As Filed With The Securities And Exchange Commission On August 31, 1998
Registration No. 333-50761
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
POST-EFFECTIVE AMENDMENT NO. 2
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*
===============================================================================
(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 of the Company in connection with an exchange offer (the
"Exchange Restructuring") whereby holders of the Company's 10-1/2% Senior
Secured Notes due December 31, 1998 (the "Senior Notes") immediately prior
to the Exchange Restructuring would exchange each $1,000 principal amount
of Senior Notes (plus all accrued but unpaid interest thereon) for
175.977555 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, for each outstanding share of common stock, par value $1.00
per share, of the Company (the "Old Common Stock"), one-tenth of one share
of New Common Stock, plus .14814815 warrants (the "Warrants") to purchase
additional shares of New Common Stock. Fractional shares of New Common
Stock and fractional Warrants will be rounded up to the nearest share of
New Common Stock or Warrant, as the case may be.
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 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").
The Company is also soliciting acceptances of a prepackaged plan of
reorganization (the "Prepackaged Plan") of the Company under chapter 11 of
title 11 of the United States Code (the "Bankruptcy Code") from
Stockholders under which the Old Common Stock would be exchanged for the
same consideration as under the Exchange Restructuring. The proposed
financial restructuring of the Company in connection with the Exchange
Offer, as described in the accompanying Proxy Statement/Prospectus, is
referred to as the "Exchange Restructuring." The proposed financial
restructuring of the Company pursuant to the Prepackaged Plan, as described
in the accompanying Proxy Statement/Prospectus 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. If the Prepackaged
Restructuring is pursued and the Company commences a chapter 11 bankruptcy
case and files the Prepackaged Plan, 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 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
August ___, 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.
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")). In addition, 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 date of
consummation of the Exchange Restructuring (the "Exchange Restructuring
Date"). 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 exchanged 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, the Warrants and Warrant Shares to be issued to the
Stockholders, 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.
Stockholders will not be entitled to dissenters' rights or rights of
appraisal in connection with the Charter Amendment, the Issuance, the Plan
Proposal of the Election of the New Board.
The Exchange Restructuring is conditioned on, among other things, 100%
of the outstanding Senior Notes being validly tendered (the "Minimum Tender
Condition") 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 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 instead to
pursue the Prepackaged Restructuring by means of the filing of a petition
under Chapter 11 of the Bankruptcy Code and the Prepackaged Plan and to use
such acceptances to obtain confirmation of the Prepackaged Plan. The
Prepackaged Restructuring may be effected with the approval of (i)
Noteholders holding at least two-thirds in amount of the Senior Notes and
more than one-half in number of the Noteholders voting on the Prepackaged
Plan, and (ii) Stockholders holding at least two-thirds in amount of shares
of Old Common Stock voting on the Prepackaged Plan. However, under certain
circumstances described in more detail in the accompanying Proxy Statement/
Prospectus, the Prepackaged Restructuring may be effectuated even if less
than the requisite number of Stockholders vote in favor of the Prepackaged
Plan. Magten Asset Management Corp. ("Magten"), the beneficial owner of, or
the investment manager on behalf of the beneficial owners of, approximately
$74 million in aggregate principal face amount of the Senior Notes,
representing approximately 71% of the aggregate principal amount of all
Senior Notes, has agreed to the terms of the Restructuring. If Magten votes
in favor of the Prepackaged Plan, the requisite acceptances of the
Prepackaged Plan by the Noteholders with respect to the dollar amount
required will be assured. 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 February 28, 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 will be reduced by $11 million per year
and stockholders' equity should be substantially increased as a result of
the Restructuring. The Company's consolidated debt at the completion of the
Restructuring will include approximately $28 million in revolver debt plus
$15 million from 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 has,
in accordance with Section 6.5 of the Indenture, dated September 20, 1993,
as amended (the "Indenture") governing the Senior Notes, 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 November 30, 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 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 PRE-BANKRUPTCY ACCEPTED
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 RESTRUTURING 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 ADDRESSED TO THE BOARD 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 ADDRESSED TO THE
BOARD 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
<PAGE>
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 of the Company in connection with an exchange offer (the
"Exchange Restructuring") whereby holders of the Company's 10-1/2% Senior
Secured Notes due December 31, 1998 (the "Senior Notes") immediately prior
to the Exchange Restructuring would exchange each $1,000 principal amount
of Senior Notes (plus all accrued but unpaid interest thereon) for
175.977555 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, for each outstanding share of common stock, par value $1.00
per share, of the Company (the "Old Common Stock"), one-tenth of one share
of New Common Stock, plus .14814815 warrants (the "Warrants") to purchase
additional shares of New Common Stock. Fractional shares of New Common
Stock and fractional Warrants will be rounded up to the nearest share of
New Common Stock or Warrant, as the case may be. 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.
A summary of the Charter Amendment is set forth in the accompanying
Proxy Statement/Prospectus. The proposed text of the Stock Award and
Incentive Plan was filed as Exhibit 10.50 to the Company's Registration
Statement on Form S-4, as amended, filed with the Securities and Exchange
Commission. The Exchange Offer Prospectus and Disclosure Statement pursuant
to which, if the Exchange Restructuring is consummated, the Noteholders
would receive shares of New Common Stock is being mailed separately to the
Noteholders. Stockholders may obtain copies of any or all of these
documents by contacting Todd Kahn, General Counsel and Executive Vice
President of the Company, at (212) 221-7500.
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 August ___, 1998, wherein
Apollo has agreed to vote all of the Apollo Shares in favor of each of the
Restructuring Proposals.
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
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION AND HAS BECOME EFFECTIVE. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME 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 AUGUST 31, 1998
SALANT CORPORATION
[LOGO OF SALANT CORPORATION]
PROXY STATEMENT/PROSPECTUS AND DISCLOSURE STATEMENT FOR THE
SOLICITATION OF ACCEPTANCES FOR PREPACKAGED PLAN OF REORGANIZATION
This Proxy Statement/Prospectus and Disclosure Statement (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
described herein to implement a financial restructuring of the Company in
connection with an exchange offer (the "Exchange Restructuring") 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 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), 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 Company's proposed 1998 Stock Award
and Incentive Plan (the "Stock Award and Incentive Plan")), the shares of
New Common Stock (the "Warrant Shares") issuable upon exercise of the
warrants (described in more detail below) to be issued to Stockholders
pursuant to the Exchange Restructuring (the "Warrants"), 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 (subject to adjustment). Specifically, this
Proxy Statement/Prospectus seeks Stockholder approval of proposals (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) the Reverse Split, 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 Warrant Shares, 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 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").
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. If the Prepackaged
Restructuring is pursued and the Company commences a chapter 11 bankruptcy
case and files the Prepackaged Plan, 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 August ,
1998, wherein Apollo has agreed to vote all of the Apollo Shares in favor
of each of the Restructuring Proposals and the Prepackaged Restructuring.
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 "DISCUSSION OF RISK FACTORS" ON PAGES __ TO __ FOR A DISCUSSION OF
CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH THE
EXCHANGE RESTRUCTURING AND 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 of [_________] (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"), approximately $74 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 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 February 28, 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 will be reduced by $11
million per year and stockholders' equity should be substantially increased
as a result of the Restructuring. The Company's consolidated debt at the
completion of the Restructuring will include approximately $28 million in
revolver debt plus $15 million from 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. 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, 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. In addition, the Company's working
capital lender, The CIT Group/Commercial Services, Inc., agreed to forbear
until November 30, 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.
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.
A copy of the Warrant Agreement pursuant to which the Warrants would
be issued to the Stockholders upon consummation of the Restructuring is
attached to the Company's Registration Statement as Exhibit 10.52. A copy
of the Stock Award and Incentive Plan is attached to the Company's
Registration Statement as Exhibit 10.50. Stockholders may obtain a copy of
the Warrant Agreement and the Stock Award and Incentive Plan by contacting
Todd Kahn, General Counsel and Executive Vice President of the Company, at
(212) 221-7500. A copy of the Prepackaged Plan is attached hereto as Annex
II.
The Company has registered the offering and the Issuance of the
shares of New Common Stock, Warrants and Warrant Shares to be issued under
the Exchange Restructuring with the Commission under the Company's
Registration Statement. In addition, the Company has also registered the
offering of the shares of New Common Stock, Warrants and Warrant Shares to
be issued under the Prepackaged Restructuring in accordance with the
Prepackaged Plan with the Commission under the Company's Registration
Statement.
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 NYSE requires approval by Stockholders of the Issuance of
the New Common Stock, the Warrants and the Warrant Shares and the Stock
Award and Incentive Plan. 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. However, the NYSE has reviewed the terms and conditions of the
Restructuring set forth herein and has informed the Company that it will
continue to list the Company's common stock during the period prior to
consummation of the Restructuring and intends to list the Company's common
stock from and after the Restructuring Date. However, the NYSE has advised
the Company that after consummation of the Restructuring, the NYSE intends
to monitor the performance of the Company based upon the Projections set
forth herein to ensure compliance with the NYSE's original listing
standards in respect of the New Common Stock. The Company believes that as
a result of the consummation of the Restructuring, following the
Restructuring Date, the Company will be able to return to compliance with
the original listing standards in respect of the New Common Stock and the
Warrants and that the New Common Stock and the Warrants will continue to be
listed for trading on the NYSE. However, the NYSE has advised the Company
that the Company's failure to meet the Projections following the
Restructuring could result in the suspension from trading and subsequent
delisting of the New Common Stock.
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
WITHDRAWN OR CHANGED, SUBJECT TO THE PROCEDURES DESCRIBED HEREIN, AT ANY
TIME PRIOR TO THE EXPIRATION DATE. IF A BANKRUPTCY CASE HAS BEEN COMMENCED,
WITHDRAWAL OR CHANGES 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 "VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN."
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, THIS PROXY
STATEMENT/PROSPECTUS HAS NOT BEEN APPROVED BY ANY BANKRUPTCY COURT WITH
RESPECT TO THE ADEQUACY OF THE INFORMATION CONTAINED HEREIN. 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 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. IN ORDER FOR THE PREPACKAGED RESTRUCTURING TO BE CONSUMMATED,
AMONG OTHER THINGS, THE BANKRUPTCY COURT MUST DETERMINE THAT THE
SOLICITATION OF ACCEPTANCES FOR THE PREPACKAGED PLAN WAS IN COMPLIANCE WITH
ANY APPLICABLE NON-BANKRUPTCY LAW, RULE OR REGULATION GOVERNING THE
ADEQUACY OF SUCH DISCLOSURE.
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
ADDRESSED TO THE BOARD (THE "E&Y FAIRNESS 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
ADDRESSED TO THE BOARD 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 EXHIBITS TO THE
REGISTRATION STATEMENT BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS 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 DATE OF CONSUMMATION OF THE
RESTRUCTURING.
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
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 and equity interests set forth in this Proxy
Statement/Prospectus may vary from the final amounts of claims or equity
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...................................................S-viii
FORWARD LOOKING INFORMATION...............................................S-ix
SUMMARY....................................................................S-1
The Company.............................................................S-1
Summary Distribution Table..............................................S-2
Benefits of Restructuring to Officers, Directors and Certain Related
Parties..............................................................S-2
Diagram of Transaction..................................................S-4
The Exchange Restructuring and Prepackaged Restructuring................S-5
Summary of the Prepackaged Plan.........................................S-9
Notice to Holders of Claims and Interests..............................S-12
Comparison of Exchange Restructuring and Prepackaged Restructuring.....S-12
Purpose of the Restructuring...........................................S-15
Stockholders' Meeting..................................................S-17
Summary of Warrants....................................................S-20
Summary of New CIT Credit Agreement....................................S-21
Summary of Registration Rights Agreement...............................S-22
Summary of Rights Plan.................................................S-22
Summary Historical Consolidated Financial Information..................S-23
Capitalization Summary.................................................S-25
Summary of Risk Factors................................................S-25
Risk Factors Relating to the Exchange Restructuring and the Prepackaged
Restructuring.......................................................S-25
Additional Risk Factors Relating to the Prepackaged Restructuring......S-26
DISCUSSION OF RISK FACTORS................................................S-27
Risk of Nonconsummation of the Restructuring...........................S-27
Company Results of Operations Subject to Variable Influences; Intense
Competition.........................................................S-27
Dilution...............................................................S-27
Limitation on Use of Net Operating Losses..............................S-28
Lack of Trading Market for Warrants and New Common Stock; Volatility;
Potential De-Listing of the New Common Stock........................S-28
Possible Volatility of Stock Price; Effect of Restructuring
on Stock Price.......................................................S-29
Concentrated Ownership of New Common Stock.............................S-29
Absence of and/or Restrictions on Dividends............................S-29
History of Losses; Effect of Transaction...............................S-30
Cash Flow From Operations..............................................S-30
Declines in Net Sales and Gross Profits................................S-30
Retail Environment.....................................................S-31
Apparel Industry Cycles and Other Economic Factors.....................S-31
Seasonality and Fashion Risk...........................................S-31
Dependence on Certain Customers and Licensees; Effect of
Restructuring on Licenses............................................S-31
Foreign Operations and Sourcing; Import Restrictions...................S-32
Dependence on Contract Manufacturing...................................S-32
Information Systems and Control Procedures.............................S-33
Leverage and Debt Service..............................................S-33
Restrictive Covenants..................................................S-34
Need for Sustained Trade Support.......................................S-34
Disruption of Operations Relating to Bankruptcy Filing.................S-35
Prior Chapter 11 Filings...............................................S-35
Certain Risks of Non-Confirmation......................................S-35
Certain Other Bankruptcy Considerations................................S-36
BACKGROUND OF RESTRUCTURING...............................................S-38
Background of the Restructuring........................................S-38
The Letter Agreement...................................................S-39
The Voting Agreement...................................................S-43
The Waiver and Forbearance Under the Credit Agreement and
Commitment for New Credit Agreement.................................S-44
PURPOSE OF THE RESTRUCTURING..............................................S-45
RESTRUCTURING FINANCIAL CONSIDERATIONS....................................S-47
Background of the Restructuring Financial Analysis.....................S-47
Fairness Opinion.......................................................S-47
The Three-Year Business Plan...........................................S-51
Liquidation Analysis...................................................S-52
SALANT CORPORATION HYPOTHETICAL LIQUIDATION ANALYSIS......................S-53
DISTRIBUTION OF NET PROCEEDS..............................................S-57
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.....................S-58
Notes to the Unaudited Pro Forma Consolidated Financial Statements.....S-62
PROJECTED CONSOLIDATED FINANCIAL INFORMATION..............................S-63
General................................................................S-63
Principal Assumptions..................................................S-63
Sales..................................................................S-64
Gross Margin...........................................................S-64
Operating Expenses.....................................................S-64
Working Capital........................................................S-65
Capital Expenditures...................................................S-65
Interest Expenses......................................................S-65
Income Taxes...........................................................S-65
The Three-Year Business Plan...........................................S-65
PROJECTED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS..............S-67
PROJECTED CONDENSED CONSOLIDATED BALANCE SHEETS........................S-68
PROJECTED STATEMENTS OF CONSOLIDATED CASH FLOWS........................S-69
BUSINESS AND PROPERTIES OF THE COMPANY....................................S-70
Overview...............................................................S-70
Properties.............................................................S-74
Legal Proceedings......................................................S-75
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION....................S-76
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..................................................S-78
Overview...............................................................S-78
Results of Operations..................................................S-78
Liquidity and Capital Resources........................................S-91
Year 2000 Compliance...................................................S-94
Seasonality............................................................S-95
Backlog................................................................S-95
Factors that May Affect Future Results and Financial Condition.........S-95
Substantial Level of Indebtedness and the Ability to Restructure Debt..S-96
Competition............................................................S-96
Apparel Industry Cycles and other Economic Factors.....................S-96
Retail Environment.....................................................S-96
Seasonality of Business and Fashion Risk...............................S-96
Foreign Operations.....................................................S-96
Dependence on Contract Manufacturing...................................S-97
STOCKHOLDERS' MEETING, VOTING RIGHTS AND PROXIES..........................S-97
Date, Time and Place of Stockholders' Meeting..........................S-97
Solicitation of Proxies; Record Date...................................S-97
Purpose of Stockholders' Meeting.......................................S-98
The Charter Amendment..................................................S-98
The Issuance..........................................................S-100
The Stock Award and Incentive Plan....................................S-100
Election of the New Board.............................................S-101
Ratification of Appointment of Independent Auditors...................S-102
Voting of Proxies.....................................................S-102
Voting Rights; Quorum.................................................S-102
No Dissenters' Rights.................................................S-102
Revocation of Proxies.................................................S-102
Prepackaged Plan......................................................S-102
DISCUSSION OF THE PROPOSALS..............................................S-103
The Charter Amendment.................................................S-103
The Issuance..........................................................S-104
Stock Award and Incentive Plan........................................S-105
Election of the New Board.............................................S-109
DESCRIPTION OF NEW COMMON STOCK..........................................S-110
Distributions.........................................................S-110
Voting................................................................S-111
Election of Directors.................................................S-111
Shares Reserved In Connection With the 1993 Chapter 11 Plan...........S-111
DESCRIPTION OF WARRANTS..................................................S-111
General...............................................................S-111
Adjustments...........................................................S-112
Amendment.............................................................S-113
Governing Law.........................................................S-113
DESCRIPTION OF NEW CIT CREDIT AGREEMENT..................................S-113
DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT.............................S-114
DESCRIPTION OF CERTAIN EXISTING INDEBTEDNESS OF THE COMPANY..............S-114
General...............................................................S-114
Revolving Credit Agreement............................................S-114
The Senior Notes......................................................S-116
DESCRIPTION OF RIGHTS PLAN...............................................S-118
DESCRIPTION OF THE CHAPTER 11 CASE.......................................S-118
Timetable for the Chapter 11 Case.....................................S-118
Adequacy of Disclosure................................................S-118
Committees............................................................S-119
Actions to Be Taken Upon Commencement of Case.........................S-119
DESCRIPTION OF THE PREPACKAGED PLAN......................................S-122
Brief Explanation of Chapter 11.......................................S-122
General Information Concerning Treatment of Claims and Interests......S-122
Classification and Treatment of Claims and Interests..................S-123
Unclassified Claims...................................................S-124
Classified Claims And Interests....................................S-126
Sources of Cash to Make Prepackaged Plan Distributions.............S-128
Executory Contracts and Unexpired Leases...........................S-128
Implementation of This Plan........................................S-129
Provisions Covering Distributions..................................S-131
Procedures For Resolving Disputed Claims...........................S-134
Discharge, Injunction, Releases and Settlements of Claims..........S-135
Conditions Precedent to Confirmation Order and Effective Date......S-137
Miscellaneous Provisions...........................................S-137
FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF
CREDITORS TEST........................................................S-140
Confirmation Hearing..................................................S-140
Feasibility of the Prepackaged Plan...................................S-141
Best Interests Test...................................................S-142
Nonconsensual Confirmation............................................S-143
No Unfair Discrimination..............................................S-144
Fair and Equitable Test...............................................S-144
SECURITIES ISSUED UNDER PREPACKAGED PLAN --
APPLICATION OF SECURITIES ACT......................................S-144
The Solicitation......................................................S-144
Issuance and Resale of New Securities Under the Prepackaged Plan......S-144
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PREPACKAGED PLAN....S-145
Continuation of the Chapter 11 Case...................................S-146
Liquidation Under Chapter 7 or Chapter 11.............................S-146
CERTAIN CONSEQUENCES OF THE RESTRUCTURING................................S-146
VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN..........................S-147
Voting Procedures for Prepackaged Plan and Requirements...............S-148
Who May Vote..........................................................S-149
Procedures for Holders of Old Securities to Vote on Prepackaged Plan..S-149
Beneficial Owners of Old Securities...................................S-150
Brokerage Firms, Banks and Other Nominees.............................S-150
Securities Clearing Agent.............................................S-151
Importance of Proper and Timely Submission of Completed Ballots.......S-151
Voting Deadline and Extensions........................................S-151
Withdrawal of Votes on the Prepackaged Plan...........................S-152
Information Agent.....................................................S-152
MARKET AND TRADING INFORMATION...........................................S-152
MARKET FOR OLD COMMON STOCK AND RELATED STOCKHOLDER MATTERS..............S-153
MARKET PRICES OF THE SENIOR NOTES........................................S-155
OTHER INFORMATION REGARDING THE EXISTING BOARD...........................S-156
EXECUTIVE OFFICERS.......................................................S-157
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS.............................S-157
Beneficial Owners of More Than 5% of the Outstanding Shares of
Salant Common Stock................................................S-157
SECURITY OWNERSHIP OF MANAGEMENT.........................................S-157
Beneficial Ownership of Salant Common Stock by Directors and
Executive Officers of the Company..................................S-158
Section 16(a) Beneficial Ownership Reporting Compliance...............S-159
EXECUTIVE COMPENSATION...................................................S-159
OPTION GRANTS FOR FISCAL 1997............................................S-163
OPTION EXERCISES AND VALUES FOR FISCAL 1997..............................S-163
THE COMPANY'S RETIREMENT PLAN............................................S-164
PERFORMANCE GRAPH........................................................S-165
MANAGEMENT...............................................................S-165
Directors.............................................................S-166
Executive Officers....................................................S-167
MANAGEMENT COMPENSATION..................................................S-168
Employment Agreements and Change-in-Control Arrangements..............S-168
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION..............S-170
JOINT REPORT OF THE COMPENSATION AND STOCK PLAN COMMITTEES ON
EXECUTIVE-COMPENSATION................................................S-170
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................S-171
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................S-172
Federal Income Tax Consequences To Stockholders.......................S-172
Federal Income Tax Consequences To The Company........................S-173
INFORMATION REGARDING NOMINEES...........................................S-173
POST RESTRUCTURING STOCK OPTION GRANTS...................................S-174
Exchange Restructuring................................................S-174
Prepackaged Restructuring.............................................S-174
PAYMENTS TO MANAGEMENT...................................................S-175
ADVISORS AND REPRESENTATIVES.............................................S-175
ESTIMATED FEES AND EXPENSES..............................................S-176
LEGAL MATTERS............................................................S-177
EXPERTS..................................................................S-177
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING............................S-177
OTHER MATTERS............................................................S-177
GLOSSARY OF CERTAIN DEFINED TERMS..........................................S-i
CONSOLIDATED ANNUAL FINANCIAL STATEMENTS:
Independent Auditors' Report............................................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-25
Condensed Consolidated Interim Unaudited Statements of
Comprehensive Income.................................................F-26
Condensed Consolidated Interim Unaudited Balance Sheets ...............F-27
Condensed Consolidated Interim Unaudited Statements of Cash Flows......F-28
Notes to Condensed Consolidated Interim Unaudited Financial Statements.F-29
ANNEX I - E&Y FAIRNESS OPINION...........................................
ANNEX II - PREPACKAGED PLAN ..............................................
...............EXHIBIT A - WARRANT AGREEMENT.................................
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
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. Capitalized terms
used herein shall have the meanings ascribed to them as set forth under the
section entitled "GLOSSARY OF CERTAIN DEFINED TERMS."
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 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 a
wide variety of 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 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," "SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
SUMMARY DISTRIBUTION TABLE
The following chart summarizes the consideration to be received by the
Stockholders and the Noteholders pursuant to the Restructuring.
NEW
EXISTING 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
Face Amount of, and all
accrued and unpaid
interest through the
Exchange Restructuring $1,000 175.977555 --
Date on, the Senior
Notes...................
In Aggregate............ $104,879,000 18,456,350 --
BENEFITS OF RESTRUCTURING TO OFFICERS, DIRECTORS AND CERTAIN RELATED PARTIES
Consummation of the Restructuring will result in (a) the Noteholders
receiving 92.5% of the shares of New Common Stock to be issued by the
Company under the Restructuring (subject to dilution for the Stock Award
and Incentive Plan, the Warrant Shares and, in the case of the Exchange
Restructuring only, the Old Plans), and (b) the Stockholders receiving 7.5%
of the shares of New Common Stock (subject to dilution for the Stock Award
and Incentive Plan, the Warrant Shares and, in the case of the Exchange
Restructuring only, the Old Plans) plus Warrants to purchase up to 10% of
the issued and outstanding shares of New Common Stock (on a fully diluted
basis). As a result of the consummation of the Restructuring, Magten, the
beneficial holder of approximately $74 million in aggregate principal
amount of the Senior Notes, representing approximately 71% of the Senior
Notes, will receive its pro rata share of the shares of New Common Stock to
be issued to Noteholders (i.e., Magten will receive approximately 65% of
the shares of New Common Stock (subject to dilution)) in exchange for the
Senior Notes beneficially held by Magten. The Stockholders currently own
100% of the common equity of the Company in the form of the Old Common
Stock. The issuance of New Common Stock to the Noteholders, including
Magten, pursuant to the Exchange Restructuring or the Prepackaged
Restructuring, 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. As a result of the Restructuring, Apollo, the beneficial
holder of approximately 39.6% of the issued and outstanding shares of Old
Common Stock will receive its pro rata share of the shares of New Common
Stock and Warrants to be issued to Stockholders (i.e., Apollo will receive
approximately 3% of the shares of New Common Stock (subject to dilution)
and approximately 39.6% of the Warrants) in exchange for the shares of Old
Common Stock beneficially held by Apollo.
Consummation of the Restructuring will also result in a distribution
of New Common Stock and Warrants to certain officers and directors of the
Company, based upon the number of shares of Old Common Stock owned by them
on the Record Date. See "MARKET FOR OLD COMMON STOCK AND RELATED
STOCKHOLDER MATTERS." In addition, in the event that 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
as provided for in each of the Old Plans. Moreover, 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 Restructuring Date,
subject to the approval by the Stockholders of the Company. In the event
that the Prepackaged Restructuring is consummated, 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 grants to certain non-employee directors
of the Company. See "POST RESTRUCTURING STOCK OPTION GRANTS."
On March 2, 1998, Magten, Apollo and the Company entered into the
Letter Agreement setting forth the basic terms and conditions of the
Restructuring. The Letter Agreement was subsequently amended on June 1,
1998. See "BACKGROUND OF RESTRUCTURING -- The Letter Agreement" for a full
discussion of the terms of the Letter Agreement. CIT, the Company's working
capital lender, agreed to support the Company's restructuring efforts under
the Letter Agreement and, on March 2, 1998, the Company entered into the
Twelfth Amendment and Forbearance Agreement (the "Twelfth Amendment") with
CIT, wherein, among other things, CIT waived certain existing financial
covenant defaults under the Credit Agreement as of January 3, 1998 and
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 certain interest payments on the Senior Notes. In
consideration for CIT's agreement to enter into the Twelfth Amendment,
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. See
"BACKGROUND OF RESTRUCTURING -- The Waiver and Forbearance Under the Credit
Agreement and Commitment for New Credit Agreement." Subsequent to the
execution of the Twelfth Amendment, after reviewing various proposals for a
new credit agreement, the Company entered into a commitment letter (the
"CIT Commitment Letter") with CIT, which sets forth the terms and
conditions of an agreement for a new $140 million secured credit facility
with CIT, to be entered into by the Company on the Restructuring Date (the
"New CIT Credit Agreement"). See "DESCRIPTION OF NEW CIT CREDIT AGREEMENT."
In conjunction with the CIT Commitment Letter, CIT and the Company entered
into the Thirteenth Amendment and Forbearance Agreement (the "Thirteenth
Amendment") further extending CIT's agreement to continue to forbear from
exercising its rights or remedies under the Credit Agreement. In accordance
with the Twelfth Amendment, no additional closing fees, facility fees or
amendment fees were charged to the Company by CIT in consideration of the
execution and delivery of the Thirteenth Amendment and the CIT Commitment
Letter, and no other closing fee or facility fee will be charged in
connection with the execution and delivery of the New CIT Credit Agreement.
