =========
</TABLE>
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
--------------- --------------- --------------
<S> <C> <C> <C>
Net sales $396,832 $ $396,832
Costs of sales 312,358 312,358
-------- --------- --------
Gross profit 84,474 84,474
Selling, general and
administrative expenses (80,593) (80,593)
Royalty Income 5,596 5,596
Goodwill amortization (1,881) (1,881)
Other income, net 575 575
Division restructuring costs (2,066) (2,066)
-------- --------- --------
Income from continuing
operations before interest,
income taxes and
extraordinary gain 6,105 6,105
Interest expense, net (16,660) 11,226 (f) (5,434)
-------- --------- --------
Income/(loss) from continuing
operations before income taxes (10,555) 11,226 671
Income taxes 167 --- (g) 167
-------- --------- --------
Income/(loss) from continuing
operations (10,722) 11,226 504
======== ========= ========
Basic earnings/(loss) per share
from continuing operations $ (0.71) $ 0.02
========= =========
Weighted average common stock
outstanding 15,139 20,227
======== =========
</TABLE>
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
SALANT CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
(a) Presentation:
The Unaudited Pro Forma Consolidated Financial Statements assume that
the transactions contemplated by the Restructuring occurred on April 4,
1998 for purposes of the Unaudited Pro Forma Balance Sheet and
December 29, 1996 for purposes of the Unaudited Pro Forma Statements of
Operations.
(b) Represents (i) the Noteholders exchange of $104.879 million principal
amount of Senior Notes and $3.9 million of accrued interest thereon for
is 18,710,417 shares, after giving affect to the ten-for-one Reverse
Stock Split, of New Common Stock, and (ii) the issuance of Warrants,
representing the right to purchase up to 2,247,497 shares, after
giving affect to the ten-for-one Reverse Stock Split, of New Common
Stock, to Stockholders at a value of $6.1 million, using the
Black-Scholes option pricing formula, which incorporates such factors
as the relationship of the underlying stock's price to the strike
price of the Warrants and the time remaining until the Warrants
expire.
(c) Represents the expenses attributable to the restructuring activities
of the Company which are offset against stockholders equity.
(d) Represents the retirement of the Company's outstanding Treasury Stock.
(e) Represents the retirement of 15,171,000 shares Old Common Stock, which
includes 14,964,608 issued and outstanding shares and 206,392 shares
of Old Common Stock that have been reserved for issuance in order to
settle claims asserted in the 1990 Chapter 11 Case, and the issuance
of 1,517,100 shares of New Common Stock to Stockholders, thereby
giving effect to the ten-for-one Reverse Split, which includes
1,496,461 shares of New Common Stock to be issued upon consummation of
the Restructuring and 20,639 shares of New Common Stock to be reserved
for issuance in order to settle claims asserted in the 1990 Chapter 11
Case.
(f) Represents the elimination of interest expense relating to the
Company's existing Senior Notes.
(g) No tax provision was reflected due to the utilization of net operating
loss carryforwards.
XX. DESCRIPTION OF INDEBTEDNESS OF THE COMPANY
The following summary of the principal terms of certain of the
existing indebtedness of the Company does not purport to be complete and is
qualified in its entirety by reference to the documents governing such
indebtedness, including the definitions of certain terms therein, copies of
which have been filed or incorporated as exhibits to the Registration
Statement of which this Disclosure Statement is a part. Whenever particular
provisions of such documents are referred to herein, such provisions are
incorporated by reference, and the statements are qualified in their
entirety by such reference.
A. REVOLVING CREDIT AGREEMENT
The Company is a party to a Revolving Credit, Factoring and Security
Agreement, dated as of September 20, 1993, with CIT. The Credit Agreement
provides the Company with general working capital financing, in the form of
direct borrowings and letters of credit, up to the Maximum Credit (as
defined in the Credit Agreement), subject to an asset-based borrowing
formula. As collateral for borrowings under the Credit Agreement, the
Company has granted to CIT a security interest in substantially all of the
assets of the Company.
The Credit Agreement imposes a number of restrictive covenants that
affect the Company and its subsidiaries with respect to, among others
things: (i) creating liens; (ii) incurring indebtedness and contingent
obligations; (iii) paying dividends and redeeming capital stock; (iv)
merging and selling assets; (v) engaging in sale and lease back
transactions; (vi) making investments in other persons; (vii) engaging in
certain affiliate transactions; (viii) making capital expenditures; (ix)
selling accounts receivable; and (x) amending certain of its debt
instruments and making payment in respect of the obligations represented
thereby.
The Credit Agreement contains a number of events of default, including
the following: (i) failure to make payments of interest and principal when
due; (ii) material error in any representation or warranty or certificate
made under the Credit Agreement; (iii) failure of the Company to perform
any of its respective agreements under the Credit Agreement; (iv) a default
in the payment of any obligation of the Company or its subsidiaries on
indebtedness in excess of $750,000 owing to any one person other than CIT;
(v) entry of a judgment in excess of $750,000 in the aggregate and the same
remains undischarged for a period in excess of 30 days; (vi) certain events
of insolvency and bankruptcy of the Company or its subsidiaries; (vii)
certain events in respect of pension plans; (viii) the incurrence of
environmental liability; (ix) certain change of control events; and (x) a
material adverse change in the condition (financial or otherwise) of the
Company.
On March 2, 1998, the Company entered into the Forbearance Agreement
with CIT, wherein CIT (i) waived, as of January 3, 1998, the Company's
failure to meet the financial covenants related to stockholders' equity and
maximum loss, as set forth in the Credit Agreement; (ii) agreed to forbear
(subject to certain conditions) from exercising any of its rights or
remedies arising under the Credit Agreement arising from the Company's
failure to make the interest payment on the Senior Notes due and payable on
March 2, 1998; (iii) agreed to continue making loans, advances and other
financial accommodations to the Company subject to the terms and conditions
of the Forbearance Agreement; (iv) increased the borrowings allowed against
eligible inventory to 60%; (v) provided the Company with a discretionary $3
million seasonal overadvance; and (vi) reduced the Maximum Credit from $135
million to $120 million. Under the Forbearance Agreement, to the extent
that the Company fails to maintain certain levels of borrowing under its
asset-based borrowing formula, the Company is required to maintain a
certain minimum interest coverage ratio and is subject to a covenant
limiting the maximum loss the Company may incur in any twelve consecutive
calendar months. In consideration for CIT's entering into the Forbearance
Agreement, the Company agreed to pay CIT certain fees. See Section V.D.
above, entitled "BACKGROUND OF THE RESTRUCTURING -- THE WAIVER AND
FORBEARANCE UNDER THE CREDIT AGREEMENT." Under the Forbearance Agreement,
such agreement to forbear by CIT will terminate on July 1, 1998 or earlier
upon the happening of (a) the occurrence of any Event of Default (as
defined in the Credit Agreement) other than a Payment Default (as defined
in the Forbearance Agreement), or (b) the failure of the Company to execute
and deliver to CIT before June 1, 1998, (i) a commitment letter executed by
CIT providing for the agreement between CIT and the Company to enter into a
new $135 million syndicated credit facility (in replacement of the
financing and factoring arrangements provided by CIT pursuant to the Credit
Agreement) on terms and conditions satisfactory to CIT or (ii) a copy of a
commitment letter executed between another lender and the Company providing
for a credit facility to the Company which by its terms provides for
closing and funding thereof on or before July 1, 1998, and enabling the
Company upon such closing and funding to simultaneously terminate the
Credit Agreement and all other Financing Agreements (as defined in the
Credit Agreement) and to satisfy in full all of its then existing
Obligations (as defined in the Credit Agreement) to CIT; (c) the exercise
of any right or remedy with respect to any of the Collateral (as defined in
the Credit Agreement) by any holder of any Senior Notes or by the Trustee
under the Indenture; or (d) the payment of any interest on the Senior Notes
in respect of the Company's failure to make the March 2, 1998 interest
payment or otherwise.
In addition, the Forbearance Agreement creates two new Events of
Default under the Credit Agreement: (i) the termination of E&Y as business
consultant to the Company and the failure to replace E&Y with another
business consultant satisfactory to CIT within 5 business days, and (ii)
any event occurring after March 2, 1998 which materially and adversely
affects the Company's businesses.
B. THE SENIOR NOTES
The Company is the obligor on the Senior Notes outstanding pursuant to
the Indenture, dated September 20, 1993, as amended, between the Company
and Bankers Trust Company, as Trustee. Pursuant to the Indenture, the
Senior Notes bear interest at a rate of 10-1/2% per annum. As of March 2,
1998, the aggregate principal face amount of Senior Notes outstanding was
$104,879,000.
The Indenture requires that 100% of the principal be repaid on
December 31, 1998. The Indenture also requires the Company to pay interest
semi-annually on the last day of February and August of each year,
commencing February 28, 1994. In addition, the Indenture also requires the
Company to use a portion of the proceeds from certain asset sales to pay
amounts outstanding under the Senior Notes.
The relative priority of liens in and upon the Company's collateral as
between CIT and the Noteholders is governed by the Intercreditor Agreement,
dated September 20, 1993 (the "Intercreditor Agreement"), by and between
CIT and Bankers Trust Company, as Trustee.
Pursuant to the Intercreditor Agreement, (i) CIT has a first priority
lien upon all of the Company's accounts, chattel paper, instruments,
documents (other than chattel paper, instruments and documents constituting
general intangibles), inventory, equipment, books and records and real
property (other than two parcels (the "Excepted Property")) and any
proceeds of the foregoing (collectively, the "CIT Priority Collateral"),
and (ii) the Noteholders have a first priority lien upon all of the
Company's general intangibles, certain pledged stock, the Excepted Property
and any proceeds of the foregoing (collectively, the "Noteholder Priority
Collateral"). In addition, CIT holds a junior lien on all of the Noteholder
Priority Collateral and the Noteholders hold a junior lien on all of the
CIT Priority Collateral. However, the Intercreditor Agreement provides that
upon a written declaration by CIT that an Event of Default under the Credit
Agreement has occurred and all obligations thereunder are due and payable
and an exercise by CIT of its rights and remedies, CIT is entitled to the
first $15 million of proceeds from the Company's general intangibles (the
"CIT Intangibles Limited Priority"). Under the agreement, the CIT
Intangibles Limited Priority is of no further force and effect (i) from and
after the release by CIT of its lien upon any of the CIT Priority
Collateral (other than any such release in consideration of the
contemporaneous delivery to CIT of all of the net proceeds arising from the
sale, transfer or other disposition of such released CIT Priority
Collateral and the application of such net Proceeds by CIT to payment to
such extent of the then outstanding CIT Obligations) or (ii) in the event
that the Company refinances the CIT Obligations without liens on all of the
CIT Priority Collateral. The Intercreditor Agreement also provides that,
except as set forth in the immediately preceding sentence with respect to
the CIT Intangibles Limited Priority, the priority of liens set forth in
that agreement "shall not be altered or otherwise affected by any
modification, renewal, restatement, extension or refinancing" of any
obligations owed to CIT or the Noteholders.
The Indenture imposes a number of restrictive covenants that affect
the Company and its Subsidiaries with respect to, among other things: (i)
incurring indebtedness; (ii) creating liens; (iii) merging and selling
assets; (iv) engaging in certain intercompany transactions; (v) permitting
changes of control to occur; and (vi) engaging in transactions with
stockholders and affiliates.
The Indenture contains a number of events of default, including the
following: (i) failure to make payments of interest when due, and the
continuation of such failure for 30 days; (ii) failure to pay principal
when due; (iii) default in the payment of any obligation of the Company or
any of its Subsidiaries on indebtedness in the aggregate principal amount
of $3,000,000 or more; (iv) failure of the Company to comply with any of
its covenants or agreements under the Indenture; (v) entry of a judgment in
excess of $3,000,000; and (vi) certain events of insolvency and bankruptcy
of the Company of any and its Subsidiaries.
On March 2, 1998, the Company elected not to pay the interest payment
of $5.5 million that was due and payable under the Senior Notes, subject to
a 30 day grace period. Because the Company elected not to pay the interest
due on the Senior Notes by the expiration of the applicable grace period,
an event of default has occurred with respect to the Senior Notes entitling
the Noteholders to accelerate the maturity thereof. Pursuant to the Letter
Agreement, Magten has, in accordance with Section 6.5 of the Indenture,
caused a written direction to be provided to the Trustee, to forbear during
the term of the Letter Agreement from taking any action under the Indenture
in connection with the failure by the Company to make the interest payment
on the Senior Notes that was due and payable on March 2, 1998. On April 8,
1998 the Trustee issued a Notice of Default stating that as a result of the
Company's failure to make the interest payment due on the Senior Notes, an
event of default under the Indenture had occurred on April 1, 1998. Holders
of at least 25% in the aggregate principal face amount of the Senior Notes
may accelerate all outstanding indebtedness under the Senior Notes pursuant
to the terms of the Indenture, and in the event that Stockholders fail to
approve the Restructuring Proposals and the Company does not immediately
seek to implement the Restructuring through the Prepackaged Plan, such an
acceleration of outstanding indebtedness under the Senior Notes cold result
in the Company becoming subject to a proceeding under Federal bankruptcy
laws without having solicited acceptances for the Prepackaged Plan prior to
the commencement of such a proceeding.
XXI. FINANCIAL PROJECTIONS AND ASSUMPTIONS USED
A. GENERAL ASSUMPTIONS
The projected financial statements ("Projections") should be read in
conjunction with the assumptions, qualifications, limitations and
explanations set forth herein, the selected historical financial
information and the other information set forth in Section III above,
entitled "SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION" as set
forth in this Disclosure Statement.
The Company does not, as a matter of course, make public projections
of their anticipated financial position or results of operations.
Accordingly, the Company (including Reorganized Salant) does not anticipate
that they will, and disclaim any obligation to, furnish updated projections
to holders of Claims or Interests prior to the Effective Date or to
stockholders after the Effective Date, or to include such information in
documents required to be filed with the Commission, or otherwise make such
information public.
The Projections reflect numerous assumptions, including various
assumptions with respect to the anticipated future performance of the
Company, industry performance, general business and economic conditions and
other matters, some of which are beyond the control of the Company. In
addition, unanticipated events and circumstances may affect the actual
financial results of Reorganized Salant. THEREFORE, WHILE THE PROJECTIONS
ARE NECESSARILY PRESENTED WITH NUMERICAL SPECIFICITY, THE ACTUAL RESULTS
ACHIEVED THROUGHOUT THE YEARS 1998 - 2000 ("PROJECTED PERIOD") MAY VARY
FROM THE PROJECTED RESULTS. THESE VARIATIONS MAY BE MATERIAL. ACCORDINGLY,
NO REPRESENTATION CAN BE MADE OR IS MADE WITH RESPECT TO THE ACCURACY OF
THE PROJECTIONS OR THE ABILITY OF THE COMPANY TO ACHIEVE THE PROJECTED
RESULTS. See Section XIV above, entitled "RISK FACTORS" for a discussion of
certain factors that may affect the future financial performance of the
Company and of the various risks associated with the securities of the
Company to be issued pursuant to the Prepackaged Plan.
The Projections have been prepared by the Company's management, and
while it believes that the assumptions underlying the projections for the
Projected Period, when considered on an overall basis, are reasonable in
light of current circumstances, no assurance can be given or is given that
the Projections will be realized. The Projections were not prepared in
accordance with standards for projections promulgated by the American
Institute of Certified Public Accountants or with a view to compliance with
published guidelines of the Securities and Exchange Commission regarding
projections or forecasts. The Projections have not been audited or compiled
by the Company's independent auditors.
Neither the Company's independent auditors, nor any other independent
accountants or financial advisors, have compiled, examined or performed any
procedures with respect to the projected consolidated financial information
contained herein, nor have they expressed any opinion or any other form of
assurance on such information or its achievability, and assume no
responsibility for, and disclaim any association with, the projected
financial information.
HOLDERS OF CLAIMS AND INTERESTS MUST MAKE THEIR OWN DETERMINATIONS AS
TO THE REASONABLENESS OF SUCH ASSUMPTIONS AND THE RELIABILITY OF THE
PROJECTIONS IN REACHING THEIR DETERMINATIONS OF WHETHER TO ACCEPT OR REJECT
THE PLAN.
Principal Assumptions
The Projections are based upon forecasts of operating results during
the Projected Period. The following is a listing of assumptions that were
used to develop the Projections.
1) The Projections assume an Effective Date of July 1, 1998.
2) The Projections assume that the Company will continue to operate
without significant changes to it current structure.
3) The Projections assume that the current economic environment
continues throughout the Projected Period.
4) The Projections assume that no unforeseen national or
international events will occur during the Projected Period that
would cause the retail industry to be adversely impacted.
In addition to the aforementioned assumptions, the Projections are
based on numerous detailed operating assumptions. The Projections assume
the successful implementation of the Company's Three-Year Business Plan.
The table below summarizes the projected operating statistics that
management believes are significant and upon which the financial results of
the Reorganized Salant will depend during the Projected Period.
ACTUAL
1997 1998 1999 2000
---- ---- ---- ----
Net Sales (Millions) $395.1 $383.6 $405.0 $448.9
Total Gross Margin as a
% of Sales 21.4% 24.3% 25.4% 26.3%
Total Operating Expenses
as a % of Total Sales 20.3% 20.1% 20.2% 19.5%
Sales
During the Projected Period, sales are assumed to increase from $395.1
million in fiscal year 1997 to $448.9 million in fiscal year 2000. The
assumed increase in sales during the Projected Period is based on increases
in sales to existing customers, the introduction of new customers and, the
certain new product line offerings.
Gross Margin
The Gross Margin presented in the Projections includes cost of
merchandise and certain design, manufacturing and distribution costs. The
overall level of Gross Margin as a percentage of net sales is expected to
increase over the Projected Period, primarily as a result of a change in
the sales mix and an improvement related to certain manufacturing
processes.
Operating Expenses
Expenses are forecast based upon existing expense structures adjusted
for increases in sales and changes relating to the implementation of a new
management information system structure. In conjunction with the Company's
Three-Year Business Plan, management has introduced various initiatives
that have streamlined its operations and reduced overhead costs. It is
assumed that expenses will increase in total dollar amount during the
Projected Period from $80.1 million in fiscal year 1997 to $87.7 million in
fiscal year 2000. However, expenses as a percentage of sales ("Operating
Expenses/Net Sales") is assumed to decrease during the Projected Period
from 20.3% in fiscal year 1997 to 19.5% in fiscal year 2000.
Management intends to implement several new initiatives which
management believes will further benefit the Company's operations and will
help reduce expenses to the assumed levels.
Working Capital
Working capital has been forecast based upon the Company's experience
and expectations in the marketplace and are consistent with the trends that
the Company is currently experiencing.
Capital Expenditures
The Projections assume a significant reinvestment of capital into the
Company over the Projected Period. The main areas of focus are management
information systems, manufacturing and distribution. Management believes
that these expenditures will substantially enhance operating efficiency,
provide a platform for continued growth and are necessary to achieve the
levels of profitability in the Projection.
Income Taxes
The Company believes that the transactions contemplated by the
restructuring will cause a substantial limitation of the use of the net
operating loss carryovers ("NOLs") pursuant to Section 382 of the Tax Code.
A combined federal and state income tax rate of 40% has been assumed in
calculating the income taxes to be paid for each of the projected years.
B. THE THREE-YEAR BUSINESS PLAN
The summary that follows is not intended to be complete and is
qualified in its entirety by the actual terms of the Three-Year Business
Plan.
In connection with the Company's efforts to restructure, in the latter
part of Fiscal 1997 and the beginning of 1998, the Company developed the
Three-Year Business Plan. Under the Three-Year Business Plan, the Company
intends to, among other things: (i) grow its currently profitable branded
businesses with its existing labels such as Perry Ellis, John Henry and
Manhattan; (ii) expand its branded menswear business with new licensed
labels; (iii) expand its private brand programs such as Sears' Canyon River
Blues denim and Khaki programs; (iv) develop strategies designed to return
the Company's Children Group to historical levels of profitability; (v)
implement procedures designed to improve operational efficiencies in
distribution, manufacturing and information systems; and (vi) leverage the
overhead structure of the Company.
While the Three-Year Business Plan contemplates the Company
maintaining each business segment and major line of business through the
three year period, the Company will periodically review each such business
segment and major line of business in order to determine whether each
aspect of the Company's business is (i) performing as budgeted (ii)
consistent with the Company's strategic goals, and (iii) conducive to
creating operating profits in order to maximize shareholder value. As a
result of such periodic reviews the Company may determine to refocus
capital to different aspects of its business, sell assets and/or exit
certain businesses.
As part of the Three-Year Business Plan, the Company developed
projected financial information for each of fiscal years 1998, 1999 and
2000.
Additional information relating to the principal assumptions used in
preparing the Projections is set forth below. See Section XIV herein
entitled "RISK FACTORS" for a discussion of various factors that could
materially affect the Company's financial condition, results of operations,
business, prospects and securities.
PROJECTED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS)
Fiscal Year Ending Dec. 31,
-----------------------------
1998 1999 2000
-------- -------- --------
Net sales $383,550 $405,002 $448,966
Cost of goods sold (290,375) (302,307) (330,834)
-------- -------- --------
Gross profit 93,175 102,695 118,132
Selling, general and administrative (77,193) (81,903) (87,695)
Royalty income 4,414 4,398 4,063
Goodwill amortization (1,881) (1,881) (1,881)
Division restructuring costs (5,425) 0 0
-------- -------- --------
Income from continuing operations before
interest and income taxes 13,090 23,309 32,619
Interest expense, net (6,615) (4,262) (3,418)
-------- -------- --------
Income from continuing operations before
income taxes 6,475 19,047 29,201
Income taxes (2,590) (7,619) (11,680)
-------- -------- --------
Net income $3,885 $11,428 $17,521
======== ======== ========
PROJECTED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
----------------------------------
1998 1999 2000
-------- -------- --------
ASSETS
CURRENT ASSETS:
Cash $ 2,218 $ 2,218 $ 2,218
Accounts Receivable (Net) 60,019 60,465 65,623
Inventories (Net) 96,403 98,488 104,414
Prepaid Expenses 3,910 3,954 4,215
-------- -------- --------
TOTAL CURRENT ASSETS 162,549 165,126 176,471
Net Fixed Assets 30,943 31,184 31,833
Other Assets 55,035 51,854 48,573
-------- -------- --------
TOTAL ASSETS $248,527 $248,164 $256,877
======== ======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Loan Payable $ 43,136 $ 29,897 $ 18,553
Accounts Payable 28,746 30,063 31,837
Accrued Expenses 11,416 11,546 12,308
Other 2,906 2,906 2,906
-------- -------- --------
TOTAL CURRENT LIABILITIES 86,204 74,412 65,605
Other (deferred liab) 5,579 5,579 5,579
-------- -------- --------
TOTAL LIABILITIES 91,783 79,991 71,184
TOTAL SHAREHOLDERS' EQUITY 156,745 168,173 185,694
======== ======== ========
TOTAL LIABILITIES AND EQUITY $248,527 $248,164 $256,877
======== ======== ========
PROJECTED STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Year Ending Dec. 31,
--------------------------------
1998 1999 2000
-------- -------- --------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income $ 3,885 $ 11,428 $ 17,521
Adjustment to reconcile net income to net
cash used in operating activities:
Accretion of interest on senior
secured note 5,533 0 0
Amortization of intangibles 3,004 3,181 3,281
Depreciation 7,188 7,581 7,187
Changes in operating assets and liabilities
Net accounts receivable (1,364) (447) (5,158)
Inventory 235 (2,085) (5,927)
Prepaids and other assets 307 (45) (261)
Accounts payable 1,000 1,317 1,775
Accrued expenses (211) 130 762
Other current liabilities (4,394) 0 0
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES 15,183 21,060 19,180
INVESTING ACTIVITIES:
Purchase of fixed assets, net (11,692) (7,821) (7,836)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (11,692) (7,821) (7,836)
FINANCING ACTIVITIES:
(Repayments) increase of loan payable (3,491) (13,239) (11,344)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (3,491) (13,239) (11,344)
--------- --------- ---------
Net (decrease) increase in cash and
cash equivalents 0 0 0
Cash and cash equivalents, beginning of year 2,218 2,218 2,218
========= ========= =========
Cash and cash equivalents, end of year $ 2,218 $ 2,218 $ 2,218
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS:
Conversion of debt to common stock $ 110,555
</TABLE>
XXII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PREPACKAGED PLAN
The following is a summary of certain Federal income tax consequences
expected to result from the consummation of the Prepackaged Plan to
Noteholders, Stockholders, and Salant and is for general information
purposes only. This summary is based on the Federal income tax law now in
effect, which is subject to change, possibly retroactively. This summary
does not discuss all aspects of Federal income taxation which may be
important to particular Noteholders or Stockholders in light of their
individual investment circumstances, including Stockholders who acquired
their Old Common Stock pursuant to the exercise of stock options or
otherwise as compensation, or to Noteholders or Stockholders subject to
special tax rules (e.g., financial institutions, broker-dealers, insurance
companies, tax-exempt organizations, and foreign taxpayers). In addition,
this summary does not address state, local or foreign tax consequences.
This summary assumes that Holders hold their Senior Notes or Old Common
Stock, and will hold their New Common Stock and, in the case of Holders of
Old Common Stock, Warrants, as "capital assets" (generally, property held
for investment) under the Tax Code. No rulings have been or will be
requested from the Internal Revenue Service with respect to any of the
matters discussed herein, and no opinion of counsel has been sought or
obtained by Salant with respect thereto. NOTEHOLDERS AND STOCKHOLDERS ARE
URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC FEDERAL, STATE,
LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES RESULTING FROM THE
CONSUMMATION OF THE PREPACKAGED PLAN.
A. FEDERAL INCOME TAX CONSEQUENCES TO SALANT
1. Cancellation Of Indebtedness Income
-----------------------------------
Salant will realize cancellation of indebtedness ("COI") income, for
Federal income tax purposes, in an amount equal to the excess, if any, of
the adjusted issue price of the Senior Notes (including any accrued but
unpaid interest) over the fair market value of the New Common Stock
received by Noteholders pursuant to the Prepackaged Plan. The Company has
approximately $55 million of operating losses and net operating loss
carryovers ("NOLs") which are available to offset any COI income that may
be recognized. COI income that is realized in a case under the Bankruptcy
Code (i.e., pursuant to the Prepackaged Plan) will not be included in
Salant's gross income under Section 108 of the Tax Code. Salant will be
required, however, to reduce certain of its tax attributes, such as its
operating losses and NOLs, certain tax credits, and the basis of its
assets, by the amount of the COI income that is not so included.
2. Limitation On Net Operating Loss Carryovers
-------------------------------------------
As a result of the confirmation and consummation of the Prepackaged
Plan, Salant will undergo an "ownership change" (generally, a 50% change in
ownership) for purposes of Section 382 of the Tax Code and, accordingly,
Salant will be limited in its ability to use its NOLs and certain tax
credit carryforwards (the "Section 382 Limitation") to offset future
taxable income. The Section 382 Limitation will generally be determined by
multiplying the value of Salant's equity before the ownership change by the
long-term tax-exempt rate (currently 5.04%). Because Salant will undergo an
ownership change in a case under the Bankruptcy Code, however, Salant
anticipates that the value of its equity for purposes of determining the
Section 382 Limitation would be adjusted to reflect the increase in such
value arising from the cancellation of the Senior Notes.
B. FEDERAL INCOME TAX CONSEQUENCES TO NOTEHOLDERS
1. General
-------
The Prepackaged Plan, if confirmed and consummated as described
herein, should constitute a tax-free recapitalization for purposes of the
Tax Code. Accordingly, for Federal income tax purposes:
(i) no gain or loss will be recognized by a Noteholder upon the
receipt of New Common Stock pursuant to the Prepackaged Plan, except
that the holder will (a) recognize gain or loss to the extent of any
cash received in lieu of a fractional share or fractional Warrant, and
(b) recognize income to the extent of the value of the New Common
Stock received pursuant to the Prepackaged Plan which is allocable to
any interest on the Senior Notes that accrued on or after the
beginning of the holder's holding period and which was not previously
included in the holder's taxable income (the "Accrued Interest");
(ii) the aggregate tax basis of the New Common Stock received by
a Noteholder pursuant to the Prepackaged Plan will be the same as the
aggregate tax basis of the Senior Notes exchanged therefor (reduced by
any basis apportionable to any fractional share settled in cash as
described above), except that the basis of the shares of New Common
Stock received (or fractions thereof) which are treated as
attributable to Accrued Interest will be equal to the fair market
value of such shares (or fractions thereof) on the Effective Date; and
(iii) the holding period of the New Common Stock in the hands of
a Noteholder will include the holding period of the Senior Notes
exchanged therefor, except that the holding period of the shares of
New Common Stock (or fractions thereof) treated as attributable to
Accrued Interest will begin the day after the Effective Date.
2. Market Discount
---------------
Noteholders who acquired their Senior Notes at a "market discount"
subsequent to the initial offering of the Senior Notes may be required to
carry over any accrued (but unrecognized) market discount to the New Common
Stock received pursuant to the Prepackaged Plan, which discount will be
recognized as ordinary income upon disposition of such New Common Stock.
C. FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS
1. General
-------
In general, the receipt of New Common Stock and Warrants by
Stockholders pursuant to the Prepackaged Plan will not be a taxable event,
except that Stockholders will recognize gain or loss to the extent of any
cash received in lieu of a fractional share or a fractional Warrant.
Stockholders will be required to allocate the adjusted tax basis in their
Old Common Stock (reduced by any basis apportionable to any fractional
share settled in cash as described above) between the New Common Stock and
the Warrants on the basis of their respective fair market values on the
date of distribution. The holding period of the New Common Stock and the
Warrants will include the holding period of the Old Common Stock.
2. Disposition
-----------
Upon a sale, exchange, or other disposition of the New Common Stock or
the Warrants, a Stockholder will recognize a capital gain or loss in an
amount equal to the difference between the amount realized and the
Stockholder's adjusted tax basis in such New Common Stock or Warrants. Such
gain or loss will be long-term (and subject to taxation at reduced rates)
if the New Common Stock or Warrants have been held for more than one year,
subject to further reduction in the case of shares of New Common Stock or
Warrants held for more than 18 months.
3. Exercise Or Lapse Of Warrants
-----------------------------
Upon the exercise of a Warrant, a Stockholder will not recognize gain
or loss and will have a tax basis in the New Common Stock received equal to
the tax basis in such holder's Warrant plus the exercise price thereof. The
holding period for the Warrant Shares received pursuant to the exercise of
the Warrant will begin on the day following the date of exercise and will
not include the period that the holder held such Warrant.
In the event that a Warrant lapses unexercised, a holder will
recognize a long-term capital loss in an amount equal to his tax basis in
such Warrant.
4. Adjustment To Exercise Price
----------------------------
If at any time Reorganized Salant makes a distribution of property to
shareholders that would be taxable to such shareholders as a dividend for
Federal income tax purposes and, in accordance with the antidilution
provisions of the Warrants, the Exercise Price is decreased, the amount of
such decrease may be deemed to be the payment of a taxable dividend to
holders of the Warrants. For example, a decrease in the Exercise Price in
the event of distributions of cash or indebtedness of Reorganized Salant
will generally result in deemed dividend treatment to holders, but
generally a decrease in the event of stock dividends or the distribution of
rights to subscribe for shares of New Common Stock will not.
XXIII. FEASIBILITY OF THE PREPACKAGED
PLAN AND THE BEST INTERESTS OF CREDITORS TEST
A. CONFIRMATION HEARING
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold a hearing on confirmation of a plan. As promptly as
practicable after the commencement by Salant of the Chapter 11 Case, Salant
will request the Bankruptcy Court to schedule a Confirmation Hearing.
Notice of the Confirmation Hearing will be provided to all known creditors
and equity holders or their representatives. The Confirmation Hearing may
be adjourned from time to time by the Bankruptcy Court without further
notice except for an announcement of the adjourned date made at the
Confirmation Hearing or any subsequent adjourned confirmation hearing.
Section 1128(b) of the Bankruptcy Code provides that any
party-in-interest may object to confirmation of the Prepackaged Plan.
Pursuant to the Bankruptcy Rules, any objection to confirmation of the
Prepackaged Plan must be in writing, must conform to the Bankruptcy Rules,
must set forth the name of the objector and, the nature and amount of
claims or interests held or asserted by the objector and against Salant's
estate or property, and the basis for the objection and the specific
grounds therefor, and must be filed with the Bankruptcy Court, with a copy
to Chambers, together with proof of service thereof, and served upon (i)
Fried, Frank, Harris, Shriver & Jacobson, Attorneys for Salant, One New
York Plaza, New York, New York 10004, Attention: Brad Eric Scheler, Esq.
and Lawrence A. First, Esq., (ii) The United States Trustee for the
Southern District of New York, 80 Broad Street, Third Floor, New York, New
York 10004, Attention: Carolyn S. Schwartz, Esq., (iii) Hebb & Gitlin,
Attorneys for Magten, One State Street, Hartford, Connecticut 06103-3178,
Attention: Evan Flaschen, Esq., and (iv) the attorneys for any official
committee of unsecured creditors that may be appointed in Salant's Chapter
11 Case, so as to be received no later than the date and time designated in
the notice of the Confirmation Hearing.
Objections to confirmation of the Prepackaged Plan are governed by
Bankruptcy Rule 9014. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED
AND FILED, IT MAY NOT BE CONSIDERED BY THE BANKRUPTCY COURT.
At the Confirmation Hearing, the Bankruptcy Court will confirm the
Prepackaged Plan only if all of the following requirements of Section
1129(a) of the Bankruptcy Code are met:
1. The Prepackaged Plan complies with the applicable provisions of
the Bankruptcy Code.
2. Salant complies with the applicable provisions of the Bankruptcy
Code.
3. The Prepackaged Plan has been proposed in good faith and not by
any means forbidden by law.
4. Any payment made or to be made by Salant, or by an entity issuing
securities, or acquiring property under the Prepackaged Plan, for
services or for costs and expenses in, or in connection with, the
Chapter 11 Case or in connection with the Prepackaged Plan and
incident to the Chapter 11 Case has been approved by, or be
subject to the approval of, the Bankruptcy Court as reasonable.
5. Salant has disclosed the identity and affiliations of any
individual proposed to serve, after confirmation of the
Prepackaged Plan, as a director or officer of Reorganized Salant,
or a successor to Salant under the Prepackaged Plan, and the
appointment to or continuance in such office by such individual
must be consistent with the interests of creditors and interest
holders and with public policy. Salant has disclosed the identity
of any "insider" who will be employed or retained by Reorganized
Salant and the nature of any compensation for such "insider."
6. With respect to each Impaired Class of Claims or Interests, each
holder of a Claim or Interest in such Class has either accepted
the Prepackaged Plan or will receive or retain under the
Prepackaged Plan on account of such Claim or Interest property of
a value, as of the Effective Date, that is not less than the
amount that such holder would receive or retain if Salant were
liquidated on the Effective Date under Chapter 7 of the
Bankruptcy Code.
7. With respect to each Class of Claims or Interests, such Class has
either accepted the Prepackaged Plan or is not Impaired by the
Prepackaged Plan. If this requirement is not met, the Prepackaged
Plan may still be confirmed pursuant to Section 1129(b) of the
Bankruptcy Code. See Section XXIII.D. herein, entitled
"FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF
CREDITORS TEST -- NONCONSENTUAL CONFIRMATION."
8. Except to the extent that the Holder of a particular Claim has
agreed to a different treatment of its Claim, the Prepackaged
Plan provides that (i) Administrative Expenses will be paid in
full in Cash on the Effective Date, (ii) Allowed Priority Claims
will be paid in full in Cash on the Effective Date, or if the
Class of such Claims accepts the Prepackaged Plan, the
Prepackaged Plan may provide for deferred Cash payments, of a
value as of the Effective Date, equal to the Allowed Amount of
such Claims, and (iii) the holder of an Allowed Priority Tax
Claim will receive on account of such Claim deferred Cash
payments over a period not exceeding six years after the date of
assessment of such Claim, of a value, as of the Effective Date,
equal to the Allowed amount of such Claim.
9. If a Class of Claims is Impaired under the Prepackaged Plan, at
least one Class of Claims that is Impaired by the Prepackaged
Plan has accepted the Prepackaged Plan, determined without
including any acceptance of the Prepackaged Plan by any
"insider."
10. Confirmation of the Prepackaged Plan is not likely to be followed
by the liquidation, or the need for further financial
reorganization, of Salant or any successor of Salant under the
Prepackaged Plan.
11. All fees payable under Section 1930 of title 28 as determined by
the Bankruptcy Court at the Confirmation Hearing have been paid
or the Prepackaged Plan provides for the payment of all such fees
on the Effective Date.
12. The Prepackaged Plan provides for the continuation after the
Effective Date of payment of all Retiree Benefits (as defined in
Section 1114 of the Bankruptcy Code), at the level established
pursuant to subsection 1114(e)(1)(B) or 1114(g) of the Bankruptcy
Code at any time prior to confirmation of the Prepackaged Plan,
for the duration of the period Salant has obligated itself to
provide such benefits.
Salant believes that the Prepackaged Plan satisfies all of the
statutory requirements of Chapter 11 of the Bankruptcy Code. Certain of
these requirements are discussed in more detail below.
B. FEASIBILITY OF THE PREPACKAGED PLAN
In connection with confirmation of the Prepackaged Plan, Section
1129(a)(11) requires that the Bankruptcy Court find that confirmation of
the Prepackaged Plan is not likely to be followed by the liquidation or the
need for further financial reorganization of Salant. This is the so-called
"feasibility" test.
To support its belief in the feasibility of the Prepackaged Plan,
Salant has prepared the Projections for the years 1998 through 2000, which
Projections are a part of the Three-Year Business Plan. The professionals
have not performed an independent investigation of the accuracy or
completeness of the Projections. See Section XXI above, entitled "FINANCIAL
PROJECTIONS AND ASSUMPTIONS USED."
The Projections indicate that Reorganized Salant should have
sufficient cash flow to make the payments required under the Prepackaged
Plan on the Effective Date and to repay and service its debt obligations
and to maintain its operations. Accordingly, Salant believes that the
Prepackaged Plan complies with the standard of Section 1129(a)(11) of the
Bankruptcy Code. As noted in the Projections, however, Salant cautions that
no representations can be made as to the accuracy of the Projections or as
to Reorganized Salant's ability to achieve the projected results. Many of
the assumptions upon which the Projections are based are subject to
uncertainties outside the control of Salant. Some assumptions may not
materialize, and events and circumstances occurring after the date on which
the Projections were prepared may be different from those assumed or may be
unanticipated, and may adversely affect Salant's financial results. As
discussed elsewhere in this Disclosure Statement, there are numerous
circumstances that may cause actual results to vary from the projected
results, and the variations may be material and adverse. See Section XIV
above, entitled "RISK FACTORS" for a discussion of certain risk factors
that may affect financial feasibility of the Prepackaged Plan.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH
THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS OR THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE
COMMISSION REGARDING PROJECTIONS. FURTHERMORE, THE PROJECTIONS HAVE NOT
BEEN AUDITED BY SALANT'S INDEPENDENT CERTIFIED ACCOUNTANTS. ALTHOUGH
PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE BASED UPON A
VARIETY OF ASSUMPTIONS, SOME OF WHICH HAVE NOT BEEN ACHIEVED TO DATE AND
MAY NOT BE REALIZED IN THE FUTURE, AND ARE SUBJECT TO SIGNIFICANT BUSINESS,
LITIGATION, ECONOMIC, AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY
OF WHICH ARE BEYOND THE CONTROL OF SALANT. CONSEQUENTLY, THE PROJECTIONS
SHOULD NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY SALANT, OR ANY
OTHER PERSON, THAT THE PROJECTIONS WILL BE REALIZED. ACTUAL RESULTS MAY
VARY MATERIALLY FROM THOSE PRESENTED IN THE PROJECTIONS.
C. BEST INTERESTS TEST
As described above, the Bankruptcy Code requires that each holder of
an impaired claim or equity interest either (a) accepts the plan or (b)
receives or retains under the plan property of a value, as of the effective
date of the plan, that is not less than the value such holder would receive
or retain if Salant were liquidated under Chapter 7 of the Bankruptcy Code
on the Effective Date.
The first step in meeting this test is to determine the dollar amount
that would be generated from the liquidation of Salant's assets and
properties in the context of a Chapter 7 liquidation case. The total cash
available would be the sum of the proceeds from the disposition of Salant's
assets and the cash held by Salant at the time of the commencement of the
Chapter 7 case. The next step is to reduce that total by the amount of any
claims secured by such assets, the costs and expenses of the liquidation,
and such additional administrative expenses and priority claims that may
result from the termination of Salant's business and the use of Chapter 7
for the purposes of liquidation. Next, any remaining cash would be
allocated to creditors and shareholders in strict priority in accordance
with Section 726 of the Bankruptcy Code (see discussion below). Finally,
the present value of such allocations (taking into account the time
necessary to accomplish the liquidation) is compared to the value of the
property that is proposed to be distributed under the Prepackaged Plan on
the Effective Date.
Salant's costs of liquidation under Chapter 7 would include the fees
payable to a trustee in bankruptcy, as well as those which might be payable
to attorneys and other professionals that such a trustee may engage, plus
any unpaid expenses incurred by Salant during a Chapter 11 case and allowed
in the Chapter 7 case, such as compensation for attorneys, financial
advisors, appraisers, accountants and other professionals, and costs and
expenses of members of any statutory committee of unsecured creditors
appointed by the United States Trustee pursuant to Section 1102 of the
Bankruptcy Code and any other committee so appointed. In addition, claims
would arise by reason of the breach or rejection of obligations incurred
and executory contracts entered into by Salant both prior to, and during
the pendency of, the Chapter 11 Case.
The foregoing types of claims, costs, expenses, and fees and such
other claims which may arise in a liquidation case or result from a pending
Chapter 11 case would be paid in full from the liquidation proceeds before
the balance of those proceeds would be made available to pay pre-Chapter 11
priority and unsecured claims.
In applying the "best interests test," it is possible that claims and
equity interests in the Chapter 7 case may not be classified according to
the seniority of such claims and equity interests as provided in the
Prepackaged Plan. In the absence of a contrary determination by the
Bankruptcy Court, all pre-Chapter 11 unsecured claims which have the same
rights upon liquidation and would be treated as one class for purposes of
determining the potential distribution of the liquidation proceeds
resulting from Salant's Chapter 7 case. The distributions from the
liquidation proceeds would be calculated ratably according to the amount of
the claim held by each creditor. Therefore, creditors who claim to be
third-party beneficiaries of any contractual subordination provisions might
be required to seek to enforce such contractual subordination provisions in
the Bankruptcy Court or otherwise. Section 510 of the Bankruptcy Code
specifies that such contractual subordination provisions are enforceable in
a Chapter 7 liquidation case.
Salant believes that the most likely outcome of liquidation
proceedings under Chapter 7 would be the application of the rule of
absolute priority of distributions. Under that rule, no junior creditor
receives any distribution until all senior creditors are paid in full, with
interest, and no equity holder receives any distribution until all
creditors are paid in full with interest. Consequently, Salant believes
that in a Chapter 7 case, Holders of Senior Note Claims would likely
receive less than they would receive under the Prepackaged Plan and Holders
of Old Common Stock Interests and Other Interests would receive no
distributions of property.
After consideration of the effects that a Chapter 7 liquidation would
have on the ultimate proceeds available for distribution to creditors in a
Chapter 11 case, including (i) the increased costs and expenses of a
liquidation under Chapter 7 arising from fees payable to a trustee in
bankruptcy and professional advisors to such trustee, (ii) the erosion in
value of assets in a Chapter 7 case in the context of the expeditious
liquidation required under Chapter 7 and the "forced sale" atmosphere that
would prevail, (iii) the adverse effects on the salability of the capital
stock of the subsidiaries as a result of the departure of key employees and
the loss of major customers and suppliers, and (iv) substantial increases
in claims which would be satisfied on a priority basis or on a parity with
creditors in a Chapter 11 case, Salant has determined that confirmation of
the Prepackaged Plan will provide each creditor and equity holder with a
recovery that is not less than it would receive pursuant to a liquidation
of Salant under Chapter 7 of the Bankruptcy Code.
Moreover, Salant believes that the value of any distributions from the
liquidation proceeds to each class of allowed claims in a Chapter 7 case
would be the same or less than the value of distributions under the
Prepackaged Plan because such distributions in a Chapter 7 case may not
occur for a substantial period of time. In this regard, it is possible that
distribution of the proceeds of the liquidation could be delayed for a year
or more after the completion of such liquidation in order to resolve the
claims and prepare for distributions. In the event litigation were
necessary to resolve claims asserted in the Chapter 7 case, the delay could
be further prolonged.
THE FOLLOWING LIQUIDATION ANALYSIS IS AN ESTIMATE OF THE PROCEEDS THAT
MAY BE GENERATED AS A RESULT OF A HYPOTHETICAL CHAPTER 7 LIQUIDATION OF THE
ASSETS OF SALANT. THE LIQUIDATION ANALYSIS MAKES NUMEROUS ASSUMPTIONS WITH
RESPECT TO ASSET VALUATION, INDUSTRY PERFORMANCE, BUSINESS AND ECONOMIC
CONDITIONS, AND OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY'S
CONTROL. MOREOVER, THE METHODS AND ASSUMPTIONS USED IN PREPARING THE
LIQUIDATION ANALYSIS INVOLVE SIGNIFICANT ELEMENTS OF SUBSTANTIVE JUDGMENT
ON THE PART OF THE COMPANY AND MAY OR MAY NOT PROVE TO BE CORRECT. THE
LIQUIDATION ANALYSIS DOES NOT PURPORT TO BE A VALUATION OF SALANT'S ASSETS
AND IS NOT NECESSARILY INDICATIVE OF THE VALUES THAT MAY BE REALIZED IN AN
ACTUAL LIQUIDATION WHICH MAY BE SIGNIFICANTLY MORE OR LESS FAVORABLE THAN
THE ESTIMATES CONTAINED IN THE LIQUIDATION ANALYSIS.
SALANT CORPORATION
HYPOTHETICAL LIQUIDATION ANALYSIS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ESTIMATED
ASSETS ESTIMATED LIQUIDATION VALUE
AVAILABLE FOR % RECOVERY (UNAUDITED)
LIQUIDATION -------------------------- -------------------------
(UNAUDITED) LOW HIGH LOW HIGH NOTE
----------- --------- --------- --------- --------- ---------
ASSETS TO BE LIQUIDATED
<S> <C> <C> <C> <C> <C> <C>
Cash & Cash Equivalents $ 3,922 100.0% 100.0% $ 3,922 $ 3,922
Accounts Receivable 64,786 70.0% 80.0% 45,350 51,829 1
Inventory 95,231 84.4% 95.1% 53,353 61,083 2
Prepaid Expenses 3,590 45.0% 65.0% 1,616 2,334 3
Net Property & Equipment 25,215 5.0% 10.0% 4,500 7,000 4
Other Assets 57,240 24.1% 40.2% 13,800 23,000 5
---------- --------- ---------
Total Assets $ 249,984 122,541 149,169
==========
LESS: ADMINISTRATIVE AND PRIORITY CLAIMS
Merchandise Receipts During Liquidation Period (21,500) (21,500) 2
Wind-down Expenses (13,802) (10,802) 6
Trustee Fees (4,488) (2,238) 7
Professional Fees (Estimate) (5,000) (3,000)
Employee Severance and Related Costs (5,363) (4,197) 8
Prepetition Priority Tax Claim (326) (326)
Subtotal (2,000) (1,000)
--------- ---------
(51,667) (43,062)
--------- ---------
NET LIQUIDATION PROCEEDS AVAILABLE FOR DISTRIBUTION 70,879 106,105
LESS: SECURED CLAIMS
Pre-petition Lenders (58,562) (58,562) 9
--------- ---------
PROCEEDS AVAILABLE FOR DISTRIBUTION TO
SENIOR SECURED NOTEHOLDERS 12,312 47,453
SENIOR SECURED NOTEHOLDERS (114,067) (114,067) 10
RECOVERY % SENIOR SECURED NOTEHOLDERS 10.8% 41.7%
PROCEEDS AVAILABLE FOR DISTRIBUTION TO
GENERAL UNSECURED CREDITORS 0 0
GENERAL UNSECURED CREDITORS:
Accounts Payable, Trade (34,331) (34,331) 11
Lease Rejection Claims (10,013) (7,510) 12
Purchase Order Cancellation Claims (8,500) (6,375) 3
Pension Termination Costs (7,900) (7,900) 13
Contingency for Unrecorded Claims (2,000) (1,000)
--------- ---------
TOTAL UNSECURED CLAIMS $ (62,744) $ (57,116)
========= =========
RECOVERY PERCENT - GENERAL UNSECURED CREDITORS 0.0% 0.0%
RECOVERY TO EQUITY HOLDERS $ 0 $ 0
========= =========
</TABLE>
GENERAL ASSUMPTIONS
a) The Liquidation Analysis reflects the Company's estimates of the
proceeds that would be realized if the Company were to be liquidated
in accordance with Chapter 7 of the Bankruptcy Code and is based on
the Company's projected assets and liabilities as of July 1, 1998
(which for purposes of this Liquidation Analysis is assumed to be the
date that a hypothetical Chapter 7 case would be commenced).
Underlying the Liquidation Analysis are a number of estimates and
assumptions that, although developed and considered reasonable by
management, are inherently subject to uncertainties beyond the control
of the Company and its management.
b) The Liquidation Analysis assumes that the wind-down of the Company's
estate would be completed within twelve months (the "Liquidation
Period") and the sale of the assets would be completed during the
first five months of the Liquidation Period. The Liquidation Period
would allow the Company to sell its inventories, wind down operational
activities, complete the claims reconciliation process and make
distributions to parties-in-interest.
c) The wind-down costs in the liquidation analysis include operating
expenses and other costs considered likely to be incurred during the
Liquidation Period. Significant liquidation activities would include
the liquidation of inventories, collection of accounts receivable,
negotiation for the sale of real estate and/or real estate leases,
equipment located in the Company's manufacturing facilities and
distribution centers, owned trademarks and other remaining assets.
d) During the first three months of the Liquidation Period, staff
reductions would take place for IS programmers, buying, selling,
manufacturing and administrative staff, and certain management
positions. During that period, certain IS, financial, legal and
administration personal would be retained to manage the wind down and
plan the inventory liquidation.
e) All assets are assumed to be sold for cash or cash equivalents, and
all distributions are assumed to be completed on or about June 30,
1999.
f) The claim amounts reflected in the liquidation analysis are based on
the Company's estimate of claims which are expected to be incurred as
a result of the liquidation and the Company's estimate of claims which
would exist as of July 1, 1998.
NOTES TO LIQUIDATION ANALYSIS
The following notes describe the significant assumptions that are
reflected in the Liquidation Analysis.
NOTE 1 - ACCOUNTS RECEIVABLE
Accounts receivable balances primarily include amounts due from
customers. The recovery of receivables is based on an estimate by the
Company's management of collection, given such factors as the aging of the
receivables and the time and effort to make inquires. For purposes of this
Liquidation Analysis, the high estimate assumes 80% recovery on the
accounts receivable balance and the low estimate assumes 70% recovery on
the accounts receivable balance which includes a provision for chargebacks.
NOTE 2 - INVENTORY
It is assumed that, upon conversion of the case to a Chapter 7
liquidation, the Company would stop entering into new purchase commitments
and would mitigate purchase order cancellation claims by receiving as many
orders as is practical during the Liquidation Period.
The cost of on order merchandise for which delivery was accepted by
the Company during the Liquidation Period represents an administrative
expense of the estate. It is assumed that claims arising from the
cancellation of purchase orders would approximate 100% of the cost of the
orders in the low recovery scenario and 75% in the high recovery scenario.
It is assumed that the inventory would be liquidated in the Company's
current channels of distribution over a five month period.
The liquidation analysis reflects recoveries on inventory after
adjustments for defective merchandise, shrink, markdowns and other
allowances incurred during the Liquidation Period.
NOTE 3 - PREPAID EXPENSES
Prepaid expenses consist mostly of prepaid rent and other expenses.
The low estimate assumes a 45% recovery in a liquidation. The high estimate
assumes a possible recovery of 65% of the prepaid expense balance.
NOTE 4 - PROPERTY AND EQUIPMENT
Recoveries for owned real estate is based upon an estimate by the
Company's management of the current market for such properties assuming a
forced liquidation sale. Machinery and equipment and lease hold
improvements are assumed to have minimal value in liquidation.
NOTE 5 - OTHER ASSETS
Primarily relates to the value of owned trademarks and tradenames,
which have been valued based upon a multiple of net royalty income.
NOTE 6 - WIND-DOWN COSTS
The estimate for wind-down costs was based on expense levels of the
Company in February 1998. The liquidation process was assumed to commence
immediately upon the filing of these cases. Such expenses were forecast by
department assuming the wind down of each department, as appropriate,
during the Liquidation Period.
Solely for purposes of Liquidation Analysis it was estimated that
under the low recovery scenario, wind-down costs would be 110% of the
estimated total expenses to allow for contingencies. The high recovery is
assumed to be 90% of the estimated wind down expenses.
NOTE 7 - TRUSTEE FEES
Section 326 of the U.S. Bankruptcy Code limits U.S. Trustee fees to
3.0% of gross liquidation proceeds. The low recovery estimate assumes 3.0%
of the low value of the liquidation proceeds. The high recovery estimate
assumes 1.5% of the high liquidation proceeds.
NOTE 8 - EMPLOYEE SEVERANCE AND RELATED COSTS
Estimate includes the cost of severance in accordance with Company
policy and includes an estimate for retention bonuses necessary in order to
ensure an orderly liquidation. Estimate is based upon one month's salary at
current headcount levels. High scenario assumes aggregate severance and
retention bonuses at 90% of this amount and high scenario assumes 110%.
NOTE 9 - PREPETITION BANK LENDERS
Represents amounts due to CIT under the Credit Agreement. Such amounts
are deemed to be fully secured for the purpose of this analysis.
NOTE 10 - SENIOR SECURED NOTES
The Senior Secured Notes are secured by a second lien on all of the
assets of the Company (other than certain assets, including, without
limitation, general intangibles of the Company, with respect to which the
Senior Secured Notes are secured by a first lien thereon, subject to the
right of CIT to receive, under certain circumstances, the first $ 15
million of proceeds from the sale of the Company's general intangibles).
Accordingly this analysis assumes that all proceeds available for
distribution would be used to satisfy the claims of the note holders before
any distribution could be made to the general unsecured creditors. Claim
amounts include accrued but unpaid interest through July 1, 1998.
NOTE 11 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Postpetition accounts payable and accrued expenses reflects estimated
vendor and expense payables outstanding estimated at July 1, 1998.
NOTE 12 - LEASE REJECTION CLAIMS
The lease rejection claim is calculated under the guidelines as
stipulated by the section 502(b) of the Bankruptcy Code which limits lease
damages to the greater of one year's lease obligation, or 15% of the
remaining lease terms, not to exceed 3 years. The high recovery scenario
contemplates 25% mitigation of the claims relating to leases with below
market rents.
NOTE 13 - PENSION TERMINATION COSTS
Represents the cost actuarially determined to terminate the Company's
various pension and retirement plans, as of January 3, 1998.
DISTRIBUTION OF NET PROCEEDS
($ IN THOUSANDS)
The following table sets forth an estimated distribution of the
between $70,874 and $106,105 in net proceeds distributable to holders of
secured claims, nonpriority unsecured claims and equity interests in a
hypothetical Chapter 7 liquidation of Salant on the Effective Date and a
comparison to estimated recoveries under the proposed Prepackaged Plan. The
distribution in such liquidation gives effect to strict enforcement of all
contractual subordination provisions.
<TABLE>
<CAPTION>
CHAPTER 7 CHAPTER 11
---------------------------------------------- ----------------------------------------------
CLAIM OR CLAIM OR
EQUITY RECOVERY RECOVERY EQUITY RECOVERY RECOVERY
CLASS INTEREST ($) (%) INTEREST ($) (%)
- ---------------- --------------- --------------- -------------- --- --------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
2 $58,562 $58,562 100% $58,562 $58,562 100%
3 $114,067 $12,312 to 10.8% to $114,067 $110,000 96.4%
$47,453 41.7%
4 $0 $0 -- $0 $0 --
5 $57,116 to $0 -- $35,331 to $35,331 to 100%
$62,744 $36,331 $36,331
6 Old Common Old
Stock $0 -- Common Stock $15,000 --
7 Other Other
Interests $0 -- Interests $0 --
</TABLE>
As illustrated by the foregoing, Salant believes that under the
Prepackaged Plan, each Holder of an Impaired Claim in Class 3 and each
Holder of an Impaired Interest will receive on account of such Claim or
Interest, property of a value, as of the Effective Date, that is not less
than the value such Holder would receive if Salant were liquidated under
Chapter 7 of the Bankruptcy Code on the Effective Date. Accordingly, Salant
believes the Prepackaged Plan satisfies the requirements of the best
interests test set forth in Section 1129(a)(7) of the Bankruptcy Code.
D. NONCONSENSUAL CONFIRMATION
In the event that any Impaired Class of Claims or Interests does not
accept the Prepackaged Plan, the Bankruptcy Court may nevertheless confirm
the Prepackaged Plan if all other requirements under Section 1129(a) of the
Bankruptcy Code are satisfied, and if, with respect to each Impaired Class
which has not accepted the Prepackaged Plan, the Bankruptcy Court
determines that the Prepackaged Plan does not "discriminate unfairly" and
is "fair and equitable" with respect to such Class. Confirmation under
Section 1129(b) of the Bankruptcy Code requires that at least one Impaired
Class of Claims accepts the Prepackaged Plan, excluding any acceptance of
the Prepackaged Plan by an "insider" (as that term is defined in section
101 of the Bankruptcy Code). In the event Class 3 accepts the Prepackaged
Plan, Salant intends to seek confirmation of the Prepackaged Plan
notwithstanding the nonacceptance of one or more other Impaired Classes.
1. No Unfair Discrimination
------------------------
A plan of reorganization does not "discriminate unfairly" with respect
to a nonaccepting Class if the value of the cash and/or securities to be
distributed to the nonaccepting Class is equal or otherwise fair when
compared to the value of distributions to other Classes whose legal rights
are the same as those of the nonaccepting Class. Salant believes that the
Prepackaged Plan would not discriminate unfairly against any nonaccepting
Class of Claims or Interests.
2. Fair and Equitable Test
-----------------------
The "fair and equitable" test of Section 1129(b) of the Bankruptcy
Code requires absolute priority in the payment of claims and interests with
respect to any nonaccepting Class or Classes. The "fair and equitable" test
established by the Bankruptcy Code is different for secured claims,
unsecured claims and equity interests, and includes the following
treatment:
Secured Claims. A plan is fair and equitable with respect to a
nonaccepting class of secured claims if (1) the holder of each claim in
such class will retain its lien or liens and receive deferred cash payments
totaling the allowed amount of its claim, of a value, as of the effective
date of the plan, equal to the value of such holder's interest in the
collateral, (2) the holder of each claim in such class will receive the
proceeds from any sale of such collateral or (3) the holder of each claim
in such class will realize the indubitable equivalent of its allowed
secured claim.
Unsecured Claims. A plan is fair and equitable with respect to a
nonaccepting class of unsecured claims if (1) the holder of each claim in
such class will receive or retain under the plan property of a value, as of
the effective date of the plan, equal to the allowed amount of its claim,
or (2) holders of claims or interests that are junior to the claims of such
creditors will not receive or retain any property under the plan on account
of such junior claim or interest.
Equity Interests. A plan is fair and equitable with respect to a
nonaccepting class of interests if the plan provides that (1) each member
of such class receives or retains on account of its interest property of a
value, as of the effective date of the plan, equal to the greatest of the
allowed amount of any fixed liquidation preference to which such holder is
entitled, any fixed redemption price to which such holder is entitled, or
the value of such interest, or (2) holders of interests that are junior to
the interests of such class will not receive or retain any property under
the plan on account of such junior interests.
In the event that Class 6 does not accept the Prepackaged Plan, and
notwithstanding that Class 7 is deemed not to have accepted the Prepackaged
Plan, Salant believes and will be prepared to demonstrate at the
Confirmation Hearing that the Prepackaged Plan is "fair and equitable" with
respect to all Impaired Classes of Claims and Interests, because, in each
case, no class that is junior to such a dissenting class will receive or
retain any property on account of the claims or equity interests in such
class.
XXIV. ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PREPACKAGED PLAN
If the Prepackaged Plan is not confirmed, the alternatives include (a)
continuation of the Chapter 11 Case and formulation of an alternative plan
or plans of reorganization or (b) liquidation of Salant under Chapter 7 or
Chapter 11 of the Bankruptcy Code.
A. CONTINUATION OF THE CHAPTER 11 CASE
If Salant were to commence the Chapter 11 Case and remain in Chapter
11, Salant could continue to operate its businesses and manage its
properties as a debtor-in-possession, but it would remain subject to the
restrictions imposed by the Bankruptcy Code. It is not clear whether Salant
could survive as a going-concern in a protracted Chapter 11 case. Salant
could have difficulty sustaining the high costs, operating financing, and
the confidence of Salant's and its subsidiaries customers and trade
vendors, of Salant remaining in Chapter 11. Ultimately, Salant (or other
parties in interest) could propose another plan or attempt to liquidate
Salant under Chapter 7 or Chapter 11. Such plans might involve either a
reorganization and continuation of Salant's business, or an orderly
liquidation of its assets, or a combination of both.
B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11
If the Prepackaged Plan is not confirmed, Salant's Chapter 11 Case
could be converted to a liquidation case under Chapter 7 of the Bankruptcy
Code. In a Chapter 7 case, a trustee would be appointed to liquidate
promptly the assets of Salant.
Salant believes that in liquidation under Chapter 7, before creditors
received any distributions, additional administrative expenses involved in
the appointment of a trustee and attorneys, accountants, and other
professionals to assist such trustees, along with an increase in expenses
associated with an increase in the number of unsecured claims that would be
expected, would cause a substantial diminution in the value of the estate.
The assets available for distribution to creditors would be reduced by such
additional expenses and by Claims, some of which would be entitled to
priority, which would arise by reason of the liquidation and from the
rejection of leases and other executory contracts in connection with the
cessation of Salant operations and the failure to realize the greater
going-concern value of Salant's assets.
Salant could also be liquidated pursuant to the provisions of a
Chapter 11 plan of reorganization. In a liquidation under Chapter 11,
Salant assets could be sold in a more orderly fashion over a longer period
of time than in a liquidation under Chapter 7. Thus, Chapter 11 liquidation
might result in larger recoveries than in a Chapter 7 liquidation, but the
delay in distributions could result in lower present values received and
higher administrative costs. Because a trustee is not required in a Chapter
11 case, expenses for professional fees could be lower than in a Chapter 7
case, in which a trustee must be appointed. Any distribution to the holders
of Claims under a Chapter 11 liquidation plan probably would be delayed
substantially.
Salant's liquidation analysis, prepared with its financial advisors
and included above in this Disclosure Statement, is by law premised upon a
liquidation in a Chapter 7 case. In that analysis, Salant has taken into
account the nature, status, and underlying value of its assets, the
ultimate realizable value of its assets, and the extent to which such
assets are subject to liens and security interests.
XXV. VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN
The Bankruptcy Code requires that, in order to confirm the Prepackaged
Plan, the Bankruptcy Court must make a series of findings concerning the
Prepackaged Plan and Salant, including, without limitation, that (i) the
Prepackaged Plan has classified Claims and Interests in a permissible
manner, (ii) the Prepackaged Plan complies with applicable provisions of
the Bankruptcy Code, (iii) Salant has complied with applicable provisions
of the Bankruptcy Code, (iv) Salant has proposed the Prepackaged Plan in
good faith and not by any means forbidden by law, (v) the disclosure
required by Section 1125 of the Bankruptcy Code has been made, (vi) the
Prepackaged Plan has been accepted by the requisite votes of creditors
(except to the extent that "cramdown" is available under Section 1129(b) of
the Bankruptcy Code) (see Section XXIII.D. above, entitled "FEASIBILITY OF
THE PREPACKAGED PLAN AND THE BEST INTERESTS OF CREDITORS TEST --
NONCONSENSUAL CONFIRMATION"), (vii) the Prepackaged Plan is feasible and
confirmation is not likely to be followed by the liquidation or the need
for further financial reorganization of Salant, (viii) the Prepackaged Plan
is in the "best interests" of all Holders of Claims or Interests in an
Impaired Class by providing to such Holders on account of their Claims or
Interests property of a value, as of the Effective Date, that is not less
than the amount that such Holder would receive or retain in a Chapter 7
liquidation, unless each Holder of a Claim or Interest in such Class has
accepted the Prepackaged Plan, (ix) all fees and expenses payable under 28
U.S.C. ss. 1930, as determined by the Bankruptcy Court at the hearing on
Confirmation, have been paid or the Prepackaged Plan provides for the
payment of such fees on the Effective Date, and (x) the Prepackaged Plan
provides for the continuation after the Effective Date of all retiree
benefits, as defined in Section 1114 of the Bankruptcy Code, at the level
established at any time prior to confirmation pursuant to Sections
1114(e)(1)(B) or 1114(g) of the Bankruptcy Code, for the duration of the
period that Salant has obligated itself to provide such benefits.
THE FOLLOWING VOTING PROCEDURES ARE APPLICABLE SOLELY TO VOTING TO
ACCEPT THE PREPACKAGED PLAN AND DO NOT APPLY TO VOTING ON THE RESTRUCTURING
PROPOSALS IN CONNECTION WITH THE EXCHANGE RESTRUCTURING.
A. VOTING PROCEDURES FOR PREPACKAGED PLAN AND REQUIREMENTS
Pursuant to the Bankruptcy Code, only Classes of Claims and Interests
that are "impaired," as defined in Section 1124 of the Bankruptcy Code,
under the Prepackaged Plan are entitled to vote to accept or reject the
Prepackaged Plan. A Class is Impaired unless the Prepackaged Plan (i)
leaves unaltered the legal, equitable or contractual rights to which the
Claims or Interests of that Class entitle the Holders of such Claims or
Interests or (ii) cures any defaults that occurred before or after the
filing of the Chapter 11 Case (other than a default of a kind specified in
Section 365(b)(2) of the Bankruptcy Code), reinstates the maturity of the
debt as it existed before such default, compensates the Holders for any
damages incurred as a result of any reasonable reliance upon any
contractual provision or applicable law entitling the Holder to accelerate
the debt, and does not otherwise alter the legal, equitable and contractual
rights of such Holders. Classes of Claims and Interests that are not
impaired are conclusively presumed to have accepted the Prepackaged Plan
and are not entitled to vote on the Prepackaged Plan. Classes of Claims and
Interests whose Holders receive or retain no property under the Prepackaged
Plan are deemed not to have accepted the Prepackaged Plan and are not
entitled to vote on the Prepackaged Plan. The classification of Claims and
Interests is summarized, together with notations as to whether each Class
of Claims or Interests is impaired or unimpaired, in Section IX.C. above,
entitled "SUMMARY OF THE PREPACKAGED PLAN -- CLASSIFICATION AND TREATMENT
OF CLAIMS AND INTERESTS." Additional information regarding voting is
contained in the instructions accompanying the Ballots.