See "BACKGROUND OF RESTRUCTURING -- The Waiver and Forbearance Under the
Credit Agreement and Commitment for New Credit Agreement."
DIAGRAM OF TRANSACTION
The following chart diagrams the significant events (which are set forth in
chronological order) involved in order to consummate the Restructuring
either by means of the Exchange Restructuring or the Prepackaged
Restructuring:
[OBJECT OMITTED]
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 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 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.
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 "VOTING
AND CONFIRMATION OF THE PREPACKAGED PLAN."
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 and 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, 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.
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 "DESCRIPTION
OF THE PREPACKAGED PLAN."
Certain Federal Income Tax
Considerations to
Stockholders..................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: STOCKHOLDERS"), 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. If
the Restructuring is implemented by means of
the Exchange Restructuring, the Company may
recognize some cancellation of indebtedness
income, depending upon the trading price of
the Company's stock on the date the
Restructuring is implemented. If the Company
is insolvent at such time, then, to the
extent of the insolvency, none of the
cancellation of indebtedness income will be
included in its gross income. In any event,
based upon current valuations, it is likely
that any such cancellation of indebtedness
income included in income will be fully
offset by the Company's NOL's, assuming that
the Company makes the election provided under
Code Section 382 to "close its books" as of
the closing date of the Restructuring. 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: STOCKHOLDERS."
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."
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
THE SENIOR NOTES."
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 FOR OLD
COMMON STOCK AND RELATED STOCKHOLDER
MATTERS."
New Common Stock..............The NYSE requires approval of the Issuance of
the New Common Stock. The Company has fallen
below the continued listing criteria of the NYSE
for net tangible assets available to common stock
togehter with average net income after taxes for
the past three years. However, the NYSE has
reviewed the terms and conditions of the
Restructuring set forth herein and has informed
the Company that it will continue to list the
Company's common stock during the period prior to
consummation of the Restructuring and intends to
list the Company's common stock from and after
the Restructuring Date. However, the NYSE has
advised the Company that after consummation of
the Restructuring, the NYSE intends to monitor
the performance of the Company based upon the
Projections set forth herein to ensure
compliance with the NYSE's original listing
standards in respect of the New Common Stock.
The Company believes that as a result of the
consummation of the Restructuring, following the
Restructuring Date, the Company will be able to
return to compliance with the original listing
standards in respect of hte New Common Stock and
the Warrants and that the New Common Stock and
the Warrants will continue to be listed for
trading on the NYSE. However, the NYSE has
advised the Company that the Company's failure
to meet the Projections following the
Restructuring could result in the suspension
from trading and subsequent delisting of the New
Common Stock. "DISCUSSION OF 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...The NYSE requires approval of the Issuance of
the Warrants and the Warrant Shares. As
discussed above, 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 "DISCUSSION OF 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) [_________] 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
Exchange Restructuring (the "Depositary") for
the purpose of receiving the New Common Stock
from the Company and transmitting such New
Common Stock to Stockholders, and as Warrant
Agent with respect to transmitting the
Warrants to 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 Proxy Statement/Prospectus. See
"ADVISORS AND REPRESENTATIVES."
Information Agent/Voting
Agent.........................[ ] is serving as Information Agent in
connection with the Stockholders' Meeting and
the solicitation of acceptances of the
Prepackaged Plan (the "Information Agent"),
and as voting agent with respect to votes on
the Prepackaged Plan. 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."
SUMMARY OF THE PREPACKAGED PLAN
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, see
"DESCRIPTION OF THE PREPACKAGED PLAN" and the Prepackaged Plan itself, a
copy of which is attached hereto as Annex II.
- -------------------------------------------------------------------------------
TYPE OF CLAIM
CLASS OR EQUITY INTEREST DISTRIBUTION
- -------------------------------------------------------------------------------
- -- Administrative Expenses Allowed Administrative Expenses are to
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 Company
shall be paid in full or performed 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.
1 Priority Claims On the latest of (i) the Effective
(Unimpaired) Date, (ii) the date on which such
Priority Claim becomes an Allowed
Claim, or (iii) the date on which
the Company 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 On the Effective Date or as soon as
(Impaired) 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 At the election of the Company prior
Claims (Unimpaired) 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 the
Company and such Holder.
5 General Unsecured Claims At the election of the Company prior
(Unimpaired) 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 the
Company and such Holder.
6 Old Common Stock On the Effective Date or as soon as
Interests (Impaired) 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.
NOTICE TO HOLDERS OF CLAIMS AND INTERESTS
WHEN CONFIRMED BY THE BANKRUPTCY COURT, THE PREPACKAGED PLAN WILL BIND
ALL HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE COMPANY, 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 STOCKHOLDERS ARE ENCOURAGED TO READ THIS PROXY
STATEMENT/PROSPECTUS AND ITS ANNEXES CAREFULLY AND IN THEIR ENTIRETY BEFORE
VOTING TO ACCEPT OR TO REJECT THE PREPACKAGED PLAN. THIS PROXY
STATEMENT/PROSPECTUS 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 PROXY
STATEMENT/PROSPECTUS 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 "PROJECTED CONSOLIDATED FINANCIAL INFORMATION" (the
"Projections") and except as otherwise specifically and expressly stated
herein, this Proxy Statement/Prospectus 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 Proxy Statement/Prospectus.
Neither the Company nor Reorganized Salant 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, the Company does not anticipate that any
amendments or supplements to this Proxy Statement/Prospectus will be
distributed to reflect such occurrences. Accordingly, the delivery of this
Proxy Statement/Prospectus 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 "VOTING
AND CONFIRMATION OF THE PREPACKAGED PLAN--Information Agent."
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 AND
IMPLEMENTATION OF
PROPOSALS................ 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
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, and
properly complete a are entitled to vote, on
Letter of Transmittal and the Prepackaged Plan
deliver it, together with must properly complete a
the Senior Notes and any Ballot or Master Ballot,
other required documents, as the case may be, and
to the Depositary. Only deliver it in accordance
a registered Noteholder, with the voting
or persons who have instructions. Only
obtained a properly beneficial owners of
completed note power from Claims or Interests or,
a registered Noteholder, if applicable, nominees
may tender in the who are voting at the
Exchange Offer. instruction of the
beneficial owners and
make a certification
with respect thereto,
who are entitled to
vote on the
Prepackaged Plan may
vote thereon.
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.
POST RESTRUCTURING
STOCK OPTION GRANTS...... All of the Old Options Pursuant to the
will not be terminated Prepackaged Plan, all
and will continue to Old Options outstanding
remain outstanding, as of the commencement
subject to adjustment of the Chapter 11 Case
intended to reflect the granted under the Old
effect of the Reverse Plans will be terminated
Split on the Old and of no further force
Options. In addition, or effect as of the
under the Stock Award and consummation of the
Incentive Plan, Prepackaged Plan. In
directors, officers and addition, each of the
employees of the Company Old Plans shall be
will become eligible to terminated and of no
receive additional further force or effect
options to purchase as of the consummation
shares of New Common of the Prepackaged
Stock as determined by Plan. The Stock Award
the new Board after the and Incentive Plan will
Restructuring Date, remain in effect after
subject to the approval the consummation of the
by the stockholders of Prepackaged Plan;
the Company. 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 grants to
certain non-employee
directors of the
Company.
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 February
28, 1998, was $110.379 million, consisting of $104.879 million principal
amount of, and $5.5 million of accrued interest on, the Senior Notes) into
New Common Stock. Interest charges for the Company will be reduced by $11
million per year and stockholders' equity should be substantially increased
as a result of the Restructuring. The Company's consolidated debt at the
completion of the Restructuring will include approximately $28 million in
revolver debt plus $15 million from 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. 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 November 30, 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. Under the
Thirteenth Amendment, such agreement to forbear by CIT will terminate on
November 30, 1998 or earlier upon the happening of (a) the occurrence of
any Event of Default (as defined in the Credit Agreement) other than by
virtue of the Company's failure to make the March 2, 1998 or August 31,
1998 interest payment on the Senior Notes or the commencement or
continuation of a chapter 11 case to effectuate the Restructuring; or (b)
the exercise of any right or remedy with respect to any of the Collateral
by any holder of the Senior Notes or by the Trustee under the Indenture; or
(c) the payment of any interest on the Senior Notes in respect of the
Company's non-payment of the interest that was payable on March 2, 1998 or
that will be payable on August 31, 1998 or otherwise; or (d) the occurrence
of an Agreement Termination Event (as defined in the Letter Agreement)
except under certain circumstances. See "BACKGROUND TO THE RESTRUCTURING --
Waiver and Forbearance Agreement and Commitment for New Credit Agreement."
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 effects of the Restructuring, see
"CONSEQUENCES OF THE RESTRUCTURING."
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. 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 is 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 August __, 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 RESTRUCTURING -- The
Voting Agreement." In accordance with the
terms of the Letter Agreement, the Company
also requested that DDJ Capital Management,
LLC ("DDJ"), the beneficial holder of
approximately 12.1% of the issued and
outstanding shares of Old Common Stock, as of
March 10, 1998, enter into a voting agreement
with the Company similar to the Voting
Agreement entered into with Apollo. DDJ,
however, informed the Company that it did 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 a
confidentiality agreement between DDJ and the
Company (the "DDJ Confidentiality
Agreement"). On March 4, 1998, the Company
granted this request by DDJ. As of the date
of this Proxy Statement/Prospectus, DDJ is
the beneficial owner of approximately
_________ shares of Old Common Stock,
representing approximately __% of the issued
and outstanding shares of Old Common Stock.
As of __________, 1998, 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 (the "E&Y Fairness Opinion")
addressed to the Board 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 addressed to
the Board 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
-- 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 and approval by the Stockholders of
each Restructuring Proposal, 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 Exchange 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
"DISCUSSION OF RISK FACTORS."
Summary 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 the Restructuring Date, between the
Company and the Warrant Agent. 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 to the Company's Registration Statement as
Exhibit 10.52. Stockholders may request a copy of the Warrant Agreement by
contacting Todd Kahn, General Counsel and Executive Vice President of the
Company, at (212) 221-7500.
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 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.
SUMMARY OF NEW CIT CREDIT AGREEMENT
The Company intends to enter into a New Credit Agreement, effective as
of the Restructuring Date, which will replace the Company's current working
capital facility under the Credit Agreement. From the beginning of Fiscal
1998, the Company received and reviewed various proposals for a New Credit
Agreement which were submitted by CIT as well as various other prospective
lenders. After reviewing the proposals for a New Credit Agreement received
from the various lenders, and conducting extensive negotiations with
certain of the lenders who submitted proposals, the Company determined that
the proposal submitted by CIT contained the most advantageous terms and
conditions. As a result, the Company entered into the CIT Commitment
Letter, which sets forth the principal terms and conditions of an agreement
for the New CIT Credit Agreement for a $140 million secured credit facility
that the Company intends to enter into on the Restructuring Date.
Pursuant to the CIT Commitment Letter, the New CIT Credit Agreement
will provide for a general working capital facility, in the form of direct
borrowings and letters of credit, up to $125,000,000, subject to an
asset-based borrowing formula. The New CIT Credit Agreement will also
provide for a $15,000,000 term loan facility. As collateral for borrowings
under the New CIT Credit Agreement, the Company will grant to CIT a
security interest in substantially all of the assets of the Company. The
New CIT Credit Agreement will have an initial term commencing on the
Restructuring Date and continuing through and including December 31, 2001.
The New CIT Credit Agreement will also provide, among other things,
that (i) the Company will be charged an interest rate on direct borrowings
of .25% in excess of the prime rate of The Chase Manhattan Bank, N.A. or
2.25% in excess of the London Late Eurodollar Rate; and (ii) CIT may, in
its sole discretion, make loans to the Company in excess of the borrowing
formula. Pursuant to the CIT Commitment Letter, the New CIT Credit
Agreement will also provide that the $15 million term loan portion of the
facility shall be repaid based upon a five year amortization schedule in
consecutive monthly installments, commencing on the first day of the month
immediately following the date six months after the closing of the New CIT
Credit Agreement and continuing thereafter with the final installment in
the amount of the then remaining balance of the term loan, together with
all unpaid and accrued interest thereon, due and payable on December 31,
2001.
The CIT Commitment Letter provides that the New CIT Credit Agreement
will contain financial covenants ("Maintenance Covenants") as to (i)
minimum tangible net worth, (ii) maximum net loss, (iii) minimum interest
coverage ratio, and (iv) maximum capital expenditures. Pursuant to the CIT
Commitment Letter, there will be no other Maintenance Covenants contained
in the New CIT Credit Agreement. The Company believes that the New CIT
Credit Agreement will also contain restrictive covenants and events of
default similar to those that are in the existing Credit Agreement. For a
description of those restrictive covenants and events of default, see
"DESCRIPTION OF CERTAIN EXISTING INDEBTEDNESS OF THE COMPANY--Revolving
Credit Agreement."
Pursuant to the CIT Commitment Letter and in accordance with the
Twelfth Amendment, no closing or facility fees will be charged to the
Company by CIT in consideration of the execution and delivery of the New
CIT Credit Agreement.
The Company believes that the terms and conditions of the New CIT
Credit Agreement set forth in the CIT Commitment Letter are significantly
more favorable than those currently existing under the Credit Agreement
with CIT. Moreover, the Company also believes that the New CIT Credit
Agreement will be adequate to permit the Company to operate its business in
accordance with the Three-Year Business Plan.
The execution of the New CIT Credit Agreement is subject to various
conditions, including, but not limited to, consummation of the
Restructuring by no later than November 30, 1998. There is no assurance
that such conditions will be satisfied or that the New CIT Credit Agreement
will be executed. In addition, under the Letter Agreement, the New CIT
Credit Agreement must be on terms and conditions reasonably satisfactory to
Magten, Apollo and the Company.
SUMMARY OF REGISTRATION RIGHTS AGREEMENT
In connection with the Restructuring, the Company will also enter
into, on the Exchange Restructuring Date, a registration rights agreement
(the "Registration Rights Agreement"). 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
Registration Rights Agreement, a copy of which is attached to the Company's
Registration Statement as Exhibit 10.51. Stockholders may request a copy of
the Registration Rights Agreement by contacting Todd Kahn, General Counsel
and Executive Vice President of the Company, at (212) 221-7500. 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.
See "DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT."
SUMMARY 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 and 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. See "DESCRIPTION OF RIGHTS PLAN."
TAX OPINION
The Company has received an opinion from Fried, Frank, Harris, Shriver
and Jacobson to the effect that, subject to the assumptions and limitations
set forth therein, the discussions under the sections entitled "Certain
Federal Income Tax Considerations: Stockholders" in the Proxy
Statement/Prospectus and "Certain Federal Income Tax Considerations:
Noteholders" in the Exchange Restructuring Prospectus describe to
Noteholders and Stockholders, respectively, the material federal income tax
consequences of implementing the Restructuring by means of the Exchange
Restructuring or the Prepackaged Restructuring. Under both the Exchange
Restructuring and the Prepackaged Restructuring, except with respect to
cash received in lieu of fractional shares, if any, (i) Stockholders should not
recognize any gain or loss in the transaction, and (ii) Noteholders should
also recognize no gain or loss, except to the extent New Common Stock
received is attributable to accrued but unpaid interest on the Senior
Notes. The Company will not recognize any cancellation of indebtedness
income under the Prepackaged Restructuring, while it may recognize some
cancellation of indebtedness income under the Exchange Restructuring. The
Company will undergo an ownership change under Section 382 of the Code
under both the Exchange Restructuring and the Prepackaged Restructuring
and, as a result, will be limited in its use of NOLs on a going forward
basis, as is discussed in greater detail herein. A copy of the tax opinion
is attached to the Company's Registration Statement as Exhibit 8.1
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
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 six month periods ended July 4, 1998 and June 28, 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."
The Company's fiscal year ends on the Saturday closest to December 31.
<TABLE>
<CAPTION>
(Amounts in thousands except share, per share and ratio data)
For the Six Months Ended For the Fiscal Year Ended
------------------------ -------------------------
July 4, June 28, 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 $159,343 $169,601 $396,832 $417,711 $485,825 $398,990 $ 379,012
Reversal of /(Provision for)
Restructuring costs (a) 160 1,164 (2,066) (11,730) (3,550) - (5,500)
Income/(loss) from continuing
operations (6,835) (9,540) (10,722) (8,958) (362) 3,398 7,865
Discontinued Operations: (e) -
Loss from operations, net of income
taxes - (8,136) (8,136) (365) (136) (9,639) (638)
Estimated loss on disposal, net of
income taxes - (580) (1,330) - - (1,796) -
Reversal of estimated loss on
disposal, net of income taxes - - - - - - 11,772
Extraordinary gain (b) - 600 2,100 - 1,000 63 24,707
Net income/(loss)(a) (6,835) (17,656) (18,088) (9,323) 502 (7,865) 43,706
Basic earnings/(loss per share:
Earnings/(loss) per share from
continuing operations before
extraordinary gain $ (.45) $ (.68) $ (0.71) $ (0.60) $ (0.02) $ (0.23) $ 1.18
Earnings/(loss) per share from
discontinued operations - (.58) (0.62) (0.02) (0.01) (0.76) 1.68
Earnings per share from
extraordinary gain - .04 0.14 - 0.06 - 3.72
Basic earnings/(loss) per share (a) (.45) (1.17) (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 $ (.45) $ (.68) $ (0.71) $ (0.60) $ (0.02) $ 0.23 $ 1.10
Earnings/(loss) per share from
discontinued operations - (.58) (0.62) (0.02) (0.01) (0.76) 1.57
Earnings per share from
extraordinary gain - .04 0.14 - 0.06 - 3.48
Diluted earnings/(loss) per share (a) (.45) (1.17) (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 15,108 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 15,108 15,139 15,078 15,118 14,954 7,103
At End of Period:
Current assets $ 158,808 $ 168,929 $148,899 $150,986 $163,799 $172,234 $ 161,375
Total assets 242,289 256,635 233,377 235,251 253,970 266,157 251,946
Current liabilities (c) 201,481 100,190 185,692 59,566 61,704 71,104 44,427
Long-term debt (c) - 104,879 - 106,231 110,040 109,908 111,851
Deferred liabilities 5,340 8,453 5,382 8,863 11,373 13,479 16,766
Working capital/(deficiency) (42,673) 68,739 (36,793) 91,420 102,095 101,130 116,948
Current ratio 0.8:1 1.7:1 0.8:1 2.5:1 2.7:1 2.4:1 3.61:1
Shareholders' equity $ 35,468 $ 43,113 $ 42,303 $ 60,591 $ 70,853 $ 71,666 $ 78,902
Book value per share $ 2.34 $ 2.85 $ 2.79 $ 4.01 $ 4.71 $ 4.78 $ 5.34
Number of shares outstanding 15,170 15,108 15,170 15,094 15,041 15,008 14,781
<FN>
(a) Includes, for the six month periods ended July 4, 1998 and June 28,
1997, a reversal of a previously recorded restructuring provision of
$160 and $1,164, 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 J.J. 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 (Basis 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 six months period ended June 28, 1997 a gain of
$600 for the reversal of excess liabilities previously provided for
the anticipated settlement of claims arising from the prior chapter
11 proceedings; 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 July 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 of the
Company's Registration Statement 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.
(e) 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 through March 1998. 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 $1,796 to accrue for
expected operating losses during the phase-out period through June
1995. No income tax benefits have been allocated to the division's
1994 loss.
</FN>
</TABLE>
<PAGE>
CAPITALIZATION SUMMARY
The following table sets forth the unaudited historical capitalization
of the Company as of April 4, 1998 and the unaudited pro forma consolidated
capitalization of the Company after giving effect to the Exchange
Restructuring as if the Exchange Restructuring had occurred on July 4,
1998. The Exchange Restructuring transactions reflect (i) the issuance of
18,456,350 shares, after giving effect to the Reverse Split, of New Common
Stock to Noteholders, (ii) the issuance of 1,517,100 shares of New Common
Stock to Stockholders, after giving effect to the Reverse Split, which
includes 1,496,461 shares of New Common Stock to be issued upon
consummation of the Restructuring and 20,639 shares of New Common Stock
which are issuable to settle claims asserted in the 1990 Chapter 11 Case,
and (iii) the issuance of Warrants representing the right to purchase up to
2,216,979 shares, after giving effect to the Reverse Split, of New Common
Stock to Stockholders. The Unaudited Pro Forma Consolidated Balance Sheet
as of July 4, 1998 includes pro forma adjustments as if the Exchange
Restructuring had been completed on that date. This table should be read in
conjunction with the "Summary Historical Consolidated Financial
Information," "Unaudited Pro Forma Financial Statements," the unaudited
condensed consolidated interim financial statements for the six months
ended July 4, 1998 and the Consolidated Financial Statements for the year
ended January 3, 1998 and the notes thereto included elsewhere in this
Proxy Statement/Prospectus.
(Unaudited)
July 4, 1998
---------------------
Actual Pro Forma
-------- -----------
($ in thousands)
Cash and cash equivalents................................$ 1,160 $ 1,160
Long-term debt, including current portion:
Senior Notes...........................................$104,879 $ --
-------- --------
Total long-term debt................................ 104,879 --
Stockholder's equity:
Common stock (15,405 actual shares outstanding
(inclusive of treasury stock and shares issuable to
settle claims); 19,973 pro forma shares outstanding)... 15,405 19,973
Additional paid-in capital............................. 107,249 206,860
Deficit................................................ (82,100) (79,283)
Accumulated other comprehensive income................. (3,472) (3,472)
Less-treasury stock, at cost-234 shares................ (1,614) --
--------- --------
Total stockholder's equity.......................... 35,468 144,078
--------- --------
Total capitalization............................. $140,347 $144,078
======== ========
SUMMARY OF 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 and described below.
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 (see "DISCUSSION OF RISK FACTORS -- Limitation on
Use of Net Operating Losses"), 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 Prepackaged
Restructuring 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 Proxy Statement/Prospectus meets the disclosure
requirements of the Bankruptcy Code.
For a discussion of certain risk factors that should be considered in
connection with voting on the Restructuring Proposals and the Prepackaged
Plan, see "DISCUSSION OF RISK FACTORS."
<PAGE>
DISCUSSION OF RISK FACTORS
Investment in the New Common Stock and Warrants involves a high degree
of risk. Prior to deciding whether to (a) vote on the Restructuring
Proposals and/or (b) vote to accept the Prepackaged Plan, each Stockholder
should carefully consider all of the information contained in this Proxy
Statement/Prospectus, especially the following risk factors.
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
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.
DILUTION
Upon completion of the Restructuring, 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 under 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, (i)
the 18,456,350 shares of New Common Stock 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)
and (ii) the 1,496,461 shares of New Common Stock issued directly to
Stockholders will, after giving effect to the Restructuring, represent 7.5%
of the total outstanding shares of New Common Stock (excluding the Warrant
Shares), each 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 also 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 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: STOCKHOLDERS."
In general, under the Exchange Restructuring the Company will be
subject to an annual limitation on the use of its NOL's generated prior to
the ownership change. This annual limitation is determined by multiplying
the value of the Company immediately before the ownership change by the
adjusted federal long-term tax exempt interest rate published periodically
by the federal government. Based on an estimated market capitalization of
$10,000,000 and a federal long term interest rate of 5%, the annual
limitation to which the Company's NOL's would be subject is approximately
$500,000 under the Exchange Restructuring. Since there is a 15 year
carryover period applicable to these NOL's, the maximum amount of NOL that
the Company could use is $7,500,000.
Under the Prepackaged Restructuring, the Company would be able to
compute the annual limitation by using the value of the Company after
considering the increase in value attributable to the retirement of the
Senior Notes resulting from the transaction. The appropriate post-ownership
change value which may be used in computing the annual limitation will not
be known until the Prepackaged Restructuring is complete. Assuming the
value of the Company increases to $120,000,000 as a result of the
cancellation of creditors' claims, the annual limitation to which the
Company's NOL's would be subject is approximately $6,000,000 under the
Prepackaged Restructuring. Accordingly, the Company would be able to
utilize $90,000,000 of NOL over the applicable 15 year carryover period.
Currently, after considering the impact of an ownership change
occurring in 1993, the Company has approximately $130,000,000 of NOL's that
may be used to offset future taxable income. If the Exchange Restructuring
occurs, the Company would be able to offset future taxable income with at
most approximately $7,500,000 of NOL's, resulting in a loss of
approximately $122,500,000 of NOL's. If, on the other hand, the Prepackaged
Restructuring occurs, the Company would be able to offset future taxable
income with, at most, approximately $90,000,000 of NOL's, resulting in a
loss of approximately $40,000,000 of NOL's.
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. However, the NYSE
has reviewed the terms and conditions of the Restructuring set forth herein
and has informed the Company that it will continue to list the Company's
common stock during the period prior to consummation of the Restructuring
and intends to list the Company's common stock from and after the
Restructuring Date. However, the NYSE has advised the Company that after
consummation of the Restructuring, the NYSE intends to monitor the
performance of the Company based upon the Projections set forth herein to
ensure compliance with the NYSE's original listing standards in respect of
the New Common Stock. The Company believes that as a result of the
consummation of the Restructuring, following the Restructuring Date, the
Company will be able to return to compliance with the original listing
standards in respect of the New Common Stock and the Warrants and that the
New Common Stock and the Warrants will continue to be listed for trading on
the NYSE. However, the NYSE has advised the Company that the Company's
failure to meet the Projections following the Restructuring could result in
the suspension from trading and subsequent delisting of the New Common
Stock. 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 able to return
to full compliance with all of the NYSE's requirements for continued
listing on the NYSE. See "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS."
Moreover, the NYSE has advised the Company that if the Company seeks
to consummate the Restructuring by means of the Prepackaged Restructuring
but is unable to do so, the Old Common Stock is subject to being delisted.
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.
Even though the Company expects the Reverse Split to "normalize" the
post-restructuring trading of the New Common Stock, no assurances can be
made that the Reverse Split will "normalize" post-restructuring trading of
the New Common Stock. If post-restructuring trading is not "normalized,"
the New Common Stock may experience significant price and volume
fluctuations which could materially adversely effect the market price of
the New Common Stock.
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 65% of the
issued and outstanding shares of New Common Stock, subject to dilution for
the Warrant Shares. 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 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 CERTAIN EXISTING INDEBTEDNESS OF THE
COMPANY."
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.
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 closes a New Credit Agreement. See "DESCRIPTION OF NEW
CIT CREDIT AGREEMENT." There can be no assurance, however, (i) that the
Company will consummate the Restructuring, (ii) that the Company will be
able to close 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.
The Company's capital expenditure levels assumed in preparation of the
projected financial data contained herein (see "PROJECTED CONSOLIDATED
FINANCIAL INFORMATION") may be inadequate to maintain the Company's
long-term competitive position depending on the demand for the Company's
goods and as a result of competitive, regulatory and technological
developments (including new market developments and new opportunities) in
the Company's industry.
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 J.J. 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. The total sales reduction attributable to the
elimination of unprofitable programs was $29.8 million. 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 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.
The Company has four material licenses with PEI. The earliest possible
expiration of three of such licenses (i.e., the PEI dress shirt license,
neckwear license and belt and suspender license) is December 31, 2000
(assuming that such date is not accelerated under the terms of the
licenses); however, each of these licenses is renewable in the sole
discretion of the Company until the year 2015. The Company is also the
licensee under eleven license agreements with The Walt Disney Company
("Disney"). While the Disney licenses, in the aggregate, are material, no
single Disney license is material to the Company's businesses. Certain of
the Disney licenses expire as early as December 31, 1998.
The Company's licensing agreements with PEI contain a "change of
control" provision that provides PEI with certain rights upon the
occurrence of a "change of control." Those rights include, among others,
the right to terminate any or all of the licenses within two years after
the occurrence of the change of control. The Company intends to seek
confirmation from PEI that consummation of the Restructuring will not give
rise to any rights of PEI under such change of control provision. The
Company believes that if such confirmation is not obtained prior to the
Restructuring Date, the Restructuring can, in any event, be consummated on
the same terms and conditions without giving rise to any rights of PEI
under such provision.