Under Section 1126(b) of the Bankruptcy Code, a holder of a claim or
interest that has accepted a plan of reorganization before the commencement
of a Chapter 11 case will be deemed to have accepted the plan for purposes
of confirmation under Chapter 11 of the Bankruptcy Code if the bankruptcy
court determines that the solicitation of such acceptances was in
compliance with any applicable non-bankruptcy law governing the adequacy of
disclosure in connection with such a solicitation, or there is no such
applicable non-bankruptcy law, such acceptance or rejection was solicited
after disclosure to such holder of adequate information as defined in
Section 1125(a) of the Bankruptcy Code. Under Bankruptcy Rule 3018(b),
solicitations of acceptances of a plan of reorganization before the
commencement of a Chapter 11 case shall be rejected by a bankruptcy court
if the bankruptcy court finds that (i) the plan was not transmitted to
substantially all creditors and equity interest holders of the same class,
(ii) an unreasonably short time was prescribed for such creditors or equity
interest holders to vote on the plan or (iii) the solicitation was not in
compliance with Section 1126(b) of the Bankruptcy Code. Salant believes
that its Solicitation of acceptances of the Prepackaged Plan complies with
the requirements of Section 1126(b), Bankruptcy Rule 3018(b) and all
applicable federal and state securities laws for purposes of Solicitation
of acceptances or rejections of the Prepackaged Plan. If the Bankruptcy
Court finds such compliance, then Holders casting Ballots to accept or
reject the Prepackaged Plan will be deemed by the Bankruptcy Court to have
accepted or rejected the Prepackaged Plan. Unless the Bankruptcy Court
later determines that any acceptances of the Prepackaged Plan may be
revoked, all such acceptances will remain in full force and effect until
the Bankruptcy Court determines whether such acceptances constitute
acceptances or rejections for purposes of confirmation under the Bankruptcy
Code. Salant also reserves the right to use acceptances of the Prepackaged
Plan received in this Solicitation to seek confirmation of the Prepackaged
Plan under any other circumstances, including the filing of an involuntary
bankruptcy petition against Salant. For a discussion of other significant
conditions to confirmation under the Bankruptcy Code, see Section IX.C.
above, entitled "FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS
OF CREDITORS TEST -- NONCONSENSUAL CONFIRMATION."
The appropriate Ballots, together with the Disclosure Statement, are
being distributed to all Holders of Class 3 Senior Note Claims and Class 6
Old Common Stock Interests, the only Holders who are entitled to vote on
the Prepackaged Plan. There is a separate Ballot designated for each Class
of Claims and Interests in order to facilitate vote tabulation; however,
all Ballots are substantially similar in form and substance and the term
"Ballot" is used without intended reference to the Ballot of any specific
Class of Claims or Interests.
B. WHO MAY VOTE
Under the Prepackaged Plan, the Claims against and the Interests in
Salant are divided into seven Classes. Pursuant to the Bankruptcy Code,
only Classes of Claims or Interests that are Impaired and are to receive a
distribution under the Prepackaged Plan, and which are not deemed to reject
the Prepackaged Plan under Section 1126(g) of the Bankruptcy Code, are
entitled to vote on the Prepackaged Plan. Claims or Interests in the
following Classes are Impaired under the Prepackaged Plan and are entitled
under the terms and provisions of the Bankruptcy Code to vote on the
Prepackaged Plan:
Class 3: Senior Note Claims.
Class 6: Old Common Stock Interests.
Only beneficial owners of Senior Notes and Old Common Stock (the "Old
Securities") on the Voting Record Date, or their authorized signatories,
are eligible to vote on the Prepackaged Plan. The Voting Record Date is
[------].
C. PROCEDURES FOR HOLDERS OF OLD SECURITIES TO VOTE ON PREPACKAGED PLAN
If you are a registered Holder of Old Securities (i.e., Senior Notes
or Old Common Stock), you will receive the Ballot relating to the
securities you hold of record. Registered Holders may include brokerage
firms, commercial banks, trust companies or other nominees. If such
Entities do not hold Old Securities for their own account, they should
provide copies of this Disclosure Statement and an appropriate Ballot to
their customers and to beneficial owners. For further instructions, see
Section XXV.D. below, entitled "BENEFICIAL OWNERS OF OLD SECURITIES." Any
beneficial owner who has not received a Disclosure Statement or Ballot
should contact their brokerage firm, nominee or the Information Agent.
All votes to accept or reject the Prepackaged Plan must be cast by
using the Ballot or, in the case of a brokerage firm or other nominee
holding Old Securities in its own name on behalf of a beneficial owner, the
Master Ballot, enclosed with this Disclosure Statement (or original,
manually executed facsimiles thereof). Brokerage firms or other nominees
holding Old Securities for the account of only one beneficial owner may use
a Ballot. Purported votes which are cast in any other manner will not be
counted. Ballots and Master Ballots must be received by the voting agent
(the "Voting Agent") at its address set forth on the applicable Ballot no
later than 5:00 p.m., New York City time, on [________] (the "Voting
Deadline"), which may be extended at Salant's discretion.
You may receive a Ballot relating to Old Securities that you did not
beneficially own on the applicable Voting Record Date. You should complete
only the Ballot corresponding to each class of Old Securities which you
beneficially owned on the Voting Record Date. Holders who purchase or whose
purchase is registered after the Record Date, and who wish to vote on the
Prepackaged Plan must arrange with their seller to receive a proxy from the
Holder of record on such Voting Record Date, a form of which is provided
with each Ballot and Master Ballot.
Holders of Old Securities who elect to vote on the Prepackaged Plan
should complete and sign the Ballot in accordance with the instructions
thereon being sure to check the appropriate box entitled "Accept the
Prepackaged Plan" or "Reject the Prepackaged Plan." Holders may not split
their vote on the Prepackaged Plan with respect to a particular class of
Old Securities. A Holder must vote all securities beneficially owned in a
particular class in the same way (i.e., all "accept" or all "reject") even
if such Old Securities are owned through more than one broker or bank.
Delivery of all documents must be made to the Voting Agent at its
address set forth on the applicable Ballot. The method of such delivery is
at the election and risk of the Holder. If such delivery is by mail, it is
recommended that Holders use an air courier with a guaranteed next day
delivery or registered mail, properly insured, with return receipt
requested. In all cases, sufficient time should be allowed to assure timely
delivery.
YOU MAY RECEIVE MULTIPLE MAILINGS OF THIS DISCLOSURE STATEMENT,
ESPECIALLY IF YOU OWN YOUR OLD SECURITIES THROUGH MORE THAN ONE BROKER OR
BANK. IF YOU SUBMIT MORE THAN ONE BALLOT FOR A CLASS OR ISSUE OF OLD
SECURITIES BECAUSE YOU BENEFICIALLY OWN SUCH OLD SECURITIES THROUGH MORE
THAN ONE BROKER OR BANK, BE SURE TO INDICATE IN ITEM __ OF THE BALLOT(S),
THE NAME OF ALL BROKER DEALERS OR OTHER INTERMEDIATES WHO HOLD OLD
SECURITIES FOR YOU.
D. BENEFICIAL OWNERS OF OLD SECURITIES
Section 1126(b) of the Bankruptcy Code has been interpreted to require
that a solicitation for acceptances prior to filing a plan of
reorganization must include the beneficial owners of securities, regardless
of whether such beneficial owners are the holders of record. Accordingly, a
beneficial owner of Old Securities on the Voting Record Date is eligible to
vote on the Prepackaged Plan, whether the Old Securities were held on the
Voting Record Date in such beneficial owner's name or in the name of a
brokerage firm, commercial bank, trust company or other nominee.
Any beneficial owner holding Old Securities in its own name can vote
by completing and signing the enclosed Ballot and returning it directly to
the Voting Agent using the enclosed pre-addressed stamped envelope.
A beneficial owner holding Old Securities in "street name" (i.e.,
through a brokerage firm, bank, trust company or other nominee) or a
beneficial owner's authorized signatory (a broker or other intermediary
having power of attorney to vote on behalf of a beneficial owner) can vote
by following the instructions set forth below:
1. Review the enclosed Ballot Instructions and the certification
set forth in the Ballot Instructions.
2. Sign the enclosed Ballot (unless it has already been signed by
the bank, trust company or other nominee).
3. Return the Ballot to the addressee in the preaddressed,
stamped envelope enclosed with the form. If no envelope was enclosed,
contact the Information Agent (identified below) or the Voting Agent
identified on the applicable Ballot Instructions.
Authorized signatories voting on behalf of more than one beneficial
owner must complete a separate Ballot for each such beneficial owner. Any
Ballot submitted to a brokerage firm or proxy intermediary will not be
counted until such brokerage firm or proxy intermediary (i) properly
executes and delivers such Ballot to the Voting Agent or (ii) properly
completes and delivers a corresponding Master Ballot to the Voting Agent.
By submitting a vote for or against the Prepackaged Plan, you are
certifying that you are the beneficial owner of the Old Securities being
voted or an authorized signatory for such a beneficial owner. Your
submission of a Ballot will also constitute a request that you (or in the
case of an authorized signatory, the beneficial owner) be treated as the
record holder of such securities for purposes of voting on the Prepackaged
Plan.
E. BROKERAGE FIRMS, BANKS AND OTHER NOMINEES
A brokerage firm, commercial bank, trust company or other nominee
which is the registered holder of an Old Security for a beneficial owner,
or is a participant in a securities clearing agency and is authorized to
vote in the name of such securities clearing agency pursuant to an omnibus
proxy (as described below) and is acting for a beneficial owner, can vote
on behalf of such beneficial owner by (i) distributing a copy of this
Disclosure Statement and all appropriate Ballots (either in blank or
prevalidated in accordance with the Master Ballot Instructions) to such
owner, (ii) collecting all such Ballots, (iii) completing a Master Ballot
in accordance with the Master Ballot Instructions compiling the votes and
other information from the Ballots collected, and (iv) transmitting such
completed Master Ballot to the Voting Agent. A proxy intermediary acting on
behalf of a brokerage firm or bank may follow the procedures outlines in
the preceding sentence to vote on behalf of such beneficial owner. A
brokerage firm, commercial bank, trust company or other nominee which is
the registered holder of an Old Security for only one beneficial owner also
may arrange for such beneficial owner to vote by executing the appropriate
Ballot and by distributing a copy of this Disclosure Statement and such
executed Ballot to such beneficial owner for voting and returning such
Ballot to the Voting Agent at the address set forth on the applicable
Ballot.
F. SECURITIES CLEARING AGENT
Any nominee holder of Old Securities will execute an omnibus proxy in
favor of its respective participants. As a result of the omnibus proxy,
each such participant will be authorized to vote the securities owned by it
and held in the name of such securities clearing agency.
G. IMPORTANCE OF PROPER AND TIMELY SUBMISSION OF COMPLETED BALLOTS
It is important that all Holders of Class 3 Senior Note Claims and
Class 6 Old Common Stock Interest's vote to accept or to reject the
Prepackaged Plan, because under the Bankruptcy Code, for purposes of
determining whether the requisite acceptances have been received from an
Impaired Class of Claims or Interests, the vote will be tabulated based on
the ratio of (i) Allowed Claims or Interests with respect to which a vote
to accept was received to (ii) all Allowed Claims or Interests of such
Impaired Class with respect to which any valid vote was received.
Therefore, it is possible that the Prepackaged Plan could be approved with
the affirmative vote of significantly less than two-thirds in amount and
one-half in number of the entire Class of Senior Note Claims, or by Class 6
Old Common Stock Interests with the affirmative vote of significantly less
than two-thirds in amount of the entire Class of Old Common Stock
Interests. Failure by a Holder of an Impaired Class 3 Senior Note Claim or
an Impaired Class 6 Old Common Stock Interest to submit a properly executed
Ballot or Master Ballot (as appropriate) or to indicate acceptance or
rejection of the Prepackaged Plan in accordance with the instructions set
forth in the Ballot Instructions and the procedures set forth herein shall
be deemed to not constitute a vote either to accept or reject the
Prepackaged Plan. The failure to submit a properly executed Ballot or
Master Ballot (when appropriate) or failing to indicate a vote either for
acceptance or rejection of the Prepackaged Plan will not be counted as
votes for or against the Prepackaged Plan. Salant, in its sole discretion,
may waive any defect in any Ballot or Master Ballot at any time, either
before or after the close of voting, and without notice.
EXCEPT AS OTHERWISE ORDERED BY THE BANKRUPTCY COURT, A BALLOT OR,
WHERE APPROPRIATE, MASTER BALLOT, WHICH IS EITHER (i) NOT TIMELY SUBMITTED
TO THE VOTING AGENT AT THE ADDRESS SET FORTH ON THE APPLICABLE BALLOT
INSTRUCTIONS, (ii) SUBMITTED TO SUCH VOTING AGENT WITHOUT PROPER EXECUTION
OR (iii) EXECUTED AND SUBMITTED TO SUCH VOTING AGENT WITHOUT PROPERLY
INDICATING ACCEPTANCE OR REJECTION OF THE PREPACKAGED PLAN WILL NOT
CONSTITUTE EITHER AN ACCEPTANCE OR REJECTION OF THE PREPACKAGED PLAN UNDER
SECTION 1126 OF THE BANKRUPTCY CODE.
SUBMISSION OF PROXIES IN CONNECTION WITH THE EXCHANGE RESTRUCTURING
DOES NOT AND WILL NOT CONSTITUTE A VOTE IN RESPECT OF THE PREPACKAGED PLAN.
A HOLDER OF AN IMPAIRED CLAIM OR INTEREST ENTITLED TO VOTE ON THE
PREPACKAGED PLAN MUST PROPERLY AND TIMELY COMPLETE AND RETURN A BALLOT IN
ORDER FOR SUCH HOLDER'S VOTE IN RESPECT OF THE PREPACKAGED PLAN TO BE
COUNTED.
H. VOTING DEADLINE AND EXTENSIONS
In order to be counted for purposes of voting on the Prepackaged Plan,
all of the information requested on the applicable Ballot must be provided
by the Voting Deadline. THE VOTING DEADLINE IS [_______________], 5:00
P.M., NEW YORK CITY TIME. Ballots must be received by the Voting Agent at
its address set forth on the applicable Ballot. Salant reserves the right,
in its sole discretion, to extend the Voting Deadline, in which case the
term "Voting Deadline" shall mean the latest date on which a Ballot will be
accepted. To extend the Voting Deadline, Salant will make an announcement
thereof, prior to 9:00 p.m., New York City time, not later than the next
business day immediately following the previously scheduled Voting
Deadline. Such announcement may state that Salant is extending the Voting
Deadline for a specified period of time or on a daily basis until 5:00
p.m., New York City time, on the date on which sufficient acceptances
required to seek confirmation of the Prepackaged Plan have been received.
I. WITHDRAWAL OF VOTES ON THE PREPACKAGED PLAN
The Solicitation of acceptances of the Prepackaged Plan will expire on
the Voting Deadline. A properly submitted Ballot may be withdrawn only with
the approval of the Bankruptcy Court.
J. INFORMATION AGENT
[_____________] has been appointed as Information Agent for the
Prepackaged Plan. Questions and requests for assistance may be directed to
the Information Agent. Requests for additional copies of this Disclosure
Statement, the Ballots or the Master Ballots should be directed to the
Information Agent. Such requests should be addressed to the Information
Agent as follows: [TO COME].
XXVI. CONCLUSION
BASED ON ALL OF THE FACTS AND CIRCUMSTANCES, SALANT CURRENTLY BELIEVES
THAT CONFIRMATION OF THE PREPACKAGED PLAN IS IN THE BEST INTERESTS OF
SALANT, ITS CREDITORS, INTEREST HOLDERS, AND ITS ESTATE. The Prepackaged
Plan provides for an equitable and early distribution to creditors and
stockholders, and preserves the going concern value of Salant. Salant
believes that alternatives to confirmation of the Prepackaged Plan could
result in significant delays, litigation, and costs, as well as a reduction
in the going concern value of Salant and a loss of jobs by many Salant
employees. FOR THESE REASONS, SALANT URGES YOU TO RETURN YOUR BALLOT AND
VOTE TO ACCEPT THE PREPACKAGED PLAN.
<PAGE>
Appendix I to Part B of the Exchange Restructuring Prospectus
APPENDIX I
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- -----------------------------------------------------------x
:
:
In re: :
: Chapter 11
SALANT CORPORATION, : Case No. _____
:
Debtor. :
:
- ------------------------------------------------------------------------x
-----------------------------------------------------
CHAPTER 11 PLAN OF REORGANIZATION
FOR SALANT CORPORATION
-----------------------------------------------------
Dated: New York, New York
________ ___, 1998
FRIED, FRANK, HARRIS, SHRIVER
& JACOBSON
(A Partnership Including
Professional Corporations)
Attorneys for Salant Corporation
Debtor and Debtor-In-Possession
One New York Plaza
New York, New York 10004
(212) 859-8000
TABLE OF CONTENTS
ARTICLE ONE DEFINITIONS ...................................................5
ARTICLE TWO PROVISIONS FOR TREATMENT OF ADMINISTRATIVE EXPENSES.............9
2.1. Administrative Expenses........................................9
ARTICLE THREE PROVISIONS FOR TREATMENT OF PRIORITY TAX CLAIMS..............10
3.1. Priority Tax Claims...........................................10
ARTICLE FOUR CLASSIFICATION OF CLAIMS AND INTERESTS........................10
4.1. Claims. ..................................................10
4.2. Interests. ..................................................10
ARTICLE FIVE IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED
AND NOT IMPAIRED BY THIS PLAN...........................11
5.1. Classes of Claims and Interests Impaired by this Plan and
Entitled to Vote.....................................11
5.2. Classes of Claims and Interests Not Impaired by this Plan and
Conclusively Presumed to Accept this Plan............11
5.3. Class of Interests Impaired by this Plan and Deemed Not to
Have Accepted this Plan.............................11
ARTICLE SIX PROVISIONS FOR TREATMENT OF CLAIMS AND INTERESTS..............11
6.1. Priority Claims (Class 1).....................................11
6.2. CIT Claim (Class 2)...........................................11
6.3. Senior Note Claims (Class 3)..................................12
6.4. Miscellaneous Secured Claims (Class 4)........................12
6.5. General Unsecured Claims (Class 5)............................12
6.6. Old Common Stock Interests (Class 6)..........................13
6.7. Other Interests (Class 7).....................................13
ARTICLE SEVEN ACCEPTANCE OR REJECTION OF THIS PLAN; EFFECT OF REJECTION BY
ONE OR MORE IMPAIRED CLASSES OF CLAIMS OR INTERESTS......13
7.1. Impaired Class of Claims and Interests Entitled to Vote.......13
7.2. Acceptance by an Impaired Class of Creditors..................13
7.3. Acceptance by an Impaired Class of Interest Holders...........13
7.4. Classes of Claims Not Impaired by this Plan and Conclusively
Presumed to Accept this Plan........................14
7.5. Class of Interests Deemed Not to Have Accepted this Plan..... 14
7.6. Confirmation Pursuant to Section 1129(b) of the
Bankruptcy Code.....................................14
ARTICLE EIGHT UNEXPIRED LEASES AND EXECUTORY CONTRACTS.....................14
8.1. Assumption and Rejection of Executory Contracts and
Unexpired Leases....................................14
8.2. Bar Date for Rejection Damages................................14
ARTICLE NINE IMPLEMENTATION OF THIS PLAN...................................15
9.1. Vesting of Property...........................................15
9.2. Transactions on Business Days.................................15
9.3. Restated Certificate of Incorporation; Restated By-Laws.......15
9.4. Implementation................................................15
9.5. Issuance of New Securities....................................15
9.6. Cancellation of Existing Securities and Agreements............15
9.7. Board of Directors of Reorganized Salant......................15
9.8. Employee Benefit Plans........................................16
9.9. The Stock Award and Incentive Plan............................16
9.10. Survival of Indemnification Obligations......................16
9.11. Listing of New Common Stock; Registration of Securities......16
9.12. Retention and Enforcement of Causes of Action................17
ARTICLE TEN PROVISIONS COVERING DISTRIBUTIONS..............................17
10.1. Timing of Distributions Under this Plan......................17
10.2. Allocation of Consideration..................................17
10.3. Cash Payments................................................17
10.4. Payment of Statutory Fees....................................17
10.5. No Interest..................................................17
10.6. Fractional Securities........................................17
10.7. Withholding of Taxes.........................................18
10.8. Pro Rata Distribution........................................18
10.9. Distribution Record Date.....................................18
10.10. Persons Deemed Holders of Registered Securities.............18
10.11. Surrender of Existing Securities............................18
10.12. Special Procedures for Lost, Stolen, Mutilated or Destroyed
Instruments........................................19
10.13. Undeliverable or Unclaimed Distributions....................19
ARTICLE ELEVEN PROCEDURES FOR RESOLVING DISPUTED CLAIMS....................19
11.1. Objections to Claims.........................................19
11.2. Procedure ..................................................20
11.3. Payments and Distributions With Respect to Disputed Claims...20
11.4. Timing of Payments and Distributions With Respect to
Disputed Claims....................................20
11.5. Individual Holder Proofs of Interest................. .......20
ARTICLE TWELVE DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS...20
12.1. Discharge of All Claims and Interests and Releases...........20
12.2. Injunction ..................................................21
12.3. Exculpation..................................................21
12.4. Guaranties and Claims of Subordination.......................21
ARTICLE THIRTEEN CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND
EFFECTIVE DATE............................................22
13.1. Conditions Precedent to Entry of the Confirmation Order......22
13.2. Conditions Precedent to the Effective Date...................22
13.3. Waiver of Conditions.........................................23
13.4. Effect of Failure of Conditions..............................23
ARTICLE FOURTEEN MISCELLANEOUS PROVISIONS..................................23
14.1. Bankruptcy Court to Retain Jurisdiction......................23
14.2. Binding Effect of this Plan..................................24
14.3. Nonvoting Stock..............................................24
14.4. Authorization of Corporate Action............................24
14.5. Retiree Benefits.............................................24
14.6. Withdrawal of this Plan......................................24
14.7. Captions ..................................................24
14.8. Method of Notice.............................................24
14.9. Dissolution of Statutory Committees..........................25
14.10. Fees, Costs and Expenses of Indenture Trustee...............25
14.11. Amendments and Modifications to Plan........................25
14.12. Section 1125(e) of the Bankruptcy Code......................26
SALANT CORPORATION, the above-captioned Debtor and
Debtor-in-Possession, hereby proposes the following chapter 11 plan of
reorganization pursuant to section 1121(a) of the Bankruptcy Code.
ARTICLE ONE
DEFINITIONS
Whenever from the context it appears appropriate, each term stated in
either the singular or the plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender
shall include the masculine, the feminine and the neuter. Unless the
context requires otherwise, the following words and phrases shall have the
meanings set forth below when used in initially-capitalized form in this
Plan:
Administrative Expense: (a) Any cost or expense of administration of
the Chapter 11 Case (including, without limitation, professional fees and
expenses) allowed under Section 503(b) of the Bankruptcy Code and (b) any
fees or charges assessed against the Debtor's estate under title 28, United
States Code, Section 1930.
Affiliate: As defined in Section 101 of the Bankruptcy Code.
Allowed: With respect to Claims and Interests, (a) any Claim against,
or Interest in, the Debtor, proof of which is timely filed or by order of
the Bankruptcy Court is not or will not be required to be filed, (b) any
Claim or Interest that has been or is hereafter listed in the Schedules as
liquidated in amount and not disputed or contingent or (c) any Claim
allowed pursuant to this Plan and, in each such case in (a) and (b) above,
as to which either (i) no objection to the allowance thereof has been
interposed within the applicable period of time fixed by this Plan, the
Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court or (ii) such
an objection is so interposed and the Claim or Interest shall have been
allowed by a Final Order (but only to the extent so allowed).
Apollo: Apollo Apparel Partners, L.P., a Delaware limited partnership,
in its capacity as the beneficial owner of 5,924,352 shares of the Old
Common Stock.
Bankruptcy Code: Title 11 of the United States Code, as amended from
time to time.
Bankruptcy Court: The United States Bankruptcy Court for the Southern
District of New York, or any other court having jurisdiction over this
Chapter 11 Case.
Bankruptcy Rules: The Federal Rules of Bankruptcy Procedure, as
amended, promulgated under Section 2075 of title 28 of the United States
Code and the Local Rules of the Bankruptcy Court, as applicable from time
to time during the Chapter 11 Case.
Board: The Board of Directors of the Debtor or Reorganized Salant, as
applicable.
Business Day: Any day other than a Saturday, Sunday or "legal holiday"
as defined in Bankruptcy Rule 9006(a).
By-Laws: The By-Laws, as amended, of the Debtor.
Canceled Security: A security, note or other instrument evidencing a
Claim or Interest outstanding immediately prior to the Effective Date,
which security, note or other instrument represents a Claim or Interest
that is Impaired under this Plan.
Cash: Currency, a certified check, a cashier's check or a wire
transfer of good funds from any source, or a check drawn on a domestic bank
from the Debtor, Reorganized Salant or other Entity making any distribution
under this Plan.
Cause of Action: Any and all actions, causes of action, suits,
accounts, controversies, agreements, promises, rights to legal remedies,
rights to equitable remedies, rights to payment, and claims, whether known
or unknown, reduced to judgment, not reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
secured, unsecured and whether asserted or assertable directly or
derivatively, in law, equity or otherwise.
Certificate of Incorporation: The Amended and Restated Certificate of
Incorporation of the Debtor.
Chapter 11 Case: The case under chapter 11 of the Bankruptcy Code
concerning the Debtor to be commenced on the Filing Date.
CIT: The CIT Group/Commercial Services, Inc., a New York corporation.
CIT Claim: Any and all Claims in respect of all or any portion of the
aggregate outstanding and unpaid amount of principal and interest due and
owing under, and subject to the terms and provisions of, the Credit
Agreement and all other Financing Agreements (as defined in the Credit
Agreement), including, without limitation, any and all interest, costs,
attorney's fees and other expenses owed by Debtor or for which the Debtor
may be liable in connection therewith.
Claim: Any right to (a) payment from the Debtor, whether or not such
right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured or (b) an equitable remedy for breach of performance if such
breach gives rise to a right to payment from the Debtor, whether or not
such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed, secured or unsecured.
Class: A class of Claims or Interests designated pursuant to this
Plan.
Commission: The Securities and Exchange Commission.
Confirmation Date: The date on which the Confirmation Order shall be
entered on the docket maintained by the Clerk of the Bankruptcy Court with
respect to the Chapter 11 Case.
Confirmation Hearing: The hearing before the Bankruptcy Court
regarding the confirmation of this Plan pursuant to section 1129 of the
Bankruptcy Code.
Confirmation Order: The order of the Bankruptcy Court confirming this
Plan.
Credit Agreement: The Revolving Credit, Factoring and Security
Agreement, dated as of September 20, 1993, as amended, modified or
supplemented from time to time, between Salant and CIT.
Creditors' Committee: Any official committee of unsecured creditors
appointed in the Chapter 11 Case pursuant to Section 1102(a) of the
Bankruptcy Code, as the same may be constituted from time to time.
Debtor: Salant Corporation, as debtor and debtor-in-possession in the
Chapter 11 Case.
Disclosure Statement: The disclosure statement distributed to Holders
of Claims or Interests entitled to vote for the purpose of acceptance or
rejection of this Plan in accordance with section 1126(b) of the Bankruptcy
Code and Bankruptcy Rule 3018.
Disputed: With respect to Claims, any Claim that is not Allowed.
Distribution Record Date: The date or dates fixed by the Bankruptcy
Court for determining the Holders of Senior Notes and Old Common Stock,
respectively, who are entitled to receive distributions under this Plan, or
if the Bankruptcy Court does not fix such date or dates, the Record Date.
Effective Date: The date which is 11 days after the Confirmation Date,
or, if such date is not a Business Day, the next succeeding Business Day,
or such earlier date after the Confirmation Date as agreed to in writing
between the Debtor and Magten so long as no stay of the Confirmation Order
is in effect on such date; provided, however, that if, on or prior to such
date, all conditions to the Effective Date set forth in Article Thirteen of
this Plan have not been satisfied, or waived, then the Effective Date shall
be the first Business Day following the day on which all such conditions to
the Effective Date have been satisfied or waived.
Entity: Any individual, corporation, limited or general partnership,
limited liability company, joint venture, association, joint stock company,
estate, entity, trust, trustee, United States trustee, unincorporated
organization, government, governmental unit (as defined in the Bankruptcy
Code), agency or political subdivision thereof.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Filing Date: The date on which the Debtor files its voluntary petition
for relief commencing the Chapter 11 Case and files this Plan with the
Bankruptcy Court.
Final Decree: A final decree closing the Chapter 11 Case as described
in Bankruptcy Rule 3022.
Final Order: An order, ruling or judgment that: (i) is in full force
and effect; (ii) is not stayed; and (iii) is no longer subject to review,
reversal, modification or amendment, by appeal or writ of certiorari.
General Unsecured Claim: Any Claim against the Debtor (other than the
CIT Claim, a Miscellaneous Secured Claim, a Senior Note Claim, a Priority
Claim, a Priority Tax Claim, or an Administrative Expense).
Holder: Any Entity that holds a Claim or Interest. Where the identity
of the Holder of a Claim or Interest is set forth on a register or other
record maintained by or at the direction of the Debtor, the Holder of such
Claim or Interest shall be deemed to be the Holder as identified on such
register or record unless the Debtor is otherwise notified in a writing
authorized by such Holder.
Impaired: Any Class of Claims or Interests that is impaired within the
meaning of Section 1124 of the Bankruptcy Code.
Indenture: The Indenture, dated September 20, 1993, as amended,
between Salant and Bankers Trust Company, as Indenture Trustee, pursuant to
which the Senior Notes were issued.
Indenture Trustee: Bankers Trust Company, as trustee under the
Indenture, or its duly appointed successor (if any).
Instrument: Any share of stock security, promissory note or other
"Instrument" within the meaning of that term, as defined in Section
9-105(1)(i) of the UCC.
Interests: The equity interests in the Debtor, including, but not
limited to, shares of common stock and shares of preferred stock of the
Debtor and any rights, options, warrants, calls, subscriptions or other
similar rights or agreements, commitments or outstanding securities
obligating the Debtor to issue, transfer or sell any shares of capital
stock of the Debtor.
Letter Agreement: That certain letter agreement, dated March 2, 1998,
by and among Magten, Apollo and Salant.
Magten: Magten Asset Management Corp., a New York corporation, in its
capacity as the beneficial owner, or the investment manager on behalf of
the beneficial owners, of a substantial portion of the outstanding Senior
Notes.
Market Rate: The rate of interest per annum (rounded upward, if
necessary, to the nearest whole 1/100 of 1%) equal to the yield equivalent
(as determined by the Secretary of the Treasury) of the average accepted
auction price for the last auction of one-year United States Treasury bills
settled at least fifteen days prior to the Effective Date.
Miscellaneous Secured Claim: Any Claim, other than the CIT Claim, a
Senior Note Claim, or an Administrative Expense, that is a secured claim
within the meaning of, and to the extent provided in, Section 506 of the
Bankruptcy Code.
New Common Stock: The shares of common stock of Reorganized Salant,
par value $1.00 per share, to be issued by Reorganized Salant on and after
the Effective Date pursuant to this Plan.
Noteholders: The holders of the Senior Notes.
NYSE: The New York Stock Exchange, Inc.
Old Common Stock: The common stock of the Debtor, par value $1.00 per
share, issued and outstanding as of the Filing Date.
Old Common Stock Interest: Any Interest evidenced by Old Common Stock.
Other Interest: Any Interest other than an Old Common Stock Interest.
Plan: This Chapter 11 plan of reorganization of the Debtor, as amended
and modified from time to time in accordance with the terms hereof.
Priority Claim: Any Claim, other than a Priority Tax Claim or an
Administrative Expense, which is entitled to priority of payment under
Section 507(a) of the Bankruptcy Code.
Priority Tax Claim: Any Claim which is entitled to priority of payment
under Section 507(a)(8) of the Bankruptcy Code.
Record Date: _____ __, 1998.
Registration Rights Agreement: A registration rights agreement, in
substantially the form annexed hereto as Exhibit B, to be entered into on
the Effective Date by and among Reorganized Salant and certain holders of
the New Common Stock as of the Effective Date.
Related Documents: This Plan and all documents necessary to consummate
the transactions contemplated by this Plan.
Reorganized Salant: The Debtor from and after the effectiveness of
this Plan on the Effective Date.
Reorganized Salant By-Laws: The by-laws of Reorganized Salant, as
amended and restated pursuant to this Plan, to be filed with the Bankruptcy
Court prior to the Confirmation Date.
Reorganized Salant Certificate of Incorporation: The certificate of
incorporation of Reorganized Salant, as amended and restated pursuant to
this Plan, in substantially the form annexed hereto as Exhibit F.
Salant: Salant Corporation, a Delaware corporation.
Schedules: The schedule of assets and liabilities filed by the Debtor
with the Bankruptcy Court in accordance with section 521(1) of the
Bankruptcy Code, and any supplements and amendments thereto.
Securities Act: The Securities Act of 1933, as amended.
Senior Notes: The 10-1/2% Senior Secured Notes due December 31, 1998
issued pursuant to the Indenture.
Senior Note Claims: Any and all Claims in respect of all or any
portion of the aggregate outstanding and unpaid amount of principal and
interest due and owing under, and subject to the terms and provisions of,
the Senior Notes, and any other indebtedness of the Debtor due and owing
under the Indenture or the Senior Notes (including, without limitation, any
and all interest, costs, attorneys' fees and other expenses owed by the
Debtor or for which the Debtor may be liable in connection therewith).
Stock Award and Incentive Plan: Reorganized Salant's 1998 Stock Award
and Incentive Plan, in substantially the form annexed hereto as Exhibit C.
UCC: The Uniform Commercial Code, from time to time in effect in the
State of New York.
Unimpaired: Any Class of Claims or Interests that is not Impaired.
Warrants: Warrants representing the right to purchase, in the
aggregate, up to 2,216,979 shares of New Common Stock, to be issued by
Reorganized Salant on the Effective Date pursuant to the Warrant Agreement.
Each Warrant represents the right to purchase one share of New Common
Stock.
Warrant Agreement: The Warrant Agreement pursuant to which the
Warrants will be issued, in substantially the form annexed hereto as
Exhibit A.
ARTICLE TWO
PROVISIONS FOR TREATMENT OF ADMINISTRATIVE EXPENSES
2.1. Administrative Expenses. Each allowed Administrative Expense
shall be paid in full in Cash on the later of (i) the Effective Date and
(ii) the date on which the Bankruptcy Court enters an order allowing such
Administrative Expense; provided, however, that allowed Administrative
Expenses representing obligations incurred in the ordinary course of
business, consistent with past practice, or assumed by the Debtor shall be
paid in full or performed by the Debtor or Reorganized Salant in the
ordinary course of business, consistent with past practice; provided
further, however, that allowed Administrative Expenses incurred by the
Debtor or Reorganized Salant after the Confirmation Date, including
(without limitation) claims for professionals' fees and expenses, shall not
be subject to application and may be paid by the Debtor or Reorganized
Salant, as the case may be, in the ordinary course of business and without
further Bankruptcy Court approval.
ARTICLE THREE
PROVISIONS FOR TREATMENT OF PRIORITY TAX CLAIMS
3.1. Priority Tax Claims. With respect to each Allowed Priority Tax
Claim, at the sole option of the Debtor, the Holder of an Allowed Priority
Tax Claim shall be entitled to receive from Reorganized Salant on account
of such Claim:
(a) Cash payments made in equal annual installments beginning on or
before the first anniversary following the Effective Date with the final
installment being payable no later than the sixth anniversary of the date
of the assessment of such Allowed Priority Tax Claim, together with
interest on the unpaid balance of such Allowed Priority Tax Claim from the
Effective Date calculated at the Market Rate; or
(b) Such other treatment agreed to by the Holder of such Allowed
Priority Tax Claim and the Debtor or Reorganized Salant, as the case may
be.
ARTICLE FOUR
CLASSIFICATION OF CLAIMS AND INTERESTS
Pursuant to Section 1122 and 1123(a)(1) of the Bankruptcy Code, set
forth below is a designation of classes of Claims and Interests.
Administrative Expenses and Priority Tax Claims of the kinds specified in
Sections 507(a)(1) and 507(a)(8) of the Bankruptcy Code (set forth in
Articles Two and Three above) have not been classified and are excluded
from the following classes in accordance with Section 1123(a)(l) of the
Bankruptcy Code.
4.1. Claims.
Class 1. Class 1 consists of all Priority Claims.
Class 2. Class 2 consists of the CIT Claim.
Class 3. Class 3 consists of all Senior Note Claims.
Class 4. Class 4 consists of all Miscellaneous Secured Claims.
Class 5. Class 5 consists of all General Unsecured Claims.
4.2. Interests.
Class 6. Class 6 consists of all Old Common Stock Interests.
Class 7. Class 7 consists of all Other Interests.
ARTICLE FIVE
IDENTIFICATION OF CLASSES OF CLAIMS AND
INTERESTS IMPAIRED AND NOT IMPAIRED BY THIS PLAN
5.1. Classes of Claims and Interests Impaired by this Plan and
Entitled to Vote. Senior Note Claims (Class 3) and Old Common Stock
Interests (Class 6) are Impaired by this Plan and the Holders of Allowed
Claims and Interests in such Classes are entitled to vote to accept or
reject this Plan.
5.2. Classes of Claims and Interests Not Impaired by this Plan and
Conclusively Presumed to Accept this Plan. Priority Claims (Class 1), the
CIT Claim (Class 2), Miscellaneous Secured Claims (Class 4) and General
Unsecured Claims (Class 5) are not Impaired by this Plan. Under Section
1126(f) of the Bankruptcy Code, the Holders of such Claims and Interests
are conclusively presumed to accept this Plan, and the acceptances of such
Holders will not be solicited.
5.3. Class of Interests Impaired by this Plan and Deemed Not to Have
Accepted this Plan. Other Interests (Class 7) are Impaired by this Plan and
do not receive or retain any property under this Plan. Under Section
1126(g) of the Bankruptcy Code, the Holders of Other Interests are deemed
not to have accepted this Plan, and the acceptance of such Holders will not
be solicited.
ARTICLE SIX
PROVISIONS FOR TREATMENT OF
CLAIMS AND INTERESTS
6.1. Priority Claims (Class 1). On the latest of (a) the Effective
Date, (b) the date on which such Priority Claim becomes an Allowed Claim,
and (c) the date on which the Debtor and the Holder of such Allowed
Priority Claim otherwise agree, each Holder of an Allowed Priority Claim
shall be entitled to receive Cash in an amount sufficient to render such
Allowed Priority Claim Unimpaired under Section 1124 of the Bankruptcy
Code, in full settlement, release and discharge of such Allowed Priority
Claim.
Class 1 is not Impaired.
6.2. CIT Claim (Class 2).
(a) Treatment. At the election of the Debtor prior to the Effective
Date, on the Effective Date or as soon as practicable thereafter, CIT shall
be entitled to receive on account of the Allowed CIT Claim one of the
following treatments: (i) CIT shall receive a distribution in Cash equal to
100% of its Allowed CIT Claim, (ii) the Allowed CIT Claim shall be
otherwise rendered Unimpaired in accordance with Section 1124 of the
Bankruptcy Code, or (iii) such other treatment as mutually agreed to by the
Debtor and CIT.
(b) Full Settlement. The distribution provided for in this Section 6.2
is in full settlement, release and discharge of the CIT Claim.
Class 2 is not Impaired.
6.3. Senior Note Claims (Class 3).
(a) Treatment. On the Effective Date or as soon as practicable
thereafter, each Holder of an Allowed Senior Note Claim shall be entitled
to receive on account of such Holder's Allowed Senior Note Claim such
Holder's pro rata share of 18,456,350 shares of New Common Stock (or
175.977555 shares of New Common Stock for each $1,000 principal amount of
Senior Notes held by such Holder).
(b) Full Settlement. The distribution provided for in this Section 6.3
is in full settlement, release and discharge of each Holder's Senior Note
Claim.
(c) Allowance of Senior Note Claims. The aggregate Senior Note Claims
in Class 3 shall be deemed Allowed in the aggregate amount of $110,379,000,
plus interest in the amount of $30,590 for each day after February 28,
1998, until and including the Filing Date. The Senior Note Claims are not
disputed, contingent or unliquidated, and no Holder of a Senior Note Claim
or the Indenture Trustee shall be required to file a proof of claim in
order for such Claims to be Allowed pursuant to this Plan. Any Claims filed
with respect to the Senior Note Claims shall be disallowed as duplicative
of the Claim deemed filed and Allowed as provided in this Section 6.3(c).
The reasonable fees, costs and expenses of the Indenture Trustee as
provided for pursuant to the Indenture shall be paid in Cash in accordance
with Section 14.10 of this Plan.
Class 3 is Impaired.
6.4. Miscellaneous Secured Claims (Class 4).
(a) Treatment. At the election of the Debtor prior to the Effective
Date, on the Effective Date or as soon as practicable thereafter, each
Holder of an Allowed Miscellaneous Secured Claim shall be entitled to
receive on account of such Holder's Allowed Miscellaneous Secured Claim one
of the following treatments: (i) the legal, equitable and contractual
rights to which such Allowed Miscellaneous Secured Claim entitles such
Holder shall remain unaltered, (ii) such Holder's Allowed Miscellaneous
Secured Claim shall be reinstated and rendered Unimpaired in accordance
with section 1124(2) of the Bankruptcy Code, or (iii) such other treatment
as mutually agreed to by the Debtor and such Holder.
(b) Full Settlement. The distribution provided for in this Section 6.4
is in full settlement, release and discharge of each Holder's Miscellaneous
Secured Claim.
Class 4 is not Impaired.
6.5. General Unsecured Claims (Class 5).
(a) Treatment. At the election of the Debtor prior to the Effective
Date, on the Effective Date or as soon as practicable thereafter, each
Holder of an Allowed General Unsecured Claim that has not been fully paid
or satisfied prior to the Effective Date shall be entitled to receive on
account of such Holder's Allowed General Unsecured Claim one of the
following treatments: (i) the legal, equitable and contractual rights to
which such Allowed General Unsecured Claim entitles such Holder shall
remain unaltered; (ii) such Holder's Allowed General Unsecured Claim shall
be reinstated and rendered Unimpaired in accordance with section 1124(2) of
the Bankruptcy Code; or (iii) such other treatment as mutually agreed to by
the Debtor and such Holder.
(b) Full Settlement. The distribution provided for in this Section 6.5
is in full settlement, release and discharge of each Holder's General
Unsecured Claim.
Class 5 is not Impaired.
6.6. Old Common Stock Interests (Class 6)
(a) Treatment. On the Effective Date or as soon as practicable
thereafter, each Holder of an Allowed Old Common Stock Interest shall be
entitled to receive on account of such Holder's Allowed Old Common Stock
Interest such Holder's pro rata share of: (i) 1,496,461 shares of New
Common Stock; and (ii) the Warrants.
(b) Full Settlement. The distribution provided for in this Section 6.6
is in full settlement, release and discharge of each Holder's Old Common
Stock Interest.
Class 6 is Impaired.
6.7. Other Interests (Class 7). On the Effective Date, all Other
Interests will be extinguished and no distributions will be made in respect
of such Other Interests.
Class 7 is Impaired.
ARTICLE SEVEN
ACCEPTANCE OR REJECTION OF THIS PLAN;
EFFECT OF REJECTION BY ONE OR MORE IMPAIRED
CLASSES OF CLAIMS OR INTERESTS
7.1. Impaired Class of Claims and Interests Entitled to Vote. The
Holders of Claims in each Impaired Class of Claims (Class 3 - Senior Note
Claims) and Interests (Class 6 - Old Common Stock Interests) are entitled
to vote as a Class to accept or reject this Plan.
7.2. Acceptance by an Impaired Class of Creditors. Consistent with
Section 1126(c) of the Bankruptcy Code and except as provided in Section
1126(e) of the Bankruptcy Code, Class 3 (Senior Note Claims) shall have
accepted this Plan if this Plan is accepted by Holders of at least
two-thirds in dollar amount and more than one-half in number of the Allowed
Claims in Class 3 that have timely and properly voted to accept or reject
this Plan.
7.3. Acceptance by an Impaired Class of Interest Holders. Consistent
with Section 1126(d) of the Bankruptcy Code and except as provided in
Section 1126(e) of the Bankruptcy Code, Class 6 (Old Common Stock
Interests) shall have accepted this Plan if this Plan is accepted by
Holders of at least two-thirds in amount of the Allowed Interests in Class
6 that have timely and properly voted to accept or reject this Plan.
7.4. Classes of Claims Not Impaired by this Plan and Conclusively
Presumed to Accept this Plan. Priority Claims (Class 1), the CIT Claim
(Class 2), Miscellaneous Secured Claims (Class 4) and General Unsecured
Claims (Class 5) are not Impaired by this Plan. Under Section 1126(f) of
the Bankruptcy Code, the Holders of such Claims are conclusively presumed
to accept this Plan, and the acceptances of such Holders will not be
solicited.
7.5. Class of Interests Deemed Not to Have Accepted this Plan. Other
Interests (Class 7) are Impaired by this Plan and do not receive or retain
any property under this Plan. Under Section 1126(g) of the Bankruptcy Code,
the Holders of such Other Interests are deemed not to have accepted this
Plan, and the acceptance of such Holders will not be solicited.
7.6. Confirmation Pursuant to Section 1129(b) of the Bankruptcy Code.
With respect to Class 7 and any Impaired Class that does not accept this
Plan, the Debtor intends to request that the Bankruptcy Court confirm this
Plan in accordance with Section 1129(b) of the Bankruptcy Code.
ARTICLE EIGHT
UNEXPIRED LEASES AND EXECUTORY CONTRACTS
8.1. Assumption and Rejection of Executory Contracts and Unexpired
Leases. Each executory contract or unexpired lease that is not listed on
Exhibit E hereto or has not been expressly assumed or rejected by order of
the Bankruptcy Court on or prior to the Confirmation Date shall, as of the
Confirmation Date (subject to the occurrence of the Effective Date), be
deemed to have been assumed by the Debtor unless there is then pending
before the Bankruptcy Court a motion to reject such unexpired lease or
executory contract. Each unexpired lease and executory contract listed on
Exhibit E hereto is specifically rejected pursuant to this Plan as of the
Effective Date. Entry of the Confirmation Order by the clerk of the
Bankruptcy Court shall constitute an order approving such assumptions and
rejections, as the case may be, pursuant to Section 365(a) of the
Bankruptcy Code.
8.2. Bar Date for Rejection Damages. Unless otherwise provided by an
order of the Bankruptcy Court entered prior to the Confirmation Date, proof
of any Claim against the Debtor arising from the rejection of any executory
contract or unexpired lease pursuant to an order of the Bankruptcy Court
must be filed with the Bankruptcy Court within the later of (a) the time
period established by the Bankruptcy Court in an order of the Bankruptcy
Court approving such rejection, or (b) if no such time period is or was
established, thirty (30) days from the date of entry of such order of the
Bankruptcy Court approving such rejection. Any Entity that fails to file
proof of its Claim arising from such a rejection within the period set
forth above shall be forever barred from asserting a Claim against the
Debtor, Reorganized Salant, or the property or interests in property of the
Debtor or Reorganized Salant. All Allowed Claims arising from the rejection
of executory contracts or unexpired leases shall be classified as a General
Unsecured Claim (Class 5) under this Plan.
ARTICLE NINE
IMPLEMENTATION OF THIS PLAN
9.1. Vesting of Property. Except as otherwise provided in this Plan,
on the Effective Date, title to all property of the Debtor's estate shall
pass to Reorganized Salant free and clear of all Claims, Interests, and
liens (including, without limitation, all liens securing the Senior Note
Claims). Confirmation of this Plan (subject to the occurrence of the
Effective Date) shall be binding and the Debtor's debts shall, without in
any way limiting Section 12.1 of this Plan, be discharged as provided in
Section 1141 of the Bankruptcy Code.
9.2. Transactions on Business Days. If the Effective Date or any other
date on which a transaction may occur under this Plan shall occur on a day
that is not a Business Day, the transactions contemplated by this Plan to
occur on such day shall instead occur on the next succeeding Business Day.
9.3. Restated Certificate of Incorporation; Restated By-Laws. On the
Effective Date or as soon thereafter as is practicable, Reorganized Salant
shall file with the Secretary of State of the State of Delaware, in
accordance with sections 103 and 303 of the Delaware General Corporation
Law, the Reorganized Salant Certificate of Incorporation and such
certificate shall be the certificate of incorporation for Reorganized
Salant. On the Effective Date, the Reorganized Salant By-Laws shall become
the by-laws of Reorganized Salant.
9.4. Implementation. The Debtor shall be authorized to take all
necessary steps, and perform all necessary acts, to consummate the terms
and conditions of this Plan. On or before the Effective Date, the Debtor
may file with the Bankruptcy Court such agreements and other documents as
may be necessary or appropriate to effectuate or further evidence the terms
and conditions of this Plan and the other agreements referred to herein.
The Debtor or Reorganized Salant, as the case may be, may, and shall,
execute such documents and take such other actions as are necessary to
effectuate the transactions provided for in this Plan.
9.5. Issuance of New Securities. The issuance and distribution of the
New Common Stock and the Warrants by Reorganized Salant is hereby
authorized and directed without the need for any further corporate action,
under applicable law, regulation, order, rule or otherwise.
9.6. Cancellation of Existing Securities and Agreements. On the
Effective Date, the Senior Notes, the Old Common Stock, and any rights,
options, warrants, calls, subscriptions, or other similar rights or other
agreements or commitments, contractual or otherwise, obligating the Debtor
to issue, transfer, or sell any shares of Old Common Stock or any other
capital stock of the Debtor shall be canceled. Except for purposes of
effectuating the distributions under this Plan, on the Effective Date, the
Indenture shall be canceled.
9.7. Board of Directors of Reorganized Salant. On the Effective Date,
the operation of Reorganized Salant shall become the general responsibility
of its Board, subject to, and in accordance with, the Reorganized Salant
Certificate of Incorporation and the Reorganized Salant By-Laws. The
initial Board of Reorganized Salant shall consist of the individuals
identified on Exhibit D hereto. Such directors shall be deemed elected or
appointed, as the case may be, pursuant to the Confirmation Order, but
shall not take office and shall not be deemed to be elected or appointed
until the occurrence of the Effective Date. Those directors and officers
not continuing in office shall be deemed removed therefrom as of the
Effective Date pursuant to the Confirmation Order.
9.8. Employee Benefit Plans. Subject to the occurrence of the
Effective Date, all employee benefit plans, policies, and programs of the
Debtor, and the Debtor's obligations thereunder, shall survive confirmation
of this Plan, remain unaffected thereby, and not be discharged. Employee
benefit plans, policies, and programs shall include, without limitation,
all savings plans, retirement pension plans, health care plans, disability
plans, severance benefit plans, life, accidental death, and dismemberment
insurance plans (to the extent not executory contracts assumed under this
Plan), but shall exclude all employee equity or equity-based incentive
plans.
9.9. The Stock Award and Incentive Plan. The Stock Award and Incentive
Plan shall remain in effect after the Effective Date; provided, that, if
the Stock Award and Incentive Plan has not previously been approved by the
stockholders of Salant, the Stock Award and Incentive Plan and any grants
made thereunder shall be subject to the subsequent approval of the
stockholders of Reorganized Salant.
9.10. Survival of Indemnification Obligations. Notwithstanding
anything to the contrary contained in this Plan, the obligations of the
Debtor to indemnify (i) its present or former directors, officers, agents,
employees and representatives, pursuant to the Certificate of
Incorporation, By-Laws, applicable statutes or contractual obligations, in
respect of all past, present and future actions, suits and proceedings
against any of such directors, officers, agents, employees and
representatives, based upon any act or omission related to service with,
for or on behalf of the Debtor, and (ii) Magten in accordance with and
pursuant to paragraph 8 of the Letter Agreement, shall not be discharged or
impaired by confirmation or consummation of this Plan but shall survive
unaffected by the reorganization contemplated by this Plan and shall be
performed and honored in full, pursuant to the Reorganized Salant By-Laws
and Certificate of Incorporation, applicable statutes or contractual
obligations, by Reorganized Salant regardless of such confirmation,
consummation and reorganization.
9.11. Listing of New Common Stock; Registration of Securities.
Reorganized Salant shall use its best efforts to (i) maintain its status as
a reporting company under the Exchange Act and cause, on the Effective
Date, the shares of New Common Stock issued hereunder to be listed on the
NYSE, or, if Reorganized Salant is unable to have the shares of New Common
Stock listed on the NYSE, on another national securities exchange, or, as
to the New Common Stock, quoted in the national market system of the
National Association of Securities Dealers' Automated Quotation System,
(ii) in accordance with the terms of the Registration Rights Agreement,
file and have declared effective as soon as possible thereafter a
registration statement or registration statements under the Securities Act,
for the offering on a continuous or delayed basis in the future of the
shares of New Common Stock (the "Shelf Registration"), (iii) cause to be
filed with the Commission on the Effective Date a registration statement on
Form 10 under the Exchange Act with respect to the New Common Stock, (iv)
keep the Shelf Registration effective for a three-year period, and (v)
supplement or make amendments to the Shelf Registration, if required under
the Securities Act or by the rules or regulations promulgated thereunder or
in accordance with the terms of the Registration Rights Agreement, and have
such supplements and amendments declared effective as soon as practicable
after filing. In addition, on the Effective Date, Reorganized Salant shall
enter into the Registration Rights Agreement in the form of Exhibit B
hereto.
9.12. Retention and Enforcement of Causes of Action. Pursuant to
section 1123(b)(3) of the Bankruptcy Code, Reorganized Salant shall retain
and shall have the exclusive right, in its discretion, to enforce against
any Entity any and all Causes of Action of the Debtor, including all Causes
of Action of a trustee and debtor-in-possession under the Bankruptcy Code,
other than those released or compromised as part of, or under, this Plan.
ARTICLE TEN
PROVISIONS COVERING DISTRIBUTIONS
10.1. Timing of Distributions Under this Plan. Except as otherwise
provided in this Plan and without in any way limiting Sections 9.6, 10.6,
10.11, 11.3 and 12.1 of this Plan, payments and distributions in respect of
Allowed Claims and Allowed Interests which are required by this Plan to be
made on the Effective Date shall be made by the Debtor, Reorganized Salant
or its designee or, in the case of the distributions to the Noteholders, by
Reorganized Salant or its designee (with the assistance of the Indenture
Trustee, if necessary) on, or as soon as practicable following, the
Effective Date. Distributions of New Common Stock to the Noteholders shall
be made at the addresses of the registered Holders of the Senior Notes last
provided in writing to the Indenture Trustee.
10.2. Allocation of Consideration. The aggregate consideration to be
distributed to the Holders of Allowed Claims in each Class under this Plan
shall be treated as first satisfying an amount equal to the stated
principal amount of the Allowed Claim for such Holders and any remaining
consideration as satisfying accrued, but unpaid, interest, if any.
10.3. Cash Payments. Cash payments made pursuant to this Plan will be
in U.S. dollars. Cash payments of $1,000,000 or more to be made pursuant to
this Plan will, to the extent requested in writing no later than five days
after the Confirmation Date, be made by wire transfer from a domestic bank.
Cash payments to foreign creditors may be made, at the option of the Debtor
or Reorganized Salant, in such funds and by such means as are necessary or
customary in a particular foreign jurisdiction. Cash payments made pursuant
to this Plan in the form of checks issued by Reorganized Salant shall be
null and void if not cashed within 120 days of the date of the issuance
thereof. Requests for reissuance of any check shall be made directly to
Reorganized Salant or its designee as set forth in Section 10.13 below.
10.4. Payment of Statutory Fees. All fees payable to the United States
Trustee pursuant to 28 U.S.C. ss. 1930 as determined by the Bankruptcy
Court at the Confirmation Hearing shall be paid by the Debtor on or before
the Effective Date.
10.5. No Interest. Except with respect to holders of Unimpaired Claims
entitled to interest under applicable non-bankruptcy law or as expressly
provided herein, no Holder of an Allowed Claim or Interest shall receive
interest on the distribution to which such Holder is entitled hereunder,
regardless of whether such distribution is made on the Effective Date or
thereafter.
10.6. Fractional Securities. Notwithstanding any other provision of
this Plan, only whole numbers of shares of New Common Stock and Warrants
will be issued or transferred, as the case may be, pursuant to this Plan.
Reorganized Salant will not distribute any fractional shares of New Common
Stock or fractional interests in Warrants. For purposes of distribution,
fractional shares of New Common Stock and fractional Warrants shall be
rounded up or down to the nearest share of New Common Stock or Warrant, as
the case may be; provided, that, whenever any distribution would result in
a distribution of exactly one-half of a share of New Common Stock or
one-half of a Warrant, the actual distribution shall reflect a rounding up
to the nearest share of New Common Stock or Warrant, as the case may be.
10.7. Withholding of Taxes. Reorganized Salant shall withhold from any
property distributed under this Plan any property which must be withheld
for taxes payable by the Entity entitled to such property to the extent
required by applicable law. As a condition to making any distribution under
this Plan, Reorganized Salant or its designee, as the case may be, may
request that the Holder of any Allowed Claim provide such Holder's taxpayer
identification number and such other certification as may be deemed
necessary to comply with applicable tax reporting and withholding laws.
10.8. Pro Rata Distribution. Where this Plan provides for pro rata
distribution, the property to be distributed under this Plan shall be
divided pro rata among the Holders of Allowed Claims or Allowed Interests
of the relevant Class.
10.9. Distribution Record Date. As of the close of business on the
Distribution Record Date, the transfer registers for the Senior Notes and
Old Common Stock maintained by the Debtor, or its respective agents, will
be closed. Reorganized Salant, its designees and the Indenture Trustee will
have no obligation to recognize the transfer of any Senior Notes or Old
Common Stock occurring after the Distribution Record Date and will be
entitled for all purposes relating to this Plan to recognize and deal only
with those Holders of record as of the close of business on the
Distribution Record Date.
10.10. Persons Deemed Holders of Registered Securities. Except as
otherwise provided herein and subject to Sections 9.6 and 10.11, the
Debtor, Reorganized Salant or its designee or, in the case of the
Noteholders, the Indenture Trustee, shall be entitled to treat the record
holder of a registered security as the Holder of the Claim or Interest in
respect thereof for purposes of all notices, payments or other
distributions under this Plan unless the Debtor, Reorganized Salant, its
designee or the Indenture Trustee, as the case may be, shall have received
written notice specifying the name and address of any new Holder thereof
(and the nature and amount of the interest of such new Holder) at least ten
(10) Business Days prior to the date of such notice, payment or other
distribution. In the event of any dispute regarding the identity of any
party entitled to any payment or distribution in respect of any Claim or
Interest under this Plan, no payments or distributions will be made in
respect of such Claim or Interest until the Bankruptcy Court resolves that
dispute pursuant to a Final Order.
10.11. Surrender of Existing Securities. As a condition to receiving
any distribution under this Plan, each Holder of a Senior Note, Old Common
Stock Interest, or other instrument evidencing a Claim or equity Interest
must surrender such Senior Note, Old Common Stock Interest, or other
instrument to Reorganized Salant or its designee. Reorganized Salant
appoints the Indenture Trustee under the Indenture as its designee to
receive the Senior Notes. Any Holder of a Claim or Interest that fails to
(a) surrender such instrument or (b) execute and deliver an affidavit of
loss and/or indemnity reasonably satisfactory to Reorganized Salant and
furnish a bond in form, substance, and amount reasonably satisfactory to
Reorganized Salant before the later to occur of (i) the second anniversary
of the Effective Date and (ii) six months following the date such Holder's
Claim becomes an Allowed Claim, shall be deemed to have forfeited all
rights, Claims, and/or Interests and may not participate in any
distribution under this Plan.
10.12. Special Procedures for Lost, Stolen, Mutilated or Destroyed
Instruments. In addition to any requirements under the Debtor's Certificate
of Incorporation or By-laws, any Holder of a Claim or an Interest evidenced
by an Instrument that has been lost, stolen, mutilated or destroyed shall
be required to, in lieu of surrendering such Instrument, deliver to
Reorganized Salant or its designee: (a) evidence satisfactory to
Reorganized Salant or its designee, as the case may be, of the loss, theft,
mutilation or destruction; and (b) such security or indemnity as may be
required by Reorganized Salant or its designee, as the case may be, to hold
Reorganized Salant and/or its designee, as applicable, harmless from any
damages, liabilities or costs incurred in treating such individual as a
Holder of an Instrument. Upon compliance with this Section 10.12, the
Holder of a Claim or Interest evidenced by any such lost, stolen, mutilated
or destroyed Instrument will, for all purposes under this Plan, be deemed
to have surrendered such Instrument.
10.13. Undeliverable or Unclaimed Distributions. Any Entity that is
entitled to receive a Cash distribution under this Plan but that fails to
cash a check within 120 days of its issuance shall be entitled to receive a
reissued check from Reorganized Salant for the amount of the original
check, without any interest, if such Entity requests Reorganized Salant or
its designee to reissue such check and provides Reorganized Salant or its
designee, as the case may be, with such documentation as Reorganized Salant
or its designee requests to verify that such Entity is entitled to such
check, prior to the second anniversary of the Effective Date. If an Entity
fails to cash a check within 120 days of its issuance and fails to request
reissuance of such check prior to the later to occur of (i) the second
anniversary of the Effective Date and (ii) six months following the date
such Holder's Claim becomes an Allowed Claim, such Entity shall not be
entitled to receive any distribution under this Plan. If the distribution
to any Holder of an Allowed Claim or Allowed Interest is returned to
Reorganized Salant or its designee as undeliverable, no further
distributions will be made to such Holder unless and until Reorganized
Salant or its designee is notified in writing of such Holder's then-current
address. Undeliverable distributions will remain in the possession of
Reorganized Salant or its designee pursuant to Section 10.1 of this Plan
until such time as a distribution becomes deliverable.
All claims for undeliverable distributions must be made on or before
the later to occur of (i) the second anniversary of the Effective Date and
(ii) six months following the date such Holder's Claim or Interest becomes
an Allowed Claim or Allowed Interest. After such date, all unclaimed
property shall revert to Reorganized Salant and the claim of any Holder or
successor to such Holder with respect to such property shall be discharged
and forever barred notwithstanding any federal or state escheat laws to the
contrary.
ARTICLE ELEVEN
PROCEDURES FOR RESOLVING DISPUTED CLAIMS
11.1. Objections to Claims. Only the Debtor and Reorganized Salant
shall have the authority to file objections to Claims after the Effective
Date. Subject to an order of the Bankruptcy Court providing otherwise,
Reorganized Salant may object to a Claim by filing an objection with the
Bankruptcy Court and serving such objection upon the Holder of such Claim
not later than one hundred and twenty (120) days after the Effective Date
or one hundred and twenty (120) days after the filing of the proof of such
Claim, whichever is later, or such other date determined by the Bankruptcy
Court upon motion to the Bankruptcy Court without further notice or
hearing. Notwithstanding the foregoing, neither the Debtor nor Reorganized
Salant shall object to the allowance of the Senior Note Claims as described
in Section 6.3(c) of this Plan.
11.2. Procedure. Unless otherwise ordered by the Bankruptcy Court or
agreed to by written stipulation of the Debtor or Reorganized Salant, or
until an objection thereto by the Debtor or by Reorganized Salant is
withdrawn, the Debtor or Reorganized Salant shall litigate the merits of
each Disputed Claim until determined by a Final Order; provided, however,
that, (a) prior to the Effective Date, the Debtor, subject to the approval
of the Bankruptcy Court, and (b) after the Effective Date, Reorganized
Salant, subject to the approval of the Bankruptcy Court, may compromise and
settle any objection to any Claim.
11.3. Payments and Distributions With Respect to Disputed Claims. No
payments or distributions shall be made in respect of a Disputed Claim
until such Disputed Claim becomes an Allowed Claim.
11.4. Timing of Payments and Distributions With Respect to Disputed
Claims. Subject to the provisions of this Plan, payments and distributions
with respect to each Disputed Claim that becomes an Allowed Claim that
would have otherwise been made had the Disputed Claim been an Allowed Claim
on the Effective Date shall be made within thirty (30) days after the date
that such Disputed Claim becomes an Allowed Claim. Holders of Disputed
Claims that become Allowed Claims shall be bound, obligated and governed in
all respects by the provisions of this Plan.
11.5. Individual Holder Proofs of Interest. Individual Holders of
Allowed Old Common Stock Interests are not required to file proofs of such
Interests unless they disagree with the number of shares set forth on the
Debtor's stock register.
ARTICLE TWELVE
DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS
12.1. Discharge of All Claims and Interests and Releases
(a) Except as otherwise specifically provided by this Plan, the
confirmation of this Plan (subject to the occurrence of the Effective Date)
shall discharge and release the Debtor, Reorganized Salant, its successors
and assigns and their respective assets and properties from any debt,
charge, Cause of Action, liability, encumbrances, security interest, Claim,
Interest, or other cause of action of any kind, nature or description
(including, but not limited to, any claim of successor liability) that
arose before the Confirmation Date, and any debt of the kind specified in
Sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not a
proof of Claim is filed or is deemed filed, whether or not such Claim is
Allowed, and whether or not the Holder of such Claim has accepted this
Plan.