In addition to the license agreements with PEI and Disney, the Company
is also a party to several other license agreements. Certain of these other
license agreements 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 (i)
improving the Company's IS to provide and enhance support to all operating
areas and (ii) resolving year 2000 issues, the Company entered into a
working agreement (the "EDS Agreement") with Electronic Data Systems
Corporation ("EDS"). The EDS Agreement which constituted the initial phase
of a long-term project to outsource the Company's IS and to remedy year 2000
issues. As part of this initial phase, the Company and EDS identified the
ability of one of the two major enterprise systems in the Company to be
modified to make such systems Year 2000 compliant and to migrate the
operations of the Company to one enterprise system (the "System
Conversion"). As a result of the ability to implement the System Conversion
and after receiving the cost of outsourcing the IS function to EDS, the
Company has determined not to outsource the IS functions to EDS. Instead,
the Company will use internal resources for the System Conversion and other
consultants for implementation of new software. The Company anticipates that
the System Conversion, as well as the implementation of new software, will
be completed by the first quarter of 1999. The Company anticipates that the
cost of the System Conversion and new software will be approximately $10
million, to be incurred during 1998 and 1999. 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 or 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 or customers.
LEVERAGE AND DEBT SERVICE
As of July 4, 1998, the Company had outstanding total interest bearing
indebtedness of approximately $157.1 million. 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 $15 million. See
"DESCRIPTION OF NEW CIT CREDIT AGREEMENT." 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,
under certain circumstances, 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 also contain certain
restrictive covenants. See "DESCRIPTION OF NEW CIT 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.
<PAGE>
IN ADDITION, IN CONNECTION WITH VOTING ON THE PREPACKAGED PLAN, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED BY THE STOCKHOLDERS:
DISRUPTION OF OPERATIONS RELATING TO BANKRUPTCY FILING
The Company'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 the Company's and its
subsidiaries' relationships with their customers, suppliers or employees.
If the Company's and its subsidiaries' relationships with customers,
suppliers or employees are adversely affected, the Company's operations
could be materially affected. Weakened operating results could adversely
affect the Company's ability to obtain confirmation of the Prepackaged Plan
or to avoid financial difficulties after consummation of the Prepackaged
Plan. The Company 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.
PRIOR CHAPTER 11 FILINGS
The Company has been a debtor in bankruptcy on two prior occasions.
See "BUSINESS AND PROPERTIES OF THE COMPANY -- Bankruptcy Court Cases." The
Company's first chapter 11 case was commenced on February 22, 1985. The
plan of reorganization with respect to the first chapter 11 case was
confirmed by the Bankruptcy Court on May 19, 1987 and was consummated on
June 2, 1987. The Company's second chapter 11 case was commenced on June
27, 1990. The plan of reorganization with respect to the second chapter 11
case was confirmed by the Bankruptcy Court on July 30, 1993 and was
consummated on September 20, 1993. As a result of the Company's two prior
bankruptcies, the risks inherent in a subsequent chapter 11 case may be
further exacerbated if the Company pursues the Restructuring by means of
the Prepackaged Plan.
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
"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 the Company 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 "VOTING AND
CONFIRMATION OF THE PREPACKAGED PLAN."
Additionally, even if the required acceptances of each of Class 3
(i.e., Noteholders) and Class 6 (i.e., Stockholders) are received, the
Bankruptcy Court might find that the Solicitation of votes or the
Prepackaged Plan 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, the Company may seek to resolicit acceptances,
but confirmation of the Prepackaged Plan could be substantially delayed and
possibly jeopardized. The Company 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. The Company, 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, the Company 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 the Company's
business or an equity interest in the Company 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 the Company 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 the Company 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 "DESCRIPTION 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 the Company 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.
CERTAIN OTHER BANKRUPTCY CONSIDERATIONS
TREATMENT OF THE WARRANTS
In the event of a subsequent bankruptcy case involving the Company,
the Warrants, which will be received by Holders of Old Common Stock in
partial consideration for dilution of their ownership interest in the
Company, 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.
FAILURE TO FILE THE PREPACKAGED PLAN
Absent the Restructuring, the Company 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 the
Company will be able to obtain such refinancing or 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
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 the Company's judgment, to confirm the
Prepackaged Plan, the Company 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. The Company 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 the Company and should, therefore,
substantially reduce the time and costs of such a case, result in a larger
distribution to the Company'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 the Company the best
opportunity to accomplish the Restructuring in a bankruptcy case. If the
Exchange Restructuring is not consummated and the Company does not have the
necessary acceptances from Holders of Interests to confirm the Prepackaged
Plan, the Company 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
"FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF CREDITORS
TEST - Nonconsensual Confirmation." In such event, the Company would seek
to satisfy the Bankruptcy Code standards for confirmation by means of a
"cramdown" against such Holders of Interests. Alternatively, the Company
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 "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 the Company 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, the Company has prepared an analysis of estimated
recoveries in a liquidation under Chapter 7 of the Bankruptcy Code. See
"RESTRUCTURING FINANCIAL CONSIDERATIONS -- Liquidation Analysis." A
description of procedures followed and the assumptions and qualifications
in connection with this Liquidation Analysis is set forth in the notes
thereto.
EFFECT ON OPERATIONS
The Company believes that the Solicitation and any subsequent
commencement of a Chapter 11 case in connection with the Prepackaged Plan
should not materially adversely affect the Company's and its subsidiaries'
relationships with customers, employees and suppliers, provided that the
Company 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. The Company 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 the Company, its subsidiaries
and their employees, customers and suppliers. There is a risk that, due to
uncertainty about the Company'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 the Company has been
a debtor in bankruptcy on two prior occasions. If such relationships were
adversely affected, the Company and its subsidiaries' financial performance
and working capital position could materially deteriorate. This
deterioration could adversely affect the Company's ability to complete the
Solicitation or, if such Solicitation is successfully completed, to obtain
confirmation of the Prepackaged Plan.
NONCONSENSUAL CONFIRMATION
The Company 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 (i.e., Other Interests) is
deemed not to have accepted the Prepackaged Plan, the Company 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 "FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF
CREDITORS TEST - Nonconsensual Confirmation." The Company, however, will
not seek confirmation of the Prepackaged Plan unless it is accepted by
Class 3 (i.e., the Noteholders).
BACKGROUND OF RESTRUCTURING
The following summary of the background of the Restructuring,
including the principal terms of the Letter Agreement, the Letter Agreement
Amendments, the Twelfth Amendment, the Thirteenth Amendment, the Voting
Agreement and the CIT Commitment Letter, 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, the Letter Agreement Amendment, the Twelfth Amendment, the
Thirteenth Amendment, and the CIT Commitment Letter are filed as Exhibit
10.42, Exhibit 10.55, Exhibit 10.43, Exhibit 10.53 and Exhibit 10.54,
respectively, to the Company's Registration Statement. The form of Voting
Agreement is attached to the Company's Registration Statement as Exhibit
9.1. Copies of any or all of these documents can be obtained by contacting
Todd Kahn, General Counsel and Executive Vice President of the Company, at
(212) 221-7500. 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 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 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 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. See "Alternative
Transactions" below. 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 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 then 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 Asset Management Corp., the beneficial owner of,
or the investment manager on behalf of the beneficial owners of,
approximately $74 million in aggregate principal face amount of Senior
Notes (the "Magten Notes"), representing approximately 71% of the aggregate
principal amount of all Senior Notes, 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. These
efforts culminated in the Letter Agreement. The substance of the Company's
negotiations with Magten and Apollo primarily centered upon each party's
evaluation of, and opinion concerning, the enterprise value of the Company
(discussed in more detail below) and the Company's Three-Year-Business
Plan. The Company believed that it was most productive to engage in
discussions with Magten, Apollo and CIT because, as noted above, Magten is
the beneficial owner of approximately 71% of the Senior Notes, Apollo is
the beneficial owner of approximately 39.6% of the Old Common Stock and CIT
is the Company's working capital lender. The Board fully participated in
the negotiation of the terms of the Restructuring. Although the terms of
the Restructuring were not negotiated with any non-affiliated Stockholders
or any minority Noteholders, the Trustee under the Indenture was provided
with, and commented upon, preliminary drafts of the Company's Registration
Statement, including drafts of the Exchange Restructuring Prospectus, Proxy
Statement/Prospectus, and Prepackaged Plan, prior to the filing of the
Registration Statement with the Commission.
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 Company, Magten and Apollo determined that it was
necessary to assume a total enterprise value for the Company. After a
review of the Company's Three-Year Business Plan, as well as any other
factor deemed relevant by each party, each of the Company, Magten and
Apollo developed its own view as to the total enterprise value of the
Company. After significant discussion, solely for purposes of allocating
the equity of the Company post-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.
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 described below on pages __ to
__), pursuant to which (i) Noteholders would receive 92.5% of the New
Common Stock, which equates to a distribution of equity to Noteholders with
an implied value of $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 amount approximates the aggregate
outstanding amount under the Senior Notes as of the date the Letter
Agreement was entered into - i.e., $104.879 million in aggregate principal
amount and $5.5 million in accrued and unpaid interest as of February 28,
1998); and (ii) Stockholders would receive (a) 7.5% of the New Common
Stock, which equates to a distribution of equity to Stockholders with an
implied value of $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 February 28, 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 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
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.
Subsequent to the execution of the Letter Agreement, the Company,
Magten and Apollo entered into two letter agreements, dated June 1, 1998
and July 8, 1998 (the "Letter Agreement Amendments"), amending the Letter
Agreement. The Letter Agreement Amendments, among other things, extend the
dates for certain Magten Agreement Termination Events and Apollo Agreement
Termination Events upon which Magten and/or Apollo may terminate the Letter
Agreement as follows (and as described in more detail below): (i) the
Company must have obtained the requisite Stockholders' consent of the
Restructuring by November 30, 1998; (ii) the Exchange Offer must have been
commenced by August 31, 1998; and (iii) the Restructuring must have been
consummated by November 30, 1998. References herein to the "Letter
Agreement" shall, when appropriate, refer to the Letter Agreement as
amended by the Letter Agreement Amendments.
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) [______________]
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 (subject to the
proviso in clause (g) below) 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 November 30, 1998;
(b) the Exchange Offer shall not have commenced on or before August
31, 1998;
(c) the Restructuring Date shall not have occurred on or before
November 30, 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 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 Restructuring Date, other than a voluntary petition filed in
connection with a prepackaged or prenegotiated chapter 11 case
to effectuate the 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 Magten Notes results from an arrangement in
existence on March 2, 1998 under which Magten has been engaged
to perform investment management services on behalf of a
beneficial owner of the Magten 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 subject matter of the Letter
Agreement, or (ii) such beneficial owner on its own (without any
direct or indirect influence from Magten) directs Magten to
dispose of some or all of the Magten Notes beneficially owned by
such beneficial owner; provided, that, in any case, the Magten
Agreement Termination Event arising pursuant to this clause (g)
shall apply only to and shall result in the termination of
Magten's obligations under the Letter Agreement solely with
respect to, those Senior Notes as to which Magten's engagement
has been terminated or as to which such a disposal direction has
been issued and further provided, that such Magten Agreement
Termination Event shall have no effect whatsoever on any of
Magten's other obligations under the Letter Agreement.
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 Restructuring Date shall not have occurred on or before
November 30, 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 Restructuring Date, other than a voluntary petition filed in
connection with a prepackaged or prenegotiated chapter 11 case
to effectuate the 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 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.
Even though the Company expects the Reverse Split to "normalize" the
post-restructuring trading of the New Common Stock, no assurances can be
made that the Reverse Split will "normalize" post-restructuring trading of
the New Common Stock. If post-restructuring trading is not "normalized,"
the New Common Stock may experience significant price and volume
fluctuations which could materially adversely effect the market price of
the New Common Stock.
THE VOTING AGREEMENT
In accordance with the terms of the Letter Agreement, on August __,
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. For a copy of the form of the Voting Agreement, Stockholders may
contact Todd Kahn, General Counsel and Executive Vice President of the
Company, at (212) 221-7500, to request a copy. Pursuant to the Voting
Agreement, Apollo agreed that, subject to Apollo's receipt of proxy or
other solicitation materials 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 Capital Management, LLC ("DDJ") regarding a possible
refinancing transaction. As of March 10, 1998, DDJ was the beneficial owner
of 1,809,100 shares of Old Common Stock, which represents approximately
12.1% 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 did not wish to enter into such a voting agreement. In discussions
between the Company and DDJ, DDJ stated that it was "disappointed" that the
Company was not pursuing a refinancing. However, DDJ has not expressed
opposition to the Restructuring. 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 date of this Proxy Statement/Prospectus, DDJ is
the beneficial owner of approximately __ shares of Old Common Stock,
representing approximately __% of the issued and outstanding shares of Old
Common Stock.
THE WAIVER AND FORBEARANCE UNDER THE CREDIT AGREEMENT
AND COMMITMENT FOR NEW 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
Twelfth Amendment 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 Twelfth Amendment, 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 Twelfth
Amendment) 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.
In consideration for CIT's agreement to enter into the Twelfth
Amendment, 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 Twelfth Amendment 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.
Relative to the June 1, 1998 deadline contained in the Twelfth
Amendment by which the Company was required to obtain a commitment for a
New Credit Agreement, since the beginning of Fiscal 1998, the Company
received and reviewed various proposals for a New Credit Agreement which
were submitted by CIT as well as various other prospective lenders. After
reviewing the proposals for a New Credit Agreement received from the
various lenders, and conducting extensive negotiations with certain of the
lenders who submitted proposals, the Company determined that the proposal
submitted by CIT contains the most advantageous terms and conditions. As a
result, the Company entered into a commitment letter with CIT (the "CIT
Commitment Letter"), which sets forth the principal terms and conditions of
an agreement for a new $140 million secured credit facility with CIT (the
"New CIT Credit Agreement") that the Company intends to enter into on the
Restructuring Date. The execution of the New CIT Credit Agreement is
subject to various conditions, including, but not limited to, the
consummation of the Restructuring. For a more detailed description of the
new working capital facility to be provided by CIT pursuant to the CIT
Commitment Letter, see "DESCRIPTION OF NEW CIT CREDIT AGREEMENT." Pursuant
to the CIT Commitment Letter and in accordance with the Twelfth Amendment,
no closing or facility fees will be charged to the Company by CIT in
consideration of the execution and delivery of the New CIT Credit
Agreement.
In conjunction with obtaining the financing commitment under the CIT
Commitment Letter, CIT has agreed to further support the Restructuring by
entering into the Thirteenth Amendment and Forbearance Agreement, dated as
of June 1, 1998 (the "Thirteenth Amendment"), wherein CIT agreed (i) to
continue to forbear (subject to certain conditions) from exercising any of
its rights or 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 or by virtue of an event of default arising from
the failure of the Company to make the interest payment on the Senior Notes
due and payable on August 31, 1998; (ii) to continue to make loans,
advances and other financial accommodations to the Company through the
earlier of the Restructuring Date and November 30, 1998, subject to the
terms and conditions of the Thirteenth Amendment; and (iii) to amend
certain provisions of the Credit Agreement, including a reduction of the
rate of interest charged on the revolving credit loans, an increase in the
advance rate for revolving credit loans made under the Credit Agreement and
the elimination of any and all provisions providing for the factoring of
the Company's accounts receivable. Under the Thirteenth Amendment, such
agreement to forbear by CIT will terminate on November 30, 1998 or earlier
upon the happening of (a) the occurrence of any Event of Default (as
defined in the Credit Agreement), other than by virtue of the Company's
failure to make the March 2, 1998 or August 31, 1998 interest payment on
the Senior Notes or the commencement or continuation of a chapter 11 case
to effectuate the Restructuring; or (b) the exercise of any right or remedy
with respect to any of the Collateral by any holder of the Senior Notes or
by the Trustee under the Indenture; or (c) the payment of any interest on
the Senior Notes in respect of the Company's non-payment of the interest
that was payable on March 2, 1998 or that will be payable on August 31,
1998 or otherwise; or (d) the occurrence of an Agreement Termination Event
(as defined in the Letter Agreement), except under certain circumstances.
Moreover, the Thirteenth Amendment provides that in the event that the
Company seeks to consummate the Restructuring by filing a chapter 11 case,
(i) the Credit Agreement will remain in full force and effect (subject to
certain conditions) and (ii) immediately upon commencement of the chapter
11 case, the Company and CIT will seek Bankruptcy Court approval and
authority for CIT to extend post-petition financing to the Company on the
same terms and conditions as set forth in the Credit Agreement. In
accordance with the Twelfth Amendment, no additional closing fees, facility
fees or amendment fees were charged to the Company by CIT in consideration
of the execution and delivery of the Thirteenth Amendment. While the
Company expects that the Restructuring will be consummated prior to
November 30, 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.
ALTERNATIVE TRANSACTIONS
Subsequent to the date that the Company announced the proposed
Restructuring on March 3, 1998, the Company has continued to review all
options which might be available to the Company, including several
indications of interest received from various third parties to purchase all
or part of the Company's businesses or assets. In order to identify and
solicit indications of interest with respect to alternative transactions,
the Company has engaged in detailed discussions with certain of such third
parties in order to explore the possibility of an acquisition transaction
or business combination involving the Company. In that connection, the
Company has entered into confidentiality agreements with such potential
third party purchasers. While certain of these third parties demonstrated
varied levels of interest in further discussions, as of the date hereof,
the Company has not entered into any agreement concerning any such proposed
transaction. Discussions regarding alternative transactions are ongoing.
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 February
28, 1998, was $110.379 million, consisting of $104.879 million principal
amount of, and $5.5 million of accrued interest on, the Senior Notes) into
New Common Stock. Interest charges for the Company will be reduced by $11
million per year and stockholders' equity should be substantially increased
as a result of the Restructuring. The Company's consolidated debt at the
completion of the Restructuring will include approximately $28 million in
revolver debt plus $15 million from 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 the commencement of such
proceeding. In addition, the Company's working capital lender, CIT, agreed
to forbear until November 30, 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."
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 the E&Y Fairness Opinion addressed to the Board
stating its 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 addressed to the Board 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 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 TO THIS 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 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 4, 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 Company's Registration
Statement filed with the Commission as of the date of the E&Y Fairness
Opinion. The form of the Restructuring described in the Company's
Registration Statement filed with the Commission as of the date of the E&Y
Fairness Opinion is the same in all material respects as the form of the
Restructuring described herein.
The E&Y Fairness Opinion is necessarily based upon market, economic
and other conditions as they existed and could be evaluated on, 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 capital structure of the
Company (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, 1998
through December 30, 2000 (see "PROJECTED CONSOLIDATED FINANCIAL
INFORMATION"), 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 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 $600,000 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 the 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. See "PROJECTED CONSOLIDATED FINANCIAL INFORMATION" for the projected
financial information on which the Three-Year Business Plan is based.
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.
LIQUIDATION ANALYSIS
The Company has prepared the following liquidation analysis with the
assistance of its financial advisor, E&Y. The liquidation analysis
estimates the gross value available for distribution in a liquidation under
Chapter 7 of the Bankruptcy Code 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 $47,543,000. 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 $114,067,000), the liquidation
would net the Noteholders' between a 10.8% and a 41.7% recovery on their
claims and leave existing Stockholders with no consideration, assuming a
strict priority distribution.
The following liquidation analysis is an estimate of the proceeds that
may be generated as a result of a hypothetical Chapter 7 liquidation of the
assets of the Company. The liquidation analysis makes numerous assumptions
with respect to asset valuation, industry performance, business and
economic conditions, and other matters, many of which are beyond the
Company's control. Moreover, the methods and assumptions used in preparing
the liquidation analysis involve significant elements of subjective
judgment on the part of the Company and may or may not prove to be correct.
The liquidation analysis does not purport to be a valuation of the
Company's assets and is not necessarily indicative of the values that may
be realized in an actual liquidation, which may be significantly more or
less favorable than the estimates contained in the liquidation analysis.
<PAGE>
SALANT CORPORATION
HYPOTHETICAL LIQUIDATION ANALYSIS
($ in thousands)
Assets Estimated
Available Estimated Liquidation Value
for % Recovery (Unaudited)
Liquidation ------------------ -------------------------
(Unaudited) Low High Low High Note
------------ ------- ------ ------ ------- -----
Assets To Be
Liquidated
Cash & Cash $ 3,922 100.0% 100.0% $ 3,922 $ 3,922
Equivalents
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 & 25,215 5.0% 10.0% 4,500 7,000 4
Equipment
Other Assets 57,240 24.1% 40.2% 13,800 23,000 5
-------- -------- --------
Total Assets $249,984 122,541 149,167
========
Less: Administrative and
Priority Claims
Merchandise Receipts During Liquidation (21,500) (21,500) 2
Period
Wind-down Expenses (13,802) (10,802) 6
Trustee Fees (3,676) (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 70,874 106,105
Distribution
Less: Secured Claims
Pre-petition Lenders (58,562) (58,562) 9
-------- -------
Proceeds Available for Distribution to
Senior Secured Noteholders 12,312 47,543
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
========= =======
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 $15 million
of proceeds from the sale of the Company's general intangibles).
Accordingly this analysis assumes that all proceeds available for
distribution would be used to satisfy the claims of the note holders before
any distribution could be made to the general unsecured creditors. Claim
amounts include accrued but unpaid interest through July 1, 1998.
Note 11 - Accounts Payable and Accrued Expenses
Postpetition accounts payable and accrued expenses reflects estimated
vendor and expense payables outstanding estimated at July 1, 1998.
Note 12 - Lease Rejection Claims
The lease rejection claim is calculated under the guidelines as
stipulated by the section 502(b) of the Bankruptcy Code which limits lease
damages to the greater of one year's lease obligation, or 15% of the
remaining lease terms, not to exceed 3 years. The high recovery scenario
contemplates 25% mitigation of the claims relating to leases with below
market rents.
Note 13 - Pension Termination Costs
Represents the cost actuarially determined to terminate the Company's
various pension and retirement plans, as of January 3, 1998.
<PAGE>
DISTRIBUTION OF NET PROCEEDS
($ IN THOUSANDS)
The following table sets forth an estimated distribution of the
between $70,874 and $106,105 in net proceeds distributable to holders of
secured claims, nonpriority unsecured claims and equity interests in a
hypothetical Chapter 7 liquidation of the Company on the Effective Date and
a comparison to estimated recoveries under the proposed Prepackaged Plan.
The distribution in such liquidation gives effect to strict enforcement of
all contractual subordination provisions.
Chapter 7 Chapter 11
--------------------------------- ---------------------------------
Claim or Claim or
Equity Recovery Recovery Equity Recovery Recovery
Class Interest ($) (%) Interest ($) (%)
- -------------------------------------------------------------------------------
(dollars in thousands)
2 $58,562 $58,562 100% $58,562 $58,562 1 100%
(CIT
Claim)
3 $114,067 $12,312 10.8% to $114,067 $110,000 2 96.4%
(Senior to $47,453 41.7%
Note
Claims)
4 $0 $0 -- $0 $0 --
(Misc.
Secured
Claims)
5 $57,116 $0 -- $35,331 $35,331 to 100%
(General to $62,744 to $36,331 $36,331 3
Unsecured
Claims)
6 Old $0 -- Old $15,000 4 --
Common Common
Stock Stock
Interests
7 Other $0 -- Other $0 --
Interests Interests
As illustrated by the foregoing, the Company 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 the Company were liquidated
under Chapter 7 of the Bankruptcy Code on the Effective Date. Accordingly,
the Company believes the Prepackaged Plan satisfies the requirements of the
best interests test set forth in Section 1129(a)(7) of the Bankruptcy Code.
- ------------------------
1 Estimated aggregate amount due to CIT under the Credit Agreement as of
July 1, 1998 (which date, for purposes of this Litigation Analysis, is
assumed to be the date that a hypothetical Chapter 7 case would be
commenced). See "Liquidation Analysis" above.
2 Estimated aggregate value attributable to shares of New Common Stock
to be issued to Holders of Senior Note Claims. See "BACKGROUND OF
RESTRUCTURING -- The Letter Agreement."
3 Estimated aggregate amount due to holders of General Unsecured Claims
as of July 1, 1998. See "Liquidation Analysis" above.
4 Estimated aggregate value attributable to shares of New Common Stock
and Warrants to be issued to Holders of Old Common Stock Interests.
See "BACKGROUND OF RESTRUCTURING -- The Letter Agreement."
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Balance Sheet as of
July 4, 1998 and the Unaudited Pro Forma Consolidated Statements of
Operations for the six month period ended July 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
affect to the Exchange 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 July 4, 1998 includes pro forma
adjustments as if the Exchange Restructuring had been completed on that
date. The following Unaudited Pro Forma Consolidated Statement of
Operations for the six month period ended July 4, 1998 and the year ended
January 3, 1998 includes pro forma adjustments as if the Exchange
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 Proxy Statement/Prospectus 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>
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
HISTORICAL PRO FORMA PRO FORMA
JULY 4, 1998 ADJUSTMENTS JULY 4, 1998
------------ ----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,160 $ $ 1,160
Accounts receivable, net 41,195 41,195
Inventories 107,143 107,143
Prepaid expenses and other
current assets 9,310 (4,542)(c) 4,768
Total current assets 158,808 (4,542) 154,266
Property, plant & equipment, net 27,561 27,561
Other assets 55,920 55,920
---------- ---------- ------------
$ 242,289 $ (4,542) $ 237,747
========== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable $52,176 $52,176
Accounts payable 23,604 23,604
Reserve for business restructuring 869 869
Accrued salaries, wages and other
liabilities 19,953 (9,318)(b) 11,680
1,045 (c)
Current portion of long term debt 104,879 (104,879)(b) --
---------- ---------- -----------
Total Current Liabilities 201,481 (113,152) 88,329
Deferred Liabilities 5,340 5,340
Shareholders' equity:
Preferred stock -- --
Common stock 15,405 (234)(d) 19,973
(15,171)(e)
1,517 (e)
18,456 (b)
Additional paid-in capital 107,249 15,171 (e) 206,860
(1,517)(e)
6,100 (b)
85,444 (b)
(5,587)(c)
Deficit (82,100) (1,380)(d) (79,283)
4,197 (b)
Accumulated other comprehensive
income (3,472) (3,472)
Treasury stock (1,614) 1,614 (d) --
---------- ---------- ------------
Total stockholders' equity 35,468 105,942 144,078
---------- --------- ------------
$242,289 0 $237,747
========== ========== ============
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
<PAGE>
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 4, 1998
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------------------------------------------
Net sales $ 159,343 $ $159,343
Costs of sales 125,926 125,926
--------- --------- --------
Gross profit 33,417 33,417
Selling, general and
administrative expenses (34,333) (34,333)
Royalty Income 2,676 2,676
Goodwill amortization (940) (940)
Other income, net 160 160
Reversal of Division
restructuring costs 171 171
--------- --------- --------
Income from continuing
operations before interest,
income taxes and extraordinary
gain 1,151 --------- 1,151
Interest expense, net (8,042) 5,506(f) (2,536)
-------- --------- --------
loss from continuing
operations before income taxes (6,891) 5,506 (1,385)
Income taxes (26) -(g) (26)
--------- --------- --------
loss from continuing
operations $ (6,865) $ 5,506 $ (1,359)(h)
======== ========= ========
Basic loss per share
from continuing operations (0.45) $ (.07)
========= ========
Weighted average common stock
outstanding 15,170 19.973(i)
========= ========
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
<PAGE>
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------------------------------------------
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(h)
======== ========= =========
Basic earnings/(loss) per share
from continuing operations $ (0.71) $ .03
======== =========
Weighted average common stock
outstanding 15,139 19,973(i)
======== =========
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
<PAGE>
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 July 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 $6.65 million of accrued interest thereon
for 18,456,350 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 2,216,979 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 expenses of $5,587 (of which $4,542 have been paid as of
July 4, 1998) 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 at original cost.
(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 10 1/2% Senior Notes.
(g) No tax provision was reflected due to the utilization of
approximately $500,000 of net operating loss carryforwards.
(h) The Unaudited Pro Forma Consolidated Statements of Operations do not
include an extraordinary (loss)/gain on early extinguishment of debt
of approximately ($1.2) million and $4.2 million at January 4, 1998
and July 4, 1998, respectively.
(i) The pro forma weighted average shares outstanding assumes all
New Common Stock is outstanding for the entire period.
<PAGE>
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" in this Proxy
Statement/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 "DISCUSSION OF 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 have 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 November 30, 1998.
2) The Projections assume that the Company will continue to operate
without significant changes to its 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) $396.8 $374.3 $385.8 $425.0
Total Gross Margin as a % of Sales 21.3% 23.3% 24.7% 25.5%
Total Operating Expenses as a % of
Total Sales 20.3% 19.5% 19.5% 18.6%
------------------------------------------------------------------------
SALES
During the Projected Period, sales are assumed to increase from $396.8
million in fiscal 1997 to $425.0 million in fiscal year 2000, a 2.3%
compound annual growth rate. This increase in sales is expected to result
from a combination of additional sales to existing customers and the
development of new customers. In the Perry Ellis division, sales growth
will be driven by the continued opening of in-store shops for the
sportswear collection business, expansion of casual sportswear through the
Perry Cottons line, re-establishment of the Perry Ellis Portfolio Pants
line in at least three department stores, and new door expansion with
existing customers in Canada. Sales growth in the Salant Menswear Group is
expected to result from a strategy of aligning the dress shirt business
with the accessories business by structuring the salesforce around retail
customers rather than product line, by concentrating on private label
growth in dress shirts, bottoms and accessories and by refocusing
Perry Ellis accessories into department stores. In the Children's Group,
sales growth is expected to result from enhanced brand management of
the sleepwear business by price points and customer type.
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 sales is expected to increase during the
Projected Period primarily as the result of a change in the sales mix and
an improvement related to certain manufacturing, sourcing and distribution
processes. The expected changes in sales mix will reflect a higher
proportion of regular price and incentive price sales and a lower
proportion of off-price sales, in all divisions. This shift will occur as a
result of the minimization of off-price programs, as well as improvements
in the manufacturing process and product quality (i.e., fewer seconds).
Improvements in gross margins will also result from better execution in
sourcing and distribution, such as shifting production to more effective
off-shore facilities. Management believes that the improvements in gross
management are achievable based upon process improvements made to date and
recent trends away from off-price sales, and the continued focus of
recently hired Vice Presidents of Manufacturing and Distribution (two
previously vacant positions).
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 decrease in total dollar amount during the Projected Period
from $80.6 million in fiscal year 1997 to $79.1 million in fiscal year
2000. 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. Management's primary means of reducing
operating expenses as a percentage of sales is to leverage operating
expenses through increased sales, which is expected to result from the
initiatives described above. Other expense reduction initiatives to be
substantially completed by the end of 1998 include the consolidation of the
Perry Ellis Bottoms and Dress Shirts divisions into one operational group
focusing on Portfolio, sub-licensing of the Perry Ellis America line,
consolidation of the Accessories division into Salant Menswear Group, the
installation of a new electronic data processing system and the
discontinuation of the Joe Boxer Sportswear line. However, the impact on
operations from these expense reduction initiatives will be seen throughout
the Projected Period.
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.
INTEREST EXPENSE
During the Projected Period, annual interest expense consists of interest
on the average outstanding Revolver, interest on the average outstanding
Term Loan, annual credit facility fees, and an annual fee related to
average Letter of Credit usage. For the Projected Period, the assumed
interest rate for both the Revolver and the Term Loan is .25 percent in
excess of the Prime Rate or 8.75% (based on the Prime Rate as of August 26,
1998). For the Revolver, the assumed interest rate is multiplied by the
average revolver borrowings as projected by management resulting from the
operating projections in the business plan. The assumed credit facility
fees for both the Revolver and the Term Loan are $100,000 for 1998 and
$200,000 under the new credit facility for 1999 and 2000. The assumed
annual fee on the average Letter of Credit usage was based on a rate of
1.75% for each year in the Projected Period, multiplied by the average
Letters of Credit assumed to be outstanding.
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 "DISCUSSION OF RISK
FACTORS" for a discussion of various factors that could materially affect
the Company's financial condition, results of operations, business,
prospects and securities.
<PAGE>
PROJECTED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(In thousands)
Fiscal Year Ending Dec. 31,
--------------------------------------
1998 1999 2000
------------ ----------- -----------
Net sales $ 374,346 $ 385,788 $ 424,953
Cost of goods sold 278,085 290,652 (316,747)
--------- --------- ---------
Gross profit 87,261 95,136 108,206
Selling, general and administrative (73,114) (75,181) (79,069)
Royalty income 5,528 4,398 4,063
Goodwill amortization (1,881) (1,881) (1,881)
--------- --------- ---------
Income from continuing operations
before interest and income taxes 17,794 22,472 31,319
Interest expense, net (3,991) (4,060) (3,205)
--------- --------- ---------
Income from continuing operations
before income taxes 13,803 18,412 28,114
Income taxes (5,522) (7,365) (11,246)
--------- --------- ---------
Net income $ 8,281 $ 11,047 $ 16,806
========= ========= =========
<PAGE>
PROJECTED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
FISCAL YEAR ENDING DEC. 31,
----------------------------------
1998 1999 2000
---------- ---------- ----------
ASSETS
CURRENT ASSETS:
Cash $ 2,218 $ 2,218 $ 2,218
Accounts Receivable (Net) 59,713 58,738 62,488
Inventories (Net) 91,204 91,537 99,100
Prepaid Expenses 4,597 4,449 4,627
-------- -------- --------
TOTAL CURRENT ASSETS 157,732 156,942 168,433
Net Fixed Assets 30,943 31,184 31,833
Other Assets 55,035 51,854 48,573
-------- -------- --------
TOTAL ASSETS $243,710 $239,980 $248,839
======== ======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Loan Payable $ 26,166 $ 12,932 $ 6,009
Current Portion of Long-Term Debt 1,750 3,00 10,250
Accounts Payable 28,522 29,086 30,568
Accrued Expenses 11,120 10,762 11,195
Other 2,906 2,906 2,906
Long-Term Debt 13,250 10,250 0
-------- -------- --------
TOTAL CURRENT LIABILITIES 70,463 58,686 60,927
Other (deferred liab) 5,579 5,579 5,579
-------- -------- --------
TOTAL LIABILITIES 89,292 74,515 66,506
TOTAL SHAREHOLDERS' EQUITY 154,418 165,465 182,333
-------- -------- --------
TOTAL LIABILITIES AND EQUITY $243,710 $239,980 $248,839
======== ======== ========
<PAGE>
<TABLE>
<CAPTION>
PROJECTED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
FISCAL YEAR ENDING DEC. 31,
------------------------------------
1998 1999 2000
---------- ---------- ----------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income $ 8,281 $ 11,047 $ 16,868
Adjustment to reconcile net income to net
cash used in operating activities:
Accretion of interest on senior secured notes 11,012 0 0
Amortization of intangibles 3,004 3,181 3,281
Depreciation 7,188 7,580 7,187
Changes in operating assets and liabilities
Net accounts receivable (1,058) 975 (3,749)
Inventory 5,434 (332) (7,563)
Prepaids and other assets (380) 148 (179)
Accounts payable 776 564 1,482
Accrued expenses (507) (358) 432
Other current liabilities (4,394) 0 0
-------- -------- --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES 29,356 22,805 17,759
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 (20,064) (13,234) (6,932)
(Decrease) increase to equity (restructuring charges) (5,423) 0 0
(Repayments) increase of long-term debt 15,000 (1,750) (3,000)
-------- -------- --------
Net cash provided by (used in) financing activities (11,027) (14,984) (9,923)
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 6,637 0 0
Cash and cash equivalents, beginning of year 2,218 8,855 8,855
-------- -------- --------
Cash and cash equivalents, end of year $ 8,855 $ 8,855 $ 8,855
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Conversion of debt to common stock $115,891
</TABLE>
<PAGE>
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 J.J. Farmer
On June 10, 1994, the Company acquired all the capital stock of J.J.
Farmer Clothing Inc. (a Canadian corporation) and the assets of J.J. Farmer
International Limited (a Hong Kong corporation) (collectively "J.J.
Farmer") for approximately $5,311 in cash, subject to adjustment based on a
number of items, including the future profitability of J.J. Farmer. As part
of the acquisition, the company agreed to pay to the former owners of J.J.
Farmer, certain minimum amounts in the years 1996 through 1999. The
acquisition has been accounted for as a purchase, and accordingly, J.J.
Farmer's operating results have been included in the Company's consolidated
results of operations commencing June 11, 1994. J.J. 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.
In the second quarter of 1996, the Company discontinued the J.J. Farmer
product line and recorded a restructuring charge of $5.7 million, primarily
related to the write-off of goodwill and the write-down of other assets.
The Company also entered into an agreement with the former owners of J.J.
Farmer which eliminated all future minimum payments. As of January 3, 1998,
any assets or liabilities related to J.J. Farmer were not material.
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 Bankruptcy Court 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 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 1993 Chapter
11 Plan. The 1993 Chapter 11 Plan was consummated on September 20, 1993.
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
1993 Chapter 11 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.
<PAGE>
SELECTED 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 six month periods ended July 4, 1998 and June 28, 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."
The Company's fiscal year ends on the Saturday closest to December 31.
<TABLE>
<CAPTION>
For the Six Months Ended For the Fiscal Year Ended
------------------------ -------------------------
July 4, June 28, Jan. 03, Dec. 28 Dec. 30 Dec. 31 Jan. 1
1998 1997 1998 1996 1994 1994 1994
(52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
-----------------------------------------------------------------------------------------
CONTINUING OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 159,343 $ 169,601 $ 396,832 $ 417,711 $485,825$ $ 398,990 $ 379,012
Reversal of /(Provision 160 1,164 (2,066) (11,730) (3,550) -- (5,500)
for) Restructuring costs
(a)
Income/(loss) from (6,835) (9,540) (10,722) (8,958) (362) 3,398 7,865
continuing operations
DISCONTINUED OPERATIONS: --
(e)
Loss from operations, -- (8,136) (8,136) (365) (136) (9,639) (638)
net of income taxes
Estimated loss on -- 580 (1,330) -- -- (1,796) --
disposal, net of income
taxes
Reversal of estimated -- --
loss on disposal, net of -- -- -- -- 11,772
income taxes
Extraordinary gain (b) -- 600 2,100 -- 1,000 63 24,707
Net income/(loss)(a) (6,835) (17,656) (18,088) (9,323) 502 (7,865) 43,706
BASIC EARNINGS/(LOSS PER SHARE:
Earnings/(loss) per share
from continuing $ (.45) $ (.68) $ (0.71) $ (0.60) $ (0.02) $ (0.23) $ 1.18
operations before
extraordinary gain
Earnings/(loss) per share
from discontinued -- $ (.58) $ (0.62) $ (0.02) $ (0.01) $ (0.76) $ 1.68
operations
Earnings per share from -- .04 0.14 -- 0.06 -- 3.72
extraordinary gain
Basic earnings/(loss) per (.45) (1.17) (1.19) (0.62) 0.03 (0.53) 6.58
share (a)
DILUTED EARNINGS/(LOSS) PER SHARE:
Earnings/(loss) per share
from continuing $ (.45) $ (.68) $ (0.71) $ (0.60) $ (0.02) $ 0.23 $ 1.10
operations before
extraordinary gain
Earnings/(loss) per share
from discontinued -- (.58) (0.62) (0.02) (0.01) (0.76) 1.57
operations
Earnings per share from -- .04 0.14 -- 0.06 -- 3.48
extraordinary gain
Diluted earnings/(loss) (.45) (1.17) (1.19) (0.62) 0.03 (0.53) 6.15
per share (a)
CASH DIVIDENDS PER SHARE -- -- -- -- -- -- --
WEIGHTED AVERAGE SHARES:
Shares used in computing 15,170 15,108 15,139 15,078 15,008 14,954 6,638
basic earnings per share
Add - Common stock (d) (d) (d) (d) 110 (d) 465
equivalents
Shares used in computing
diluted earnings per share 15,170 15,108 15,139 15,078 15,118 14,954 7,103
<CAPTION>
For the Six Months Ended For the Fiscal Year Ended
------------------------ -------------------------
July 4, June 28, Jan. 03, Dec. 28 Dec. 30 Dec. 31 Jan. 1
1998 1997 1998 1996 1994 1994 1994
(52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS) (52 WEEKS)
--------------------------------------------------------------------------------------
AT END OF PERIOD:
Current assets $ 158,808 $ 168,929 $ 148,899 $ 150,986 $ 163,799 $ 172,234 $ 161,375
Total assets 242,289 256,635 233,377 235,251 253,970 266,157 251,946
Current liabilities (c) 201,481 100,190 185,692 59,566 61,704 71,104 44,427
Long-term debt (c) -- 104,879 -- 106,231 110,040 109,908 111,851
Deferred liabilities 5,340 8,453 8,863 5,382 11,373 13,479 16,766
Working capital/(deficiency) (42,673) 68,739 (36,793) 91,420 102,095 101,130 116,948
Current ratio 0.8:1 1.7:1 0.8:1 2.5:1 2.7:1 2.4:1 3.61:1
Shareholders' equity $ 35,468 $ 43,113 $ 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 15,108 15,170 15,094 15,041 15,008 14,781
<FN>
(a) Includes, for the three month periods ended July 4, 1998 and June 28,
1997, a reversal of a previously recorded restructuring provision of
$160 and $1,164, 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 J.J 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 (Basis 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 six month period ended June 28, 1997 a gain of $600
for the reversal of excess liabilities previously provided for the
anticipated settlement of claims arising from the prior chapter 11
proceedings; 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 July 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 of the Company's
Registration Statement 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.
(e) 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 through March 1998. 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.
</FN>
</TABLE>
<PAGE>
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.
As part of the Company's business restructuring from Fiscal 1997 the
Company closed all retail outlet stores other than Perry Ellis outlet
stores. The Company anticipates an improvement in operating income, as a
result of closing the retail stores, of approximately $1,591 which
represents the three year average operating loss from those closed stores.
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 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
Second Quarter of 1998 Compared with Second 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 July 4, 1998 and
June 28, 1997 and the percentage contribution of each of those segments to
total net sales:
Percentage
Three Months Ended Increase/
------------------ (Decrease)
July 4, 1998 June 28, 1997
--------------- ------------- ----------
(dollars in millions)
Men's Apparel $69.4 93% $75.9 93% (9%)
Children's Sleepwear and Underwear 5.1 7% 5.5 7% (7%)
----- --- ----- --- ----
Total $74.5 100% $81.4 100%1 (9%)
===== ==== ===== ===== ====
Sales of men's apparel decreased by $6.5 million, or 9%, in the second
quarter of 1998, as compared to the second quarter of 1997. This decrease
primarily resulted from (a) a $2.4 million decrease in dress shirts,
primarily due to a reduction of off-price sales for Perry Ellis dress
shirts and reduced sales of Gant dress shirts, (b) a $2.2 million decrease
related to the closure of all non-Perry Ellis retail stores in the fourth
quarter of 1997 and (c) a $2.0 million decrease in sales of men's slacks
due to initial shipments of the Canyon River Khakis program in the second
quarter of 1997 and the discontinuance of sales under the Thomson brand in
1998.
Sales of children's sleepwear and underwear decreased by $0.4 million,
or 7%, in the second quarter of 1998, as compared to the second quarter of
1997. This decrease was primarily a result of lower sales of licensed
character sleepwear, partially offset by higher off-price sales related to
the disposal of the Joe Boxer sportswear line. 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 $0.8 million in the second
quarter of 1998 and $0.3 million in the second quarter of 1997. 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 July 4, 1998 and
June 28, 1997:
Three Months Ended
------------------
July 4, 1998 June 28, 1997
------------ -------------
(dollars in millions)
Men's Apparel $16.9 24.3% $16.0 21.1%
Children's Sleepwear and Underwear (0.4) (7.0%) 0.6 10.3%
Total $16.5 22.2% $16.6 20.4%
===== ====
The increase in gross profit and gross profit margin in the men's
apparel segment was primarily attributable to the change in sales mix,
reflecting decreased off-price sales in the second quarter of 1998, and the
continuing elimination of unprofitable programs.
The decline in gross profit and gross profit margin in children's
sleepwear and underwear was primarily attributable to the higher off-price
sales discussed above and increased inventory markdowns related to the
discontinuance of the Joe Boxer sportswear line.
Selling, General and Administrative Expenses
As a result of initiatives begun in 1997, selling, general and
administrative ("SG&A") expenses for the second quarter of 1998 decreased
to $17.2 million (23.1% of net sales) from $20.8 million (25.6% of net
sales) for the second quarter of 1997. The decrease primarily resulted from
(a) a $2.0 million decrease related to the closure of all non-Perry Ellis
retail stores in the fourth quarter of 1997 and (b) a continuing focus by
the Company on cost saving opportunities.
Reversal of Provision for Restructuring
In the second quarter of 1997, the Company reversed a previously
recorded restructuring provision by $0.4 million, as these amounts were no
longer needed. This provision was for estimated liabilities related to the
previously disclosed closure of a manufacturing facility.
The cash portion of the remaining reserve for restructuring of $0.9
million is expected to be expended in the last half of 1998.
Income/(Loss) from Operations Before Interest and Income Taxes
The following table sets forth income/(loss) 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 July 4, 1998 and June 28, 1997:
Three Months Ended
------------------
July 4, 1998 June 28, 1997
------------ -------------
(dollars in millions)
Men's Apparel (a) $4.0 5.9% ($0.1) (0.1%)
Children's Sleepwear and Underwear (2.1) (41.8%) (1.2) (22.8%)
1.9 2.6% (1.3) (1.6%)
Corporate expenses (2.7) (2.6)
Licensing division income 1.3 1.1
---- ----
Income/(loss) from operations before
interest and income taxes $0.5 0.7% ($2.8) (3.4%)
==== ====
(a) Includes the reversal of restructuring charges of $0.4 million in the
second quarter of 1997.
Interest Expense, Net
Net interest expense was $4.1 million for the second quarter of 1998,
compared with $3.9 million for the second quarter of 1997. The increase in
interest expense resulted from higher average borrowings during the second
quarter of 1998, primarily due to the loss from operations over the past
year.
Discontinued Operations
In the second quarter of 1997, the Company recognized a charge of $7.9
million, or $(0.53) per share, related to the discontinuance of the Made in
the Shade division. This charge included a write-off of goodwill of $4.5
million and an accrual of $580 thousand for estimated operating losses
during the phase-out period. Net sales of the division for the three months
ended June 28, 1997 were $0.9 million.
Extraordinary Gain
In the second quarter of 1997, the Company recorded an extraordinary
gain of $0.6 million related to the reversal of excess liabilities
previously provided for the anticipated settlement of claims arising from
the Company's prior chapter 11 cases.
Net Loss
In the second quarter of 1998, the Company reported a net loss of $3.6
million, or ($0.24) per share, as compared with a net loss of $14.1
million, or ($0.94) per share, in the second quarter of 1997.
Earnings/(Loss) Before Interest, Taxes, Depreciation, Amortization,
Restructuring Charges, Discontinued Operations and Extraordinary Gain
Earnings/(loss) before interest, taxes, depreciation, amortization,
restructuring charges, discontinued operations and extraordinary gain was
$2.9 million (3.9% of net sales) in the second quarter of 1998, compared to
($1.0) million ((1.2%) of net sales) in the second quarter of 1997, an
increase of $3.9 million. 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.
Year to Date 1998 Compared with Year to Date 1997
- -------------------------------------------------
Net Sales
The following table sets forth the net sales of each of the Company's
principal business segments for the six months ended July 4, 1998 and June
28, 1997 and the percentage contribution of each of those segments to total
net sales:
Six Months Ended Percentage
---------------- Increase/
July 4, 1998 June 28, 1997 (Decrease)
--------------- ------------- ----------
(dollars in millions)
Men's Apparel $146.3 92% $159.7 94% (8%)
Children's Sleepwear and Underwear 13.0 8% 9.9 6% 32%
Total $159.3 100% $169.6 100% (6%)
====== ==== ====== ====
Sales of men's apparel decreased by $13.4 million, or 8%, in the first
half of 1998, as compared to the first half of 1997. This decrease
primarily resulted from (i) a $4.6 million reduction in dress shirt sales,
of which $3.4 million was related to lower Perry Ellis off-price sales and
$1.2 million related to reduced Gant sales, (ii) a $4.3 million reduction
related to the closure of all non-Perry Ellis retail stores in the fourth
quarter of 1997, (iii) a $2.3 million reduction for Canyon River Blues
jeans, resulting from higher initial shipments for new loose fit and wide
leg programs, which began in the first half of 1997, and (iv) a $2.0
million reduction for sales under the discontinued Thomson brand in 1998.
Sales of children's sleepwear and underwear increased by $3.1 million,
or 32%, in the first half of 1998, as compared to the first half of 1997.
This increase was primarily a result of (i) increased sales of Joe Boxer
sportswear in 1998 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 $2.3 million in the first half
of 1998, as compared to $0.3 million in the first half of 1997. 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 six months ended July 4, 1998 and June
28, 1997:
Six Months Ended
----------------
July 4, 1998 June 28, 1997
------------ -------------
(dollars in millions)
Men's Apparel $33.2 22.7% $35.0 21.9%
Children's Sleepwear and Underwear 0.2 1.2% 1.4 13.8%
---- ----
Total $33.4 21.0% $36.4 21.4%
===== =====
The decline in gross profit in the men's apparel segment was primarily
attributable to the reduction in net sales discussed above. The increase in
gross profit margin was primarily due to the elimination of unprofitable
programs as discussed above.
The decline in gross profit margin in children's sleepwear and
underwear was primarily attributable to (i) the underabsorption of
manufacturing costs in the first half of 1998 related to the planned shift
of production closer to the order taking process and (ii) the
discontinuance and sell-off of the Joe Boxer sportswear line at
significantly reduced margins.
Selling, General and Administrative Expenses
As a result of initiatives begun in 1997, selling, general and
administrative ("SG&A") expenses for the first half of 1998 decreased to
$34.3 million (21.5% of net sales) from $41.4 million (24.4% of net sales)
for the first half of 1997. The decrease primarily resulted from (a) a $4.0
million decrease related to the closure of all non-Perry Ellis retail
stores in the fourth quarter of 1997 and (b) a continuing focus by the
Company on cost saving opportunities.
Reversal of Provision for Restructuring
In the first half of 1997, the Company reversed previously recorded
restructuring provisions of $1.2 million, primarily resulting from the
settlement of liabilities for less than the carrying amount.
Income/(Loss) from Operations Before Interest and Income Taxes
The following table sets forth income/(loss) 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 six
months ended July 4, 1998 and June 28, 1997:
Six Months Ended
----------------
July 4, 1998 June 28, 1997
------------ -------------
(dollars in millions)
Men's Apparel (a) $7.8 5.4% $3.0 1.9%
Children's Sleepwear and Underwear (3.6) (27.8%) (2.3) (22.7%)
--- ---
4.2 2.7% 0.7 0.4%
Corporate expenses (5.2) (4.7)
Licensing division income 2.2 1.9
---- ---
Income/(loss) from operations before
interest and income taxes $1.2 0.7% ($2.1) (1.2%)
==== ====
(a) Includes the reversal of restructuring charges of $1.2 million in 1997.
Interest Expense, Net
Net interest expense was $8.0 million for the first half of 1998,
compared with $7.8 million for the first half of 1997. The increase in
interest expense resulted from higher average borrowings during the first
half of 1998, primarily due to the loss from operations over the past year.
Discontinued Operations
In the first half of 1997, the Company recognized a charge of $8.7 million,
or $(0.58) per share, related to the discontinuance of the Made in the
Shade division. This charge included a write-off of goodwill of $4.5
million and an accrual of $580 thousand for estimated operating losses
during the phase-out period. Net sales of the division for the six months
ended June 28, 1997 were $2.2 million.
Extraordinary Gain
In the first half of 1997, the Company recorded an extraordinary gain
of $0.6 million related to the reversal of excess liabilities previously
provided for the anticipated settlement of claims arising from the
Company's prior chapter 11 cases.
Net Loss
In the first half of 1998, the Company reported a net loss of $6.9
million, or ($0.45) per share, as compared with a net loss of $17.7
million, or $1.17 per share, in the first half of 1997.
Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring
Charges, Discontinued Operations and Extraordinary Gain
Earnings before interest, taxes, depreciation, amortization,
restructuring charges, discontinued operations and extraordinary gain was
$5.8 million (3.6% of net sales) in the first half of 1998, compared to
$1.2 million (0.7% of net sales) in the first half of 1997, an increase of
$4.6 million. 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 J.J. 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 J.J. 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 J.J. 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 J.J. 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 J.J. 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 (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 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 Twelfth Amendment.
See "BACKGROUND OF RESTRUCTURING--The Waiver and Forbearance Under the
Credit Agreement and Commitment for New Credit Agreement." In addition, as
discussed below, in furtherance of the Restructuring, the Company and CIT
executed the Thirteenth Amendment. See "BACKGROUND OF RESTRUCTURING--The
Waiver and Forbearance Under the Credit Agreement and Commitment for New
Credit Agreement."
On June 1, 1998, the Company and CIT executed the Thirteenth Amendment
to the Credit Agreement. The Thirteenth Amendment reduced the interest rate
on direct borrowings, increased borrowings allowed against eligible
inventory, eliminated factoring of accounts receivable and modified the
covenant related to maximum net loss. Under the Thirteenth Amendment, CIT
also agreed to continue to forbear until November 30, 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 interest
on its Senior Notes.
The Company has also received a commitment from CIT, under the CIT
Commitment Letter, for a new $140 million secured credit facility to become
effective upon completion of the Restructuring. The new credit facility
will provide financing through December 31, 2001, and is comprised of a
$125 million revolving credit facility and a $15 million term loan
facility, and includes terms consistent with the Thirteenth Amendment. The
closing of the new credit facility with CIT is subject to the satisfaction
of a number of conditions.
Pursuant to the Credit Agreement, the interest rate charged on direct
borrowings is 0.25 percent in excess of the prime rate of The Chase
Manhattan Bank, N.A. (the "Prime Rate", which was 8.5% at July 4, 1998) or
2.25% above the London Late Eurodollar rate (the "Eurodollar Rate", which
was 5.69% at July 4, 1998). Prior to the Thirteenth Amendment to the Credit
Agreement, the Company sold to CIT, without recourse, certain eligible
accounts receivable. The credit risk for such accounts was thereby
transferred to CIT. Pursuant to the Thirteenth Amendment, new accounts
receivable are no longer sold to CIT. The credit risk for accounts
receivable previously sold to CIT remains with CIT. The amounts due from
CIT have been offset against the Company's direct borrowings from CIT in
the accompanying balance sheets. The amounts that have been offset were
$9.8 million at July 4, 1998 and $9.7 million at June 28, 1997.