(b) Furthermore, but in no way limiting the generality of the
foregoing, except as otherwise specifically provided by this Plan, the
distributions and rights that are provided in this Plan to Class 3 and
Class 6 shall be in complete satisfaction, discharge and release, effective
as of the Effective Date of (i) all Claims and Causes of Action against,
liabilities of, liens on, charges, encumbrances, security interests,
obligations of and Interests in the Debtor, Reorganized Salant, or the
direct or indirect assets and properties of the Debtor or Reorganized
Salant, whether known or unknown, and (ii) all Causes of Action, whether
known or unknown, either directly or derivatively through the Debtor or
Reorganized Salant, against successors and assigns of the Debtor, present
and former Affiliates of the Debtor, and its partners, directors, officers,
agents, attorneys, advisors, financial advisors, investment bankers,
independent accountants, employees of the Debtor and its Affiliates and any
Affiliate of any of the foregoing, and Magten, and its attorneys, advisors,
and financial advisors, based on the same subject matter as any Claim or
Interest, or based on any act or omission, transaction or other activity or
security, instrument or other agreement of any kind or nature occurring,
arising or existing prior to the Effective Date that was or could have been
the subject of any Claim or Interest, in each case regardless of whether a
proof of Claim or Interest was filed, whether or not Allowed and whether or
not the Holder of the Claim or Interest has voted to accept or reject this
Plan.
(c) In addition, but in no way limiting the generality of the
foregoing, except as otherwise specifically provided by this Plan, any
Holder of a Claim in Class 3 or Class 6 accepting any distribution pursuant
to this Plan shall be presumed conclusively to have released the Debtor,
Reorganized Salant, successors and assigns of the Debtor, the present and
former Affiliates of the Debtor, directors, officers, agents, attorneys,
independent accountants, advisors, financial advisors, investment bankers
and employees of the Debtor and its Affiliates, and any Entity claimed to
be liable derivatively through any of the foregoing, from any Cause of
Action based on the same subject matter as the Claim on which the
distribution is received. The release described in the preceding sentence
shall be enforceable as a matter of contract against any Entity that
accepts any distribution pursuant to this Plan.
(d) Without in any way limiting Section 12.2 of this Plan, all
injunctions or stays entered in the Chapter 11 Case and existing
immediately prior to the Confirmation Date shall remain in full force and
effect until the Effective Date.
12.2. Injunction. The satisfaction, release and discharge pursuant to
Sections 12.1, 12.3 and 12.4 of this Plan, shall act as an injunction
against any Entity commencing or continuing any action, employment of
process, or act to collect, offset or recover any Claim or Cause of Action
satisfied, released or discharged under this Plan. The injunction,
discharge and releases described in Sections 12.1, 12.2, 12.3 and 12.4 of
this Plan shall apply regardless of whether or not a proof of Claim or
Interest based on any Claim, debt, liability or Interests is filed or
whether or not a Claim or Interest based on such Claim, debt, liability or
Interest is Allowed, or whether or not such Entity voted to accept or
reject this Plan.
12.3. Exculpation. In consideration of the distributions under this Plan,
upon the Effective Date, each Holder of a Claim or Interest will be deemed
to have released the Debtor and its directors, officers, agents, attorneys,
independent accountants, advisors, financial advisors, investment bankers
and employees (as applicable) employed by the Debtors from and after the
Filing Date and Magten and its attorneys, advisors, and financial advisors
employed by Magten from and after the Filing Date, from any and all Causes
of Action (other than the right to enforce the Debtor's obligations under
this Plan and the right to pursue a Claim based on any willful misconduct)
arising out of actions or omissions during the administration of the
Debtor's estate.
12.4. Guaranties and Claims of Subordination
(a) Guaranties. The classification and the manner of satisfying all
Claims under this Plan takes into consideration the possible existence of
any alleged guaranties by the Debtor of obligations of any Entity or
Entities, and that the Debtor may be joint obligors with another Entity or
Entities with respect to the same obligation. All Claims against the Debtor
based upon any such guaranties shall be satisfied, discharged and released
in the manner provided in this Plan and the Holders of Claims shall be
entitled to only one distribution with respect to any given obligation of
the Debtor.
(b) Claims of Subordination. (i) Except as expressly provided for in
this Plan, to the fullest extent permitted by applicable law, all Claims
against and Interests in the Debtor, and all rights and Claims between or
among Holders of Claims and Interests relating in any manner whatsoever to
Claims against or Interests in the Debtor, based on any contractual, legal
or equitable subordination rights, shall be terminated on the Effective
Date and discharged in the manner provided in this Plan, and all such
Claims, Interests and rights so based and all such contractual, legal and
equitable subordination rights to which any Entity may be entitled shall be
irrevocably waived by the acceptance by such Entity (or, unless the
Confirmation Order provides otherwise, the Class of which such Entity is a
member) of this Plan or of any distribution pursuant to this Plan. Except
as otherwise provided in this Plan and to the fullest extent permitted by
applicable law, the rights afforded and the distributions that are made in
respect of any Claims or Interests hereunder shall not be subject to levy,
garnishment, attachment or like legal process by any Holder of a Claim or
Interest by reason of any contractual, legal or equitable subordination
rights, so that, notwithstanding any such contractual, legal or equitable
subordination, each Holder of a Claim or Interest shall have and receive
the benefit of the rights and distributions set forth in this Plan.
(ii) Pursuant to Bankruptcy Rule 9019 and any applicable state law
and as consideration for the distributions and other benefits provided under
this Plan, the provisions of this Section 12.4(b) shall constitute a good
faith compromise and settlement of any Causes of Action relating to the
matters described in this Section 12.4(b) which could be brought by any
Holder of a Claim or Interest against or involving another Holder of a
Claim or Interest, which compromise and settlement is in the best interests
of Holders of Claims and Interests and is fair, equitable and reasonable.
This settlement shall be approved by the Bankruptcy Court as a settlement
of all such Causes of Action. Entry of the Confirmation Order shall
constitute the Bankruptcy Court's approval of this settlement pursuant to
Bankruptcy Rule 9019 and its finding that this is a good faith settlement
pursuant to any applicable state law, including, without limitation, the
laws of the States of New York and Delaware, given and made after due
notice and opportunity for hearing, and shall bar any such Cause of Action
by any Holder of a Claim or Interest against or involving another Holder of
a Claim or Interest.
ARTICLE THIRTEEN
CONDITIONS PRECEDENT TO CONFIRMATION
ORDER AND EFFECTIVE DATE
13.1. Conditions Precedent to Entry of the Confirmation Order. The
following conditions must occur and be satisfied or waived in accordance
with Section 13.3 of this Plan on or before the Confirmation Date for this
Plan to be confirmed on the Confirmation Date.
(a) The Confirmation Order is in form and substance reasonably
acceptable to the Debtor, Magten and Apollo.
13.2. Conditions Precedent to the Effective Date. The following
conditions must occur and be satisfied or waived by the Debtor on or before
the Effective Date for this Plan to become effective on the Effective Date.
(a) Final Order. The Confirmation Order shall have become a Final
Order;
(b) Working Capital Facility. Reorganized Salant shall have executed
an agreement for a working capital facility on terms reasonably
satisfactory to Apollo and Magten;
(c) Certificate of Incorporation. The Reorganized Salant Certificate
of Incorporation, in the form of Exhibit F hereto, shall have been filed
with the Secretary of State of the State of Delaware, in accordance with
sections 103 and 303 of the Delaware General Corporation Law; and
(d) Authorizations, Consents and Approvals. All authorizations,
consents and regulatory approvals required (if any) in connection with this
Plan's effectiveness shall have been obtained.
13.3. Waiver of Conditions. With the prior written consent (which
consent shall not be unreasonably withheld) of Magten and Apollo, but not
otherwise, the Debtor may waive one or more of the conditions precedent to
the confirmation or effectiveness of this Plan set forth in Sections 13.1
and 13.2 of this Plan.
13.4. Effect of Failure of Conditions. If each of the conditions to
effectiveness and the occurrence of the Effective Date has not been
satisfied or duly waived on or before the first Business Day that is more
than 179 days after the date the Court enters an order confirming this
Plan, or by such later date as is proposed and approved, after notice and a
hearing, by the Court, then upon motion by the Debtor or any party in
interest made before the time that each of the conditions has been
satisfied or duly waived, the order confirming this Plan may be vacated by
the Court; provided, however, that notwithstanding the filing of such a
motion, the order confirming this Plan shall not be vacated if each of the
conditions to consummation is either satisfied or duly waived before the
Court enters an order granting the relief requested in such motion. If the
order confirming this Plan is vacated pursuant to this section, this Plan
shall be null and void in all respects, and nothing contained in this Plan
shall (a) constitute a waiver or release of any claims against or equity
interests in the Debtor or (b) prejudice in any manner the rights of the
Holder of any claim or equity interest in the Debtor.
ARTICLE FOURTEEN
MISCELLANEOUS PROVISIONS
14.1. Bankruptcy Court to Retain Jurisdiction. The business and assets
of the Debtor shall remain subject to the jurisdiction of the Bankruptcy
Court until the Effective Date. From and after the Effective Date, the
Bankruptcy Court shall retain and have exclusive jurisdiction of all
matters arising out of, and related to the Chapter 11 Case or this Plan
pursuant to, and for purposes of, subsection 105(a) and section 1142 of the
Bankruptcy Code and for, among other things, the following purposes: (a) to
determine any and all disputes relating to Claims and Interests and the
allowance and amount thereof; (b) to determine any and all disputes among
creditors with respect to their Claims; (c) to consider and allow any and
all applications for compensation for professional services rendered and
disbursements incurred in connection therewith; (d) to determine any and
all applications, motions, adversary proceedings and contested or litigated
matters pending on the Effective Date and arising in or related to the
Chapter 11 Case or this Plan; (e) to remedy any defect or omission or
reconcile any inconsistency in the Confirmation Order; (f) to enforce the
provisions of this Plan relating to the distributions to be made hereunder;
(g) to issue such orders, consistent with section 1142 of the Bankruptcy
Code, as may be necessary to effectuate the consummation and full and
complete implementation of this Plan; (h) to enforce and interpret any
provisions of this Plan; (i) to determine such other matters as may be set
forth in the Confirmation Order or that may arise in connection with the
implementation of this Plan; (j) to determine the amounts allowable as
compensation or reimbursement of expenses pursuant to section 503(b) of the
Bankruptcy Code; (k) to hear and determine disputes arising in connection
with the interpretation, implementation, or enforcement of this Plan and
the Related Documents; (l) to hear and determine any issue for which this
Plan or any Related Document requires a Final Order of the Bankruptcy
Court; (m) to hear and determine matters concerning state, local, and
federal taxes in accordance with sections 346, 505, and 1146 of the
Bankruptcy Code; (n) to hear and determine any issue related to the
composition of the initial Board of Reorganized Salant; (o) to hear any
other matter not inconsistent with the Bankruptcy Code; and (p) to enter a
Final Decree closing the Chapter 11 Case.
14.2. Binding Effect of this Plan. The provisions of this Plan shall
be binding upon and inure to the benefit of the Debtor, Reorganized Salant,
Magten, Apollo, any Holder of a Claim or Interest, their respective
predecessors, successors, assigns, agents, officers, managers and directors
and any other Entity affected by this Plan.
14.3. Nonvoting Stock. In accordance with section 1123(a)(6) of the
Bankruptcy Code, the Reorganized Salant Certificate of Incorporation shall
contain a provision prohibiting the issuance of nonvoting equity securities
by Reorganized Salant for a period of one year following the Effective
Date.
14.4. Authorization of Corporate Action. The entry of the Confirmation
Order shall constitute a direction and authorization to and of the Debtor
to take or cause to be taken any action necessary or appropriate to
consummate the provisions of this Plan and the Related Documents prior to
and through the Effective Date (including, without limitation, the filing
of the Reorganized Salant Certificate of Incorporation), and all such
actions taken or caused to be taken shall be deemed to have been authorized
and approved by the Bankruptcy Code.
14.5. Retiree Benefits. On and after the Effective Date, to the extent
required by section 1129(a)(13) of the Bankruptcy Code, Reorganized Salant
shall continue to pay all retiree benefits (if any), as the term "retiree
benefits" is defined in section 1114(a) of the Bankruptcy Code, maintained
or established by the Debtor prior to the Confirmation Date.
14.6. Withdrawal of this Plan. The Debtor reserves the right, at any
time prior to the entry of the Confirmation Order, to revoke or withdraw
this Plan. If the Debtor revokes or withdraws this Plan, if the
Confirmation Date does not occur, or if the Effective Date does not occur
then (i) this Plan will be deemed null and void and (ii) this Plan shall be
of no effect and shall be deemed vacated, and the Chapter 11 Case shall
continue as if this Plan and the Disclosure Statement had never been filed
and, in such event, the rights of any Holder of a Claim or Interest shall
not be affected nor shall such Holder be bound by, for purposes of
illustration only, and not limitation, (a) this Plan, (b) any statement,
admission, commitment, valuation or representation contained in this Plan,
the Disclosure Statement or the Related Documents or (c) the classification
and proposed treatment (including any allowance) of any Claim in this Plan.
14.7. Captions. Article and Section captions used in this Plan are for
convenience only and will not affect the construction of this Plan.
14.8. Method of Notice. All notices required to be given under this
Plan, if any, shall be in writing and shall be sent by facsimile
transmission (with hard copy to follow), by first class mail, postage
prepaid, by hand delivery or by overnight courier to:
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
Attn: Todd Kahn, Esq.
Fax No.: (212) 354-3614
Fried, Frank, Harris, Shriver & Jacobson
(A Professional Partnership Including Professional Corporations)
One New York Plaza
New York, New York 10004
Attn: Brad Eric Scheler, Esq.
Lawrence A. First, Esq.
Fax No.: (212) 859-4000
Hebb & Gitlin, a Professional corporation
(Special counsel to Magten Asset Management Corp.)
One State Street
Hartford, Connecticut 06103-3178
Attn: Evan D. Flaschen, Esq.
Fax No.: (860) 278-8968
Apollo Apparel Partners, L.P.
c/o Apollo Management, L.P.
1301 Avenue of the Americas
38th Floor
New York, New York 10019
Attn: Edward Yorke
Fax No.: (212) 261-4007
Any of the above may, from time to time, change its address for future
notices and other communications hereunder by filing a notice of the change
of address with the Bankruptcy Court. Any and all notices given under this
Plan shall be effective when received.
14.9. Dissolution of Statutory Committees. On the Effective Date, any
statutory committees appointed in the Chapter 11 Case pursuant to Section
1102 of the Bankruptcy Code shall cease to exist and its members and
employees or agents (including, without limitation, attorneys, investment
bankers, financial advisors, accountants and other professionals) shall be
released and discharged from further duties, responsibilities and
obligations relating to and arising from and in connection with this
Chapter 11 Case.
14.10. Fees, Costs and Expenses of Indenture Trustee. Subject to
applicable provisions of the Bankruptcy Code and Bankruptcy Court
authorization and approval to the extent necessary, the Indenture Trustee
shall be entitled to payment for its reasonable fees, costs and expenses as
provided for pursuant to the Indenture; provided, however, that if the
Debtor or Reorganized Salant decides, in its sole discretion, that the
fees, costs and expenses of the Indenture Trustee are reasonable, the
Debtor or Reorganized Salant may pay the same without application to or
further order of the Bankruptcy Court unless the Confirmation Order
provides otherwise.
14.11. Amendments and Modifications to Plan. This Plan may be altered,
amended or modified by the Debtor, after consultation with Magten, before
or after the Confirmation Date, as provided in Section 1127 of the
Bankruptcy Code.
14.12. Section 1125(e) of the Bankruptcy Code. (i) The Debtor has, and
upon confirmation of this Plan shall be deemed to have, solicited
acceptances of this Plan in good faith and in compliance with the
applicable provisions of the Bankruptcy Code and (ii) the Debtor, Magten,
Apollo, and each of the members of the Creditors' Committee, if any (and
each of their respective affiliates, agents, directors, officers,
employees, advisors, and attorneys) have participated in good faith and in
compliance with the applicable provisions of the Bankruptcy Code in the
offer, issuance, sale, and purchase of the securities offered and sold
under this Plan, and therefore are not, and on account of such offer,
issuance, sale, solicitation, and/or purchase will not be, liable at any
time for the violation of any applicable law, rule, or regulation governing
the solicitation of acceptances or rejections of this Plan or the offer,
issuance, sale, or purchase of the securities offered and sold under this
Plan.
Dated: New York, New York
______________, 1998
Respectfully submitted,
SALANT CORPORATION
Debtor and Debtor-In-Possession
By:_____________________________
FRIED, FRANK, HARRIS, SHRIVER &
JACOBSON
(A Partnership Including
Professional Corporations)
Attorneys for the Debtor and
Debtor-in-Possession
One New York Plaza
New York, New York 10004
(212)859-8000
By:__________________________________
Brad Eric Scheler, Esq.
<PAGE>
Exhibit A to Appendix I to Part B
of Exchange Restructuring Prospectus
EXHIBIT A
WARRANT AGREEMENT
SEE ANNEX II TO THE PROXY STATEMENT/PROSPECTUS
<PAGE>
Exhibit B to Appendix I to Part B
of Exchange Restructuring Prospectus
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT, dated as of April __, 1998, by and among
SALANT CORPORATION, a Delaware corporation (the "Company"), and the other
parties listed on the signature pages hereto (the "Initial Holders").
This Agreement is being entered into in connection with the
Restructuring (as such term is used in the Company's registration statement
on Form S-4, dated _________, 1998 and filed with the Securities and Exchange
Commission. The Restructuring provides for the issuance of Common Stock (as
hereinafter defined).
The parties hereto desire to provide certain registration rights to the
Initial Holders with respect to the shares of Common Stock.
Accordingly, the parties hereto agree as follows:
1. Definitions
-----------
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings:
"Account" means, with respect to a Holder or Other Holder who has been
engaged to provide investment management services, each Person (including,
without limitation, any other Holder or Other Holder) on behalf of whom such
Holder or Other Holder provides such services.
"Affiliate" means, at any time, a Person (other than a Subsidiary or a
Holder): (a) that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the Company;
or (b) that beneficially owns (calculated in accordance with Rule 13d-3 under
the Exchange Act) or holds ten percent (10%) or more of any class of the
Voting Stock of the Company. As used in this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" means any shares of Common Stock, par value $1.00 per
share, of the Company now or hereafter authorized to be issued, and any and
all securities of any kind whatsoever of the Company which may be issued on
or after the date hereof in respect of, or in exchange for, shares of Common
Stock pursuant to a merger, consolidation, stock split, stock dividend,
recapitalization of the Company or otherwise.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Exchange Act shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
"Holder" means a registered holder of Registrable Common Stock.
"Initial Holders" has the meaning assigned to it in the preamble hereof.
"Material Disclosure Event" means any pending or imminent event
relating to the Company which, based on (i) the good faith, reasonable
opinion of the Board of Directors of the Company and (ii) the advice of
competent outside counsel to the Board of Directors of the Company, (x)
requires disclosure of material, non-public information relating to such
event in the Shelf Registration so that such registration statement would not
be materially misleading, (y) is otherwise not required to be publicly
disclosed at that time (e.g., on Form 8-K or Form 10-Q) under applicable
federal or state securities laws, and (z) if publicly disclosed at the time
of such event, would have a material adverse effect on the business and
financial condition of the Company.
"Other Holder" means any person or entity to whom the Company has
granted or does grant registration rights.
"Other Holder Registrable Common Stock" means the shares of Common
Stock held by any Other Holder.
"Person" means a corporation, an association, a partnership, an
organization, a business, a trust, an individual, or any other entity or
organization, including a government or political subdivision or an
instrumentality or agency thereof.
"Registrable Common Stock" means (i) the shares of Common Stock issued
to an Initial Holder pursuant to the Restructuring or (ii) any Common Stock
issued with respect to the Common Stock referred to in clause (i) hereof by
way of a stock dividend, stock split or reverse stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or
otherwise. As to any particular Registrable Common Stock, such securities
shall cease to be Registrable Common Stock when (i) a registration statement
with respect to the sale of such securities shall have become effective under
the Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (ii) they shall have been
distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, (iii) they shall have been otherwise transferred,
new certificates for them not bearing a legend restricting further transfer
shall have been delivered by the Company and subsequent disposition of them
shall not require the registration under the Securities Act, or (iv) they
shall have ceased to be outstanding.
"Registration Expenses" means all expenses incident to the registration
and disposition of the Registrable Common Stock pursuant to Section 2 hereof,
including, without limitation, all registration, filing and applicable
national securities exchange fees; all fees and expenses of complying with
state securities or blue sky laws (including fees and disbursements of
counsel to the underwriters or the Holders in connection with "blue sky"
qualification of the Registrable Common Stock and determination of their
eligibility for investment under the laws of the various jurisdictions); all
duplicating and printing expenses; all messenger and delivery expenses; the
fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of "cold comfort" letters or, in
connection with a registration pursuant to Section 2.3 only, any special
audits required by, or incident to, such registration; all fees and
disbursements of underwriters (other than underwriting discounts and
commissions); all transfer taxes; and the reasonable fees and expenses of one
counsel to the Holders; provided, however, that Registration Expenses shall
exclude and the Holders shall pay underwriting discounts and commissions in
respect of the Registrable Common Stock being registered.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act shall include a reference to the
comparable section, if any, of any such similar federal statute.
"Subsidiary" means any corporation in which the Company or one or more
Subsidiaries owns sufficient voting securities to enable it or them (as a
group) ordinarily, in the absence of contingencies, to elect a majority of
the directors (or Persons performing similar functions) of such corporation.
"Voting Stock" means, with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether, at the time, stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency).
2. Shelf Registration; Registration Under Securities Act, Etc.
-----------------------------------------------------------
2.1 Shelf Registration
------------------
Within 35 days following the date hereof, the Company shall file with
the Commission, at the Company's expense, a "shelf" registration statement on
any appropriate form pursuant to Rule 415 under the Securities Act covering
all Registrable Common Stock (the "Shelf Registration"). The Company shall
use its reasonable commercial efforts to have the Shelf Registration declared
effective as promptly as practicable after such filing (but not later than
100 days after the date hereof) and to keep the Shelf Registration
continuously effective three years following the date on which the Shelf
Registration is declared effective (subject to Suspension Periods (as
hereinafter defined) and extensions coincident with the length of such
Suspension Periods) (the "Shelf Registration Period"); provided, however,
that if a registration statement on Form S-3 (or such successor form as is
prescribed by the Commission) is available to the Company on the third
anniversary of the date on which the Shelf Registration is declared
effective, the Company shall use its reasonable commercial efforts to keep
the Shelf Registration continuously effective for two additional years. The
Company shall, to the extent necessary, supplement or amend the Shelf
Registration (in each case, at the Company's expense) to keep the Shelf
Registration effective during the Shelf Registration Period. The Company
further agrees to supplement or amend any Shelf Registration, as required by
the registration form utilized by the Company, by the instructions applicable
to such registration form or by the Securities Act or the rules and
regulations thereunder or as reasonably requested by any Holder. The Company
shall furnish to the Holders copies, in substantially the form proposed to be
used and/or filed, of the registration statement and any such supplement or
amendment at least 30 days prior to its being used and/or filed with the
Commission. The Company hereby consents to the use (in compliance with
applicable law) of the prospectus or any amendment or supplement thereto by
each of the selling Holders of Registrable Common Stock in connection with
the offering and sale of the Registrable Common Stock covered by the
prospectus or any amendment or supplement thereto. The Company shall pay all
Registration Expenses incurred in connection with the Shelf Registration,
whether or not it becomes effective. In no event shall the Shelf
Registration include securities other than Registrable Common Stock, unless
the Holders of all Registrable Common Stock consent to such inclusion.
Nothing herein shall obligate the Company to incur or pay for fees and
disbursements of underwriters in connection with a distribution under the
Shelf Registration.
For purposes hereof, "Suspension Period" shall mean a period of time
commencing on the date on which the Company provides notice that the Shelf
Registration is no longer effective, that the prospectus included in the
Shelf Registration no longer complies with the requirements therefor
prescribed by Section 10(a) of the Securities Act, or there is a Material
Disclosure Event and the Board of Directors of the Company has elected (in
its good faith reasonable judgment) to require the suspension of the sale by
the Holder of Registrable Common Stock pursuant to the Shelf Registration,
and shall end on the date when the Holder either receives copies of the
supplemented or amended prospectus contemplated by Section 2.4(g) or such
earlier time that the Holder is otherwise advised in writing by the Company
that use of the prospectus may be resumed. The Holder agrees that it will
not sell any Registrable Common Stock pursuant to the Shelf Registration
during any Suspension Period. The Company agrees (i) that the Company will
use its best efforts to ensure that there is not more than one Suspension
Period in any 12-month period, (ii) to cause each Suspension Period to end as
soon as reasonably practicable and (iii) that no Suspension Period shall
exceed 30 consecutive days. The Company further agrees that no other holder
of any shares of the Company's capital stock will be permitted to sell any
such shares of the Company's capital stock pursuant to a registration
statement during a Suspension Period. If one or more Suspension Periods
occur, the Shelf Registration Period shall be extended by such number of days
coincident with the aggregate number of days included in all Suspension
Periods.
2.2 Registration on Request
-----------------------
(a) Request
-------
Subject to the provisions of Section 2.2(h) below, (i) if the Shelf
Registration remains continuously effective during the Shelf Registration
Period in accordance with the terms hereof, at any time or from time to time
after the expiration of the Shelf Registration Period, or (ii) if for any
reason the Shelf Registration does not become effective within 65 days after
the date hereof or ceases to be effective at any time prior to the expiration
of the Shelf Registration Period, at any time or from time to time after the
date which is 65 days from the date hereof (if the Shelf Registration fails
to become effective) or the date on which the Shelf Registration ceases to be
effective, as the case may be, the Holders, individually and jointly, of more
than 10% of issued and outstanding shares of Common Stock (the "Initiating
Holders") shall have the right to require the Company to effect the
registration under the Securities Act of all or part of the Registrable
Common Stock held by such Initiating Holders, by delivering a written request
therefor to the Company specifying the number of shares of Registrable Common
Stock and the intended method of distribution. The Company shall promptly
give written notice of such requested registration to all other Holders, and
thereupon the Company shall, as expeditiously as possible, use its best
efforts to (A) effect the registration under the Securities Act (including by
means of a shelf registration pursuant to Rule 415 under the Securities Act
if so requested in such request and if the Company is then eligible to use
such a registration) of the Registrable Common Stock which the Company has
been so requested to register by the Initiating Holders, and all other
Registrable Common Stock which the Company has been requested to register by
any other Holder (together with the Initiating Holders, the "Selling
Holders") by written request given to the Company within 10 days after giving
of written notice by the Company, all to the extent necessary to permit
distribution in accordance with the intended method of distribution set forth
in the written request or requests delivered by the Selling Holders, and (B)
if requested by the Selling Holders, obtain acceleration of the effective
date of the registration statement relating to such registration.
(b) Registration of Other Securities
--------------------------------
Whenever the Company shall effect a registration pursuant to this
Section 2.2, no securities (other than Registrable Common Stock) shall be
included among the securities covered by such registration (i) if, in
connection with an underwritten offering by any Selling Holders of
Registrable Common Stock, the managing underwriter of such offering shall
have advised the Company and the Selling Holders in writing that the
inclusion of such other securities would adversely affect such offering or
(ii), if such offering is not an underwritten offering, unless the Selling
Holders of not less than 50% of the Registrable Common Stock to be covered by
such registration shall have consented (which consent shall not be
unreasonably withheld or delayed) in writing to the inclusion of such other
securities.
(c) Registration Statement Form
---------------------------
Registrations under this Section 2.2 shall be on such appropriate
registration form of the Commission as shall be selected by the Company and
as shall be reasonably acceptable to the Selling Holders. The Company agrees
to include in any such registration statement all information which, in the
opinion of counsel to the Selling Holders, counsel to the underwriters, if
any, and counsel to the Company, is required to be included.
(d) Expenses
--------
The Company shall pay all Registration Expenses in connection with any
registration requested pursuant to this Section 2.2.
(e) Effective Registration Statement
--------------------------------
A registration requested pursuant to this Section 2.2 shall not be
deemed to have been effected (including for purposes of paragraph (h) of this
Section 2.2) (i) unless a registration statement with respect thereto has
become effective and has been kept continuously effective for a period of at
least 120 days (or such shorter period which shall terminate when all the
Registrable Common Stock covered by such registration statement have been
sold pursuant thereto), (ii) if after it has become effective, such
registration is interfered with by any stop order, injunction or other order
or requirement of the Commission or other governmental agency or court for
any reason not attributable to the Selling Holders and has not thereafter
become effective, or (iii) if the conditions to closing specified in the
underwriting agreement, if any, entered into in connection with such
registration are not satisfied for any reason not attributable to the Selling
Holders or waived.
(f) Selection of Underwriters
-------------------------
The underwriters of each underwritten offering of the Registrable
Common Stock to be registered shall be selected by the Selling Holders and
shall be reasonably satisfactory to the Company.
(g) Priority in Requested Registration
----------------------------------
If the managing underwriter of any underwritten offering shall advise
the Company in writing (with a copy to each Selling Holder) that, in its
opinion, the number of shares of Registrable Common Stock requested to be
included in such registration exceeds the number of shares which can be sold
in such offering within a price range acceptable to the Selling Holders of
Registrable Common Stock, the Company will include in such registration that
number of shares of Registrable Common Stock which the Company is so advised
can be sold in such offering. The Registrable Common Stock requested to be
included in such registration shall be reduced pro rata among the Selling
Holders requesting such registration of Registrable Common Stock on the basis
of the percentage of Registrable Common Stock of such Selling Holders
requesting such registration. In connection with any such registration to
which this Section 2.2(g) is applicable, no securities other than Registrable
Common Stock shall be covered by such registration.
(h) Limitations on Registration on Request
--------------------------------------
Notwithstanding anything to the contrary contained herein, the
registration rights granted to the Holders in Section 2.2(a) are subject to
the following limitations: (i) the Holders shall be entitled to require the
Company to, and the Company shall be required to, effect no more than three
registrations pursuant to Section 2.2(a)(i) hereof and no more than four
registrations pursuant to Section 2.2(a)(ii) hereof, (ii) the Company shall
not be required to effect a registration pursuant to Section 2.2(a) if, with
respect thereto, the managing underwriter, the Commission, the Securities Act
or the rules and regulations thereunder, or the form on which the
registration statement is to be filed, would require the conduct of an audit
other than the regular audit conducted by the Company at the end of its
fiscal year, but rather the filing may be delayed until the completion of
such regular audit (unless the Holders agree to pay the expenses of the
Company in connection with such an audit other than the regular audit) and
(iii) the Holders shall not be entitled to require the Company to, and the
Company shall not be required to, effect a registration pursuant to Section
2.2(a) within three (3) months following the effective date of another
registration pursuant to Section 2.2(a).
(i) Postponement
------------
The Company shall be entitled once in any 12-month period to postpone
for a reasonable period of time (but not exceeding 30 days) (the
"Postponement Period") the filing of any registration statement required to
be prepared and filed by it pursuant to this Section 2.2 if the Company
determines, in its reasonable judgment, that such registration and offering
would materially interfere with any material financing, corporate
reorganization or other material transaction involving the Company or any
subsidiary, or would require premature disclosure thereof, and promptly gives
the Selling Holders written notice of such determination, containing a
general statement of the reasons for such postponement and an approximation
of the anticipated delay. If the Company shall so postpone the filing of a
registration statement, the Selling Holders of not less than 50% of the
shares of Registrable Common Stock to be registered shall have the right to
withdraw the request for registration in respect of the Registrable Common
Stock by giving written notice to the Company at any time and, in the event
of any such withdrawal, such request shall not be counted for purposes of the
requests for registration to which the Holders are entitled pursuant to this
Section 2.2.
2.3 Incidental Registration
-----------------------
(a) Right to Include Registrable Common Stock
-----------------------------------------
If the Company at any time prior to the expiration of the Holders'
right to request the registration of Registrable Common Stock pursuant to
Section 2.2(a) hereof proposes to register any of its securities under the
Securities Act by registration on Form S-1, S-2 or S-3 or any successor or
similar form(s) (except registrations on such Form or similar form(s) solely
for registration of securities in connection with an employee stock option,
stock purchase, stock bonus or similar plan, pursuant to a dividend
reinvestment plan, pursuant to a merger, exchange, offer or transaction of
the type specified in Rule 145(a) under the Securities Act or pursuant to a
"shelf" registration), whether or not for sale for its own account, it will
each such time give prompt written notice to the Holders of its intention to
do so and of the Holders' rights under this Section 2.3 and the Holders shall
be entitled to include, subject to the provisions of this Agreement,
Registrable Common Stock on the same terms and conditions (if any) as apply
to other comparable securities of the Company sold in connection with such
registration. Upon the written request of any Holder (a "Requesting
Holder"), specifying the maximum number of shares of Registrable Common Stock
intended to be disposed of by such Requesting Holder, made as promptly as
practicable and in any event within 15 days after the receipt of any such
notice, the Company shall use its best efforts to effect the registration
under the Securities Act of all Registrable Common Stock which the Company
has been so requested to register by the Requesting Holders; provided,
however, that if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register or to delay registration of such
securities, the Company shall give written notice of such determination and
its reasons therefor to the Holders and (i) in the case of a determination
not to register, shall be relieved of its obligation under this Section 2.3
to register any Registrable Common Stock in connection with such registration
(but not from any obligation of the Company to pay the Registration Expenses
in connection therewith), without prejudice, however, to the rights of the
Holders to request that such registration be effected as a registration under
Section 2.2, and (ii) in the case of a determination to delay registering,
shall be permitted to delay registering any Registrable Common Stock, for the
same period as the delay in registering such other securities. No
registration effected under this Section 2.3 shall relieve the Company of its
obligation to effect any registration upon request under Section 2.2. The
Company will pay all Registration Expenses in connection with any
registration of Registrable Common Stock requested pursuant to this Section
2.3.