On July 4, 1998, direct borrowings (including borrowings under the
Eurodollar option) and letters of credit outstanding under the Credit
Agreement were $52.2 million, respectively, and the Company had unused
availability of $0.1 million. On June 28, 1997, direct borrowings and
letters of credit outstanding under the Credit Agreement were $53.4 million
and $25.3 million, respectively, and the Company had unused availability of
$13.8 million. During the first half of 1998, the maximum aggregate amount
of direct borrowings and letters of credit outstanding under the Credit
Agreement was $84.6 million at which time the Company had unused
availability of $7.0 million. During the first half of 1997, the maximum
aggregate amount of direct borrowings and letters of credit outstanding
under the Credit Agreement was $92.8 million at which time the Company had
unused availability of $10.3 million. 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 half of
1998 was $15.6 million, which primarily reflects a $10.5 million increase
in inventory and the loss from continuing operations of $6.9 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. Cash used for
investing activities in the first half of 1998 was $3.8 million, which
represented capital expenditures of $3.4 million and the installation of
store fixtures in department stores of $0.4 million. During 1998, the
Company plans to make capital expenditures of approximately $11.6 million
and to spend an additional $1.7 million for the installation of store
fixtures in department stores. Cash provided by financing activities in the
first half of 1998 was $18.4 million, which represented short-term
borrowings under the Credit Agreement. 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 to maintain a minimum level of unused
availability. As of July 4, 1998, the Company was in compliance with this
covenant.
The Indenture governing the 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.
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.
As of July 4, 1998, interest accrued on the Senior Notes was $9.3 million.
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. Pursuant to an amendment to the Letter Agreement, Magten has
also agreed to provide a similar written forbearance direction to the
Trustee upon the failure by the Company to make the interest payment on the
Senior Notes that is due and payable on August 31, 1998. 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 the New Credit Agreement. There can be no
assurance, however, (i) that the Company will consummate the Restructuring
and secure the New Credit Agreement, or (ii) that future developments and
general economic trends will not adversely affect the Company's operations
and, hence, its anticipated cash flow.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted 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 required the Company to report changes in the excess of
additional pension liability over unrecognized prior service cost and
foreign currency translation adjustment accounts, previously 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". The
statement establishes accounting and reporting standards requiring that
derivative instruments (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at fair value. The statement requires that changes in a
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company formally
document, designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15,1999; however, it may be adopted earlier. It cannot
be applied retroactively to financial statements of prior periods. The
Company has not yet quantified the impact of adopting SFAS No. 133 on their
financial statements and has not determined the timing of or method of
adoption.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
This Proxy Statement/Prospectus 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:
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 (i)
improving the Company's IS to provide and enhance support to all operating
areas and (ii) resolving year 2000 issues, the Company entered into a
working agreement (the "EDS Agreement") with Electronic Data Systems
Corporation ("EDS"). The EDS Agreement constituted the initial phase of a
long-term project to outsource the Company's IS and to remedy year 2000
issues. As part of this initial phase, the Company and EDS identified the
ability of one of the two major enterprise systems in the Company to be
modified to make such system Year 2000 compliant and to migrate the
operations of the Company to one enterprise system (the "System
Conversion"). As a result of the ability to implement the System Conversion
and after reviewing the cost of outsourcing the IS function to EDS, Salant
has determined not to outsource the IS functions to EDS. Instead, the
Company will use internal resources for the System Conversion and other
consultants for the implementation of new software. The Company anticipates
that the System Conversion, as well as the implementation of new software,
will be completed by the first quarter of 1999. The Company anticipates
that the cost of the System Conversion and new software will be
approximately $10 million, to be incurred during 1998 and 1999. 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 Proxy Statement/Prospectus 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 $157.1 million and $149.5
million and $138.7 million as of July 4, 1998 and April 4, 1998 and January
3, 1998, respectively. Of this amount, $104.9 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
In 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 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.
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 "DESCRIPTION OF THE PREPACKAGED PLAN."
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 "VOTING AND
CONFIRMATION OF THE PREPACKAGED PLAN."
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.
See "DISCUSSION OF THE PROPOSALS -- The Charter Amendment."
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 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) [_________] 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 "DESCRIPTION OF THE
PREPACKAGED PLAN" and the Prepackaged Plan, attached hereto as Annex II.
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 will provide that the total number of shares of
all classes of stock which the Company shall have authority to issue is
fifty million shares, of which forty-five million shall be common stock,
par value $1.00 per share, and five million 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 Company 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 the Charter
Amendment becomes effective, and without any further action on the part of
the Company or its stockholders, each ten shares of common stock, then
issued and outstanding, shall be changed and reclassified into one fully
paid and nonassessable share of common stock, par value $1.00, and each
holder of record of ten shares of the Old Common Stock with a par value of
$1.00 will have, or be entitled to, a certificate representing one share of
New Common Stock with par value $1.00. In lieu of the issuance of any
fractional shares that would otherwise result from the Reverse Split, the
Company will issue one additional share of New Common Stock.
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
up 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.
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 filed as
Exhibit 10.50 to the Company's Registration Statement. Stockholders may
request a copy of the Stock Award and Incentive Plan by contacting Todd
Kahn, General Counsel and Executive Vice President of the Company, at (212)
221-7500. 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 of the Board of Directors of the
Company from and after the Restructuring Date (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 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 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 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.
Treatment of Options Under Old Plans. 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) [ ] 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.
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, which is described above. See
"DISCUSSION OF THE PROPOSALS - The Charter Amendment." 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. For a
discussion of the claims settlement process, see "BUSINESS AND PROPERTIES
OF THE COMPANY -- Legal Proceedings."
DESCRIPTION OF WARRANTS
The following is a summary of certain provisions of the Warrant
Agreement, and the Warrants 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 as Exhibit 10.52
to the Company's Registration Statement 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. Stockholders may obtain
a copy of the Warrant Agreement by contacting Todd Kahn, General Counsel
and Executive Vice President of the Company, at (212) 221-7500.
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:STOCKHOLDERS."
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, (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 CIT CREDIT AGREEMENT
The Company intends to enter into a New Credit Agreement, effective as
of the Restructuring Date, which will replace the Company's current working
capital facility under the Credit Agreement. From the beginning of Fiscal
1998, the Company received and reviewed various proposals for a New Credit
Agreement which were submitted by CIT as well as various other prospective
lenders. After reviewing the proposals for a New Credit Agreement received
from the various lenders, and conducting extensive negotiations with
certain of the lenders who submitted proposals, the Company determined that
the proposal submitted by CIT contained the most advantageous terms and
conditions. As a result, the Company entered into the CIT Commitment
Letter, which sets forth the principal terms and conditions of an agreement
for a new $140 million secured credit facility with CIT (the "New CIT
Credit Agreement") that the Company intends to enter into on the
Restructuring Date.
Pursuant to the CIT Commitment Letter, the New CIT Credit Agreement
will provide for a general working capital facility, in the form of direct
borrowings and letters of credit, up to $125,000,000, subject to an
asset-based borrowing formula. The New CIT Credit Agreement will also
provide for a $15,000,000 term loan facility. As collateral for borrowings
under the New CIT Credit Agreement, the Company will grant to CIT a
security interest in substantially all of the assets of the Company. The
New CIT Credit Agreement will have an initial term commencing on the
Restructuring Date and continuing through and including December 31, 2001.
The New CIT Credit Agreement will also provide, among other things,
that (i) the Company will be charged an interest rate on direct borrowings
of .25% in excess of the prime rate of The Chase Manhattan Bank, N.A. or
2.25% in excess of the London Late Eurodollar Rate; and (ii) CIT may, in
its sole discretion, make loans to the Company in excess of the borrowing
formula. Pursuant to the CIT Commitment Letter, the New CIT Credit
Agreement will also provide that the $15 million term loan portion of the
facility shall be repaid based upon a five year amortization schedule in
consecutive monthly installments, commencing on the first day of the month
immediately following the date six months after the closing of the New CIT
Credit Agreement and continuing thereafter with the final installment in
the amount of the then remaining balance of the term loan, together with
all unpaid and accrued interest thereon, due and payable on December 31,
2001.
The CIT Commitment Letter provides that the New CIT Credit Agreement
will contain financial covenants ("Maintenance Covenants") as to (i)
minimum tangible net worth, (ii) maximum net loss, (iii) minimum interest
coverage ratio, and (iv) maximum capital expenditures. Pursuant to the CIT
Commitment Letter, there will be no other Maintenance Covenants contained
in the New CIT Credit Agreement. The Company believes that the New CIT
Credit Agreement will also contain restrictive covenants and events of
default similar to those that are in the existing Credit Agreement. For a
description of those restrictive covenants and events of default, see
"DESCRIPTION OF CERTAIN EXISTING INDEBTEDNESS OF THE COMPANY--Revolving
Credit Agreement."
Pursuant to the CIT Commitment Letter and in accordance with the
Twelfth Amendment, no closing or facility fees will be charged to the
Company by CIT in consideration of the execution and delivery of the New
CIT Credit Agreement.
The Company believes that the terms and conditions of the New CIT
Credit Agreement set forth in the CIT Commitment Letter are significantly
more favorable than those currently existing under the Credit Agreement
with CIT. Moreover, the Company also believes that the New CIT Credit
Agreement will be adequate to permit the Company to operate its business in
accordance with the Three-Year Business Plan.
The execution of the New CIT Credit Agreement is subject to various
conditions, including, but not limited to, consummation of the
Restructuring by no later than November 30, 1998. There is no assurance
that such conditions will be satisfied or that the New CIT Credit Agreement
will be executed. In addition, under the Letter Agreement, the New CIT
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, 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. A copy of the Registration Rights Agreement is attached
as Exhibit 10.51 to the Company's Registration Statement. Stockholders may
obtain a copy of the Registration Rights Agreement by contacting Todd Kahn,
General Counsel and Executive Vice President of the Company, at (212)
221-7500.
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.
REVOLVING CREDIT AGREEMENT
The Company is a party to the Credit Agreement 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 Twelfth Amendment 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
Twelfth Amendment; (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 Twelfth Amendment and prior to the effectiveness
of the Thirteenth Amendment, to the extent that the Company failed to
maintain certain levels of borrowing under its asset-based borrowing
formula, the Company was required to maintain a certain minimum interest
coverage ratio and was subject to a covenant limiting the maximum loss the
Company could incur in any twelve consecutive calendar months. In
consideration for CIT's entering into the Twelfth Amendment, the Company
agreed to pay CIT certain fees. See "BACKGROUND TO THE RESTRUCTURING -- The
Waiver and Forbearance Agreement Under the Credit Agreement and Commitment
for New Credit Agreement." Under the Twelfth Amendment, such agreement to
forbear by CIT was to 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 Twelfth
Amendment), 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 Twelfth Amendment created 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.
In conjunction with obtaining the financing commitment under the CIT
Commitment Letter, CIT has agreed to further support the Restructuring by
entering into the Thirteenth Amendment, dated as of June 1, 1998, wherein
CIT agreed (i) to continue to forbear (subject to certain conditions) from
exercising any of its rights or 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 or by virtue of an event of default
arising from the failure of the Company to make the interest payment on the
Senior Notes due and payable on August 31, 1998; (ii) to continue to make
loans, advances and other financial accommodations to the Company through
the earlier of the Restructuring Date and November 30, 1998, subject to the
terms and conditions of the Thirteenth Amendment; and (iii) to amend
certain provisions of the Credit Agreement, including a reduction of the
rate of interest charged on the revolving credit loans, an increase in the
advance rate for revolving credit loans made under the Credit Agreement and
the elimination of any and all provisions providing for the factoring of
the Company's accounts receivable. Under the Thirteenth Amendment, such
agreement to forbear by CIT will terminate on November 30, 1998 or earlier
upon the happening of (a) the occurrence of any Event of Default (as
defined in the Credit Agreement), other than by virtue of the Company's
failure to make the March 2, 1998 or August 31, 1998 interest payment on
the Senior Notes or the commencement or continuation of a chapter 11 case
to effectuate the Restructuring; or (b) the exercise of any right or remedy
with respect to any of the Collateral by any holder of the Senior Notes or
by the Trustee under the Indenture; or (c) the payment of any interest on
the Senior Notes in respect of the Company's non-payment of the interest
that was payable on March 2, 1998 or that will be payable on August 31,
1998 or otherwise; or (d) the occurrence of an Agreement Termination Event
(as defined in the Letter Agreement), except under certain circumstances.
In accordance with the Twelfth Amendment, no additional closing fees,
facility fees or amendment fees were charged to the Company by CIT in
consideration of the execution and delivery of the Thirteenth Amendment.
Pursuant to the Thirteenth Amendment, CIT also agreed (i) to reduce
the interest rate on direct borrowings from .75% in excess of the Prime
Rate or 3.00% in excess of the Eurodollar Rate to .25% and 2.25%,
respectively; and (ii) to increase the borrowings allowed against eligible
inventory to 65% for the period from June 1, 1998 through September 20,
1998. The Thirteenth Amendment also amends the Credit Agreement to include
a maximum net loss covenant that provides that, if on the last day of June,
July or August 1998, the Company fails to maintain Excess Availability (as
defined in the Credit Agreement) of at least an amount equal to five
percent of the value of Eligible Inventory (as defined in the Credit
Agreement), then the aggregate cumulative net loss (exclusive of certain
costs incurred in connection with the Restructuring) incurred by the
Company during Fiscal 1998 through the end of any such month on which the
Company failed to maintain at least such Excess Availability, shall not
exceed $8,850.000. The Thirteenth Amendment also provides that in the event
that the Company seeks to consummate the Restructuring by filing a chapter
11 case, (i) the Credit Agreement will remain in full force and effect
(subject to certain conditions) and (ii) immediately upon commencement of
the chapter 11 case, the Company and CIT will seek an order of Bankruptcy
Court approving and authorizing the extension of post-petition financing by
CIT to the Company on the same terms and conditions as set forth in the
Credit Agreement (the "Financing Order").
In addition, the Thirteenth Amendment created two new Events of
Default under the Credit Agreement as follows: if, in the event a chapter
11 case is commenced to effectuate the Prepackaged Plan, (i) there is a
violation of the Financing Order or (ii) the chapter 11 case is converted
to a proceeding under chapter 7 of the Bankruptcy Code, or is terminated or
dismissed prior to the consummation of the transactions contemplated by the
Restructuring, or a plan of reorganization other than the Prepackaged Plan
is confirmed.
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. 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. 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.
DESCRIPTION OF RIGHTS PLAN
The Company is a party to the Rights Plan which provides for a
dividend distribution of one Right 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 and
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.
DESCRIPTION OF THE CHAPTER 11 CASE
TIMETABLE FOR THE CHAPTER 11 CASE
In the event that the Company pursues the Restructuring pursuant to
the Prepackaged Plan, following the Filing Date, the Company 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, the Company intends to seek an order that the
hearing to consider the adequacy of the disclosure made to Noteholders and
Stockholders, at which the Bankruptcy Court would consider whether the
Solicitation of votes to accept or reject the Prepackaged Plan 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. The Company 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. The Company 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
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 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, the Company 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.
ADEQUACY OF DISCLOSURE
In order for the Prepackaged Plan to be consummated, among other
things, the Bankruptcy Court must determine that the Solicitation of
acceptances for the Prepackaged Plan was in compliance with section 1126(b)
of the Bankruptcy Code. Section 1126(b) provides, in pertinent part, that
the solicitation of acceptances or rejections on a plan of reorganization
must be in compliance with any applicable nonbankruptcy law, rule, or
regulation governing the adequacy of disclosure in connection with such
solicitation. Thus, the Bankruptcy Court must determine that the
Solicitation of acceptances for the Prepackaged Plan was in compliance with
applicable nonbankruptcy laws rules and regulations, including but not
limited to, the Securities Act, the Exchange Act, and state "blue sky"
securities laws.
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.
ACTIONS TO BE TAKEN UPON COMMENCEMENT OF CASE
The Company does not expect the Chapter 11 Case to be protracted. To
expedite its emergence from Chapter 11, the Company 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.
Applications to Retain Professionals
Upon commencement of the Chapter 11 Case, the Company intends to file
applications to retain the reorganization professionals who will assist and
advise the Company in connection with administration of the Chapter 11
Case. The Company 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.
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. The Company believes that
the Chapter 11 Case constitutes an ideal case wherein the filing of the
Statement and the Schedules should not be required. Therefore, the Company
intends to request that the Bankruptcy Court order that the Company not be
required to file the Schedules and the Statement.
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, the Company will request that the Company, or its noticing agent,
be authorized to mail all required notices in the Chapter 11 Case.
Motion to Continue Using Existing Bank Accounts, Payroll Accounts and
Business Forms
Because the Company 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, the Company 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 the Company's
current bank accounts, payroll accounts and business forms, the Company's
normal business activities would be disrupted, to the detriment of the
Company's estate and its creditors.
Continued use of its existing bank accounts, payroll accounts and
business forms will facilitate the Company's smooth and orderly transition
into Chapter 11, minimize the disruption to its businesses while in Chapter
11, and expedite the Company's emergence from Chapter 11. Requiring the
Company 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 the Company's efforts
to reorganize expeditiously.
Motion for Authority to Pay Prepetition Employee Wages and Associated
Benefits
The Company believes that any delay in paying prepetition compensation
or benefits to its employees would destroy the Company's relationships with
employees and irreparably harm employee morale at a time when the
dedication, confidence and cooperation of the Company's employees are most
critical. Accordingly, in order to ensure the continuity of its work force
and to further accommodate the unimpaired treatment of employee benefits,
the Company 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 (or to issue replacement checks),
to permit the Company's employees to utilize their paid vacation time which
was accrued prior to the commencement of the Chapter 11 Case (so long as
they remain employees of the Company) and to continue paying medical and
other benefits under all applicable employee health and insurance plans.
The Company 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 of the Prepackaged Plan or as soon thereafter as
such payment or other obligation becomes due or performable. The Company
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. See "DESCRIPTION OF THE PREPACKAGED PLAN."
Motion for Authority to Maintain Workers' Compensation
Insurance Policies and to Pay Prepetition Workers' Compensation Claims
To ensure that the Company's workers' compensation, automobile and
general liability insurance coverages remain in effect, the Company shall
seek authority to maintain its workers' compensation, automobile and
general liability insurance policies. Likewise, to the extent necessary,
the Company 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 the Company or
their officers to criminal penalties.
Chapter 11 Financing
In order to ensure that the Company's business operations can continue
without interruption during the Chapter 11 Case, in accordance with the
terms of the Company's existing pre-bankruptcy working capital facility
with CIT under the Credit Agreement, the Company intends, subject to
Bankruptcy Court approval, to enter into a debtor-in-possession financing
arrangement with CIT on the same terms and conditions as the facility
provided under the Credit Agreement.
Motion to Honor Commission and Expense Checks
Prior to the commencement of the Chapter 11 Case and in the ordinary
course of business, the Company owed its sales agents (the "Agents")
certain prepetition commissions and expenses accrued in the rendition of
services of its Agents. The Company needs to be authorized to pay and
reimburse its Agents for all current, accrued and unpaid commissions and
expenses. The Company believes that it is essential to the continued
operation of its business and to a successful restructuring that it retain
its Agents, therefore, the Company will request that it be allowed to pay
those certain prepetition commissions and expenses.
Motion Restraining and Enjoining Utilities from Discontinuing Service
In connection with its ongoing business operations, the Company
obtains electricity, natural gas, water, telephone services, trash removal
and other utility services from various utility companies. The Company 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 the Company's efforts to restructure, therefore, the
Company will request that the utilities be enjoined from interrupting and
discontinuing service.
Motion to Pay Custom Duties, Broker Charges, Shipping Charges and
Related Possessory Liens
It is essential to the Company'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 the Company or its customers at a critical point in its
Restructuring. The Company intends to forestall any break in the flow of
goods by requesting that it be allowed to pay the appropriate charges
described herein.
Confirmation Hearings
As discussed above, the Company 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 the disclosure made to Stockholders pursuant to this Proxy
Statement/Prospectus and made to Noteholders pursuant to the Exchange
Restructuring Prospectus and the Company's solicitation of votes on the
Prepackaged Plan under ss. 1126 of the Bankruptcy Code and (ii)
confirmation of the Prepackaged Plan. The Company anticipates that notice
of these hearings will be published in The New York Times (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 "FEASIBILITY OF THE PREPACKAGED PLAN AND THE
BEST INTERESTS OF CREDITORS TEST."
DESCRIPTION OF THE PREPACKAGED PLAN
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.
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 "DESCRIPTION OF NEW COMMON STOCK" and "DESCRIPTION OF
WARRANTS" 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 the Company to complete a financial restructuring in the
manner which will maximize its enterprise value, the Company 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.
The Company 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.
Management of the Company 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
"VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN."
The Company 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, the Company 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 "FEASIBILITY
OF THE PREPACKAGED PLAN AND BEST INTERESTS OF CREDITORS TEST."
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.
The Company also is required, as discussed above under Section 1122 of the
Bankruptcy Code, to classify Claims against and Interests in the Company
into Classes that contain Claims and Interests that are substantially
similar to the other Claims and Interests in such Classes. The Company
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, the Company 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 "DESCRIPTION OF NEW COMMON STOCK" and
"DESCRIPTION OF WARRANTS" for a description of the manner in which the
number of shares of New Common Stock and number of Warrants will be
determined and "DISCUSSION OF 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" 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).
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.
Administrative Expenses
Administrative Expenses are the actual and necessary costs and
expenses of the Company'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 the Company 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 the Company'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 the Company
or liabilities arising under loans or advances to the Company after the
Filing Date, whether or not incurred in the ordinary course of business,
will be paid by the Company 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 as to which the Company and the Holder of such Administrative
Expense agree.
The Company 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 the Company's
assumption of executory contracts and unexpired leases under the
Prepackaged Plan. The Company 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 the
Company's professionals).
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 the
Company 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 the Company shall be
paid in full or performed by the Company or Reorganized Salant in the
ordinary course of business, consistent with past practice; provided
further, however, that allowed Administrative Expenses incurred by the
Company 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 Company or Reorganized
Salant, as the case may be, in the ordinary course of business and without
further Bankruptcy Court approval.
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. The Company estimates that
on the Effective Date, the Allowed Priority Tax Claims will aggregate no
more than $[____].
At the sole option of the Company, 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 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 the Company 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.
CLASSIFIED CLAIMS AND INTERESTS
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 the Company 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.
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 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 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 the Company and CIT. The Class 2 CIT Claim is
Unimpaired and, accordingly, the Holder of such Claims is not entitled to
vote for or against the Prepackaged Plan and will be deemed to have
accepted the Prepackaged Plan.
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 the Company 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.
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 the Company 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 the Company
and such Holder. Class 4 Miscellaneous Secured Claims are Unimpaired and,
accordingly, the Holders of such Claims are not entitled to vote for or
against the Prepackaged Plan and will be deemed to have accepted the
Prepackaged Plan.
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 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.
The Prepackaged Plan provides that, 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 of the Bankruptcy Code; or (iii) such other
treatment as mutually agreed to by the Company 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.
Upon commencement of the Chapter 11 Case, the Company 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 the Company's work force and
to further accommodate the unimpaired treatment of employee benefits, the
Company 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 the
Company) and to continue paying medical and other benefits under all
applicable employee health and insurance plans. The Company 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. The Company 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 the Existing Equity-Based Plans.
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.
Class 7--Other Interests
Class 7 Interests are Impaired. Class 7 consists of all Other
Interests. Other Interests consist of any equity interests in the Company,
including, without limitation, 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, 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.
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 the new
credit facility provided to Reorganized Salant under the New Credit
Agreement.
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Generally
Under Section 365 of the Bankruptcy Code, the Company 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 the Company, it will be
treated as if the Company 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.
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
the Company 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 the Company remaining with
Reorganized Salant after the Effective Date, the Company intends that the
existing employment agreements with its senior management will be assumed
pursuant to the Prepackaged Plan.
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 the Company 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 the Company, Reorganized Salant, or the property or interests in
property of the Company 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.
IMPLEMENTATION OF THIS PLAN
Vesting of Property
Except as otherwise provided in the Prepackaged Plan, on the Effective
Date, title to all property of the Company'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 the Company'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.
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.
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.
Implementation
Pursuant to the Prepackaged Plan, the Company 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. The
Company 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.
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.
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 the Company to issue, transfer, or
sell any shares of Old Common Stock or any other capital stock of the
Company will be canceled. Except for purposes of effectuating the
distributions under the Prepackaged Plan, on the Effective Date, the
Indenture will be canceled.
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.
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 the
Company, and the Company'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.
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 the Company, the Stock Award and Incentive Plan and any
grants made thereunder shall be subject to the subsequent approval of the
stockholders of Reorganized Salant.
Survival of Indemnification Obligations
Notwithstanding anything to the contrary contained in the Prepackaged
Plan, the obligations of the Company 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 Company, 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 treated as, and deemed to be, Allowed General Unsecured
Claims under the Prepackaged Plan, 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.
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 "DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT."
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 the Company, 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.
PROVISIONS COVERING DISTRIBUTIONS
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 the Company, 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.
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.
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 the Company 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.
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 the Company on
or before the Effective Date.
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.
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 to the nearest
share of New Common Stock or Warrant, as the case may be.
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.
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.
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 the Company, 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.
Persons Deemed Holders of Registered Securities
Pursuant to the Prepackaged Plan, except as otherwise provided
therein, the Company, 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 the Company, 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.
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.
Special Procedures for Lost, Stolen, Mutilated or Destroyed
Instruments
Pursuant to the Prepackaged Plan, in addition to any requirements
under the Company'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.
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 (the "Distribution Agent")
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; provided, however, that in the case
of an undeliverable distribution to a Holder of a Senior Note Claim or an
Old Common Stock Interest, the Distribution Agent shall conduct two
database searches using at least one information database service (as such
term is defined in Rule 19b-4 of the Securities Act). The database searches
will be conducted by using such Holder's tax identification number or name,
if the tax identification number is not likely to locate such Holder, will
be without charge to such Holder of the Allowed Claim or Allowed Interest
and will be conducted (i) between three and twelve months after the date
such distribution becomes undeliverable and (iii) between six and twelve
months after the first search. The Distribution Agent need not conduct the
database searches if (i) it has received documentation that the Holder of a
Senior Note Claim or an Old Common Stock Interest is deceased, (ii) the
aggregate value of accounts listed in the master Holder file or all
accounts owned by such Holder as recorded in the Distribution Agent's
master Holder files is less than $25, and (iii) such Holder is not a
natural person. 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. The Distribution
Agent shall maintain information in a master Holder file with respect to
the total number of lost Holder accounts and the percentage (as compared to
the total number of accounts) of lost Holder accounts for Holders of Senior
Note Claims or Old Common Stock Interests lost one year or less, three
years or less, five years or less, more than five years and for assets
which have ascheated to unclaimed property administrators. Such reports
shall be filed with the Commission. Subject to the obligations of the
Distribution Agent set forth above, 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.
PROCEDURES FOR RESOLVING DISPUTED CLAIMS
Objections to Claims
Pursuant to the Prepackaged Plan, only the Company 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 the Company nor
Reorganized Salant shall object to the allowance of the Senior Note Claims
as described in Section 6.3(c) of the Prepackaged Plan.
Procedure
Pursuant to the Prepackaged Plan, unless otherwise ordered by the
Bankruptcy Court or agreed to by written stipulation of the Company or
Reorganized Salant, or until an objection thereto by the Company or by
Reorganized Salant is withdrawn, the Company 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, the
Company, 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.
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.
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.
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.
DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS
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 the Company, 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 all Claims and
Causes of Action against, liabilities of, liens on, charges, encumbrances,
security interests, obligations of and Interests in the Company,
Reorganized Salant, or the direct or indirect assets and properties of the
Company or Reorganized Salant, whether known or unknown, 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 the Company and Reorganized Salant 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.
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.
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 the Company's estate.
Guaranties and Claims of Subordination
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 the Company of
obligations of any Entity or Entities, and that the Company may be joint
obligors with another Entity or Entities with respect to the same
obligation. All Claims against the Company 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 the Company.
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 the Company, 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 Company, 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.
CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE
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 the Company, Magten and Apollo.
Conditions Precedent to the Effective Date
Pursuant to the Prepackaged Plan, the following conditions must occur
and be satisfied or waived by the Company 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.
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, the Company may waive one or more of the conditions
precedent to the confirmation or effectiveness of the Prepackaged Plan set
forth in the Prepackaged Plan.