(b) Right to Withdraw
-----------------
Any Requesting Holder shall have the right to withdraw its request for
inclusion of Registrable Common Stock in any registration statement pursuant
to this Section 2.3 at any time by giving written notice to the Company of
its request to withdraw.
(c) Priority in Incidental Registrations
------------------------------------
If the managing underwriter of any underwritten offering shall inform
the Company by letter of its opinion that the number of shares of Registrable
Common Stock and Other Holder Registrable Common Stock when added to the
number of other securities to be offered in such registration, would
materially adversely affect such offering, then the Company shall include in
such registration that number of shares of Registrable Common Stock and Other
Holder Registrable Common Stock which the Company is so advised by the
managing underwriter can be sold in (or during the time of) such offering
without materially adversely affecting such offering in the following order
of priority:
First: the holder or holders of securities (including the
Company in the case of a primary offering) originally requesting such
registration shall be entitled to participate in accordance with the
relative priorities, if any, that shall exist among them; and then
Second: the holder or holders of Registrable Common Stock shall
be entitled to participate in such offering, pro rata among themselves
in accordance with the number of shares of Registrable Common Stock
which each such holder shall have requested be registered; and then
Third: all other holders (including the Company, if such
registration shall have been originally requested by a person other
than the Company) of securities having the right to include shares of
Common Stock in such registration shall be entitled to participate pro
rata in accordance with the number of shares proposed to be registered
by them.
(d) Plan of Distribution
--------------------
Any participation by the Holders in a registration by the Company shall
be in accordance with the Company's plan of distribution.
2.4 Registration Procedures
-----------------------
If and whenever the Company is required to use its best efforts to
effect the registration of any Registrable Common Stock under the Securities
Act as provided in Sections 2.1, 2.2 and 2.3 hereof, the Company shall as
expeditiously as possible:
(a) prepare and file with the Commission as soon as practicable
the requisite registration statement to effect such registration (and
shall include all financial statements required by the Commission to be
filed therewith) and thereafter use its best efforts to cause such
registration statement to become effective; provided, however, that
before filing such registration statement (including all exhibits) or
any amendment or supplement thereto or comparable statements under
securities or blue sky laws of any jurisdiction, the Company shall
furnish such documents to each Holder selling Registrable Common Stock
covered by such registration statement and each underwriter, if any,
participating in the offering of the Registrable Common Stock and their
respective counsel, which documents will be subject to the review and
comments of each such Holder, each underwriter and their respective
counsel; and provided further, that (i) as to registration pursuant to
Section 2.1 or 2.2 hereof, the Company may discontinue any registration
of its securities which are not Registrable Common Stock and (ii) as to
registration pursuant to Section 2.3 hereof, the Company may
discontinue any registration of its securities, in each case, at any
time prior to the effective date of the registration statement relating
thereto;
(b) notify each Holder selling Registrable Common Stock covered
by such registration statement of the Commission's requests for
amending or supplementing the registration statement and the
prospectus, and prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Common Stock
covered by such registration statement for such period as shall be
required for the disposition of all of such Registrable Common Stock in
accordance with the intended method of distribution thereof; provided
that, except with respect to the Shelf Registration and any other such
registration statement filed pursuant to Rule 415 under the Securities
Act, such period need not exceed 120 days;
(c) furnish, without charge, to each Holder selling Registrable
Common Stock covered by such registration statement and each
underwriter such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each
case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed
under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such
Holders and such underwriters may reasonably request;
(d) use its best efforts (i) to register or qualify all
Registrable Common Stock and other securities covered by such
registration statement under such securities or blue sky laws of such
States of the United States of America where an exemption is not
available and as any Holder or Holders selling Registrable Common Stock
covered by such registration statement or any managing underwriter
shall reasonably request, (ii) to keep such registration or
qualification in effect for so long as such registration statement
remains in effect, and (iii) to take any other action which may be
reasonably necessary or advisable to enable the Holders to consummate
the disposition in such jurisdictions of the securities to be sold by
such Holder or Holders; provided, however, that the Company shall not
for any purpose be required to execute a general consent to service of
process or to qualify to do business as a foreign corporation in any
jurisdiction where it is not so qualified;
(e) use its best efforts to cause all Registrable Common Stock
covered by such registration statement to be registered with or
approved by such other Federal or state governmental agencies or
authorities as may be necessary in the opinion of counsel to the
Company, counsel to any underwriter, or counsel to any Holder or
Holders selling Registrable Common Stock covered by such registration
statement to consummate the disposition of such Registrable Common
Stock;
(f) furnish to each Holder selling Registrable Common Stock
covered by such registration statement and each underwriter, if any,
participating in the offering of the securities covered by such
registration statement, a signed counterpart of (i) an opinion of
counsel for the Company, and (ii) a "comfort" letter signed by the
independent public accountants who have certified the Company's
financial statements included or incorporated by reference in such
registration statement, covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of the accountants' comfort letter, with
respect to events subsequent to the date of such financial statements,
as are customarily covered in opinions of issuer's counsel and in
accountants' comfort letters delivered to the underwriters in
underwritten public offerings of securities (and dated the dates such
opinions and comfort letters are customarily dated) and, in the case of
the legal opinion, such other legal matters, and, in the case of the
accountants' comfort letter, such other financial matters, as such
Holder or Holders, or the underwriters, may reasonably request;
(g) immediately notify the Holders selling Registrable Common
Stock covered by such registration statement and each managing
underwriter, if any, participating in the offering of the securities
covered by such registration statement (i) when such registration
statement, any pre-effective amendment, the prospectus or any
prospectus supplement related thereto or post-effective amendment to
such registration statement has been filed, and, with respect to such
registration statement or any post-effective amendment, when the same
has become effective; (ii) of any request by the Commission for
amendments or supplements to such registration statement or the
prospectus related thereto or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or the initiation of any
proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
of the Registrable Common Stock for sale under the securities or blue
sky laws of any jurisdiction or the initiation of any proceeding for
such purpose; and (v) at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or, in the case of
the Shelf Registration, at any time during the Shelf Registration
Period, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, in
the light of the circumstances under which they were made, and in the
case of this clause (v), at the request of any Holder or Holders
selling Registrable Common Stock covered by such registration statement
promptly prepare and furnish to such Holder or Holders and each
underwriter, if any, participating in the offering of the Registrable
Common Stock, a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
under which they were made;
(h) otherwise comply with all applicable rules and regulations
of the Commission, and make available to its security holders, as soon
as reasonably practicable, an earnings statement covering the period of
at least twelve months beginning with the first full calendar month
after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder, and promptly
furnish to the Holders a copy of any amendment or supplement to such
registration statement or prospectus;
(i) cause to be maintained a transfer agent and registrar
(which, in each case, may be the Company) for the Common Stock from and
after the date of such registration;
(j) use its commercially reasonable efforts to cause all
Registrable Common Stock covered by such registration statement to be
(i) listed for trading on the New York Stock Exchange, Inc. ("NYSE"),
provided that, if the Company is unable to have the Registrable Common
Stock listed for trading on the NYSE, the Company will use its best
efforts to cause all Registrable Common Stock to be quoted on the
National Market System ("National Market System") of the NASDAQ Stock
Market ("NASDAQ") within the meaning of Rule 11Aa2-1 of the Commission
if the quoting of such Registrable Common Stock is then permitted under
NASDAQ rules; or (ii) if no similar securities of the Company are then
so quoted, use its best efforts to (x) secure designation of all such
Registrable Common Stock as a NASDAQ National Market System security or
(y) failing that, cause all such Registrable Common Stock to be listed
on another national securities exchange or (z) failing that, to secure
NASDAQ authorization for such shares and, without limiting the
generality of the foregoing, to arrange for at least two market makers
to register as such with respect to such shares with the National
Association of Securities Dealers, Inc.;
(k) deliver promptly to counsel to the Holders selling
Registrable Common Stock covered by such registration statement and
each underwriter, if any, participating in the offering of the
Registrable Common Stock, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda
relating to discussions with the Commission or its staff with respect
to such registration statement;
(1) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement;
(m) provide a CUSIP number for all Registrable Common Stock, no
later than the effective date of the registration statement;
(n) make available its employees and personnel and otherwise
provide reasonable assistance to the underwriters (taking into account
the needs of the Company's businesses) in their marketing of
Registrable Common Stock; and
(o) in the case of a Shelf Registration, upon the occurrence of
any event or the discovery of any facts, each as contemplated by
Section 2.4(g)(v) hereof, use its best efforts to prepare a supplement
or post-effective amendment to the registration statement or the
related prospectus or any document incorporated therein by reference or
file any other required documents so that, thereafter, such prospectus
will not contain at the time of such delivery any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
The Company may require the Holders selling Registrable Common Stock covered
by such registration statement to furnish the Company such information
regarding the Holders and the distribution of the Registrable Common Stock as
the Company may from time to time reasonably request in writing. In the
event of a registration effected pursuant to Section 2.1, 2.2(a) or 2.3(a)
hereof, if a Holder fails to provide such information and the failure by such
Holder to furnish such information would prevent or unreasonably delay the
registration statement relating to such registration from being declared
effective by the Commission, the Company may exclude such Holder's
Registrable Common Stock from such registration, which right of the Company
shall, in the case of a registration effected pursuant to Section 2.1 or
2.2(a) hereof, be subject to the consent of the Holders of not less than 50%
of the shares of Registrable Common Stock to be included in such registration
(other than such Holder's Registrable Common Stock).
The Holders agree that upon receipt of any notice from the Company of
the happening of any event of the kind described in paragraph (g)(iii) or (v)
of this Section 2.4, each of the Holders will discontinue its disposition of
Registrable Common Stock pursuant to the registration statement relating to
such Registrable Common Stock until, in the case of paragraph (g)(v) of this
Section 2.4, its receipt of the copies of the supplemented or amended
prospectus contemplated by paragraph (g)(v) of this Section 2.4 and, if so
directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in its
possession, of the prospectus relating to such Registrable Common Stock
current at the time of receipt of such notice. If the disposition by the
Holders of their securities is discontinued pursuant to the foregoing
sentence, the Company shall extend the period of effectiveness of the
registration statement by the number of days during the period from and
including the date of the giving of notice to and including the date when the
Holders shall have received copies of the supplemented or amended prospectus
contemplated by paragraph (g)(v) of this Section 2.4; and, if the Company
shall not so extend such period, the Holders' request pursuant to which such
registration statement was filed shall not be counted for purposes of the
requests for registration to which the Holders are entitled pursuant to
Section 2.2 hereof.
2.5 Underwritten Offerings
----------------------
(a) Requested Underwritten Offerings
--------------------------------
If requested by the underwriters for any underwritten offering by the
Selling Holders pursuant to a registration requested under Section 2.1 or
2.2, the Company shall enter into a customary underwriting agreement with
such underwriter or underwriters. Such underwriting agreement shall be
reasonably satisfactory in form and substance to the Selling Holders and
shall contain such representations and warranties by, and such other
agreements on the part of, the Company and such other terms as are generally
prevailing in agreements of that type, including, without limitation, such
customary provisions relating to indemnification and contribution by the
Company. The Selling Holders shall be parties to such underwriting agreement
and may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and
for the benefit of such underwriters shall also be made to and for the
benefit of the Selling Holders and that any or all of the conditions
precedent to the obligations of such underwriters under such underwriting
agreement be conditions precedent to the obligations of the Selling Holders.
No Selling Holder shall be required to make any representations or warranties
to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such Selling Holder, its
ownership of and title to the Registrable Common Stock, and its intended
method of distribution; any liability of any Selling Holder to any
underwriter or other Person under such underwriting agreement shall be
limited to liability arising from misstatements in or omissions from its
representations and warranties and shall be limited to an amount equal to the
net proceeds that it derives from such registration; and no Selling Holder
shall be required to indemnify any underwriter, or contribute to any payments
required to be made by any underwriter in lieu thereof, to any greater extent
than such Selling Holder has agreed in Section 2.7.
(b) Incidental Underwritten Offerings
---------------------------------
In the case of a registration pursuant to Section 2.3 hereof, if the
Company shall have determined to enter into any underwriting agreements in
connection therewith, all of the Requesting Holders' Registrable Common Stock
to be included in such registration shall be subject to such underwriting
agreements. The Requesting Holders may, at their option, require that any or
all of the representations and warranties by, and the other agreements on the
part of, the Company to and for the benefit of such underwriters shall also
be made to and for the benefit of the Requesting Holders and that any or all
of the conditions precedent to the obligations of such underwriters under
such underwriting agreement be conditions precedent to the obligations of the
Requesting Holders. No Requesting Holder shall be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding
such Requesting Holder, its ownership of and title to the Registrable Common
Stock, and its intended method of distribution; and any liability of any
Requesting Holder to any underwriter or other Person under such underwriting
agreement shall be limited to liability arising from misstatements in or
omissions from its representations and warranties and shall be limited to an
amount equal to the net proceeds that it derives from such registration.
2.6 Preparation; Reasonable Investigation
-------------------------------------
In connection with the preparation and filing of each registration
statement under the Securities Act pursuant to this Agreement, the Company
will give the participating Holders, their underwriters, if any, and their
respective counsel, accountants and other representatives and agents the
opportunity to participate in the preparation of such registration statement,
each prospectus included therein or filed with the Commission, and, to the
extent practicable, each amendment thereof or supplement thereto, and give
each of them such access to its books and records and such opportunities to
discuss the business of the Company with its officers and employees and the
independent public accountants who have certified its financial statements,
and supply all other information reasonably requested by each of them, as
shall be necessary or appropriate, in the opinion of the participating
Holders' and such underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act.
2.7 Indemnification
---------------
(a) Indemnification by the Company
------------------------------
The Company agrees that in the event of any registration of any
securities of the Company under the Securities Act, the Company shall, and
hereby does, indemnify and hold harmless each Holder, its respective
directors, officers, partners, agents and affiliates and each other Person
who participates as an underwriter in the offering or sale of such securities
and each other Person, if any, who controls such Holder or any such
underwriter within the meaning of the Securities Act, against any losses,
claims, damages, or liabilities, joint or several, to which such Holder or
any such director, officer, partner, agent or affiliate or underwriter or
controlling Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities, joint or several (or
actions or proceedings, whether commenced or threatened, in respect thereof),
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances in
which they were made not misleading, or (iii) any violation by the Company of
any federal, state or common law rule or regulation applicable to the Company
and relating to action required of or inaction by the Company in connection
with any such registration, and the Company shall reimburse such Holder and
each such director, officer, partner, agent or affiliate, underwriter and
controlling Person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding; provided that the Company shall not be
liable in any such case or to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by or on behalf
of the Holders or underwriter, as the case may be, specifically stating that
it is for use in the preparation thereof; and provided, further, that the
Company shall not be liable to any Person who participates as an underwriter
in the offering or sale of Registrable Common Stock or any other Person, if
any, who controls such underwriter within the meaning of the Securities Act,
in any such case to the extent that any such loss, claim, damage, liability
(or action or proceeding in respect thereof) or expense arises out of such
Person's failure to send or give a copy of the final prospectus, as the same
may be then supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Common Stock to
such Person if such statement or omission was corrected in such final
prospectus. Such indemnity shall remain in full force regardless of any
investigation made by or on behalf of either Holder or any such director,
officer, partner, agent or affiliate or controlling Person and shall survive
the transfer of such securities by such Holder.
(b) Indemnification by the Holders
------------------------------
As a condition to including any Registrable Common Stock in any
registration statement, the Company shall have received an undertaking
reasonably satisfactory to it from each Holder so including any Registrable
Common Stock to indemnify and hold harmless (in the same manner and to the
same extent as set forth in paragraph (a) of this Section 2.7) the Company,
and each director of the Company, each officer of the Company and each other
Person, if any, who controls the Company within the meaning of the Securities
Act, and, to the extent requested, each underwriter, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto,
but only to the extent such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by
such Holder specifically stating that it is for use in the preparation of
such registration statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement; provided, however, that the
liability of such indemnifying party under this Section 2.7(b) shall be
limited to the amount of net proceeds received by such indemnifying party in
the offering giving rise to such liability. Such indemnity shall remain in
full force and effect, regardless of any investigation made by or on behalf
of the Company or any such director, officer or controlling Person and shall
survive the transfer of such securities by such Holder; and provided,
further, that such Holder shall not be liable to any Person who participates
as an underwriter in the offering or sale of Registrable Common Stock or any
other Person, if any, who controls such underwriter within the meaning of the
Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense
arises out of such Person's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, to any other
Person asserting an untrue statement or alleged untrue statement or omission
or alleged omission at or prior to the written confirmation of the sale of
Registrable Common Stock to such other Person if such statement or omission
was corrected by such Holder in such final prospectus.
(c) Indemnification for Controlling Person Liability
------------------------------------------------
In addition to the indemnification provided for in Section 2.7(a), the
Company shall indemnify, to the fullest extent permitted by law, each Holder,
its officers, directors, partners and agents, if any, and each Person, if
any, who controls such Holder within the meaning of Section 15 of the
Securities Act, against all losses, claims, damages, liabilities (or
proceedings in respect thereof) and expenses, joint or several, in each case,
under the Securities Act or common law or otherwise, resulting from:
(i) any violation by the Company of the provisions of the
Securities Act;
(ii) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or amendment
thereto or prospectus (and as amended or supplemented if amended or
supplemented) or any preliminary prospectus or caused by any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, whether
or not, in each such case, the registration statement or amendment
thereto or prospectus (or amendment or supplement thereto) or
preliminary prospectus related or relates to any offering or sale of
Registrable Common Stock by a Holder; and
(iii) any other untrue statement or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact
necessary to make the statements in any document issued or delivered to
any purchaser or potential purchaser or filed with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act (in light
of the circumstances under which they were made) not misleading, in
each case, in connection with any offering or sale of securities of the
Company by any Person, whether or not such securities offered or sold
are or were registered or required to be registered under the
Securities Act;
in each such case, to the extent that such losses, claims, damages,
liabilities (or proceedings in respect thereto) and expenses, joint or
several, are alleged to result from or exist by virtue of the fact that any
Holder controls or is alleged to control (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) the Company or any
Subsidiary or Affiliate of the Company, whether such claim or allegation
arises under Section 15 of the Securities Act or Section 20 of the Exchange
Act or otherwise; provided, however, that such indemnification shall not
extend to losses, claims, damages, liabilities (or proceedings in respect
thereof) or expenses caused by any untrue statement or alleged untrue
statement contained in or by any omission or alleged omission from
information furnished in writing to the Company by such Holder expressly for
use therein, or from any such information provided by an underwriter selected
by the Holders or any of them.
(d) Notices of Claims, Etc.
-----------------------
Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subsections of this Section 2.7, such indemnified party shall, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action or
proceeding; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding subsections of this Section 2.7, except
to the extent that the indemnifying party is actually prejudiced by such
failure to give notice, and shall not relieve the indemnifying party from any
liability which it may have to the indemnified party otherwise than under
this Section 2.7. In case any such action or proceeding is brought against an
indemnified party, the indemnifying party shall be entitled to participate
therein and, unless in the opinion of outside counsel to the indemnified
party a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, to assume the defense thereof,
jointly with any other indemnifying party similarly notified to the extent
that it may wish, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if the defendants in any such action or
proceeding include both the indemnified party and the indemnifying party and
if in the opinion of outside counsel to the indemnified party there may be
legal defenses available to such indemnified party and/or other indemnified
parties which are different from or in addition to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to defend such action or proceeding on behalf of such
indemnified party or parties and the indemnifying party shall be obligated to
pay the fees and expenses of such separate counsel or counsels. After notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof and approval by the indemnified party of such
counsel, the indemnifying party shall not be liable to such indemnified party
for any legal expenses subsequently incurred by the latter in connection with
the defense thereof other than reasonable costs of investigation (unless the
proviso in the preceding sentence shall be applicable). No indemnifying
party shall be liable for any settlement of any action or proceeding effected
without its written consent which shall not be unreasonably withheld. No
indemnifying party shall, without the consent of the indemnified party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in
respect to such claim or litigation.
(e) Contribution
------------
If the indemnification provided for in this Section 2.7 shall for any
reason be held by a court to be unavailable to an indemnified party under
subsection (a) or (b) hereof in respect of any loss, claim, damage or
liability, or any action in respect thereof, then, in lieu of the amount paid
or payable under subsection (a) or (b) hereof, the indemnified party and the
indemnifying party under subsection (a) or (b) hereof shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same), (i)
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand, and the indemnified party on the other,
which resulted in such loss, claim, damage or liability, or action in respect
thereof, with respect to the statements or omissions which resulted in such
loss, claim, damage or liability, or action in respect thereof, as well as
any other relevant equitable considerations, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law or if the
allocation provided in this clause (ii) provides a greater amount to the
indemnified party than clause (i) above, in such proportion as shall be
appropriate to reflect not only the relative fault but also the relative
benefits received by the indemnifying party and the indemnified party from
the offering of the securities covered by such registration statement as well
as any other relevant equitable considerations. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 2.7(e) were to be determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to in the preceding sentence of this Section 2.7(e).
No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation. The
Holders' obligations to contribute as provided in this subsection (e) are
several and not joint and shall be in proportion to the relative value of
their respective Registrable Common Stock covered by such registration
statement. In addition, no Person shall be obligated to contribute hereunder
any amounts in payment for any settlement of any action or claim effected
without such Person's consent, which consent shall not be unreasonably
withheld. Notwithstanding anything in this subsection (e) to the contrary,
no indemnifying party (other than the Company) shall be required to
contribute any amount in excess of the net proceeds received by such party
from the sale of the Registrable Common Stock in the offering to which the
losses, claims, damages or liabilities of the indemnified parties relate.
(f) Other Indemnification
---------------------
Indemnification and contribution similar to that specified in the
preceding subsections of this Section 2.7 (with appropriate modifications)
shall be given by the Company and the Holders with respect to any required
registration or other qualification of securities under any federal, state or
blue sky law or regulation of any governmental authority other than the
Securities Act. The indemnification agreements contained in this Section 2.7
shall be in addition to any other rights to indemnification or contribution
which any indemnified party may have pursuant to law or contract and shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any indemnified party and shall survive the transfer
of any of the Registrable Common Stock by any of the Holders.
(g) Indemnification Payments
------------------------
The indemnification and contribution required by this Section 2.7 shall
be made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred; provided, however, that such periodic
payments shall only be made upon delivery to the indemnifying party of an
agreement by the indemnified party to repay the amounts advanced to the
extent it is ultimately determined that the indemnified party is not entitled
to indemnification pursuant to this Section 2.7 or otherwise. The parties
hereto agree that for each of them such agreement shall be deemed to be
contained herein. Without limiting the generality of the foregoing, each
indemnifying party, as an interim measure during the pendency of any claim,
action, investigation, inquiry or proceeding arising out of or based upon any
matter or subject for which indemnity (or contribution in lieu thereof) would
be available to any indemnified party under any provision of this Section
2.7, the Company will promptly reimburse each indemnified party, as often as
invoiced therefor (but in no event more often than monthly), for all
reasonable legal or other expenses incurred in connection with the
investigation or defense of any such claim, action, investigation, inquiry or
proceeding, notwithstanding the absence of any judicial determination as to
the propriety or enforceability of the indemnifying party's obligation to
reimburse the indemnified party for such expenses and notwithstanding the
possibility that the obligations to pay such expenses might later have been
held to be improper by a court of competent jurisdiction. To the extent that
any such interim reimbursement is held to be improper, the indemnified party
agrees to promptly return the amount so advanced to the indemnifying party,
together with interest, compounded monthly, at the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) listed
from time to time in The Wall Street Journal which represents the base rate
on corporate loans posted by a substantial majority of the nation's thirty
(30) largest banks. Any such interim reimbursement payments which are not
made to the indemnified party within thirty (30) days of a request therefor
shall bear interest at such prime rate from the date of such request to the
extent such reimbursement payments are ultimately determined to be proper
obligations of the indemnifying party.
2.8 Limitation on Sale of Securities
--------------------------------
If any registration of Registrable Common Stock or Other Holder
Registrable Common Stock shall be in connection with an underwritten public
offering, each of the Holders or the Other Holders, as the case may be, and
the Company agrees (except, in the case of any Holder or Other Holder, to the
extent that such Holder or Other Holder is prohibited by applicable law or
the exercise of its fiduciary duties from agreeing to withhold Registrable
Common Stock or Other Holder Registrable Common Stock, as the case may be,
from sale) (x) not to effect any public sale or distribution of any issue of
the same class or series as the Registrable Common Stock or Other Holder
Registrable Common Stock being registered in an underwritten public offering
(other than pursuant to an employee stock option, stock purchase or similar
plan, pursuant to a dividend reinvestment plan, pursuant to a merger,
exchange offer or a transaction of the type specified in Rule 145(a) under
the Securities Act), any securities of the Company similar to any such issue
or any securities of the Company or of any security convertible into or
exchangeable or exercisable for any such issue of the Company during the 15
days prior to, and during the 45 day period (or such longer period, not in
excess of 90 days, as may be reasonably requested by the underwriter of such
offering) beginning on the effective date of such registration statement
(except as part of such registration) and (y) that any agreement entered into
after the date of this Agreement pursuant to which the Company issues or
agrees to issue any privately placed securities shall contain a provision
under which holders of such securities agree not to effect any public sale or
distribution of any such securities during the period referred to in the
foregoing clause (x), including any sale pursuant to Rule 144 under the
Securities Act (except as part of such registration, if permitted). Without
limiting the scope of the term "fiduciary," a Holder or Other Holder shall be
deemed to be acting as a fiduciary if its actions or the Registrable Common
Stock or Other Holder Registrable Common Stock proposed to be sold is subject
to the Employee Retirement Income Security Act of 1974, as amended, the
Investment Advisers Act of 1940, as amended, or the Investment Company Act of
1940, as amended, or if such Registrable Common Stock or Other Holder
Registrable Common Stock is held in a separate account under applicable
insurance law or regulation. Notwithstanding the foregoing, no Holder or
Other Holder who has been on behalf of an Account shall be required to hold
back Registrable Common Stock or Other Holder Registrable Common Stock
attributable to such Account if such Account directs such Holder or Other
Holder to dispose of some or all of such Registrable Common Stock or Other
Holder Registrable Common Stock, attributable to such Account unless (1) such
Holder or Other Holder shall have directly or indirectly induced such Account
to make such sale or (2) such Account terminates the authority of the Holder
or Other Holder of Registrable Common Stock or Other Holder Registrable
Common Stock to dispose of such securities; provided, however, that any
holdback agreement relating to such underwritten sale shall continue to apply
to Registrable Common Stock or Other Holder Registrable Common Stock
attributable to such Account which such Account has not directed such Holder
or Other Holder to sell.
2.9 No Required Sale
----------------
Nothing in this Agreement shall be deemed to create an independent
obligation on the part of any of the Holders to sell any Registrable Common
Stock pursuant to any effective registration statement.
3. Rule 144
--------
The Company shall take all actions reasonably necessary to enable
holders of Registrable Common Stock to sell such securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144, or (b) any similar rule or regulation hereafter
adopted by the Commission including, without limiting the generality of the
foregoing, filing on a timely basis all reports required to be filed by the
Exchange Act. Upon the request of any Holder, the Company will deliver to
such holder a written statement as to whether it has complied with such
requirements.
4. Amendments and Waivers
----------------------
This Agreement may not be modified or amended, or any of the provisions
hereof waived, temporarily or permanently, except pursuant to the written
consent of the Holders of not less than 50% of the shares of Registrable
Common Stock and the Company.
5. Adjustments
-----------
In the event of any change in the capitalization of the Company as a
result of any stock split, stock dividend, reverse split, combination,
recapitalization, merger, consolidation, or otherwise, the provisions of this
Agreement shall be appropriately adjusted.
6. Notice
------
All notices and other communications hereunder shall be in writing and,
unless otherwise provided herein, shall be deemed to have been given when
received by the party to whom such notice is to be given at its address set
forth below, or such other address for the party as shall be specified by
notice given pursuant hereto:
(a) If to any Holder, the address of such Holder set forth on Annex A
attached hereto;
(b) If to the Company, to it at:
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
Attn: Todd Kahn, Esq.
7. Assignment
----------
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned by the Company. Any
Holder may, at its election, at any time or from time to time, assign its
rights under this Agreement, in whole or in part, to any transferee of
Registrable Common Stock.
8. Remedies
--------
The parties hereto agree that money damages or any other remedy at law
would not be sufficient or adequate remedy for any breach or violation of, or
a default under, this Agreement by them and that, in addition to all other
remedies available to them, each of them shall be entitled to an injunction
restraining such breach, violation or default or threatened breach, violation
or default and to any other equitable relief, including, without limitation,
specific performance, without bond or other security being required. In any
action or proceeding brought to enforce any provision of this Agreement
(including the indemnification provisions thereof), the successful party
shall be entitled to recover reasonable attorneys' fees in addition to its
costs and expenses and any other available remedy.
9. No Inconsistent Agreements
--------------------------
The Company will not, on or after the date of this Agreement, enter
into any agreement with respect to its securities which is inconsistent with
the rights granted to the Holders in this Agreement or otherwise conflicts
with the provisions hereof, other than any customary lock-up agreement with
the underwriters in connection with any registration and offering by the
Company of its securities to the public (an "Offering") effected hereunder,
pursuant to which the Company shall agree not to register for sale, and the
Company shall agree not to sell or otherwise dispose of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock,
as applicable, for a specified period following such Offering. The Company
hereby represents and warrants that the rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with any
other agreements to which the Company is a party or by which it is bound.
The Company further agrees that if any other registration rights agreement
entered into after the date of this Agreement with respect to any of its
securities contains terms which are more favorable to, or less restrictive
on, the other party thereto than the terms and conditions contained in this
Agreement are (insofar as they are applicable) to the Holders, then the terms
and conditions of this Agreement shall immediately be deemed to have been
amended without further action by the Company or the Holders so that the
Holders shall be entitled to the benefit of any such more favorable or less
restrictive terms or conditions.
10. Headings
--------
Headings of the sections and paragraphs of this Agreement are for
convenience only and shall be given no substantive or interpretive effect
whatsoever.
11. Governing Law; Jurisdiction
---------------------------
(a) This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of New York, without giving effect to
the conflicts of law principles thereof.
(b) Each of the parties hereto irrevocably and unconditionally
consents to the jurisdiction of the federal courts and courts of the state of
New York situated in New York County, New York in respect of the
interpretation and enforcement of the provisions of this Agreement, and
hereby agrees that service of process in any such action, suit or proceeding
against the other party with respect to this Agreement may be made upon it in
any manner permitted by the laws of New York or the federal laws of the
United States.
12. Counterparts
------------
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
13. Invalidity of Provision
-----------------------
The invalidity or unenforceability of any provision of this Agreement
in any jurisdiction shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of this Agreement, including that provision, in any other
jurisdiction. If any restriction or provision of this Agreement is held
unreasonable, unlawful or unenforceable in any respect, such restriction or
provision shall be interpreted, revised or applied in a manner that renders
it lawful and enforceable to the fullest extent possible under law.
14. Further Assurances
------------------
Each party hereto shall do and perform or cause to be done and
performed all further acts and things and shall execute and deliver all other
agreements, certificates, instruments, and documents as any other party
hereto reasonably may request in order to carry out the intent and accomplish
the purposes of this Agreement and the consummation of the transactions
contemplated hereby.
15. Entire Agreement; Effectiveness
-------------------------------
This Agreement and the other writings referred to herein or delivered
in connection herewith contain the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or understandings with respect thereto.
IN WITNESS WHEREOF, the undersigned have Executed this Agreement as of
the date first above written:
SALANT CORPORATION
By:
---------------------------------------
Name:
Title:
SALANT CORPORATION, as attorney in fact for the
Holders of Registrable Common Stock
By:
---------------------------------------
Name:
Title:
MAGTEN ASSET MANAGEMENT CORP., as agent on
behalf of those investment advisory clients
listed on Schedule I hereto
By:
---------------------------------------
Name:
Title:
<PAGE>
Exhibit C to Appendix I to Part B
of Exchange Restructuring Prospectus
EXHIBIT C
STOCK AWARD AND INCENTIVE PLAN
SEE ANNEX III TO THE PROXY STATEMENT/PROSPECTUS
<PAGE>
Exhibit D to Appendix I to Part B
of Exchange Restructuring Prospectus
EXHIBIT D
INITIAL BOARD OF REORGANIZED SALANT
Jerald S. Politzer, age 52, joined the Company as a director on March
24, 1997 and Chief Executive Officer commencing April 1, 1997. From July
1989 to November 1996 he had been Executive Vice President of Melville
Corporation, a diversified retailer. Mr. Politzer is a director of Norton
McNaughton, Inc., a manufacturer of women's apparel.
Marvin Schiller, age 63, was Managing Director of A.T. Kearney, Inc.,
a management consulting firm, from May 1983 until his retirement as of
January 1995. Dr. Schiller is a director of LePercq-Istel Fund, Inc., a
mutual fund; Strategic Agricultural Management Corp., a software developer
and marketer; and Tutor Time Learning Systems Inc., a childcare and
educational company. Dr. Schiller has served as a director of the Company
since May 1983.
Information regarding the remaining Board nominees will be provided
once Magten has advised the Company of its Board nominees.
<PAGE>
Exhibit E to Appendix I to Part B
of Exchange Restructuring Prospectus
EXHIBIT E
LIST OF EXECUTORY CONTRACTS TO BE REJECTED
[TO BE PROVIDED]
<PAGE>
Exhibit F to Appendix I to Part B
of Exchange Restructuring Prospectus
EXHIBIT F
REORGANIZED SALANT CERTIFICATE OF INCORPORATION
[TO BE PROVIDED]
<PAGE>
Attachment I to Exchange Restructuring Prospectus
FORM OF
LETTER OF TRANSMITTAL
TO TENDER
10 1/2% SENIOR SECURED NOTES DUE DECEMBER 31, 1998
OF
SALANT CORPORATION
PURSUANT TO THE
EXCHANGE RESTRUCTURING PROSPECTUS DATED _____________, 1998
===========================================================================
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON _______________, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
===========================================================================
TO THE DEPOSITARY:
-------------------------------------
BY HAND DELIVERY OR OVERNIGHT COURIER: BY MAIL:
- -------------------------------- ---------------------
FACSIMILE TRANSMISSION:
--------------------------
CONFIRM BY TELEPHONE:
--------------------------
Delivery of this instrument to an address other than as set forth
above or transmission of instructions via a facsimile number other than the
ones listed above will not constitute a valid delivery.
The undersigned acknowledges receipt of the Exchange Restructuring
Prospectus dated ____________, 1998, (the "Exchange Restructuring
Prospectus") of Salant Corporation (the "Company"), relating to the offer of
the Company, upon the terms and subject to the conditions set forth in the
Exchange Restructuring Prospectus, this Letter of Transmittal and the
instructions hereto (which together constitute the "Exchange Offer"), to
issue 175.977555 shares of common stock (adjusted to reflect the one-for-ten
reverse stock split described herein) of common stock, par value $1.00 per
share (the "New Common Stock"), of the Company for each $1,000 principal
amount (and all accrued and unpaid interest thereon) of 10 1/2% Senior
Secured Notes due December 31, 1998 (the "Senior Notes") issued pursuant to
an Indenture, dated September 20, 1993, as amended (the "Indenture"), between
the Company and Bankers Trust Company, as Trustee, which is validly tendered
and not withdrawn. Each exchanging holder of Senior Notes (each a
"Noteholder") is required to elect to exchange the entire principal amount
(plus all accrued but unpaid interest thereon through the Exchange
Restructuring Date) of all Senior Notes tendered by such Noteholder pursuant
to this Letter of Transmittal for shares of New Common Stock to be received
in exchange therefor. Capitalized terms used in this Letter of Transmittal,
but not defined herein shall have the meanings given such terms in the
Exchange Restructuring Prospectus.
PLEASE READ THIS ENTIRE LETTER
OF TRANSMITTAL CAREFULLY BEFORE
COMPLETING ANY BOX BELOW
This Letter of Transmittal is to be used (i) if Senior Notes are to
be physically delivered herewith or (ii) if delivery of Senior Notes to be
made by book-entry transfer to the account maintained by the Depositary at
The Depository Trust Company ("DTC") or the Philadelphia Depository Trust
Company ("PHILADEP") pursuant to the procedures set forth in "TENDERING AND
VOTING PROCEDURES" in Part A to the Exchange Restructuring Prospectus.
Delivery of documents to DTC or PHILADEP does not constitute delivery to the
Depositary.
THERE IS NO PROCEDURE FOR TENDERING BY GUARANTEED DELIVERY. TENDERS
BY GUARANTEED DELIVERY WILL NOT BE ACCEPTED.
DESCRIPTION OF SENIOR NOTES
Certificate(s) Tendered
(Attach additional list if
necessary)
(1) (2) (3)
Aggregate
Name(s) and Address(es) of Registered Certificate Principal
Holder(s) Number(s)* Amount
(Please fill in, if blank)
---------------------------------
---------------------------------
---------------------------------
Total:
* Need not be completed by Book-Entry Holders (see below).
METHOD OF DELIVERY
__ CHECK HERE IF CERTIFICATES FOR TENDERED SENIOR NOTES ARE ENCLOSED
HEREWITH.
CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED BY BOOK-ENTRY
__ TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A
BOOK-ENTRY TRANSFER FACILITY SPECIFIED BELOW AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
___ DTC __ PHILADEP (check one) Account Number:__________________
Transaction Code Number:
THERE IS NO PROCEDURE FOR TENDERING BY GUARANTEED DELIVERY.
TENDERS BY GUARANTEED DELIVERY WILL NOT BE ACCEPTED.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
TENDER OF SENIOR NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the Senior Notes indicated above.
Subject to, and effective upon the acceptance for exchange of the Senior
Notes tendered herewith, the undersigned hereby sells, assigns and transfers
to or upon the order of the Company all right, title and interest in and to
all the Senior Notes that are being tendered hereby, and appoints the
Depositary the true and lawful agent and attorney-in-fact of the undersigned
with respect to such Senior Notes, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest) to (a) deliver certificates for such Senior Notes or transfer
ownership of such Senior Notes on the account books maintained by DTC or
PHILADEP, together, in any such case, with all accompanying evidences of
transfer and authenticity, to or upon the order of the Company, (b) present
such Senior Notes for transfer on the register and (c) receive all benefits
and otherwise exercise all rights of beneficial ownership of such Senior
Notes, all in accordance with the terms of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED
ACCEPTS THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER, OWNS THE SENIOR NOTES
TENDERED HEREBY (WITHIN THE MEANING OF RULE 1OB-4 UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED), HAS FULL POWER AND AUTHORITY TO TENDER,
SELL, ASSIGN AND TRANSFER THE SENIOR NOTES TENDERED HEREBY AND THAT THE
COMPANY WILL ACQUIRE GOOD AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF
ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES AND NOT SUBJECT TO ANY
ADVERSE CLAIM. THE UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY
ADDITIONAL DOCUMENTS NEEDED BY THE DEPOSITARY OR THE COMPANY TO BE NECESSARY
OR DESIRABLE TO COMPLETE THE SALE, ASSIGNMENT AND TRANSFER OF THE SENIOR
NOTES HEREBY TENDERED. THE UNDERSIGNED HEREBY FOREVER WAIVES ALL RIGHTS TO
RECEIVE ANY PAYMENTS NOT HERETOFORE PAID WITH RESPECT TO ACCRUED BUT UNPAID
INTEREST ON SUCH SENIOR NOTES TENDERED PURSUANT HERETO, WHETHER DUE BEFORE OR
AFTER THE DATE HEREOF. SUCH WAIVER SHALL NOT BE DEEMED TO BE EFFECTIVE IF
SUCH SECURITIES ARE NOT ACCEPTED FOR EXCHANGE PURSUANT TO THE EXCHANGE OFFER.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned, and any obligation of the
undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Tenders of Senior
Notes may be withdrawn, subject to the procedures described in Part A to the
Exchange Restructuring Prospectus, at any time before they are accepted for
exchange by the Company. The Company shall be deemed to have accepted for
exchange, and to have exchanged, all validly tendered Senior Notes in the
Exchange Offer if, when and as of the time that the Company gives oral or
written notice thereof to the Depositary.
The undersigned understands that tenders of Senior Notes pursuant to any
one of the procedures described under "TENDERING AND VOTING PROCEDURES" in
Part A to the Exchange Restructuring Prospectus and in the instructions
hereto will constitute a binding agreement between the undersigned and the
Company in accordance with the terms and subject to the conditions of the
Exchange Offer.
The undersigned recognizes that, under certain circumstances set forth
in the Exchange Restructuring Prospectus, the Company may not be required to
accept for exchange any of the Senior Notes tendered. Senior Notes not
accepted for exchange or withdrawn will be returned to the undersigned at the
address set forth above unless otherwise indicated under "SPECIAL DELIVERY
INSTRUCTIONS" below.
Unless otherwise indicated under "SPECIAL ISSUANCE INSTRUCTIONS" or
"SPECIAL DELIVERY INSTRUCTIONS" below, the Depositary will deliver the New
Common Stock to the undersigned at the address set forth above. The
undersigned understands that Noteholders who tender Senior Notes by book
entry transfer ("Book-Entry Holders") may request that any Senior Notes not
exchanged be returned by crediting the account maintained by DTC or PHILADEP
as such Book-Entry Holders may designate by making an appropriate entry under
the box entitled "SPECIAL ISSUANCE INSTRUCTIONS" below. The undersigned
recognizes that the Company has no obligation pursuant to "SPECIAL ISSUANCE
INSTRUCTIONS" to transfer any Senior Notes from the name of the registered
holder thereof if the Company does not accept for exchange any of such Senior
Notes.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF SENIOR
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED ALL
THEIR SENIOR NOTES, WAIVED CERTAIN RIGHTS AND MADE CERTAIN REPRESENTATIONS,
AS DESCRIBED HEREIN AND IN PART A TO THE EXCHANGE RESTRUCTURING PROSPECTUS.
IF THE UNDERSIGNED IS NOT THE REGISTERED HOLDER OF THE SENIOR NOTES TENDERED
PURSUANT HERETO, THE UNDERSIGNED MUST EITHER HAVE THE SENIOR NOTES REGISTERED
IN THE UNDERSIGNED'S NAME OR HAVE THE REGISTERED HOLDER SIGN A VALID PROXY.
IMPORTANT
PLEASE SIGN HERE
AND COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9
Signature(s) of Holder(s)
Area Code and Telephone Number: (__)__________
This Letter of Transmittal must be signed by the Registered Holder(s) of
Senior Notes as their name(s) appear(s) on the certificates for the Senior
Notes or, if tendered by a participant or participants in one of the
Book-Entry Transfer Facilities, exactly as such participant's or
participants' name(s) appear(s) on a security position listing as the owners
of Senior Notes, or by a person or persons authorized to become a Registered
Holder or Registered Holders, by endorsement of any documents transmitted
herewith. If the signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, please set forth your full title. See Instruction 3.
Name(s): __________________________________________________
__________________________________________________
Please Type or Print
Capacity: __________________________________________________
Address: __________________________________________________
__________________________________________________
(Including Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by
and Eligible Institution:
__________________________________________________
(Authorized Signature)
__________________________________________________
(Title)
__________________________________________________
(Name of Firm)
Dated: ____________ ____, 1998
Tax Identification Number:___________________________________________________
(Also complete Substitute Form W-9 below)
PAYOR'S NAME: _________________________________
SUBSTITUTE PART 1-PLEASE PROVIDE YOUR TIN: _______________________
FORM W-9 TAX IDENTIFICATION NUMBER (Social Security Number
Department of ("TIN") IN THE BOX AT RIGHT or Employer
the Treasury AND CERTIFY BY SIGNING AND Identification Number)
DATING BELOW
............................................................
PART 2--FOR PAYEES EXEMPT FROM BACK-UP WITHHOLDING PLEASE
WRITE "EXEMPT" HERE
(SEE INSTRUCTIONS)__________________________________________
............................................................
Payor's Request PART 3--CERTIFICATION UNDER PENALTIES OF PERJURY, I CERTIFY
for THAT (1) The number shown on this form is my correct TIN
Taxpayer (or I am waiting for a number to be issued to me), and (2)
Identification I am not subject to back-up withholding because: (a) I am
Number and exempt from back-up withholding, (b) I have not been
Certification notified by the Internal Revenue Service (the "IRS") that I
am subject to back-up withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to back-up
withholding.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT
TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE
CERTIFICATIONS REQUIRED TO AVOID BACK-UP WITHHOLDING.
SIGNATURE: _____________________ DATE: ___________________________
You must cross out item (2) of Part 3 above if you have
been notified by the IRS that you are currently subject to
back-up withholding because of underreporting interest or
dividends on your tax return, and you have not been
notified by the IRS that you are no longer subject to
back-up withholding.
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4 and 5) (See Instructions 4 and 5)
To be completed ONLY if To be completed ONLY if Certificates
certificates for New Common Stock for New Common Stock are to be sent
are to be issued in the name of, or to someone other than the person who
paid to, someone other than the submits this Letter of Transmittal
person who submits this Letter of or to an address other than that
Transmittal or issued to an address shown in the box entitled
different from that shown in the "DESCRIPTION OF SENIOR NOTES" above
box entitled "DESCRIPTION OF SENIOR in this Letter of Transmittal.
NOTES" above in this Letter of
Transmittal or if Senior Notes are
to be returned by credit to an
account maintained by DTC or
PHILADEP.
Issue to: Mail to:
Name:____________________________ Name:___________________________
(Please Print) (Please Print)
Address:________________________ Address:________________________
________________________________ ________________________
(Include Zip Code) (Include Zip Code)
____________________________________ ______________________________________
(Taxpayer Identification or Social (Taxpayer Identification or Social
Security Number) Security Number)
(Also Complete Substitute Form W-9) (Also Complete Substitute Form W-9)
Credit unexchanged Senior Notes
tendered by book-entry transfer to
the:
__ DTC or ___ PHILADEP (check one)
account set forth below:
Account Number:___________________
DTC or PHILADEP
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED
FOR" IN PART 1 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I CERTIFY UNDER PENALTY OF PERJURY THAT A TAXPAYER IDENTIFICATION NUMBER HAS
NOT BEEN ISSUED TO ME, AND THAT I MAILED OR DELIVERED AN APPLICATION TO
RECEIVE A TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE INTERNAL REVENUE
SERVICE CENTER OR SOCIAL SECURITY ADMINISTRATION OFFICE (OR I INTEND TO MAIL
OR DELIVER AN APPLICATION IN THE NEAR FUTURE). I UNDERSTAND THAT IF I DO NOT
PROVIDE A TAXPAYER IDENTIFICATION NUMBER TO THE PAYOR WITHIN 60 DAYS, THE
PAYOR IS REQUIRED TO WITHHOLD 31 PERCENT OF ALL CASH PAYMENTS MADE TO ME
THEREAFTER UNTIL I PROVIDE A NUMBER.
____________________________________ _____________________________________
Signature Date
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACK-UP
WITHHOLDING OF 31 PERCENT OF ANY CASH PAYMENTS. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. Certificates
for Senior Notes, or any book-entry transfer into the Depositary's account at
DTC or PHILADEP of Senior Notes tendered electronically, as well as a
properly completed and duly executed Letter of Transmittal or facsimile
thereof with any signature guarantees, and any other documents required by
this Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth herein on or prior to the Expiration Date of the Exchange
Offer. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES FOR
ANY SENIOR NOTES AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK
OF THE TENDERING NOTEHOLDER, AND EXCEPT AS OTHERWISE PROVIDED BELOW, THE
DELIVERY WILL BE DEEMED MADE WHEN ACTUALLY RECEIVED BY THE DEPOSITARY.
INSTEAD OF EFFECTING DELIVERY BY MAIL, IT IS RECOMMENDED THAT TENDERING
NOTEHOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IF SENIOR NOTES ARE
SENT BY MAIL, THEN REGISTERED MAIL, WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO DOCUMENTS SHOULD BE SENT TO THE COMPANY, THE
INFORMATION AGENT, THE TRUSTEE FOR THE SENIOR NOTES OR THE TRANSFER AGENT FOR
THE NEW COMMON STOCK.
If the person signing this Letter of Transmittal is not the
registered Noteholder of the Senior Notes tendered hereby, then such person
must either have the securities tendered hereby registered in such person's
name or obtain from the registered Noteholder and submit to the Depositary a
valid proxy.
All questions as to the validity, form, eligibility (including time
of receipt), acceptance, withdrawal and revocation of tendered Senior Notes
will be resolved by the Company, whose determination will be final and
binding. The Company reserves the absolute right to reject any or all tenders
and withdrawals of Senior Notes that are not in proper form or the acceptance
of which would, in the opinion of the Company or counsel for the Company, be
unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender, consent or proxy as to particular Senior Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) will be final and
binding. Unless waived, any irregularities in connection with tenders and
withdrawals of Senior Notes must be cured within such time as the Company
shall determine. Neither the Company nor the Depositary shall be under any
duty to give notification of defects in such tenders, withdrawals, deliveries
or revocations or shall incur any liability for failure to give such
notification. Tenders, withdrawals and deliveries of Senior Notes will not be
deemed to have been made until such irregularities have been cured or waived.
Any Senior Notes received by the Depositary that are not properly tendered or
delivered, and as to which the irregularities have not been cured or waived,
will be returned by the Depositary to the tendering Noteholder(s), unless
otherwise provided in this Letter of Transmittal, as soon as practicable
following the Expiration Date.
None of the Company, the Depositary, the Information Agent or any
other person shall be obligated to give notification of defects or
irregularities in any tender, or shall incur any liability for failure to
give any such notification.
2. NO PARTIAL TENDERS; WITHDRAWALS. Tenders of Senior Notes will be
accepted only for the entire principal amount of the Senior Notes (plus
accrued and unpaid interest thereon to _____________, 1998) and the entire
principal amount of all Senior Notes delivered to the Depositary will be
deemed to have been tendered.
Tenders of Senior Notes may be withdrawn, subject to the procedures
described in Part A to the Exchange Restructuring Prospectus and below, at
any time before they are accepted for exchange by the Company. To be
effective, a written or facsimile transmission notice of withdrawal of tender
must (a) be timely received by the Depositary at one of its addresses
specified on the front of this Letter of Transmittal before such Senior Notes
are accepted for exchange by the Company, (b) specify the name of the
Noteholder of the Senior Notes to be withdrawn, (c) contain a description of
the Senior Notes to be withdrawn, the certificate numbers shown on the
particular certificates evidencing such Senior Notes and the aggregate
principal amount represented by such Senior Notes and (d) be signed by such
Noteholder in the same manner as the original signature on this Letter of
Transmittal (including any required signature guarantees), or be accompanied
by documents of transfer sufficient to have the Trustee for the Senior Notes
register the transfer of such Senior Notes into the name of the person
withdrawing the tender for Senior Notes. The signature(s) on the notice of
withdrawal must be guaranteed by an Eligible Institution unless such Senior
Notes have been tendered (a) by a registered Noteholder who has not completed
the boxes on the Letter of Transmittal entitled "SPECIAL ISSUANCE
INSTRUCTIONS" or "SPECIAL DELIVERY INSTRUCTIONS" or (b) of the account of an
Eligible Institution. If the Senior Notes to be withdrawn have been delivered
or otherwise identified to the Depositary, a signed notice of withdrawal is
effective immediately upon receipt of a written or facsimile transmission of
such notice of withdrawal, even if physical release is not yet effected.
Any record holder of Senior Notes may submit two or more Letters of
Transmittal covering all or a portion of such Senior Notes owned by such
Noteholder provided that such Noteholder submits with the Letters of
Transmittal a certification satisfactory to the Exchange Agent that such
Noteholder holds such Senior Notes as nominee for two or more beneficial
owners.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL, BOND POWERS, AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is
signed by the registered holder(s) of the Senior Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
certificate(s) without alteration or any change whatsoever.
If any of the Senior Notes tendered hereby are registered in the
names of two or more joint owners, all owners must sign this Letter of
Transmittal. If any tendered Senior Notes are registered in different names
on several certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal and any other required documents as
there are different names in which certificates are registered.
If tendered Senior Notes are registered in the name of a person
other than the person signing this Letter of Transmittal, the tendered Senior
Notes must be endorsed or accompanied by appropriate note powers, signed by
the registered Noteholder or Noteholders of the Senior Notes transmitted
hereby or separate note powers are required, with signatures guaranteed in
either case.
If this Letter of Transmittal or any certificate or note powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and proper evidence,
satisfactory to the Company, of their authority so to act must be submitted.
Endorsements on certificates of Senior Notes or signatures on note
powers required by this Instruction 3 must be guaranteed by an Eligible
Institution.
Signatures on this Letter of Transmittal must be guaranteed by an
Eligible Institution unless (i) the Senior Notes are tendered by the
registered Noteholder(s) which term, for purposes of this Letter of
Transmittal, shall include any participant in DTC or PHILADEP whose name
appears on a security position listing as the owner of Senior Notes, who has
not completed the box entitled "SPECIAL ISSUANCE INSTRUCTIONS" or "SPECIAL
DELIVERY INSTRUCTIONS" on this Letter of Transmittal, or (ii) the Senior
Notes are being tendered for the account of an Eligible Institution.
4. SPECIAL INSURANCE AND DELIVERY INSTRUCTIONS. Tendering holders
of Senior Notes should indicate, in the applicable box, the name and address
to which the certificates representing shares of New Common Stock are to be
issued or sent, if different from the name and address of the person
submitting this Letter of Transmittal. In the case of issuance in a different
name, the tax identification number of the person named must also be
indicated and a Substitute Form W-9 for such recipient must be completed. See
Instruction 5. If no such instructions are given, such Senior Notes not
exchanged will be returned to the name and address of the person signing this
Letter of Transmittal or, at the Company's option, by crediting the account
at DTC or PHILADEP designated above in the box entitled "SPECIAL ISSUANCE
INSTRUCTIONS."
5. TAXPAYER IDENTIFICATION NUMBER AND BACK-UP WITHHOLDING. Federal
income tax taw generally requires that each Noteholder must provide the
Depositary (as "Payor") with such Noteholder's correct Taxpayer
Identification Number ("TIN"), which, in the case of a Noteholder who is an
individual, is such Noteholder's social security number. If the Depositary is
not provided with the correct TIN or an adequate basis for an exemption, such
Noteholder may be subject to a $50 penalty imposed by the Internal Revenue
Service and back-up withholding in an amount equal to 31% of the gross
proceeds of any cash payments received hereunder. If withholding results in
an overpayment of taxes, a refund may be obtained.
To prevent back-up withholding, each surrendering Noteholder must
provide such Noteholder's correct TIN by completing the "Substitute Form W-9"
set forth herein, certifying that the TIN provided is correct (or that such
Noteholder is awaiting a TIN) and that (i) the Noteholder is exempt from
back-up withholding, (ii) the Noteholder has not been notified by the
Internal Revenue Service that such Noteholder is subject to back-up
withholding as a result of a failure to report all interest or dividends, or
(iii) the Internal Revenue Service has notified the Noteholder that such
Noteholder is no longer subject to back-up withholding.
If the Noteholder does not have a TIN, such Noteholder should
consult the enclosed guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 (the "W-9 Guidelines") for instructions on
applying for a TIN, write "Applied For" in the space for the TIN in Part 1 of
the Substitute Form W-9, and sign and date the Substitute Form W-9 and the
Certificate of Awaiting Taxpayer Identification Number set forth herein. If
the Noteholder does not provide such Noteholder's TIN to the Payor within 60
days, back-up withholding will begin and continue until such Noteholder
furnishes such Noteholder's TIN to the Depositary. Note: Writing "Applied
For" on the form means that the Noteholder has already applied for a TIN or
that such Noteholder intends to apply for one in the near future.
If certificates representing shares of New Common Stock are to be
held in more than one name or are not in the name of the actual owner,
consult the W-9 Guidelines for information on which TIN to report.
Exempt Noteholders (including, among others, all corporations and
certain foreign individuals) are not subject to these back-up withholding and
reporting requirements. To prevent possible erroneous back-up withholding, an
exempt Noteholder should write "Exempt" in Part 2 of Substitute Form W-9. See
the W-9 Guidelines for additional instructions. In order for a nonresident
alien or foreign entity to qualify as exempt, such person must submit a
completed Form W-8, "Certificate of Foreign Status," signed under penalty of
perjury, attesting to such exempt status. Such form may be obtained from the
Payor.
6. TRANSFER TAXES. The Company will pay all transfer taxes
applicable to the exchange of the Senior Notes pursuant to the Exchange
Offer, except in the case of deliveries of New Common Stock that are to be
made to persons other than the registered Noteholder.
Except as provided in this Instruction 6, it will not be necessary
for transfer tax stamps to be affixed to the certificates listed in this
Letter of Transmittal.
7. WAIVER OF CONDITIONS. The Company (or the Depositary, if
delegated such authority) reserves the right to waive any irregularities or
defects in the surrender of any of the Senior Notes, any irregularities or
defects in this Letter of Transmittal or any other condition set forth
herein. Neither the Company nor the Depositary is under any duty to give
notification of any defects in any Letter of Transmittal, defects in other
required documents or failure to comply with any other conditions set forth
herein and shall not incur any liability for failure to give such
notification. Any and all Letters of Transmittal and any other required
documents not in proper form are subject to rejection.
8. MUTILATED, LOST, STOLEN OR DESTROYED SENIOR NOTES. Any
Noteholder whose Senior Notes have been mutilated, lost, stolen or destroyed
should contact the Trustee for the Senior Notes at the address indicated
below: [______________]
[______________]
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating
to the procedure for tendering, as well as requests for additional copies of
the Exchange Restructuring Prospectus and this Letter of Transmittal, may be
directed to the Information Agent.
10. INADEQUATE SPACE. If the space provided herein is inadequate,
the Senior Note Certificate number(s) and/or the number of shares of Senior
Notes should be listed on a separate signed schedule attached hereto.
11. CORRECTION OR CHANGE IN NAME. For a correction of names or for
a change in names which in either case does not involve a change of
ownership, proceed as follows: (i) for a change in name, by marriage, etc.,
the surrendered certificate(s) should be endorsed, e.g., "Mary Doe, now by
marriage Mrs. Mary Jones," with the signature guaranteed (see Instruction 3);
and (ii) for a correction in name, the surrendered certificate(s) should be
endorsed, e.g., "James E. Brown, incorrectly inscribed as J.E. Brown," with
the signature guaranteed (see Instruction 3).
12. DIVIDENDS ON NEW COMMON STOCK. A holder whose Senior Notes are
not surrendered will not receive payment of dividends, if any, paid on New
Common Stock. Upon surrender, however, any dividends payable on New Common
Stock to holders of New Common Stock in respect of a record date after the
date of consummation of the Restructuring will be paid, without interest, to
the person in whose name the certificates representing shares of New Common
Stock are registered or as otherwise directed by that person. Under Federal
income tax law, such dividends that are being held pending an exchange of
Senior Notes will be reported to the Internal Revenue Service in the name of
the record holder of the unsurrendered Senior Notes for the calendar year in
which such dividends are paid.
13. MISCELLANEOUS. The terms and conditions of the Exchange Offer
are incorporated herein by reference in their entirety and are deemed to form
a part of the terms and conditions of this Letter of Transmittal.
<PAGE>
Attachment II to Exchange Restructuring Prospectus
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ------------------------------
IN RE CHAPTER 11 CASE
NO. 98-
SALANT CORPORATION,
DEBTOR.
TAX ID
1114 AVENUE OF THE AMERICAS NO.
NEW YORK, NY 10036 -------------
- ------------------------------
BALLOT FOR ACCEPTING OR REJECTING PLAN OF REORGANIZATION OF
SALANT CORPORATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
BALLOT FOR VOTING SENIOR NOTES
(CLASS 3: SENIOR NOTE CLAIMS)
If you are a beneficial owner of 10-1/2% Senior Secured Notes due December 31,
1998 (the "Senior Notes") issued by Salant Corporation ("Salant"), please
use this Ballot to cast your vote to accept or reject the Chapter 11 Plan of
Reorganization (the "Prepackaged Plan") which is being proposed by Salant.
The Prepackaged Plan is Appendix I to the Disclosure Statement, dated
____________, 1998 (the "Disclosure Statement"), which accompanies this
Ballot. The Prepackaged Plan can be confirmed by the Bankruptcy Court and
thereby made binding upon you if it is accepted by the holders of two-thirds
in amount and more than one-half in number of claims in each class that vote
on the Prepackaged Plan, and by the holders of two-thirds in amount of
equity security interests in each class that vote on the Prepackaged Plan,
and if it otherwise satisfies the requirements of section 1129(a) of the
Bankruptcy Code. If the requisite acceptances are not obtained, the
Bankruptcy Court may nonetheless confirm the Prepackaged Plan if it finds
that the Prepackaged Plan provides fair and equitable treatment to, and does
not discriminate unfairly against, the class or classes voting not to accept
the Prepackaged Plan, and otherwise satisfies the requirements of section
1129(b) of the Bankruptcy Code.
All capitalized terms used herein (unless otherwise defined) shall have the
meanings set forth in the Disclosure Statement.
- -------------------------------------------------------------------------------
IMPORTANT
VOTING DEADLINE: __:__ P.M. NEW YORK CITY TIME ON _______ __, 1998.
REVIEW THE ACCOMPANYING DISCLOSURE STATEMENT FOR THE PREPACKAGED PLAN.
BALLOTS WILL NOT BE ACCEPTED BY FACSIMILE TRANSMISSION.
DO NOT RETURN ANY SECURITIES WITH THIS BALLOT. This Ballot is not a letter of
transmittal and may not be used for any purpose other than to cast votes to
accept or reject the Prepackaged Plan.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
HOW TO VOTE
1. COMPLETE ITEM 1 (if not already filled out by your nominee) AND ITEM 2 AND
COMPLETE ITEM 3 (if applicable).
2. REVIEW THE CERTIFICATIONS CONTAINED IN ITEM 4.
3. SIGN THE BALLOT (unless your Ballot has already been signed or
"prevalidated" by your nominee).
4. RETURN THE BALLOT IN THE PRE-ADDRESSED POSTAGE-PAID ENVELOPE (if the
enclosed envelope is addressed to your nominee, make sure your nominee
receives your Ballot in time to submit it before the voting deadline).
5. YOU WILL RECEIVE A SEPARATE BALLOT FOR EACH SALANT SECURITY YOU OWN WHICH
IS ENTITLED TO BE VOTED UNDER THE PREPACKAGED PLAN.
6. YOU MUST VOTE ALL SENIOR NOTES EITHER TO ACCEPT OR TO REJECT THE
PREPACKAGED PLAN AND MAY NOT SPLIT YOUR VOTE.
- -------------------------------------------------------------------------------
ITEM 1. PRINCIPAL AMOUNT OF SENIOR NOTES VOTED. The undersigned certifies
that as of ______ __, 1998, the undersigned was either the
beneficial owner, or the nominee of a beneficial owner, of Senior
Notes in the following aggregate unpaid principal amount (insert
amount in the box below). If your Senior Notes are held by a
nominee on your behalf and you do not know the amount, please
contact your nominee immediately.
--------------------------------------------------------
$
--------------------------------------------------------
ITEM 2. VOTE. The beneficial owner of the Senior Notes identified in Item 1
votes as follows (check one box only--if you do not check a box
your vote will not be counted):
[ ] to ACCEPT the Prepackaged Plan. [ ] to REJECT the Prepackaged Plan.
ITEM 3. IDENTIFY ALL OTHER SENIOR NOTES VOTED. By returning this Ballot,
the beneficial owner of the Senior Notes identified in Item 1
certifies that this Ballot is the only Ballot submitted for the
Senior Notes owned by such beneficial owner, except for the
Senior Notes identified in the following table, and (b) all
Ballots for Senior Notes submitted by the beneficial owner
indicate the same vote to accept or reject the Prepackaged Plan
that the beneficial owner has indicated in Item 2 of this Ballot
(please use additional sheets of paper if necessary):
OTHER SENIOR NOTES
---------------------------------------------------------------------
NAME OF PRINCIPAL AMOUNT
REGISTERED HOLDER OF OTHER SENIOR
ACCOUNT NUMBER OR NOMINEE NOTES VOTED
---------------------------------------------------------------------
---------------------------------------------------------------------
$
---------------------------------------------------------------------
$
---------------------------------------------------------------------
ITEM 4. AUTHORIZATION. By returning this Ballot, the beneficial owner of
the Senior Notes identified in Item 1 certifies that it (a) has
full power and authority to vote to accept or reject the
Prepackaged Plan with respect to the Senior Notes listed in Item
1, (b) was the beneficial owner of the Senior Notes described in
Item 1 on ______ __, 1998, and (c) has received a copy of the
Disclosure Statement (including the exhibits thereto) and
understands that the solicitation of votes for the Prepackaged
Plan is subject to all the terms and conditions set forth in the
Disclosure Statement.
Name:
---------------------------------------------
(Print or Type)
Social Security or Federal Tax I.D. No.:
-----------
(Optional)
Signature:
----------------------------------------
By:
-----------------------------------------------
(If Appropriate)
Title:
--------------------------------------------
(If Appropriate)
Street Address:
-----------------------------------
City, State, Zip Code:
----------------------------
Telephone Number: ( )
---------------------------------
Date Completed:
-----------------------------------
No fees, commissions, or other remuneration will be payable to any broker,
dealer, or other person for soliciting votes on the Prepackaged Plan. This
Ballot shall not constitute or be deemed a proof of claim or equity interest
or an assertion of a claim or equity interest.
- ------------------------------------------------------------------------------
YOUR VOTE MUST BE FORWARDED IN AMPLE TIME FOR YOUR VOTE TO BE RECEIVED BY
THE VOTING AGENT, [NAME OF VOTING AGENT], BY __:__ P.M., NEW YORK CITY
TIME, ON ______ __, 1998, OR YOUR VOTE WILL NOT BE COUNTED.
- ------------------------------------------------------------------------------
IF YOU HAVE ANY QUESTIONS REGARDING THIS BALLOT OR THE VOTING PROCEDURES, OR
IF YOU NEED A BALLOT OR ADDITIONAL COPIES OF THE DISCLOSURE STATEMENT OR
OTHER ENCLOSED MATERIALS, PLEASE CALL THE VOTING AGENT, [NAME OF VOTING
AGENT] AT (___) ___-____.
<PAGE>
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- -----------------------------
IN RE
CHAPTER 11 CASE
NO. 98-
SALANT CORPORATION,
DEBTOR.