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 the Company 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 the Company or (b) prejudice in any manner the rights
of the Holder of any claim or equity interest in the Company.
MISCELLANEOUS PROVISIONS
Bankruptcy Court to Retain Jurisdiction
Pursuant to the Prepackaged Plan, the business and assets of the
Company 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.
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 the Company,
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.
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.
Authorization of Corporate Action
Pursuant to the Prepackaged Plan, the entry of the Confirmation Order
will constitute a direction and authorization to and of the Company 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.
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.
Withdrawal of the Prepackaged Plan
Pursuant to the Prepackaged Plan, the Company 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 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 Proxy
Statement/Prospectus or the Related Documents or (c) the classification and
proposed treatment (including any allowance) of any Claim in the
Prepackaged Plan.
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.
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 the Company or Reorganized Salant
decides, in its sole discretion, that the fees, costs and expenses of the
Trustee are reasonable, the Company or Reorganized Salant may pay the same
without application to or further order of the Bankruptcy Court unless the
Confirmation Order provides otherwise.
Amendments and Modifications to the Prepackaged Plan
Pursuant to the Prepackaged Plan, the Prepackaged Plan may be altered,
amended or modified by the Company, after consultation with Magten, before
or after the Confirmation Date, as provided in Section 1127 of the
Bankruptcy Code.
Section 1125(e) of the Bankruptcy Code
The Prepackaged Plan provides that upon confirmation of the
Prepackaged Plan, (i) the Company 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) the Company,
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.
FEASIBILITY OF THE PREPACKAGED
PLAN AND THE BEST INTERESTS OF CREDITORS TEST
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 the Company of the Chapter 11 Case,
the Company 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 the
Company'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 the
Company, 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 the
Company'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. The Company 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 the Company, 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. The Company 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 the Company 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. The
Company 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 the Company 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 "FEASIBILITY OF
THE PREPACKAGED PLAN AND THE BEST INTERESTS OF CREDITORS
TEST -- Nonconsensual 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) allowed 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 the Company or any successor of
the Company 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 the Company has obligated itself to provide such
benefits.
The Company 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.
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 the Company. This is the
so-called "feasibility" test.
To support its belief in the feasibility of the Prepackaged Plan, the
Company 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 "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, the Company believes that the
Prepackaged Plan complies with the standard of Section 1129(a)(11) of the
Bankruptcy Code. As noted in the Projections, however, the Company 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 the Company. 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 the Company 's financial results.
As discussed elsewhere in this Proxy Statement/Prospectus, there are
numerous circumstances that may cause actual results to vary from the
projected results, and the variations may be material and adverse. See
"DISCUSSION OF 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 THE COMPANY'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 THE COMPANY. CONSEQUENTLY, THE
PROJECTIONS SHOULD NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY THE
COMPANY, OR ANY OTHER PERSON, THAT THE PROJECTIONS WILL BE REALIZED. ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN THE PROJECTIONS.
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 the Company 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 the Company'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 the
Company's assets and the cash held by the Company 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 the Company'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.
The Company'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 the Company 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 the Company
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 the Company'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.
The Company 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, the Company
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 General Unsecured Claims, 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, the Company 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 the Company under Chapter 7 of the Bankruptcy Code.
Moreover, the Company 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.
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, the Company intends to seek confirmation of the Prepackaged Plan
notwithstanding the nonacceptance of one or more other Impaired Classes.
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. The Company believes that
the Prepackaged Plan would not discriminate unfairly against any
nonaccepting Class of Claims or Interests.
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, the Company 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.
SECURITIES ISSUED UNDER PREPACKAGED PLAN --
APPLICATION OF SECURITIES ACT
THE SOLICITATION
The Company 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 the Company pursuant to the
Solicitation.
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 "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, THE COMPANY 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.
THE COMPANY RECOMMENDS THAT RECIPIENTS OF SECURITIES UNDER THE
PREPACKAGED PLAN CONSULT WITH LEGAL COUNSEL CONCERNING THE LIMITATIONS ON
THEIR ABILITY TO DISPOSE OF SUCH SECURITIES.
ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PREPACKAGED PLAN
If the Chapter 11 Case is commenced but 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 the Company under Chapter 7 or Chapter 11 of the Bankruptcy
Code.
CONTINUATION OF THE CHAPTER 11 CASE
If the Company were to commence the Chapter 11 Case and remain in
Chapter 11, the Company 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
the Company could survive as a going-concern in a protracted Chapter 11
case. The Company could have difficulty sustaining the high costs,
operating financing, and the confidence of the Company's and its
subsidiaries' customers and trade vendors, of the Company remaining in
Chapter 11. Ultimately, the Company (or other parties in interest) could
propose another plan or attempt to liquidate the Company under Chapter 7 or
Chapter 11. Such plans might involve either a reorganization and
continuation of the Company's business, or an orderly liquidation of its
assets, or a combination of both.
LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11
If the Prepackaged Plan is not confirmed, the Company'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 the Company.
The Company 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 trustee, 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 the Company operations and the failure to realize the greater
going-concern value of the Company's assets.
The Company could also be liquidated pursuant to the provisions of a
Chapter 11 plan of reorganization. In a liquidation under Chapter 11, the
Company's 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.
The Company's liquidation analysis, prepared with its financial
advisors and included above in this Proxy Statement/Prospectus, is by law
premised upon a liquidation in a Chapter 7 case. In that analysis, the
Company 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.
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."
VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN
In the event that the Company pursues the Prepackaged Restructuring
and files the Chapter 11 Case, 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 the Company, 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) the Company has
complied with applicable provisions of the Bankruptcy Code, (iv) the
Company 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
"FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF CREDITORS
TEST"), (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 the Company, (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 the Company 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 AND TENDER
PROCEDURES IN CONNECTION WITH THE EXCHANGE OFFER.
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 "DESCRIPTION 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, if 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. The Company
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. The Company 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 the Company. For a discussion of
other significant conditions to confirmation under the Bankruptcy Code, see
"FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF CREDITORS
TEST -- Nonconsensual Confirmation."
The appropriate Ballots, together with either the Proxy
Statement/Prospectus or Exchange Restructuring Prospectus, as applicable,
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.
WHO MAY VOTE
Under the Prepackaged Plan, the Claims against and the Interests in
the Company 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
[______].
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 Proxy Statement/Prospectus and an appropriate Ballot
to their customers and to beneficial owners. Any beneficial owner who has
not received a Proxy Statement/Prospectus 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 Proxy Statement/Prospectus (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 the Company'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 PROXY STATEMENT/PROSPECTUS,
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.
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.
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 Proxy
Statement/Prospectus 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 outlined 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 Proxy Statement/Prospectus 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.
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.
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. 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 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.
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. The Company 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, the Company 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 the Company 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.
WITHDRAWAL OF VOTES ON THE PREPACKAGED PLAN
The Solicitation of acceptances of the Prepackaged Plan will expire on
the Voting Deadline. Any voter who has delivered a valid Ballot or Master
Ballot may withdraw its vote by delivering a written notice of withdrawal
to the Voting Agent before the Voting Deadline. To be valid, the notice of
withdrawal must (a) describe the claim or equity interest to which it
relates, (b) be signed by the party who signed the Ballot or Master Ballot
to be revoked, and (c) be received by the Voting Agent before the Voting
Deadline. The Company may contest the validity of any withdrawals.
Any holder who has delivered a valid Ballot or Master Ballot may
change its vote by delivering to the Voting Agent a properly completed
subsequent Ballot or Master Ballot so as to be received before the Voting
Deadline. In the case where more than one timely, properly completed Ballot
or Master Ballot is received, only the Ballot or Master Ballot that bears
the latest date will be counted. After the Chapter 11 Case is commenced, a
properly submitted Ballot may be withdrawn only with the approval of the
Bankruptcy Court.
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 Proxy
Statement/Prospectus, 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].
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."
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 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 "DISCUSSION OF RISK
FACTORS--Lack of Trading Market for Warrants and New Common Stock;
Volatility; Potential De-Listing of New 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. However, the NYSE has reviewed
the terms and conditions of the Restructuring set forth herein and has informed
the Company that it will continue to list the Company's common stock during the
period prior to consummation of the Restructuring and intends to list the
Company's common stock from and after the Restructuring Date. However, the
NYSE has advised the Company that after consummation of the Restructuring, the
NYSE intends to monitor the performance of the Company based upon the
Projections set forth herein to ensure compliance with the NYSE's original
listing standards in respect of the New Common Stock. The Company believes
that as a result of the consummation of the Restructuring, following the
Restructuring Date, the Company will be able to return to compliance with the
original listing standards in respect of the New Common Stock and the Warrants
and the New Common Stock and the Warrants will continue to be listed for
trading on the NYSE. However, the NYSE has advised the Company that the
Company's failure to meet the Projections following the Restructuring could
result in the suspension from trading and subsequent delisting of the New
Common Stock.
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
1998
First $1 13/16 $ 3/8
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
Old Common Stock Beneficially Respect to Such Holdings of
Owned as of March 16, 1988 Old Common Stock 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. Rogers 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 6,535,277(m) 43.6% 653,528 3.2%
officers as a
group (14 persons)
- ------------------------
<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. However, the NYSE has reviewed the
terms and conditions of the Restructuring set forth herein and has informed
the Company that it will continue to list the Company's common stock during
the period prior to consummation of the Restructuring and intends to list
the Company's common stock from and after the Restructuring Date. However,
the NYSE has advised the Company that after consummation of the
Restructuring, the NYSE intends to monitor the performance of the Company
based upon the Projections set forth herein to ensure compliance with the
NYSE's original listing standards in respect of the New Common Stock. The
Company believes that as a result of the consummation of the Restructuring,
following the Restructuring Date, the Company will be able to return to
compliance with the original listing standards in respect of the New Common
Stock and the Warrants and the New Common Stock and the Warrants will
continue to be listed for trading on the NYSE. However, the NYSE has
advised the Company that the Company's failure to meet the Projections
following the Restructuring could result in the suspension from trading and
subsequent delisting of the New Common Stock.
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.
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 the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES OFFICER OF SALANT SINCE
- ---- --- --------------------- -----------------------
<S> <C> <C> <C>
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
</TABLE>
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, 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 6,607,773 (n) 43.6%
group (14 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 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, 1998.
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 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").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation(a) Long Term Compensation
-------------------------------------- -------------------------------------------
Awards Payout
------------------------- ----------------
NUMBER
OTHER OF
ANNUAL RESTRICTED SECURITIES LONG-TERM ALL OTHER
PRINCIPAL SALARY BONUS COMPEN- STOCK UNDERLYING INCENTIVE COMPENSATION
NAME POSITION YEAR ($) ($) SATION AWARDS OPTIONS PAYOUTS ($)
- ---------------------- --------------- -------- ------- ---------- ---------- ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jerald S. Politzer Chief Executive
Officer(b) 1997 487,500 650,000(c) 0 0 400,000 0 29,644(d)
Philip A. Franzel Executive Vice
President And
Chief Financial
Officer(e) 1997 109,615 150,000(c) 0 0 75,000 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. DiPaolo Chairman,
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. Lubin Executive
Vice President
and Chief
Operating
Officer (j) 1997 236,923(k) 0 0 0 162,500 0 1,900(g)
Executive
Vice President
and Chief
Operating 1996 400,000 0 0 0 0 0 0
Officer
Executive
Vice President
and Chief
Operating 1995 90,769 0 0 0 0 0 0
Officer
Richard P. Randall Senior Vice
President
And Chief
Financial 1997 240,000 0 0 0 0 0 1,900(g)
Officer (l)
Senior Vice
President
And Chief
Financial 1996 320,000 0 0 0 0 0 1,800
Officer
Senior Vice
President,
Treasurer
and Chief
Financial 1995 283,077 0 0 0 0 0 1,800
Officer
- ------------------------
<FN>
(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.
</FN>
</TABLE>
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
Individual Grants Appreciation for Option Term(a)
---------------------------------------------------- ----------------------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Expiration
Name Granted Fiscal Year Option Price Date 5% 10%
- --------------------- ------------ -------------- ------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jerald Politzer 400,000 30.4298 $4.1250 3/24/07 $1,037,676 $2,629,675
Philip A. Franzel 75,000 5.7056 $2.34 8/18/07 $110,829 $280,431
Todd Kahn 65,000 4.9448 $4.00 04/14/07 $163,671 $414,625
Nicholas P. DiPaolo 0 0 0 - 0 0
Michael Lubin 162,500 12.3621 $4.00 02/11/07 $408,781 $1,035,932
Richard P. Randall 0 0 0 - 0
- -----------------------
<FN>
(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.
</FN>
</TABLE>
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.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
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. Politzer 0 0 0 400,000 0 0
Philip A. Franzel 0 0 0 75,000 0 0
Todd Kahn 0 0 30,000 70,000 0 0
Nicholas P. DiPaolo 65,000 $38,750 0 0 0 0
Michael A. Lubin 0 0 0 0 0 0
Richard P. Randall 0 0 0 0 0 0
- ------------------------
<FN>
(a) The closing price of the Common Stock on January 2, 1998, the last
trading day of Fiscal 1997, was $1.75 per share.
</FN>
</TABLE>
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
- ---------------------------------------------------------------------------
[GRAPH OMITTED]
Date Salant Wilshire 5000 S&P Textile
- -------------------------------------------------------------
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 OF
NAME AGE POSITIONS AND OFFICES 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 Tax
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 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
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: STOCKHOLDERS
The following summary of certain Federal income tax consequences of
the Restructuring to the Stockholders and the Company, insofar as it makes
statements of law, reflects the opinion of Fried, Frank, Harris, Shriver &
Jacobson. 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. 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, in the case of individual Stockholders,
subject to tax at a lower rate) if the stock or Warrants have been held for
more than one year.
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 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 5.02%). This is likely to limit significantly the Company's
use of its NOLs in any one year (including for this purpose any deductions
attributable to any "recognized built-in-loss" within the meaning of
Section 382(h) of the Code, which could include deductions for depreciation
and amortization of the Company's assets, which existed at the time of the
Restructuring). 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 Exchange 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) [_____] 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 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 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 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 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 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 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 as Voting Agent for 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." [ ] 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
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 Proxy
Statement 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 and the related financial statement schedule
included in this Proxy Statement/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.
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.
GLOSSARY OF CERTAIN DEFINED TERMS
As used in this Proxy Statement/Prospectus, the following are the
meanings for the terms set forth below:
"Administrative Expense"......means (a) any cost or expense of
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
Company'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 the Old Common Stock.
"Apollo Shares"...............means the shares of Old Common Stock beneficially
held by Apollo.
"Awards Committee"............means the committee of the Board
of the Company from and after the
Restructuring 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 Certificate of Incorporation.
"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
the Company or for which the Company may be
liable in connection therewith.
"CIT Commitment Letter".......means that certain commitment letter, dated
dated June 1, 1998, between the Company and
CIT, pursuant to which CIT agreed to enter
into a new working capital facility with the
Company on the Restructuring Date, and filed
as Exhibit 10.54 to the Company's
Registration Statement of which this Proxy
Statement/Prospectus is a part.
"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.
"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.
"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 Plan 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 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 in connection
with the Exchange Offer.
"Exchange Restructuring Date" means the date of consummation of the Exchange
Restructuring.
"Exchange Restructuring
Prospectus"...................means the Exchange Offer Prospectus and
Disclosure Statement to be delivered to the
Noteholders in connection with the Exchange
Offer and the Prepackaged Plan.
"Exercise Price"..............means $6.2648 per share, subject to adjustment.
"Existing Equity-Based Plans" means all of the Company's existing equity or
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
files its voluntary petition for relief
commencing a Chapter 11 case to effectuate
the Restructuring 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.
"GAAP"........................means generally accepted accounting principles.
"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 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, as amended from time to time,
regarding the basic terms and conditions of
the Restructuring, and filed as Exhibit 10.42
to the Company's Registration Statement.
"Letter Agreement Amendments".means collectively those certain letter
agreements, June 1, 1998 and July 8, 1998,
among Magten, Apollo and the Company,
amending certain provisions of the Letter
Agreement, and filed as Exhibits 10.55 and
10.56, respectively, to the Company's
Registration Statement.
"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
approximately $74 million in aggregate
principal face amount of the Senior Notes.
"Magten Notes"................means the Senior Notes beneficially held
by Magten.
"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 new shares of common stock of the
Company, par value $1.00 per share, to be
issued by the Company in accordance with and
pursuant to the Restructuring.
"New CIT Credit Agreement"....means the agreement in respect of a new
working capital facility to be entered into
by the Company and CIT on the Restructuring
Date, on the terms and conditions set forth
in the CIT Commitment Letter, and which will
replace the Company's current working capital
facility under the Credit Agreement.
"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 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 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.
"Plan Record Date"............means ___________, 1998.
"Prepackaged Plan"............means the prepackaged plan of reorganization
of the Company under Chapter 11 of the
Bankruptcy Code contemplated by the
Prepackaged Restructuring, a copy of which is
attached hereto as Annex II.
"Prepackaged Restructuring"...means the proposed financial restructuring
of the Company pursuant to the Prepackaged
Plan.
"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, 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 and
Disclosure Statement of the Company to be
delivered to Stockholders in connection with
the Stockholders' Meeting and the
solicitation of acceptances of the
Prepackaged Plan.
"Record Date".................means _____ __, 1998.
"Registration Rights
Agreement"....................means a registration rights agreement to be
entered into on the Restructuring Date by and
among Reorganized Salant and certain holders
of the New Common Stock as of the
Restructuring Date and included as Exhibit
10.51 to the Company's Registration
Statement.
"Registration Statement"......means the Registration Statement on Form S-4,
as amended, 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 Proxy
Statement/Prospectus and all documents
necessary to consummate the transactions
contemplated by the Prepackaged Plan.
"Reorganized Salant"..........means Salant Corporation, from and after
consummation of the Prepackaged
Restructuring.
"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 at least 10 days 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, to be filed
with the Bankruptcy Court at least 10 days
prior to the Confirmation Date.
"Restructuring"...............means the financial restructuring of the
Company pursuant to either the Exchange
Restructuring or the Prepackaged
Restructuring, as the case may be.
"Restructuring Date"..........means the date of consummation of the
Restructuring, by means of the Prepackaged
Plan or the Exchange Offer.
"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 schedules of assets and liabilities
to be filed by the Company 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 Salant 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 tenders in the Exchange Offer
and acceptances of the Prepackaged Plan as
contemplated under the Exchange Restructuring
Prospectus.
"Stock Award and
Incentive Plan"...............means the Company's proposed 1998 Stock
Award and Incentive Plan, and included as
Exhibit 10.50 to the Company's Registration
Statement.
"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.
"Tax Code"....................means the Internal Revenue Code of 1986,
as amended.
"Thirteenth Amendment"........means the Thirteenth Amendment and
Forbearance Agreement, dated as of June 1,
1998, by and between the Company and CIT.
"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.
"Twelfth Amendment"...........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.
"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 exercisable for shares of New
Common Stock and issued in connection with
the Restructuring and in accordance with the
Warrant Agreement.
"Warrant Agreement"...........means the Warrant Agreement pursuant to which
the Warrants will be issued and included as
Exhibit 10.52 to the Company's Registration
Statement.
"Warrant Shares"..............means shares of New Common Stock issued to
holders of Warrants upon exercise of their
Warrants.
<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
<PAGE>
<TABLE>
SALANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
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>
<PAGE>
<TABLE>
SALANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
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>
<PAGE>
<TABLE>
SALANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<CAPTION>
Excess of
Additional
Pension
Liability
Over Cumulative Treasury Stock
Common Stock Unrecognized Foreign ============== Total
================ Add'l Prior Currency Number Share-
Number Paid-In Service Translation of holders'
of Shares Amount Capital Deficit Cost Adjustment 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>
<PAGE>
<TABLE>
SALANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<CAPTION>
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
======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
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
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 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 in
accordance with the Company's factoring agreement. 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, traded on a national
exchange at approximately 80% and 93% of principal amount, at January 3,
1998 and December 28, 1996, respectively. In addition, deferred liabilities
have carrying amounts approximating fair value, except for deferred pension
obligations which are not practicable to estimate due to various actuarial
assumptions used in their determination.
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, issuable in connection with the
1990 Chapter 11 Case) 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
- -------------------
Sales are recognized at the time the merchandise is shipped. Retail
outlet store revenues are recognized at the time of sale. The Company
receives royalty income as the licensor under certain licensing agreements.
Such royalty income is recognized as earned.
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 statement, 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
At January 3, 1998, $2,764 remained in the business restructuring
reserve, primarily related to guaranteed minimum royalty payments for
discontinued Grant product lines and severance benefits for the closure of
all retail outlet stores other than Perry Ellis outlet stores.
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, future payment related to
non-cancelable operating leases and severance benefits, offset by a $1,464
reversal of previously recorded restructuring reserves. In 1997, the
Company incurred approximately $2,148 in operating losses related to the
closed retail stores.
In the fourth quarter of 1997, the Company reversed a previously
recorded restructuring provision by $300, primarily related to the reversal
of excess 1996 restructuring employee severance costs in connection with
the closing of a manufacturing and distribution facility in Thomson,
Georgia.
In the second quarter of 1997, the Company reversed a previously
recorded restructuring provision by $410, primarily related to the reversal
of excess 1996 restructuring noncancelable lease costs in connection with
the closure of the Americus, Georgia manufacturing facility.
In the first quarter of 1997, the Company reversed a previously
recorded restructuring provision by $754, primarily related to the reversal
of excess 1996 restructuring costs in connection with the write-down of
other assets relating to the JJ. Farmer division.
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 Grant dress shirt and accessories product lines, and
the accrual of a portion of the future minimum royalties under the Grant
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.
The initiatives outlined in the restructuring charge in 1996 affected
the employment of approximately 206 union and 20 non-union employees at the
Americus, Georgia plant and 217 union and 91 non-union employees employed
by the Thomas division.
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.
The following table represents a summary of business restructuring
activities for the fiscal year 1995 through 1997:
<TABLE>
<CAPTION>
SEVERANCE FIXED LEASES AND OTHER OTHER
MARKDOWNS BENEFITS ASSETS CONTRACTS ASSETS COSTS TOTALS
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 ACTIVITY
Provision 1,150 -- 1,850 180 -- 370 3,550
Activity (131) -- (1,850) -- -- -- (1,981)
--------- --------- --------- --------- --------- --------- ---------
Balance at 12/30/95 1,019 -- -- 180 -- 370 1,569
--------- --------- --------- --------- --------- --------- ---------
1996 ACTIVITY
Provisions -- 3,452 89 2,858 5,141 190 11,730
Activity (1,019) (2,174) (52) (2,027) (5,141) -- (10,413)
Reclassification -- -- -- -- -- 83 83
--------- --------- --------- --------- --------- --------- ---------
Balance at 12/28/96 -- 1,278 37 1,011 -- 643 2,969
--------- --------- --------- --------- --------- --------- ---------
1997 ACTIVITY
Provision -- 344 1,256 1,859 -- 71 3,530
--------- --------- --------- --------- --------- --------- ---------
Activity -- (1,011) (1,293) (223) -- (484) (3,011)
Reclassification -- -- -- -- (740) -- 740
--------- --------- --------- --------- --------- --------- ---------
Reversal -- (308) -- (385) (740) (31) (1,464)
Balance at 1/3/98 -- 303 -- 2,262 -- 199 2,764
========= ========= ========= ========= ========= ========= =========
</TABLE>
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.
During the year ended January 1, 1994, the Company recorded a $24.7
million extraordinary gain related to the extinguishment of liabilities in
connection with its Chapter 11 reorganization. Subsequent to that date, the
Company reversed liabilities existing at the date of the reorganization as
follows:
1995 - $1.0 million
1996 - $2.1 million
These liabilities related to unresolved litigation claims. As of the
date of each reversal, a specific claim was settled for an amount less than
the original liability. The elimination of, the excess liability was recognized
as an extraordinary item consistent with the original extraordinary gain
accounting treatment.
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, which will be expensed as
incurred. 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. The $1,050,000 fee paid by the
Company to CIT was agreed to by the Company and will be offset against
Stockholders' equity, as a direct cost of the Debt Restructuring.
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 proposed transactions under the Restructuring Agreement will be
accounted for as a troubled debt restructuring as the Noteholders will be
granting a concession to the Company to exchange debt for equity. The
Company will be exchanging equity to settle fully the long term debt and
accrued interest thereon which will be recorded by the Company at the date
of the exchange.
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.
<PAGE>
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 components of income (loss) from continuing operations before
income taxes and extraordinary gain are as follows (in thousands):
1997 1996 1995
------------ ------------- -------------
Domestic Operations $ (12,638) $ (10,761) $ (2,098)
Foreign Operation 2,083 1,906 2,054
------------- ------------- -------------
Total $ (10,555) $ (8,855) $ (44)
============= ============= =============
1997 1996 1995
------------ ------------- -------------
The following is a reconciliation of the tax provision/(benefit) at
the statutory Federal income tax rate to the actual income tax provision:
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
============ ============ ============
<PAGE>
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.
<PAGE>
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:
1997 1996 1995
------------ ------------ ------------
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
============ ============ ============
The reconciliation of the funded status of the plans at January 3,
1998 and December 28, 1996 is as follows:
Jan. 3, 1998 Dec. 28, 1996
Accumulated Accumulated
Plan Plan
Benefits Benefits
Exceed Exceed
Plan Assets Plan Assets
------------ ------------
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)
============ ============
<PAGE>
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:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE RANGE PRICE
---------- -------------- -------------
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
==========
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 Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Price at 1/3/98 Contractual Life Price at 1/3/98 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>
<PAGE>
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Price at 12/28/96 Contractual Life Price at 12/28/96 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 ("APB #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.
In connection with the Debt Restructuring, the number and exercise
price of the Old Options will be adjusted for the proposed reverse stock
split. Such adjustments will have no accounting effect.
<PAGE>
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 which ended in
March 1998. 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. Similar to the discontinuance of the
Company's Made in the Shade operations, the Vera Scarf operations were
phased out through June 1995. In each case, there were no proceeds received
by the Company as a result of such discontinuance. Each discontinuance
consumed cash as disclosed in the Company's statement of cash flows.
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 206,000 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>
FISCAL YEAR ENDED JANUARY 3, 1998
<CAPTION>
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)
</TABLE>
<TABLE>
FISCAL YEAR ENDED DECEMBER 28, 1996
<CAPTION>
TOTAL 4TH QTR. 3RD QTR. 2ND QTR. 1ST QTR.
----- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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.
<PAGE>
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 74,456 $ 81,391 $ 159,343 $ 169,601
Cost of goods sold 57,948 64,824 125,926 133,246
---------- ---------- ---------- ----------
Gross profit 16,508 16,567 33,417 36,355
Selling, general and
administrative expenses (17,218) (20,806) (34,333) (41,360)
Royalty income 1,555 1,428 2,676 2,535
Goodwill amortization (470) (470) (940) (940)
Reversal of provision
for restructuring (Note 6) -- 410 160 1,164
Other income 110 71 171 188
---------- ---------- ---------- ----------
Income/(loss) from continuing operations
before interest, income taxes and
extraordinary gain 485 (2,800) 1,151 (2,058)
Interest expense, net 4,082 3,941 8,042 7,378
---------- ---------- ---------- ----------
Loss from continuing operations before
income taxes and extraordinary gain (3,597) (6,741) (6,891) (9,436)
Income taxes/(benefit) (29) 62 (26) 104
---------- ---------- ---------- ----------
Loss from continuing operations before
extraordinary gain (3,568) (6,803) (6,865) (9,540)
Discontinued operations (Note 7):
Loss from discontinued operations -- (7,361) -- (8,136)
Estimated loss on disposal -- (580) -- (580)
Extraordinary gain (Note 8) -- 600 -- 600
---------- ---------- ---------- ----------
Net loss $ (3,568) $ (14,144) $ (6,865) $ (17,656)
========== ========== ========== ==========
Basic and diluted income/(loss) per share:
From continuing operations $ (0.24) $ (0.45) $ (0.45) $ (0.63)
From discontinued operations -- (0.53) -- (0.58)
From extraordinary gain -- 0.04 -- 0.04
---------- ---------- ---------- ----------
Basic and diluted loss per share $ (0.24) $ (0.94) $ (0.45) $ (1.17)
========== ========== ========== ==========
Weighted average common stock outstanding 15,170 15,118 15,170 15,108
========== ========== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
----------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss $ (3,568) $ (14,144) $ (6,865) $ (17,656)
Other comprehensive income, net of tax:
Foreign currency translation adjustments 27 (1) 30 10
---------- ---------- ---------- ----------
Comprehensive income $ (3,541) $ (14,145) $ (6,835) $ (17,646)
========== ========== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<CAPTION>
July 4, January 3, June 28,
1998 1998 1997
(Unaudited) (*) (Unaudited)
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,160 $ 2,215 $ 1,336
Accounts receivable, net 41,195 45,828 40,391
Inventories (Note 3) 107,143 96,638 123,272
Prepaid expenses and other current assets (Note 4) 9,310 4,218 3,930
------------ ------------ ------------
Total current assets 158,808 148,899 168,929
Property, plant and equipment, net 27,561 26,439 28,711
Other assets 55,920 58,039 58,995
------------ ------------ ------------
Total assets $ 242,289 $ 233,377 $ 256,635
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable $ 52,176 $ 33,800 $ 53,432
Accounts payable 23,604 27,746 28,453
Accrued liabilities 19,953 16,503 16,961
Current portion of long term debt 104,879 104,879 --
Reserve for business restructuring (Note 6) 869 2,764 1,344
------------ ------------ ------------
Total current liabilities 201,481 185,692 100,190
Long term debt -- -- 104,879
Deferred liabilities 5,340 5,382 8,453
Shareholders' equity
Common stock 15,405 15,405 15,394
Additional paid-in capital 107,249 107,249 107,232
Deficit (82,100) (75,235) (74,803)
Accumulated other comprehensive income (Note 5) (3,472) (3,502) (3,096)
Less - treasury stock, at cost (1,614) (1,614) (1,614)
------------ ------------ ------------
Total shareholders' equity 35,468 42,303 43,113
------------ ------------ ------------
Total liabilities and shareholders' equity $ 242,289 $ 233,377 $ 256,635
============ ============ ============
(*) Derived from the audited financial statements.
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
SALANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Six Months Ended
----------------
July 4, June 28,
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations $ (6,865) $ (9,540)
Adjustments to reconcile loss from continuing
operations to net cash used in operating activities:
Depreciation 2,310 2,225
Amortization of intangibles 2,476 2,134
Change in operating assets and liabilities:
Accounts receivable 4,633 (258)
Inventories (10,505) (24,775)
Prepaid expenses and other current assets (5,092) (61)
Other assets 34 --
Accounts payable (4,142) 891
Accrued liabilities and reserve for
business restructuring 1,621 (2,913)
Deferred liabilities (42) (1,162)
------------ ------------
Net cash used in continuing operating activities (15,572) (33,459)
Cash used in discontinued operations (66) (1,420)
------------ ------------
Net cash used in operations (15,638) (34,879)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,432) (5,807)
Store fixture expenditures (391) (2,037)
------------ ------------
Net cash used in investing activities (3,823) (7,844)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings 18,376 45,755
Retirement of long-term debt -- (3,372)
Exercise of stock options -- 168
Other, net 30 10
------------ ------------
Net cash provided by financing activities 18,406 42,561
------------ ------------
Net decrease in cash and cash equivalents (1,055) (162)
Cash and cash equivalents - beginning of year 2,215 1,498
------------ ------------
Cash and cash equivalents - end of quarter $ 1,160 $ 1,336
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,522 $ 7,125
============ ============
Income taxes $ 144 $ 101
============ ============
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 July 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 July 4, 1998, the Company's
current liabilities exceeded its current assets by $42,673. 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, as amended. Consummation of the Debt Restructuring
is subject to various conditions, and 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. As of July 4, 1998, interest accrued on the Senior Secured Notes
was $9,318. 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 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 and
Canada.
The results of operations for the three months ended July 4, 1998 and June
28, 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 July 4, 1998 and June 28, 1997, 205,854 and 323,544
shares, respectively, issuable in connection with the Chapter 11 Case and
anticipated to be issued pursuant to the Company's 1993 bankruptcy plan of
reorganization). Loss per share does not include common stock equivalents,
including for the three and six months ended July 4, 1998, 1,284,667 stock
options, and for the three and six months ended June 28, 1997, 1,660,860
and 1,644,860 stock options, respectively, inasmuch as their effect would
have been anti-dilutive.
NOTE 3. INVENTORIES
July 4, January 3, June 28,
1998 1998 1997
------------ ------------ ------------
Finished goods $ 63,997 $ 52,010 $ 76,150
Work-in-Process 21,034 21,405 22,666
Raw materials and supplies 22,112 23,223 24,456
------------ ------------ ------------
$ 107,143 $ 96,638 $ 123,272
============ ============ ============
NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
As of July 4, 1998, prepaid expenses and other current assets included
$4,542 of capitalized costs related to the Debt Restructuring.
NOTE 5. ACCUMULATED OTHER COMPREHENSIVE INCOME
Foreign Minimum Accumulated
Currency Pension other
Translation Liability Comprehensive
Adjustments Adjustment Income
-------------------------------------------------
1998
Beginning of year balance $ 6 $ (3,508) $ (3,502)
Six months ended July 4,
1998 30 -- 30
------------ ------------ ------------
change
End of quarter balance $ 36 $ (3,508) $ (3,472)
============ ============ ============
1997
Beginning of year balance $ 76 $ (3,182) $ (3,106)
Six months ended June 28,
1997 10 -- 10
------------ ------------ ------------
change
End of quarter balance $ 86 $ (3,182) $ (3,096)
============ ============ ============
NOTE 6. DIVISION RESTRUCTURING COSTS
As of July 4, 1998, $869 remained in the restructuring reserve, primarily
related to guaranteed minimum royalty payments for discontinued product
lines.
In the first half of 1997, the Company reversed previously recorded
restructuring provisions of $1,164, including $410 in the second quarter,
primarily resulting from the settlement of liabilities for less than the
carrying amount.
NOTE 7. 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 for the three and six months ended
June 28, 1997 was $7,361 and $8,136, respectively, which included a second
quarter charge of $4,459 for the write-off of goodwill. Net sales of the
division were $977 and $2,199 for the three and six months ended June 28,
1997, respectively.
Additionally, in 1997, the Company recorded a second quarter charge of $580
to accrue for expected operating losses during the phase-out period through
September 1997. No income tax benefits have been allocated to the
division's 1997 losses.
In 1997, the net liabilities of the discontinued operations have been
included in accrued liabilities.
NOTE 8. EXTRAORDINARY GAIN
In the second quarter of 1997, the Company recorded an extraordinary gain
of $600 related to the reversal of excess liabilities previously provided
for the anticipated settlement of claims arising from the prior chapter 11
proceeding.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION 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 AUGUST 31, 1998
PROSPECTUS
SALANT CORPORATION
[LOGO OF SALANT CORPORATION]
EXCHANGE OFFER PROSPECTUS AND DISCLOSURE STATEMENT FOR
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 Offer Prospectus and Disclosure
Statement (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 (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 WILL RECEIVE:
PRINCIPAL AMOUNT
(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 the
due December 31, 1998 Company or, in the aggregate, up to 18,456,350
(the "Senior Notes") shares of New Common Stock (after giving effect
to the ten-to-one reverse split of the Company's
common stock (the "Reverse Split")). As a result
of the consummation of the restructuring of the
Company by means of either the Exchange Offer or
the Prepackaged Plan (the "Restructuring"), 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 Restructuring, subject to dilution for shares
of New Common Stock issued under the Company's
proposed 1998 Stock Award and Incentive Plan and
upon exercise of the warrants (the "Warrants"),
described in more detail below, to be issued to
the existing holders of the Company's common stock
(the "Stockholders") pursuant to the
Restructuring, and in the case of the
Restructuring implemented by means of the Exchange
Offer only, the shares of New Common Stock issued
under the Company's 1987 Stock Plan, 1998 Stock
Plan, 1993 Stock Plan and 1996 Stock Plan (the
"Old Plans"), based on the number of issued and
outstanding shares of common stock, par value
$1.00 per share, of the Company (the "Old Common
Stock") outstanding as of ____ __, 1998 (the
"Record Date").
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 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.
An Annual Meeting of Stockholders of the Company (the "Stockholders'
Meeting") will be held on _____ __, 1998 at __: _.m. New York City time, 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) the Reverse Split of each outstanding share of 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 Noteholders
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"). If the Prepackaged
Restructuring is pursued and the Company commences a chapter 11 bankruptcy
case and files the Packaged Plan, the Company expects that each of the
Restructuring Proposals will be implemented pursuant to the Prepackaged
Plan.
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 of each of the
Restructuring Proposals. 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 of
the Company at the Stockholders' Meeting 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 SUBSIDIARIES OF THE COMPANY WOULD NOT BE PARTIES TO THE
PREPACKAGED PLAN, AND WOULD THEREFORE CONTINUE TO OPERATE IN THE ORDINARY
COURSE OF BUSINESS DURING THE COMPANY'S CHAPTER 11 CASE AND WOULD NOT
BECOME DEBTORS IN CONNECTION WITH THE PREPACKAGED RESTRUCTURING. 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 "DISCUSSION OF RISK FACTORS" ON PAGES [ ] TO [ ] FOR A DISCUSSION
OF CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH THE
EXCHANGE RESTRUCTURING AND 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"), approximately $74 million in
aggregate principal face amount of the Senior Notes (collectively, the
"Magten Notes"), which represents approximately 71% of the aggregate
principal amount of all Senior Notes, and (ii) 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. Magten, Apollo and
the Company have entered into a letter agreement, dated March 2, 1998, as
amended (the "Letter Agreement") regarding the basic terms and conditions
of a comprehensive consensual plan to restructure the Company (the terms of
which are consistent with the Restructuring) to which Magten and Apollo
would be willing to consent, subject to certain terms and conditions. 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 pursued,
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 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 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 (b) 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 following consummation of the
Restructuring (on a fully diluted basis), subject to adjustment. The
Warrants will be exercisable for seven years from the consummation of the
Restructuring (the "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
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 WITHDRAWN OR CHANGED, SUBJECT TO THE PROCEDURES DESCRIBED
HEREIN, AT ANY TIME PRIOR TO THE EXPIRATION DATE. IF A BANKRUPTCY CASE HAS
BEEN COMMENCED, WITHDRAWALS OR CHANGES 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)
SATISFACTION OF 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. 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. IN ORDER FOR THE PREPACKAGED RESTRUCTURING TO BE
CONSUMMATED, AMONG OTHER THINGS, THE BANKRUPTCY COURT MUST DETERMINE THAT
THE SOLICITATION OF ACCEPTANCES FOR THE PREPACKAGED PLAN WAS IN COMPLIANCE
WITH ANY APPLICABLE NON-BANKRUPTCY LAW, RULE OR REGULATION GOVERNING THE
ADEQUACY OF SUCH DISCLOSURE.
Noteholders as of the Record Date are eligible to vote on the
Prepackaged Plan. Registered holders of Senior Notes, or persons who have
obtained a properly completed note power from the registered holders
thereof, may tender their Senior Notes in the Exchange Offer, regardless of
whether they were Noteholders on the Record Date. 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" and "VOTING
PROCEDURES FOR PREPACKAGED PLAN AND REQUIREMENTS".
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 addressed to the Board 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
addressed to the Board 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
Stockholders pursuant to the Restructuring is fair to public Stockholders
from a financial point of view. See "Fairness Opinion".
The Company has registered the offering and the Issuance of the
shares of New Common Stock, Warrants and Warrant Shares to be issued under
the Exchange Restructuring with the Securities and Exchange Commission (the
"Commission") under the Company's Registration Statement. In addition, the
Company has also registered the offering of the shares of New Common Stock,
Warrants and Warrant Shares to be issued under the Prepackaged
Restructuring in accordance with the Prepackaged Plan with the Commission
under the Company's Registration Statement.
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. However, the NYSE
has reviewed the terms and conditions of the Restructuring set forth herein
and has informed the Company that it will continue to list the Company's
common stock during the period prior to consummation of the Restructuring
and intends to list the Company's common stock from and after the
Restructuring Date. However, the NYSE has advised the Company that after
consummation of the Restructuring, the NYSE intends to monitor the
performance of the Company based upon the Projections set forth herein to
ensure compliance with the NYSE's original listing standards in respect of
the New Common Stock. The Company believes that as a result of the
consummation of the Restructuring, following the Restructuring Date, the
Company will be able to return to compliance with the original listing
standards in respect of the New Common Stock and the Warrants and that the
New Common Stock and the Warrants will continue to be listed for trading on
the NYSE. However, the NYSE has advised the Company that the Company's
failure to meet the Projections following the Restructuring could result in
the suspension from trading and subsequent delisting of the New Common
Stock.
BECAUSE NO PREPACKAGED BANKRUPTCY CASE HAS BEEN FILED, THIS EXCHANGE
RESTRUCTURING PROSPECTUS HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT WITH
RESPECT TO THE ADEQUACY OF THE INFORMATION CONTAINED HEREIN. 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 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 EXHIBITS TO THE
REGISTRATION STATEMENT BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS 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.
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 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 and equity interests
set forth in this Exchange Restructuring Prospectus may vary from the final
amounts of claims or equity interests allowed by the Bankruptcy Court.
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION..................................................N-vi
INDEX OF CERTAIN DEFINED TERMS........................................N-156
SUMMARY.................................................................N-1
The Company.......................................................N-1
Summary Distribution Table........................................N-1
Benefits of The Restructuring.....................................N-2
Diagram of Restructuring..........................................N-3
The Exchange Offer and Prepackaged Plan...........................N-4
Summary of Prepackaged Plan.......................................N-9
Comparison of Exchange Restructuring and Prepackaged
Restructuring................................................N-12
Purpose of the Restructuring.....................................N-15
Tendering and Voting Procedures..................................N-16
Stockholders' Meeting............................................N-19
Description of Warrants..........................................N-23
Description of New CIT Credit Agreement..........................N-24
Summary of Registration Rights Plan..............................N-25
Summary of Rights Plan...........................................N-25
Summary Historical Consolidated Financial Information............N-25
Capitalization Summary...........................................N-27
Summary of Risk Factors..........................................N-28
Risk Factors Relating to the Exchange Restructuring and the
Prepackaged Restructuring....................................N-28
Additional Risk Factors Relating to the Prepackaged
Restructuring................................................N-29
Discussion of Risk Factors.......................................N-29
Risk of Nonconsummation of the Restructuring.....................N-30
Company Results of Operations Subject to Variable Influences;
Intense Competition..........................................N-30
Dilution.........................................................N-30
Limitation on Use of Net Operating Losses........................N-30
Change in Priority...............................................N-31
Lack of Trading Market for New Common Stock; Volatility;
Potential De-Listing of the New Common Stock.................N-31
Possible Volatility of Stock Price; Effect of Restructuring
on Stock Price...............................................N-32
Concentrated Ownership of New Common Stock.......................N-32
Absence of and/or Restrictions on Dividends......................N-32
History of Losses; Effect of Transaction.........................N-33
Cash Flow from Operations........................................N-33
Declines in Net Sales and Gross Profits..........................N-33
Retail Environment...............................................N-34
Apparel Industry Cycles and Other Economic Factors...............N-34
Seasonality and Fashion Risk.....................................N-34
Dependence on Certain Customers and Licensees; Effect of
Restructuring on Licenses....................................N-34
Foreign Operations and Sourcing; Import Restrictions.............N-35
Dependence on Contract Manufacturing.............................N-35
Information Systems and Control Procedures.......................N-36
Leverage and Debt Service........................................N-36
Restrictive Covenants............................................N-36
Need for Sustained Trade Support.................................N-37
Prior Chapter 11 Cases...........................................N-37
Disruption of Operations Relating to Bankruptcy Filing...........N-37
Certain Risks of Non-confirmation................................N-37
Certain Other Bankruptcy Considerations..........................N-38
BACKGROUND OF RESTRUCTURING............................................N-40
Background of the Restructuring..................................N-40
The Letter Agreement.............................................N-41
The Voting Agreement.............................................N-45
The Waiver and Forbearance Under the Credit Agreement and
Commitment for New Credit Agreement..........................N-46
PURPOSE OF THE RESTRUCTURING...........................................N-48
RESTRUCTURING FINANCIAL CONSIDERATIONS.................................N-49
Background of the Restructuring Financial Analysis...............N-49
Fairness Opinion.................................................N-49
The Three-Year Business Plan.....................................N-53
Liquidation Analysis.............................................N-54
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS..................N-60
SALANT CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS.........................................N-64
PROJECTED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS...........N-67
PROJECTED CONDENSED CONSOLIDATED BALANCE SHEETS.....................N-69
PROJECTED STATEMENTS OF CONSOLIDATED CASH FLOWS.....................N-70
BUSINESS AND PROPERTIES OF THE COMPANY.................................N-71
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION..............N-76
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................N-79
DESCRIPTION OF NEW COMMON STOCK........................................N-97
Distributions....................................................N-97
Voting...........................................................N-98
Election of Directors............................................N-98
Shares Reserved In Connection With 1993 Chapter 11 Plan..........N-98
DESCRIPTION OF CHARTER AMENDMENT.......................................N-98
SALANT CORPORATION 1998 STOCK AWARD AND INCENTIVE PLAN................N-100
Purpose of the Stock Award and Incentive Plan...................N-100
Eligibility.....................................................N-100
Plan Administration and Shares Subject to the Stock Award
and Incentive Plan..........................................N-100
Awards..........................................................N-101
Change In Control...............................................N-102
Transferability.................................................N-102
Certain Federal Income Tax Considerations.......................N-102
Treatment of Options Under Old Plans............................N-103
New Plan Benefits...............................................N-103
DESCRIPTION OF REGISTRATION RIGHTS PLAN...............................N-103
DESCRIPTION OF RIGHTS PLAN............................................N-104
DESCRIPTION OF CERTAIN EXISTING INDEBTEDNESS OF THE COMPANY...........N-104
General.........................................................N-104
Revolving Credit Agreement......................................N-104
The Senior Notes................................................N-106
DESCRIPTION OF THE CHAPTER 11 CASE....................................N-107
Timetable for the Chapter 11 Case...............................N-107
Committees......................................................N-108
Actions To Be Taken Upon Commencement of Case...................N-108
DESCRIPTION OF THE PREPACKAGED PLAN...................................N-111
Brief Explanation Of Chapter 11.................................N-111
General Information Concerning Treatment Of Claims And
Interests...................................................N-111
Classification And Treatment Of Claims And Interests............N-112
Unclassified Claims.............................................N-114
Administrative Expenses.........................................N-114
Priority Tax Claims.............................................N-115
Classified Claims And Interests.................................N-115
Sources Of Cash To Make Prepackaged Plan Distributions..........N-117
Executory Contracts And Unexpired Leases........................N-118
Implementation of This Plan.....................................N-118
Provisions Covering Distributions...............................N-120
Procedures for Resolving Disputed Claims........................N-123
Discharge, Injunction, Releases and Settlements of Claims.......N-124
Conditions Precedent to Confirmation Order and Effective Date...N-126
Miscellaneous provisions........................................N-126
FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF
CREDITORS TEST...................................................N-128
Confirmation Hearing............................................N-128
Feasibility Of The Prepackaged Plan.............................N-130
Best Interests Test.............................................N-131
Nonconsensual Confirmation......................................N-132
APPLICATION OF SECURITIES ACT.........................................N-133
The Solicitation................................................N-133
Issuance and Resale of New Securities Under the Prepackaged
Plan........................................................N-133
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PREPACKAGED
PLAN.............................................................N-134
Continuation Of The Chapter 11 Case.............................N-134
Liquidation Under Chapter 7 Or Chapter 11.......................N-134
TENDERING AND VOTING PROCEDURES.......................................N-135
The Restructuring...............................................N-135
General.........................................................N-135
Interest on Senior Notes........................................N-136
Expiration Date; Extensions; Amendments.........................N-136
How to Tender in the Exchange Offer.............................N-136
Tenders--Additional Information.................................N-137
Withdrawal of Tenders and Revocation of Votes...................N-139
Conditions......................................................N-139
VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN.......................N-141
Voting Procedures for Prepackaged Plan and Requirements.........N-142
Who May Vote....................................................N-143
Procedures for Holders of Old Securities to Vote on
Prepackaged Plan............................................N-143
Beneficial Owners of Old Securities.............................N-144
Brokerage Firms, Banks and Other Nominees.......................N-144
Securities Clearing Agent.......................................N-144
Importance of Proper and Timely Submission of Completed
Ballots.....................................................N-145
Voting Deadline and Extensions..................................N-145
Withdrawal of Votes on the Prepackaged Plan.....................N-145
Information Agent...............................................N-146
MARKET FOR OLD COMMON STOCK AND RELATED STOCKHOLDER MATTERS...........N-146
MARKET PRICES OF THE SENIOR NOTES.....................................N-148
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.............................N-148
Federal Income Tax Consequences to Noteholders..................N-149
Market Discount.................................................N-150
Federal Income Tax Consequences to the Company..................N-150
Limitation on Net Operating Loss Carryovers.....................N-150
INFORMATION REGARDING NOMINEES........................................N-150
POST RESTRUCTURING STOCK OPTION GRANTS................................N-151
Exchange Restructuring..........................................N-151
Prepackaged Restructuring.......................................N-151
SECURITY OWNERSHIP OF MANAGEMENT......................................N-152
CERTAIN AFFILIATE TRANSACTIONS........................................N-153
PAYMENTS TO MANAGEMENT................................................N-153
ADVISORS AND REPRESENTATIVES..........................................N-153
ESTIMATED FEES AND EXPENSES...........................................N-155
LEGAL MATTERS.........................................................N-155
EXPERTS...............................................................N-155
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.
Capitalized terms used herein shall have the meanings ascribed to them as
set forth under the section entitled "GLOSSARY OF CERTAIN DEFINED TERMS."
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 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 a
wide variety of 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 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", "SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS".
SUMMARY DISTRIBUTION TABLE
The following chart summarizes the consideration to be received by the
Stockholders and the Noteholders pursuant to the Restructuring.
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
Face Amount of, and all
accrued and unpaid
interest through the
Restructuring Date on,
the Senior Notes......... $ 1,000 175.977555 --
In Aggregate............. $104,879,000 18,456,350 --
BENEFITS OF THE RESTRUCTURING
Consummation of the Restructuring will result in a the Noteholders
receiving 92.5% of the shares of New Common Stock to be issued by the
Company under the Restructuring (subject to dilution for the Stock Award
and Incentive Plan, the Warrant Shares and, in the case of the Exchange
Restructuring only, the Old Plans), and (b) the Stockholders receiving 7.5%
of the shares of New Common Stock (subject to dilution for the Stock Award
and Incentive Plan, the Warrant Shares and, in the case of the Exchange
Restructuring only, the Old Plans) plus Warrants to purchase up to 10% of
the issued and outstanding shares of New Common Stock (on a fully diluted
basis). As a result of the consummation of the Restructuring, Magten, the
beneficial holder of approximately $74 million in aggregate principal
amount of the Senior Notes, representing approximately 71% of the Senior
Notes, will receive its pro rata share of the shares of New Common Stock to
be issued to Noteholders (i.e., Magten will receive approximately 65% of
the shares of New Common Stock (subject to dilution)) in exchange for the
Senior Notes beneficially held by Magten. The Stockholders currently own
100% of the common equity of the Company in the form of the Old Common
Stock. The issuance of New Common Stock to the Noteholders, including
Magten, pursuant to the Exchange Restructuring or the Prepackaged
Restructuring, 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. As a result of the Restructuring, Apollo, the beneficial
holder of approximately 39.6% of the issued and outstanding shares of Old
Common Stock will receive its pro rata share of the shares of New Common
Stock and Warrants to be issued to Stockholders (i.e., Apollo will receive
approximately 3% of the shares of New Common Stock (subject to dilution)
and approximately 39.6% of the Warrants) in exchange for the shares of Old
Common Stock beneficially held by Apollo.
Consummation of the Restructuring will also result in a distribution
of New Common Stock and Warrants to certain officers and directors of the
Company, based upon the number of shares of Old Common Stock owned by them
on the Record Date. See "MARKET FOR OLD COMMON STOCK AND RELATED
STOCKHOLDER MATTERS." In addition, in the event that 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
as provided for in each of the Old Plans. Moreover, 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 Restructuring Date,
subject to the approval by the Stockholders of the Company. In the event
that the Prepackaged Restructuring is consummated, 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 grants to certain non-employee directors
of the Company. See "POST RESTRUCTURING STOCK OPTION GRANTS."
On March 2, 1998, Magten, Apollo and the Company entered into the
Letter Agreement setting forth the basic terms and conditions of the
Restructuring. The Letter Agreement was subsequently amended on June 1,
1998. See "BACKGROUND OF RESTRUCTURING -- The Letter Agreement" for a full
discussion of the terms of the Letter Agreement. CIT, the Company's working
capital lender, agreed to support the Company's restructuring efforts under
the Letter Agreement and, on March 2, 1998, the Company entered into the
Twelfth Amendment and Forbearance Agreement (the "Twelfth Amendment") with
CIT, wherein, among other things, CIT waived certain existing financial
covenant defaults under the Credit Agreement as of January 3, 1998 and
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 certain interest payments on the Senior Notes. In
consideration for CIT's agreement to enter into the Twelfth Amendment,
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. See
"BACKGROUND OF RESTRUCTURING -- The Waiver and Forbearance Under the Credit
Agreement and Commitment for New Credit Agreement." Subsequent to the
execution of the Twelfth Amendment, after reviewing various proposals for a
new credit agreement, the Company entered into a commitment letter (the
"CIT Commitment Letter") with CIT, which sets forth the terms and conditions
of an agreement for a new $140 million secured credit facility with CIT, to
be entered into by the Company on the Restructuring Date. See "DESCRIPTION
OF NEW CIT CREDIT AGREEMENT." In conjunction with the CIT Commitment
Letter, CIT and the Company entered into the Thirteenth Amendment and
Forbearance Agreement (the "Thirteenth Amendment"), further extending CIT's
agreement to continue to forbear from exercising its rights or remedies
under the Credit Agreement. In accordance with the Twelfth Amendment, no
additional closing fees, facility fees or amendment fees were charged to
the Company by CIT in consideration of the execution and delivery of the
Thirteenth Amendment and the CIT Commitment Letter and no other closing fee
or facility fee will be charged in connection with the execution and
delivery of the New CIT Credit Agreement. See "BACKGROUND OF RESTRUCTURING
- -- The Waiver and Forbearance Under the Credit Agreement and Commitment for
New Credit Agreement."
DIAGRAM OF TRANSACTION
The following chart diagrams the significant events (which are
set forth in chronological order) involved in order to consummate the
Restructuring either by means of the Exchange Restructuring or the
Prepackaged Restructuring:
[OBJECT OMITTED]
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
the same consideration as the Noteholders
would receive in the Exchange Restructuring.
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" and "VOTING
AND CONFIRMATION OF THE PREPACKAGED PLAN."
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 February 28, 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 $[__________].
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, 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."
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 "DESCRIPTION
OF THE PREPACKAGED PLAN."