TAX ID
1114 AVENUE OF THE AMERICAS NO. __________
NEW YORK, NY 10036
- -----------------------------
MASTER BALLOT FOR ACCEPTING OR REJECTING
PLAN OF REORGANIZATION OF SALANT CORPORATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
MASTER BALLOT FOR VOTING SENIOR NOTES
(CLASS 3: SENIOR NOTE CLAIMS)
- -------------------------------------------------------------------
THE VOTING DEADLINE BY WHICH YOUR MASTER BALLOT MUST BE RECEIVED
BY THE VOTING AGENT IS __:__ P.M. NEW YORK CITY TIME ON
, 1998 OR THE VOTES REPRESENTED BY YOUR BALLOT
WILL NOT BE COUNTED
- -------------------------------------------------------------------
This Master Ballot is to be used by you, as a broker, bank, or
other nominee (or as their proxy holder or agent) (each of the
foregoing, a "Nominee"), for beneficial owners of 10-1/2% Senior
Secured Notes due December 31, 1998 (the "Senior Notes") issued
by Salant Corporation ("Salant"), to transmit the votes of such
holders in respect of their Senior Notes to accept or reject the
Chapter 11 Plan of Reorganization of Salant (the "Prepackaged
Plan") described in, and attached as Appendix I to, the
Disclosure Statement, dated ____________, 1998 (the "Disclosure
Statement") provided to you. Before you transmit such votes,
please review the Disclosure Statement carefully, including the
Voting and Confirmation of the Prepackaged Plan in Section XXV of
the Disclosure Statement. THIS MASTER BALLOT RELATES ONLY TO
VOTES CAST ON SENIOR NOTE BALLOTS.
The Prepackaged Plan can be confirmed by the Bankruptcy Court and
thereby made binding upon you if it is accepted by the holders of
two-thirds in amount and more than one-half in number of claims
in each class that vote on the Prepackaged Plan, and by the
holders of two-thirds in amount of equity security interests in
each class that vote on the Prepackaged Plan, and if it otherwise
satisfies the requirements of section 1129(a) of the Bankruptcy
Code. If the requisite acceptances are not obtained, the
Bankruptcy Court may nonetheless confirm the Prepackaged Plan if
it finds that the Prepackaged Plan provides fair and equitable
treatment to, and does not discriminate unfairly against, the
class or classes voting not to accept the Prepackaged Plan, and
otherwise satisfies the requirements of section 1129(b) of the
Bankruptcy Code.
All capitalized terms used herein (unless otherwise defined)
shall have the meaning set forth in the Disclosure Statement).
PLEASE READ AND FOLLOW THE ATTACHED INSTRUCTIONS CAREFULLY.
COMPLETE, SIGN, AND DATE THIS MASTER BALLOT, AND RETURN IT SO
THAT IT IS RECEIVED BY THE VOTING AGENT BEFORE THE VOTING
DEADLINE OF __:__ P.M., NEW YORK CITY TIME, ON _________, 1998.
IF THIS MASTER BALLOT IS NOT COMPLETED, SIGNED, AND TIMELY
RECEIVED, THE VOTES TRANSMITTED BY THIS MASTER BALLOT WILL NOT BE
COUNTED.
ITEM 1. CERTIFICATION OF AUTHORITY TO VOTE. The undersigned
certifies that as of the [______, 1998] record date, the
undersigned (please check the applicable box):
|_| Is a broker, bank, or other nominee, for the beneficial
owners of the aggregate principal amount of Senior Notes
listed in Item 2 below, and is the registered holder of
such securities, or
|_| Is acting under a power of attorney and/or agency (a copy
of which will be provided upon request) granted by a
broker, bank, or other nominee that is the registered
holder of the aggregate principal amount of Senior Notes
listed in Item 2 below, or
|_| Has been granted a proxy (an original of which is attached
hereto) from a broker, bank, or other nominee that is the
registered holder of the aggregate principal amount of
Senior Notes listed in Item 2 below,
and accordingly, has full power and authority to vote to accept
or reject the Prepackaged Plan on behalf of the beneficial owners
of the Senior Notes described in Item 2 below.
ITEM 2. CLASS 3 (SENIOR NOTE CLAIMS) VOTE. The undersigned
transmits the following votes of beneficial owners in
respect of their Senior Notes, and certifies that the
following beneficial owners of Senior Notes, as identified
by their respective customer account numbers set forth
below, are beneficial owners of such securities as of the
[________, 1998] record date and have delivered to the
undersigned, as Nominee, Ballots casting such votes.
(Indicate in the appropriate column the aggregate
principal amount voted for each account, or attach such
information to this Master Ballot in the form of the
following table. Please note: Each beneficial owner must
vote all his, her, or its Class 3 Senior Note claims
either to accept or reject the Prepackaged Plan, and may
not split such vote.)
- ---------------------------------------------------------------------
YOUR CUSTOMER PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
ACCOUNT NUMBER FOR SENIOR NOTES VOTED SENIOR NOTES VOTED
EACH BENEFICIAL TO ACCEPT THE TO REJECT THE
OWNER OF SENIOR NOTES PREPACKAGED PLAN PREPACKAGED PLAN
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
1. $ OR $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
2. $ OR $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
3. $ OR $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
4. $ OR $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
5. $ OR $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
6. $ OR $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
7. $ OR $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
8. $ OR $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
9. $ OR $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
10. $ OR $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
TOTALS: $ $
- ---------------------------------------------------------------------
ITEM 3. CERTIFICATION AS TO TRANSCRIPTION OF INFORMATION FROM ITEM
3 AS TO OTHER SENIOR NOTES VOTED BY BENEFICIAL OWNERS.
The undersigned certifies that the undersigned has
transcribed in the following table, the information, if
any, provided by beneficial owners in Item 3 of the Senior
Note Ballots, identifying any other Senior Notes for which
such beneficial owners have submitted other Ballots.
- --------------------------------------------------------------
SENIOR NOTES
------------------------------
------------------------------
NAME OF PRINCIPAL
YOUR CUSTOMER REGISTERED AMOUNT
ACCOUNT NUMBER ACCOUNT HOLDER OR OF OTHER
FOR EACH NUMBER NOMINEE SENIOR
BENEFICIAL OWNER NOTES VOTED
WHO COMPLETED
ITEM 3 OF THE (TRANSCRIBE (TRANSCRIBE (TRANSCRIBE
SENIOR NOTE ITEM 3 FROM FROM
BALLOT OF ITEM 3 ITEM 3
SENIOR OF SENIOR OF SENIOR
NOTE NOTE NOTE
BALLOT) BALLOT) BALLOT)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
1. $ $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
2. $ $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
3. $ $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
4. $ $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
5. $ $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
6. $ $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
7. $ $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
8. $ $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
9. $ $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
10. $ $
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
TOTALS: $ $
- ---------------------------------------------------------------------
ITEM 4. CERTIFICATION. By signing this Master Ballot, the
undersigned certifies that each beneficial owner of Senior
Notes listed in Item 2, above, has been provided with a
copy of the Disclosure Statement, including the exhibits
thereto, and acknowledges that the solicitation of votes
is subject to all the terms and conditions set forth in
the Disclosure Statement.
Name of Broker, Bank, or Other Nominee:
__________________________________________________________
(Print or Type)
Name of Proxy Holder or Agent for Broker,
Bank, or Other Nominee (if applicable):
__________________________________________________________
(Print or Type)
Social Security or Federal Tax I.D. No.:__________________
(If Applicable)
Signature:________________________________________________
(If Applicable)
By:_______________________________________________________
(If Appropriate)
Title:____________________________________________________
(If Appropriate)
Street Address:___________________________________________
City, State, Zip Code:____________________________________
Telephone Number: ( )_________________________________
Date Completed:___________________________________________
-------------------------------------------------------------------
THIS MASTER BALLOT MUST BE RECEIVED BY THE VOTING AGENT, [NAME OF
VOTING AGENT,] BEFORE __:__ P.M., NEW YORK CITY TIME, ON
________, 1998, OR THE VOTES TRANSMITTED HEREBY WILL NOT BE
COUNTED.
-------------------------------------------------------------------
PLEASE NOTE: THE VOTING AGENT WILL NOT ACCEPT BALLOTS OR MASTER
BALLOTS BY FACSIMILE TRANSMISSION.
-------------------------------------------------------------------
-------------------------------------------------------------------
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR THE
VOTING PROCEDURES, OR IF YOU NEED ADDITIONAL COPIES OF THE MASTER
BALLOT, BALLOTS, DISCLOSURE STATEMENT, OR OTHER RELATED
MATERIALS, PLEASE CALL THE VOTING AGENT, [NAME OF VOTING AGENT],
AT (___) ___-____.
-------------------------------------------------------------------
INSTRUCTIONS FOR COMPLETING THE MASTER BALLOT
VOTING DEADLINE/VOTING AGENT:
The Voting Deadline is __:__ p.m., New York City Time, on
____________, 1998, unless extended by Salant. To have the vote
of your customers count, you must complete, sign, and return this
Master Ballot so that it is received by the Voting Agent: [Name
of Voting Agent / Address of Voting Agent ((___) ___-____)],
before the Voting Deadline.
HOW TO VOTE:
IF YOU ARE BOTH THE REGISTERED OWNER AND BENEFICIAL OWNER OF
ANY PRINCIPAL AMOUNT OF SENIOR NOTES AND YOU WISH TO VOTE SUCH
SENIOR NOTES: You may complete, execute, and return to the Voting
Agent either a Senior Note Ballot or a Senior Note Master Ballot.
IF YOU ARE TRANSMITTING THE VOTES OF ANY BENEFICIAL OWNERS
OF SENIOR NOTES OTHER THAN YOURSELF, YOU MAY EITHER:
1. Complete and execute the Senior Note Ballot (other than
Items 2 and 3) and deliver to the beneficial owner such
"prevalidated" Senior Note Ballot, along with the
Disclosure Statement and other materials requested to
be forwarded. The beneficial owner should complete
Items 2 and 3 of that Ballot and return the completed
Ballot to the Voting Agent so as to be received before
the Voting Deadline;
OR
2. For any Senior Note Ballots you do not "prevalidate":
Deliver the Senior Note Ballot to the beneficial owner,
along with the Disclosure Statement and other materials
requested to be forwarded, and take the necessary
actions to enable such beneficial owner to (i) complete
and execute such Ballot voting to accept or reject the
Prepackaged Plan, and (ii) return the complete,
executed Ballot to you in sufficient time to enable you
to complete the Master Ballot and deliver it to the
Voting Agent before the Voting Deadline; and
With respect to all Senior Note Ballots returned to
you, you must properly complete the Master Ballot, as
follows:
a. Check the appropriate box in Item 1 on the Master
Ballot;
b. Indicate the votes to accept or reject the
Prepackaged Plan in Item 2 of this Master Ballot,
as transmitted to you by the beneficial owners of
Senior Notes. To identify such beneficial owners
without disclosing their names, please use the
customer account number assigned by you to each
such beneficial owner, or if no such customer
account number exists, please assign a number to
each account (making sure to retain a separate
list of each beneficial owner and the assigned
number). IMPORTANT: BENEFICIAL OWNERS MAY NOT
SPLIT THEIR VOTES. EACH BENEFICIAL OWNER MUST VOTE
ALL HIS, HER, OR ITS SENIOR NOTES EITHER TO ACCEPT
OR REJECT THE PREPACKAGED PLAN. IF ANY BENEFICIAL
OWNER HAS ATTEMPTED TO SPLIT SUCH VOTE, PLEASE
CONTACT THE VOTING AGENT IMMEDIATELY. Any Ballot
or Master Ballot which is validly executed but
which does not indicate acceptance or rejection of
the Prepackaged Plan by the indicated beneficial
owner will not be counted as to such beneficial
owner;
c. Please note that Item 3 of this Master Ballot
requests that you transcribe the information
provided by each beneficial owner from Item 3 of
each completed Senior Note Ballot relating to
other Senior Notes voted;
d. Review the certification in Item 4 of the Master
Ballot;
e. Sign and date the Master Ballot, and provide the
remaining information requested;
f. If additional space is required to respond to any
item on the Master Ballot, please use additional
sheets of paper clearly marked to indicate the
applicable Item of the Master Ballot to which you
are responding;
g. Contact the Voting Agent to arrange for delivery
of the completed Master Ballot to its offices; and
h. Deliver the completed, executed Master Ballot so
as to be received by the Voting Agent before the
Voting Deadline. For each completed, executed
Senior Note Ballot returned to you by a beneficial
owner, either forward such Ballot (along with your
Master Ballot) to the Voting Agent or retain such
Senior Note Ballot in your files for one year from
the Voting Deadline.
PLEASE NOTE:
THIS MASTER BALLOT IS NOT A LETTER OF TRANSMITTAL AND MAY
NOT BE USED FOR ANY PURPOSE OTHER THAN TO CAST VOTES TO ACCEPT OR
REJECT THE PREPACKAGED PLAN. Holders should not surrender, at
this time, certificates representing their securities. Neither
Salant nor the Voting Agent will accept delivery of any such
certificates surrendered together with this Master Ballot.
Surrender of securities for exchange pursuant to the Prepackaged
Plan may only be made by you, and will only be accepted pursuant
to a letter of transmittal which will be furnished to you by
Salant following confirmation of the Prepackaged Plan by the
United States Bankruptcy Court.
No Ballot or Master Ballot shall constitute or be deemed a
proof of claim or equity interest or an assertion of a claim or
equity interest.
No fees or commissions or other remuneration will be payable
to any broker, dealer, or other person for soliciting votes on
the Prepackaged Plan. We will, however, upon request, reimburse
you for customary mailing and handling expenses incurred by you
in forwarding the Ballots and other enclosed materials to the
beneficial owners of Senior Notes held by you as a nominee or in
a fiduciary capacity. We will also pay all transfer taxes, if
any, applicable to the transfer and exchange of your securities
pursuant to and following confirmation of the Prepackaged Plan.
- -------------------------------------------------------------------
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL
RENDER YOU OR ANY OTHER PERSON THE AGENT OF SALANT OR THE VOTING
AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT
OR MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO
THE PREPACKAGED PLAN, EXCEPT FOR THE STATEMENTS CONTAINED IN THE
ENCLOSED DOCUMENTS.
- -------------------------------------------------------------------
- -------------------------------------------------------------------
IF YOU HAVE ANY QUESTIONS REGARDING THIS MASTER BALLOT OR THE
VOTING PROCEDURES, OR IF YOU NEED ADDITIONAL COPIES OF THE MASTER
BALLOT, BALLOTS, DISCLOSURE STATEMENT, OR OTHER RELATED
MATERIALS, PLEASE CALL THE VOTING AGENT, [NAME OF VOTING AGENT],
AT (___) ___-____.
- -------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. Section 145 of the Delaware
General Corporation Law (the "DGCL") provides for, among other things:
(a) permissive indemnification for expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by designated persons, including directors and
officers of a corporation, in the event such persons are parties to
litigation other than stockholder derivative actions if certain
conditions are met;
(b) permissive indemnification for expenses (including attorneys'
fees) actually and reasonably incurred by designated persons,
including directors and officers of a corporation, in the event such
persons are parties to stockholder derivative actions if certain
conditions are met;
(c) mandatory indemnification for expenses (including attorneys'
fees) actually and reasonably incurred by designated persons,
including directors and officers of a corporation, in the event such
persons are successful on the merits or otherwise in defense of
litigation covered by (a) and (b) above; and
(d) that the indemnification provided for by Section 145 is not
deemed exclusive of any other rights which may be provided under any
by-law, agreement, stockholder or disinterested director vote, or
otherwise.
Section 1 of Article VI of the Company's By-Laws provides that the
Company shall indemnify any person who was or is a party, or is threatened
to be made a party, to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Company) by reason of the fact
that he is or was a director, officer, employee or agent of the Company, or
is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
Section 2 of Article VI of the Company's By-Laws provides that the
Company shall indemnify any person or officer who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed
action or suit by or in the right of the Company to procure a judgment in
its favor by reason of the fact that he is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of
the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Company, provided that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the Company
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 3 of Article VI of the Company's By-Laws provides that, to the
extent that a director, officer, employee or agent of the Company has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of Article VI, or in defense of
any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
Section 5 of Article VI of the Company's By-Laws provides that,
expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Company in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if
it shall be ultimately determined that he is not entitled to be indemnified
by the Company as authorized in Article VI.
Section 6 of Article VI of the Company's By-Laws provides that, the
indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office.
Section 9 of Article VI of the Company's By-Laws provides that, the
indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit
of the heirs, executors and administrators of such a person.
The Company has entered into employment agreements with Messrs.
Politzer, Franzel and Kahn which provide for, among other things,
indemnification of such officers by the Company on substantially the same
terms and conditions as described above. The Company may from time to time
enter into agreements with additional individuals who become officers or
directors which provide indemnifications to such officers and directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The exhibits to this Post-Effective Amendment No. 1 to the
Registration Statement incorporated herein by reference are listed in the
Exhibit Index attached hereto.
The following exhibits were filed as part of the Registration
Statement:
Exhibit No. Exhibit
----------- -------
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson
to be filed.
9.1 Form of Voting Agreement between Apollo Apparel
Partners, L.P. and Salant Corporation.
10.42 Letter Agreement, dated March 2, 1998, by and among
Salant Corporation, Magten Asset Management Corp.,
as agent on behalf of certain of its accounts,
and Apollo Apparel Partners, L.P.
10.43 Twelfth Amendment and Forbearance Agreement to
Credit Agreement, dated as of March 2, 1998, by and
between Salant Corporation and the CIT
Group/Commercial Services, Inc.
10.50 Form of Salant Corporation 1998 Stock Award and
Incentive Plan.
10.51 Form of Registration Rights Agreement.
10.52 Form of Warrant Agreement.
21 List of Subsidiaries of the Company.
(b) Financial Statement Schedules.
The information required of the Company is incorporated herein at
pages F-1 to F-27.
(c) Fairness Opinion.
A copy of the E&Y Fairness Opinion is attached to the Proxy
Statement/Prospectus as Annex I.
ITEM 22. UNDERTAKINGS
(a)(1) The undersigned registrant hereby undertakes as follows: That
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (a)(1) immediately preceding, or (ii) that purports
to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, 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.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 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 Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(e) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON
THIS 26TH DAY OF MAY, 1998.
SALANT CORPORATION
By:/s/ Jerald S. Politzer
----------------------------------
JERALD S. POLITZER
CHAIRMAN OF THE
BOARD OF DIRECTORS
AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE 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
/s/ Jerald S. Politzer
- --------------------------- Chairman of the Board of May 26, 1998
Jerald S. Politzer Directors and Chief Executive
Officer
/s/ Philip A. Franzel Executive Vice President and May 26, 1998
- --------------------------- Chief Financial Officer
Philip A. Franzel
/s/ Ann Dibble Jordan Director May 26, 1998
- ---------------------------
Ann Dibble Jordan
/s/ Marvin Schiller
- --------------------------- Director May 26, 1998
Marvin Schiller
/s/ Bruce F. Roberts Director May 26, 1998
- ---------------------------
Bruce F. Roberts
/s/ Robert H. Falk Director May 26, 1998
- ---------------------------
Robert H. Falk
/s/ Robert Katz Director May 26, 1998
- ---------------------------
Robert Katz
/s/ John S. Rodger Director May 26, 1998
- ---------------------------
John S. Rodgers
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Post Effective Amendment No. 1 to this
Registration Statement of Salant Corporation on Form S-4 of our report
dated March 6, 1998 (April 8, 1998 as to Notes 1 and 9) which expresses an
unqualified opinion and includes an explanatory paragraph relating to the
Company's ability to continue as a going concern, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
New York, New York
May 26, 1998
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
May 26, 1998
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
Attention: Mr. Todd Kahn
Dear Mr. Kahn:
We hereby consent to the inclusion of our opinion dated April 21, 1998 to
the Board of the Directors of Salant Corporation (the "Company") as an
annex and/or exhibit to the post-effective amendment number one to the
Company's Registration Statement on Form S-4 (the "Proxy
Statement/Prospectus") to be filed by May 28, 1998 with the Securities and
Exchange Commission in connection with the Restructuring (as defined in the
Proxy Statement Prospectus) and references made to our firm and such
opinion in the Proxy Statement/Prospectus. In giving such consent, we do
not hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules or regulations of the SEC thereunder.
Very truly yours,
/s/ Ernst & Young LLP
----------------------------
Ernst & Young LLP
<PAGE>
SALANT CORPORATION
EXHIBIT INDEX TO FORM S-4
Incorporation
Number Description By Reference To
- ------ ----------- ---------------
2.1 Third Amended Disclosure Exhibit 1 to
Statement of Salant Form 8-A dated
Corporation, and Denton July 28, 1993.
Mills, Inc., dated
May 12,1993.
2.2 Third Amended Joint Included as
Chapter 11 Plan of Exhibit D-1
Reorganization of to Exhibit 1
Salant Corporation to Form 8-A
and Denton Mills, Inc. dated July 28, 1993.
3.1 Form of Amended and Included as Exhibit
Restated Certificate of D-1 to Exhibit 2
Incorporation of Salant to Form 8-A dated
Corporation. July 28, 1993.
3.2 Form of Bylaws, as amended, of
Salant Corporation, effective
September 21, 1994.
4.1 Rights Agreement dated as of Exhibit 1 to Current Report
December 8, 1987 between Salant on Form 8-K dated December 8,
Corporation and The Chase 1987.
Manhattan Bank, N.A.,
as Rights Agent. The Rights
Agreement includes as Exhibit B the
form of Right Certificate.
4.2 Form of First Amendment Exhibit 3 to
to the Rights Agreement Amendment No. 1 to
between Salant Corporation Form 8-A dated
and Mellon Securities. July 29, 1993.
4.3 Indenture, dated as of Exhibit 10.34 to
September 20, 1993, between Salant Quarterly Report
Corporation and Bankers on Form 10-Q for
Trust Company, as trustee, the quarter ended
for the 10-1/2% Senior October 2, 1993.
Secured Notes due
December 31, 1998.
5.1 Opinion of Fried, Frank,
Harris, Shriver & Jacobson
to be filed.
9.1 Form of Voting Agreement
between Apollo Apparel
Partners, L.P. and Salant
Corporation.
10.1 Revolving Credit, Exhibit 10.33 to
Factoring and Security Quarterly Report
Agreement dated September 29, 1993, on Form 10-Q for
between Salant Corporation the quarter ended
and The CIT Group/Commercial October 2, 1993.
Services, Inc.
10.2 Salant Corporation 1987 Stock Plan. Exhibit 19.2 to Annual Report
on Form 10-K for fiscal year
1987.
10.3 Salant Corporation 1987 Stock Plan Exhibit 10.12 to Form S-2
Agreement, dated as of June 13, Registration Statement filed
1988, between Nicholas P. DiPaolo June 17, 1988.
and Salant Corporation.
10.4 Salant Corporation 1988 Stock Plan. Exhibit 19.3 to Annual Report
on Form 10-K for fiscal year
1988.
10.5 First Amendment, effective Exhibit 19.1 to Quarterly
as of July 25, 1989, to the Salanton Report Form 10-Q for the
Corporation 1988 Stock Plan. quarter ended September 30,
1989.
10.6 Form of Salant Corporation 1988 Exhibit 19.7 to Annual Report
Stock Plan Employee Agreement. on Form 10-K for fiscal year
1988.
10.7 Form of Salant Corporation Exhibit 19.8 to
1988 Stock Plan Director Annual Report on
Agreement. Form 10-K for fiscal
year 1988.
10.8 License Agreement, dated Exhibit 19.1 to Annual Report
January 1, 1991, by and between on Form 10-K for fiscal year
Perry Ellis International Inc. 1992.
and Salant Corporation regarding
men's sportswear.
10.9 License Agreement, dated Exhibit 19.2 to Annual Report
January 1, 1991, by and between on Form 10-K for
Perry Ellis International Inc. fiscal year 1992.
and Salant Corporation regarding
men's dress shirts.
10.10 Employment Agreement, dated Exhibit 10.36 to
as of September 20, 1993, between Quarterly Report on
Nicholas P. DiPaolo and Form 10-Q for the
Salant Corporation. * quarter ended October 2, 1993.
10.11 Employment Agreement, dated Exhibit 10.38 to
as of July 30, 1993, between Quarterly Report on
Richard P. Randall and Form 10-Q for the
Salant Corporation. * quarter ended October 2, 1993.
10.12 Agreement, dated as of Exhibit 10.33 to Annual Report
September 22, 1993, between Nicholas on Form 10-K for Fiscal Year
P. DiPaolo and Salant Corporation. * 1993.
10.13 Forms of Salant Corporation 1993 Exhibit 10.34 to Annual
Stock Plan Directors' Option Report on Form
Agreement. * 10-K for Fiscal Year 1993.
10.14 Letter Agreement, dated as of Exhibit 10.45 to
August 24, 1994, amending the Quarterly Report on
Revolving Credit, Factoring and Form 10-Q for the
Security Agreement, dated quarter ended October 1, 1994.
September 20, 1993,
between The CIT Group/Commercial
Services, Inc. and Salant Corporation.
10.15 Letter Agreement, dated Exhibit 10.47 to
October 25, 1994, amending the Quarterly Report on
Employment Agreement, dated Form 10-Q for the
July 30, 1993, between Richard quarter ended October 1, 1994.
Randall and Salant Corporation. *
10.16 Third Amendment to Credit Agreement, Exhibit 10.48 to Current
dated February 28, 1995, to the Report on Form 8-K, dated
Revolving Credit, Factoring and March 2, 1995.
Security Agreement, dated
September 20, 1993, as amended,
between The CIT Group/Commercial
Services, Inc. and Salant Corporation.
10.17 Salant Corporation Retirement Plan, Exhibit 10.23 to Annual
as amended and restated. * Report on Form 10-K for
Fiscal Year 1994.
10.18 Salant Corporation Pension Plan, Exhibit 10.24 to Annual Report
as amended and restated. * on Form 10-K for Fiscal Year
1994.
10.19 Salant Corporation Long Term Savings Exhibit 10.25 to Annual
and Investment Plan as amended Report on Form 10-K for Fiscal
and restated.* Year 1994.
10.20 Letter Agreement, dated Exhibit 10.26 to Annual Report
February 15, 1995, amending the on Form 10-K for Fiscal Year
Employment Agreement, dated 1994.
July 30, 1993, between Richard
Randall and Salant Corporation. *
10.21 Fourth Amendment to Credit Exhibit 10.27 to
Agreement, dated as of March 1, Quarterly Report
1995, to the Revolving Credit, on Form 10-Q for
Factoring and Security Agreement, the quarter
dated as of September 20, 1993, ended April 1,
as amended, between Salant 1995.
Corporation and The CIT Group/
Commercial Services, Inc.
10.22 Fifth Amendment to Credit Exhibit 10.29
Agreement, dated as of to Quarterly
June 28, 1995, to the Report on
Revolving Credit, Factoring Form l0-Q for
and Security Agreement, the quarter
dated as of September 20, ended July 1,
1993, as amended, between 1995.
Salant Corporation and The
CIT Group/Commercial Services,
Inc.
10.23 Sixth Amendment to Credit Exhibit 10.30
Agreement, dated as of to Quarterly
August 15, 1995, to the Report on
Revolving Credit, Factoring Form l0-Q for
and Security Agreement, the quarter
dated as of September 20, ended July 1,
1993, as amended, between 1995.
Salant Corporation and The
CIT Group/Commercial Services,
Inc.
10.24 Letter from The CIT Group/ Exhibit 10.31
Commercial Services, Inc., to Quarterly
dated as of July 11, 1995, Report on
regarding the waiver of a Form l0-Q for
default. the quarter
ended July 1,
1995.
10.25 Letter Agreement between Exhibit 10.31
Salant Corporation and The to Quarterly
CIT Group/Commercial Services, Report on
Inc. dated as of July 11, 1995, Form l0-Q for
regarding the Seasonal Overadvance the quarter
Subfacility. ended July 1,
1995.
10.26 Letter Agreement, dated as of Exhibit 10.33 to
August 31, 1995, amending the Quarterly Report
Employment Agreement, dated on Form l0-Q for
September 20, 1993, between the quarter
Nicholas P. DiPaolo and ended September
Salant Corporation. * 30, 1995.
10.27 Letter Agreement, dated Exhibit 10.33 to
December 1, 1995, between Annual Report on
Lubin, Delano & Company and Form 10-K for
Salant Corporation. fiscal year 1995.
10.28 Seventh Amendment to Credit Exhibit 10.34 to
Agreement, dated as of Annual Report on
March 27, 1996, to the Form 10-K for
Revolving Credit, Factoring fiscal year 1995.
and Security Agreement,
dated as of September 20,
1993, as amended, between
Salant Corporation and The
CIT Group/Commercial Services,
Inc.
10.29 First Amendment to the Salant Exhibit 10.35 to
Corporation Retirement Plan, dated Quarterly Report on
as of January 31, 1996. Form 10-Q for the
quarter ended
March 30, 1996.
10.30 First Amendment to the Salant Exhibit 10.36 to
Corporation Long Term Savings and Quarterly Report on
Investment Plan, effective as of Form 10-Q for the
January 1, 1994. quarter ended
March 30, 1996.
10.31 Eighth Amendment to Credit Agreement, Exhibit 10.37 to
dated as of June 1, 1996, to the Quarterly Report on
Revolving Credit, Factoring and Form 10-Q for the
Security Agreement, dated as of quarter ended
September 20, 1993, as amended, June 29, 1996.
between Salant Corporation and
The CIT Group/Commercial Services,
Inc.
10.32 Ninth Amendment to Credit Agreement, Exhibit 10.38 to
dated as of August 16,1996, to the Quarterly Report on
Revolving Credit, Factoring and Form 10-Q for the
Security Agreement, dated as of quarter ended
September 20, 1993, as amended, June 29, 1996.
between Salant Corporation and
The CIT Group/Commercial Services,
Inc.
10.33 Employment Agreement, dated as Exhibit 10.39 to Annual Report
of January 1, 1997, between on Form 10-K for Fiscal Year
Nicholas P. DiPaolo and 1996.
Salant Corporation. *
10.34 Salant Corporation 1996 Stock Plan Exhibit 10.40 to Annual Report
on Form 10-K for Fiscal Year
1996.
10.35 Tenth Amendment to Credit Agreement, Exhibit 10.41 to Annual Report
dated as of February 20, 1997, to on Form 10-K for Fiscal Year
the Revolving Credit, Factoring and 1996.
Security Agreement, dated as of
September 20, 1993, as amended,
between Salant Corporation and
The CIT Group/Commercial Services,
Inc.
10.36 Employment Agreement, dated as Exhibit 10.42 to Annual Report
of February 11, 1997, between on Form 10-K for Fiscal Year
Michael A. Lubin and 1996.
Salant Corporation. *
10.37 Employment Agreement, dated as Exhibit 10.43 to Annual Report
of March 24, 1997, between on Form 10-K for Fiscal Year
Jerald S. Politzer and 1996.
Salant Corporation. *
10.38 Employment Agreement, dated as of Exhibit 10.44 to Quarterly
May 1, 1997, between Todd Kahn and Report Form on 10-Q for the
Salant Corporation. quarter ended June 28, 1997.
10.39 Employment Agreement, dated as of Exhibit 10.45 to Quarterly
August 18, 1997 between Philip A. Report on Form 10-Q for the
Franzel and Salant Corporation. quarter ended June 28, 1997.
10.40 Eleventh Amendment to Credit Exhibit 10.46 to Quarterly
Agreement, dated as of Report on Form 10-Q for the
August 8, 1997, to the Revolving quarter ended June 28, 1997.
Credit, Factoring and Security
Agreement, dated as of
September 20, 1993, as amended,
between Salant Corporation and
The CIT Group/Commercial Services,
Inc.
10.41 Letter Agreement, dated as of Exhibit 10.47 to Quarterly
July 18, 1997, between Report on Form 10-Q for the
Michael A. Lubin, quarter ended June 28, 1997.
Lubin Delano & Company and Salant
Corporation.
10.42 Letter Agreement, dated Exhibit 10.48 to Current
March 2, 1998, by and among Salant Report on Form 8-K dated
Corporation, Magten Asset Management March 4, 1998.
Corp., as agent on behalf of
certain of its accounts, and Apollo
Apparel Partners, L.P.
10.43 Twelfth Amendment and Forbearance Exhibit 10.49 to Current
Agreement to Credit Agreement, dated Report on Form 8-K dated
as of March 2, 1998, by and between March 4, 1998.
Salant Corporation and The CIT
Group/Commercial Services, Inc.
10.50 Form of Salant Corporation 1998
Stock Award and Incentive Plan.
10.51 Form of Registration Rights
Agreement.
10.52 Form of Warrant Agreement.
21 List of Subsidiaries of the Company.
27 Financial Data Schedule.
* constitutes a management contract or compensatory plan or arrangement.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Birdhill, Limited, a Hong Kong corporation
Carrizo Manufacturing Co., S.A. de C.V., a Mexican corporation
Clantexport, Inc., a New York corporation
Denton Mills, Inc., a Delaware corporation
JJ. Farmer Clothing, Inc., a Canadian corporation
Frost Bros. Enterprises, Inc., a Texas corporation
Manhattan Industries, Inc., a Delaware corporation
Manhattan Industries, Inc., a New York corporation
Manhattan Industries (Far East) Limited, a Hong Kong corporation
Maquiladora Sur S.A. de C.V., a Mexican corporation
Salant Canada, Inc., a Canadian corporation
SLT Sourcing, Inc., a New York corporation
Vera Licensing, Inc., a Nevada corporation
Vera Linen Manufacturing, Inc., a Delaware corporation
Salant Caribbean, S.A., a Guatemalan Corporation