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:
NOTEHOLDERS), 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. If the Restructuring is
implemented by means of the Prepackaged
Restructuring, the Company will recognize no
cancellation of indebtedness income. If the
Restructuring is implemented by means of the
Exchange Restructuring, the Company may
recognize some cancellation of indebtedness
income, depending upon the trading price of
the Company's stock on the date the
Restructuring is implemented. If the Company
is insolvent at such time, then, to the
extent of the insolvency, none of the
cancellation of indebtedness income will be
included in its gross income. In any event,
based upon current valuations, it is likely
that any such cancellation of indebtedness
income included in income will be fully
offset by the Company's NOL's, assuming that
the Company makes the election provided under
Code Section 382 to "close its books" as of
the closing date of the Restructuring. 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: NOTEHOLDERS."
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 and 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."
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."
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
THE SENIOR NOTES."
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 FOR OLD
COMMON STOCK AND RELATED STOCKHOLDER MATTERS"
and "DISCUSSION OF RISK FACTORS."
New Common Stock..............The NYSE requires approval of the Issuance of
the New 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. However, the NYSE has
reviewed the terms and conditions of the
Restructuring set forth herein and has informed
the Company that it will continue to list the
Company's common stock during the period prior to
consummation of the Restructuring and intends to
list the Company's common stock from and after
the Restructuring Date. However, the NYSE has
advised the Company that after consummation of
the Restructuring, the NYSE intends to monitor
the performance of the Company based upon the
Projections set forth herein to ensure compliance
with the NYSE's original listing standards in
respect of the New Common Stock. The
Company believes that as a result of the
consummation of the Restructuring, following the
Restructuring Date, the Company will be able to
return to compliance with the original listing
standards in respect of the New Common Stock
and the Warrants and that the New Common Stock
and the Warrants will continue to be listed for
trading on the NYSE. However, the NYSE has
advised the Company that the Company's failure
to meet the Projections following the
Restructuring could result in the suspension
from trading and subsequent delisting of the New
Common Stock.
Warrants and Warrant Shares...The NYSE requires approval of the Issuance of the
Warrants and the Warrant Shares. As discussed
above, 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 "DISCUSSION OF 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) [__] 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."
Depositary....................[__________] has been appointed as Depositary
with respect to the Senior Notes for the
Exchange Restructuring (the "Depositary") to
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.
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."
Information Agent/
Voting Agent..................[__________] is serving as Information Agent
in connection with the Exchange Restructuring
and the solicitation of acceptances of the
Prepackaged Plan (the "Information Agent")
and as voting agent with respect to votes on
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 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 this Exchange Restructuring
Prospectus. See also "ADVISORS AND
REPRESENTATIVES."
SUMMARY OF THE PREPACKAGED PLAN
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 see
"DESCRIPTION OF THE PREPACKAGED PLAN" and the Prepackaged Plan itself, a
copy of which is attached hereto as Annex II.
TYPE OF CLAIM OR EQUITY
CLASS INTEREST DISTRIBUTION
- ----- ------------------------ ----------------------------------------
- -- Administrative Expenses Allowed Administrative Expenses are to
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 Company shall be paid
in full or performed 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.
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 the Company 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 the Company 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 the Company and such
Holder.
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 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 the Company and such
Holder.
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.
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.
NOTICE TO HOLDERS OF CLAIMS AND INTERESTS
WHEN CONFIRMED BY THE BANKRUPTCY COURT, THE PREPACKAGED PLAN WILL BIND
ALL HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE COMPANY, 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 NOTEHOLDERS ARE ENCOURAGED TO READ THIS
EXCHANGE RESTRUCTURING PROSPECTUS AND ITS ANNEXES CAREFULLY AND IN THEIR
ENTIRETY BEFORE VOTING TO ACCEPT OR TO REJECT THE PREPACKAGED PLAN. THIS
EXCHANGE RESTRUCTURING PROSPECTUS 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 EXCHANGE RESTRUCTURING
PROSPECTUS 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
"PROJECTED CONSOLIDATED FINANCIAL INFORMATION" (the "Projections") and
except as otherwise specifically and expressly stated herein, this Exchange
Restructuring Prospectus 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 Exchange Restructuring Prospectus.
Neither the Company nor Reorganized Salant 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, the Company does not anticipate that any
amendments or supplements to this Exchange Restructuring Prospectus will be
distributed to reflect such occurrences. Accordingly, the delivery of this
Exchange Restructuring Prospectus 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 "VOTING
AND CONFIRMATION OF THE PREPACKAGED PLAN -- Information Agent."
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 AND
IMPLEMENTATION OF
PROPOSALS................ 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 the 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, and
properly complete a are entitled to vote, on
Letter of Transmittal and the Prepackaged Plan
deliver it, together with must properly complete a
the Senior Notes and any Ballot or Master Ballot,
other required documents, as the case may be, and
to the Depositary. Only deliver it in accordance
a registered Noteholder, with the voting
or persons who have instructions. Only
obtained a properly beneficial owners of
completed note power from Claims or Interests or,
a registered Noteholder, if applicable, nominees
may tender in the who are voting at the
Exchange Offer. instruction of the
beneficial owners and
make a certification
with respect thereto,
who are entitled to
vote on the
Prepackaged Plan may
vote thereon.
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.
POST-RESTRUCTURING
STOCK OPTION GRANTS...... All of the Old Options Pursuant to the
will not be terminated Prepackaged Plan, all
and will continue to Old Options outstanding
remain outstanding, as of the commencement
subject to adjustment to of the Chapter 11 Case
reflect the effect of the granted under the Old
Reverse Split on the Old Plans will be terminated
Options. In addition, and of no further force
under the Stock Award and or effect as of the
Incentive Plan, consummation of the
directors, officers and Prepackaged Plan. In
employees of the Company addition, each of the
will become eligible to Old Plans shall be
receive additional terminated and of no
options to purchase further force or effect
shares of New Common as of the consummation
Stock as determined by of the Prepackaged
the new Board after the Plan. The Stock Award
Restructuring Date, and Incentive Plan will
subject to the approval remain in effect after
by the stockholders of the consummation of the
the Company. 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.
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 February
28, 1998, was $110.379 million, consisting of $104.879 million principal
amount of, and $5.5 million of accrued interest on, the Senior Notes) into
New Common Stock. Interest charges for the Company will be reduced by $11
million per year and stockholders' equity should be substantially increased
as a result of the Restructuring. The Company's consolidated debt at the
completion of the Restructuring will include approximately $28 million in
revolver debt plus $15 million from 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. 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 November 30, 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. Under the
Thirteenth Amendment, such agreement to forbear by CIT will terminate on
November 30, 1998 or earlier upon the happening of (a) the occurrence of
any Event of Default (as defined in the Credit Agreement), other than by
virtue of the Company's failure to make the March 2, 1998 or August 31,
1998 interest payment on the Senior Notes or the commencement or
continuation of a chapter 11 case to effectuate the Restructuring; or (b)
the exercise of any right or remedy with respect to any of the Collateral
by any holder of the Senior Notes or by the Trustee under the Indenture; or
(c) the payment of any interest on the Senior Notes in respect of the
Company's non-payment of the interest that was payable on March 2, 1998 or
that will be payable on August 31, 1998 or otherwise; or (d) the occurrence
of an Agreement Termination Event (as defined in the Letter Agreement),
except under certain circumstances. See "BACKGROUND TO THE
RESTRUCTURING -- Waiver and Forbearance Agreement and Commitment For New
Credit Agreement." 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.
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 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) 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," 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.
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."
How to Vote on the Prepackaged
Plan.......................... 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 Record Date are entitled to vote to
accept or to reject the Prepackaged Plan:
Claims of Noteholders or Stockholders. To
be entitled to vote to accept or to
reject the Prepackaged Plan, a Noteholder
or Stockholder must be the beneficial
interest holder of either Senior Notes or
Old Common Stock, as the case may be, at
the close of business on the 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 herein may be counted, and only the
votes of Holders of Allowed Claims or
Interests will be counted. See "VOTING
AND CONFIRMATION OF THE PREPACKAGED
PLAN." 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 herein 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 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 this Exchange
Restructuring Prospectus 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 PREPACKAGED PLAN."
Withdrawal Rights and
Revocation of Votes.............. Tenders of Senior Notes may be withdrawn,
subject to certain procedures, at any
time before they are accepted for
exchange by the Company. Votes on the
Prepackaged Plan may be withdrawn or
changed, subject to the procedures
described herein, 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
PROCEDURES" and "VOTING AND CONFIRMATION
OF THE PREPACKAGED PLAN -- Withdrawal of
Votes on the Prepackaged Plan."
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
upon the receipt by the Company of such
Senior Notes and an accompanying Letter
of Transmittal.
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. See "DESCRIPTION OF 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 -- Fairness Opinion." The
approval of the Issuance and the Stock
Award and Incentive Plan by the
Stockholders is 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 August
__, 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 Capital Management LLC
("DDJ"), the beneficial holder of
approximately 12.1% of the issued and
outstanding shares of Old Common Stock as
of March 10, 1998, enter into a voting
agreement with the Company similar to the
Voting Agreement entered into with
Apollo. DDJ, however, informed the
Company that it did 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 a confidentiality agreement between
DDJ and the Company (the "DDJ
Confidentiality Agreement.") On March 4,
1998, the Company granted this request by
DDJ. As of the date of this Exchange
Restructuring Prospectus, DDJ is the
beneficial owner of approximately __
shares of Old Common Stock, representing
approximately _% of the issued and
outstanding shares of Old Common Stock.
As of _______, 1998 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 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 (the "E&Y Fairness
Opinion") addressed to the Board 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 addressed to
the Board 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.
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 and approval by the Stockholders of
each Restructuring Proposal, 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
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 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, 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
"DISCUSSION OF RISK FACTORS."
SUMMARY 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 the Restructuring Date, between the
Company and the Warrant Agent. 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 to the Company's Registration Statement as
Exhibit 10.52. Noteholders may request a copy of the Warrant Agreement by
contacting Todd Kahn, General Counsel and Executive Vice President of the
Company, at (212) 221-7500.
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
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.
SUMMARY OF NEW CIT CREDIT AGREEMENT
The Company intends to enter into a New Credit Agreement, effective as
of the Restructuring Date, which will replace the Company's current working
capital facility under the Credit Agreement. From the beginning of Fiscal
1998, the Company received and reviewed various proposals for a New Credit
Agreement which were submitted by CIT as well as various other prospective
lenders. After reviewing the proposals for a New Credit Agreement received
from the various lenders, and conducting extensive negotiations with
certain of the lenders who submitted proposals, the Company determined that
the proposal submitted by CIT contained the most advantageous terms and
conditions. As a result, the Company entered into the CIT Commitment
Letter, which sets forth the principal terms and conditions of an agreement
for the New CIT Credit Agreement for a $140 million secured credit facility
that the Company intends to enter into on the Restructuring Date.
Pursuant to the CIT Commitment Letter, the New CIT Credit Agreement
will provide for a general working capital facility, in the form of direct
borrowings and letters of credit, up to $125,000,000, subject to an
asset-based borrowing formula. The New CIT Credit Agreement will also
provide for a $15,000,000 term loan facility. As collateral for borrowings
under the New CIT Credit Agreement, the Company will grant to CIT a
security interest in substantially all of the assets of the Company. The
New CIT Credit Agreement will have an initial term commencing on the
Restructuring Date and continuing through and including December 31, 2001.
The New CIT Credit Agreement will also provide, among other things,
that (i) the Company will be charged an interest rate on direct borrowings
of .25% in excess of the prime rate of The Chase Manhattan Bank, N.A. or
2.25% in excess of the London Late Eurodollar Rate; and (ii) CIT may, in
its sole discretion, make loans to the Company in excess of the borrowing
formula. Pursuant to the CIT Commitment Letter, the New CIT Credit
Agreement will also provide that the $15 million term loan portion of the
facility shall be repaid based upon a five year amortization schedule in
consecutive monthly installments, commencing on the first day of the month
immediately following the date six months after the closing of the New CIT
Credit Agreement and continuing thereafter with the final installment in
the amount of the then remaining balance of the term loan, together with
all unpaid and accrued interest thereon, due and payable on December 31,
2001.
The CIT Commitment Letter provides that the New CIT Credit Agreement
will contain financial covenants ("Maintenance Covenants") as to (i)
minimum tangible net worth, (ii) maximum net loss, (iii) minimum interest
coverage ratio, and (iv) maximum capital expenditures. Pursuant to the CIT
Commitment Letter, there will be no other Maintenance Covenants contained
in the New CIT Credit Agreement. The Company believes that the New CIT
Credit Agreement will also contain restrictive covenants and events of
default similar to those that are in the existing Credit Agreement. For a
description of those restrictive covenants and events of default, see
"DESCRIPTION OF CERTAIN EXISTING INDEBTEDNESS OF THE COMPANY--Revolving
Credit Agreement."
Pursuant to the CIT Commitment Letter and in accordance with the
Twelfth Amendment, no closing or facility fees will be charged to the
Company by CIT in consideration of the execution and delivery of the New
CIT Credit Agreement.
The Company believes that the terms and conditions of the New CIT
Credit Agreement set forth in the CIT Commitment Letter are significantly
more favorable than those currently existing under the Credit Agreement
with CIT. Moreover, the Company also believes that the New CIT Credit
Agreement will be adequate to permit the Company to operate its business in
accordance with the Three-Year Business Plan.
The execution of the New CIT Credit Agreement is subject to various
conditions, including, but not limited to, consummation of the
Restructuring by no later than November 30, 1998. There is no assurance
that such conditions will be satisfied or that the New CIT Credit Agreement
will be executed. In addition, under the Letter Agreement, the New CIT
Credit Agreement must be on terms and conditions reasonably satisfactory to
Magten, Apollo and the Company.
SUMMARY OF REGISTRATION RIGHTS AGREEMENT
In connection with the Restructuring, the Company will also enter
into, on the Restructuring Date, a registration rights agreement (the
"Registration Rights Agreement"). 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
Registration Rights Agreement, which is attached to the Company's
Registration Statement as Exhibit 10.51. Noteholders may request a copy of
the Registration Rights Agreement by contacting Todd Kahn, General Counsel
and Executive Vice President of the Company, at (212) 221-7500. 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.
See "DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT."
SUMMARY 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 and
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. See "DESCRIPTION OF RIGHTS PLAN."
TAX OPINION
The Company has received an opinion from Fried, Frank, Harris, Shriver
and Jacobson to the effect that, subject to the assumptions and limitations
set forth therein, the discussions under the sections entitled "Certain
Federal Income Tax Considerations: Stockholders" in the Proxy
Statement/Prospectus and "Certain Federal Income Tax Considerations:
Noteholders" in the Exchange Restructuring Prospectus describe to
Noteholders and Stockholders, respectively, the material federal income tax
consequences of implementing the Restructuring by means of the Exchange
Restructuring or the Prepackaged Restructuring. Under both the Exchange
Restructuring and the Prepackaged Restructuring, except with respect to
cash received in lieu of fractional shares, if any, (i) Stockholders should
not recognize any gain or loss in the transaction, and (ii) Noteholders
should also recognize no gain or loss, except to the extent New Common
Stock received is attributable to accrued but unpaid interest on the Senior
Notes. The Company will not recognize any cancellation of indebtedness
income under the Prepackaged Restructuring, while it may recognize some
cancellation of indebtedness income under the Exchange Restructuring. The
Company will undergo an ownership change under Section 382 of the Code
under both the Exchange Restructuring and the Prepackaged Restructuring
and, as a result, will be limited in its use of NOL's on a going forward
basis, as is discussed in greater detail herein. The tax opinion is
attached to the Company's Registration Statement as Exhibit 8.1.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
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 six month periods ended July 4, 1998 and June 28, 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." The Company's fiscal year
ends on the Saturday closest to December 31.
<TABLE>
<CAPTION>
(Amounts in thousands except share, per share and ratio data)
FOR THE SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED
------------------------- ----------------------------------------------------------------
JULY 4, JUNE 28, 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 $ 159,343 $ 169,601 $ 396,832 $ 417,711 $ 485,825 $ 398,990 $ 379,012
Reversal of /(Provision for)
Restructuring costs (FNa) 160 1,164 (2,066) (11,730) (3,550) - (5,500)
Income/(loss) from continuing
operations (6,835) (9,540) (10,722) (8,958) (362) 3,398 7,865
DISCONTINUED OPERATIONS: (FNe)
Loss from operations, net of income
taxes.................... - (8,136) (8,136) (365) (136) (9,639) (638)
Estimated loss on disposal, net of
income taxes............. - (580) (1,330) - - (1,796) -
Reversal of estimated loss on
disposal, net of income taxes - - - - - - 11,772
Extraordinary gain (FNb) - 600 2,100 - 1,000 63 24,707
Net income/(loss)(FNa) (6,835) (17,656) (18,088) (9,323) 502 (7,865) 43,706
BASIC EARNINGS/(LOSS PER SHARE:
Earnings/(loss) per share from
continuing operations before
extraordinary gain $ (.45) $ (.68) $ (0.71) $ (0.60) $ (0.02) $ (0.23) $ 1.18
Earnings/(loss) per share from
discontinued operations - $ (.58) $ (0.62) $ (0.02) $ (0.01) $ (0.76) $ 1.68
Earnings per share from
extraordinary gain - .04 0.14 - 0.06 - 3.72
Basic earnings/(loss) per share (FNa) (.45) (1.17) (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 $ (.45) $ (.68) $ (0.71) $ (0.60) $ (0.02) $ 0.23 $ 1.10
Earnings/(loss) per share from
discontinued operations - (.58) (0.62) (0.02) (0.01) (0.76) 1.57
Earnings per share from
extraordinary gain - .04 0.14 - 0.06 - 3.48
Diluted earnings/(loss) per share(FNa) (.22) (1.17) (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 15,108 15,139 15,078 15,008 14,954 6,638
Add - Common stock equivalents (FNd) (FNd) (FNd) (FNd) 110 (FNd) 465
Shares used in computing diluted
earnings per share 15,170 15,108 15,139 15,078 15,118 14,954 7,103
AT END OF PERIOD:
Current assets $ 158,808 $ 168,929 $ 148,899 $ 150,986 $ 163,799 $ 172,234 $ 161,375
Total assets 242,289 256,635 233,377 235,251 253,970 266,157 251,946
Current liabilities (FNc) 201,481 100,190 185,692 59,566 61,704 71,104 44,427
Long-term debt (FNc) - 104,879 - 106,231 110,040 109,908 111,851
Deferred liabilities 5,340 8,453 5,382 8,863 11,373 13,479 16,766
Working capital/(deficiency) (42,673) 68,739 (36,793) 91,420 102,095 101,130 116,948
Current ratio 0.8:1 1.7:1 0.8:1 2.5:1 2.7:1 2.4:1 3.61:1
Shareholders' equity $ 35,468 $ 43,113 $ 42,303 $ 60,591 $ 70,853 $ 71,666 $ 78,902
Book value per share $ 2.34 $ 2.85 $ 2.79 $ 4.01 $ 4.71 $ 4.78 $ 5.34
Number of shares outstanding 15,170 15,108 15,170 15,094 15,041 15,008 14,781
<FN>
(a) Includes, for the six month periods ended July 4, 1998 and June
28, 1997, a reversal of a previously recorded restructuring
provision of $160 and $1,164, 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 J.J. 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 (Basis 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 six month period ended June 28, 1997 a gain of
$600 for the reversal of excess liabilities previously provided
for the anticipated settlement of claims arising from the prior
chapter 11 proceeding; 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 July 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 of
the Company's Registration Statement 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.
(e) 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 through
March 1998. 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 $1,796 to accrue for expected operating losses
during the phase-out period through June 1995. No income tax
benefits have been allocated to the division's 1994 loss.
</FN>
</TABLE>
CAPITALIZATION SUMMARY
The following table sets forth the unaudited historical capitalization
of the Company as of April 4, 1998 and the unaudited pro forma consolidated
capitalization of the Company after giving effect to the Exchange
Restructuring as if the Exchange Restructuring had occurred on July 4,
1998. The Exchange Restructuring transactions reflect (i) the issuance of
18,456,350 shares, after giving effect to the Reverse Split, of New Common
Stock to Noteholders, (ii) the issuance of 1,517,100 shares of New Common
Stock to Stockholders, after giving effect to the Reverse Split, which
includes 1,496,461 shares of New Common Stock to be issued upon
consummation of the Restructuring and 20,639 shares of New Common Stock
which are issuable to settle claims asserted in the 1990 Chapter 11 Case,
and (iii) the issuance of Warrants representing the right to purchase up to
2,216,979 shares, after giving effect to the Reverse Split, of New Common
Stock to Stockholders. The Unaudited Pro Forma Consolidated Balance Sheet
as of July 4, 1998 includes pro forma adjustments as if the Exchange
Restructuring had been completed on that date. This table should be read in
conjunction with the "SUMMARY HISTORICAL CONSOLIDATED FINANCIAL
INFORMATION," "UNAUDITED PRO FORMA FINANCIAL STATEMENTS," the condensed
consolidated interim unaudited financial statements for the six months
ended July 4, 1998 and the Consolidated Financial Statements for the year
ended January 3, 1998 and the notes thereto included elsewhere in this
Exchange Restructuring Prospectus.
(UNAUDITED)
JULY 4, 1998
--------------------
ACTUAL PRO FORMA
--------- ---------
($ IN THOUSANDS)
Cash and cash equivalents................................ $ 1,160 $ 1,160
========= =========
Long-term debt, including current portion:
Senior Notes........................................... $ 104,879 $ --
--------- ---------
Total long-term debt................................ $ 104,879 --
Stockholder's equity:
Common stock (15,405 actual shares outstanding
(inclusive of treasury stock and shares
issuable to settle claims); 19,973 pro forma shares
outstanding)........................................... 15,405 19,973
Additional paid-in capital............................. 107,249 206,860
Deficit................................................ (82,100) (79,283)
Accumulated other comprehensive income................. (3,472) (3,472)
Less-treasury stock, at cost-234 shares................ (1,614) --
--------- ---------
Total stockholder's equity.......................... 35,468 144,078
--------- ---------
Total capitalization............................. $ 140,347 $ 144,078
========= =========
SUMMARY OF 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 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 (see "DISCUSSION OF RISK FACTORS -- Limitation on
Use of Net Operating Losses"), 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 Prepackaged
Restructuring 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 this Exchange Restructuring Prospectus meets the
disclosure requirements of the Bankruptcy Code.
DISCUSSION OF RISK FACTORS
Noteholders should consider the following risk factors prior to
deciding whether to (a) participate in the Exchange Offer and/or (b) vote
to accept the Prepackaged Plan:
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
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.
DILUTION
Upon completion of the Restructuring, 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 under 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, (i)
the 18,456,350 shares of New Common Stock 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), and (ii) the 1,496,461 shares of New Common Stock issued directly
to Stockholders will, after giving effect to the Restructuring, represent
7.5% of the total outstanding shares of New Common Stock (excluding the
Warrant Shares), each 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 also 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 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: NOTEHOLDERS."
In general, under the Exchange Restructuring the Company will be
subject to an annual limitation on the use of its NOL's generated prior to
the ownership change. This annual limitation is determined by multiplying
the value of the Company immediately before the ownership change by the
adjusted federal long-term tax exempt interest rate published periodically
by the federal government. Based on an estimated market capitalization of
$10,000,000 and a federal long term interest rate of 5%, the annual
limitation to which the Company's NOL's would be subject is approximately
$500,000 under the Exchange Restructuring. Since there is a 15 year
carryover period applicable to these NOL's, the maximum amount of NOL that
the Company could use is $7,500,000.
Under the Prepackaged Restructuring, the Company would be able to
compute the annual limitation by using the value of the Company after
considering the increase in value attributable to the retirement of the
Senior Notes resulting from the transaction. The appropriate post-ownership
change value which may be used in computing the annual limitation will not
be known until the Prepackaged Restructuring is complete. Assuming the
value of the Company increases to $120,000,000 as a result of the
cancellation of creditors' claims, the annual limitation to which the
Company's NOL's would be subject is approximately $6,000,000 under the
Prepackaged Restructuring. Accordingly, the Company would be able to
utilize $90,000,000 of NOL over the applicable 15 year carryover period.
Currently, after considering the impact of an ownership change
occurring in 1993, the Company has approximately $130,000,000 of NOL's that
may be used to offset future taxable income. If the Exchange Restructuring
occurs, the Company would be able to offset future taxable income with at
most approximately $7,500,000 of NOL's, resulting in a loss of
approximately $122,500,000 of NOL's. If, on the other hand, the Prepackaged
Restructuring occurs, the Company would be able to offset future taxable
income with, at most, approximately $90,000,000 of NOL's, resulting in a
loss of approximately $40,000,000 of NOL's.
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 shares of 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 NEW COMMON 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 given 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. However, the NYSE
has reviewed the terms and conditions of the Restructuring set forth herein
and has informed the Company that it will continue to list the Company's
common stock during the period prior to consummation of the Restructuring
and intends to list the Company's common stock from and after the
Restructuring Date. However, the NYSE has advised the Company that after
consummation of the Restructuring, the NYSE intends to monitor the
performance of the Company based upon the Projections set forth herein to
ensure compliance with the NYSE's original listing standards in respect of
the New Common Stock. The Company believes that as a result of the
consummation of the Restructuring, following the Restructuring Date, the
Company will be able to return to compliance with the original listing
standards in respect of the New Common Stock and the Warrants and that the
New Common Stock and the Warrants will continue to be listed for trading on
the NYSE. However, the NYSE has advised the Company that the Company's
failure to meet the Projections following the Restructuring could result in
the suspension from trading and subsequent delisting of the New Common
Stock. 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 able to return
to full compliance with all of the NYSE's requirements for continued
listing on the NYSE. See "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS."
Moreover, the NYSE has advised the Company that if the Company seeks
to consummate the Restructuring by means of the Prepackaged Restructuring
but is unable to do so, the Old Common Stock is subject to being delisted.
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.
Even though the Company expects the Reverse Split to "normalize" the
post-restructuring trading of the New Common Stock, no assurances can be
made that the Reverse Split will "normalize" post-restructuring trading of
the New Common Stock. If post-restructuring trading is not "normalized,"
the New Common Stock may experience significant price and volume
fluctuations which could materially adversely effect the market price of
the New Common Stock.
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 65% of the
issued and outstanding shares of New Common Stock, subject to dilution for
the Warrant Shares. 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 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 CERTAIN EXISTING INDEBTEDNESS OF THE
COMPANY."
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 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 closes a New Credit Agreement. See "DESCRIPTION OF NEW
CIT CREDIT AGREEMENT." There can be no assurance, however, (i) that the
Company will consummate the Restructuring, or (ii) that the Company will be
able to close 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.
The Company's capital expenditure levels assumed in preparation of the
projected financial data contained herein (see "PROJECTED CONSOLIDATED
FINANCIAL INFORMATION") may be inadequate to maintain the Company's
long-term competitive position depending on the demand for the Company's
goods and as a result of competitive, regulatory and technological
developments (including new market developments and new opportunities) in
the Company's industry.
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 J.J. 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. The total sales reduction attributable to the
elimination of unprofitable programs was $29.8 million. 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 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.
The Company has four material licenses with PEI. The earliest possible
expiration of three of such licenses (i.e., the PEI dress shirt license,
neckwear license and belt and suspender license) is December 31, 2000
(assuming that such date is not accelerated under the terms of the
licenses); however, each of these licenses is renewable in the sole
discretion of the Company until the year 2015. The Company is also the
licensee under eleven license agreements with The Walt Disney Company
("Disney"). While the Disney licenses, in the aggregate, are material, no
single Disney license is material to the Company's businesses. Certain of
the Disney licenses expire as early as December 31, 1998.
The Company's licensing agreements with PEI contain a "change of
control" provision that provides PEI with certain rights upon the
occurrence of a "change of control." Those rights include, among others,
the right to terminate any or all of the licenses within two years after
the occurrence of the change of control. The Company intends to seek
confirmation from PEI that consummation of the Restructuring will not give
rise to any rights of PEI under such change of control provision. The
Company believes that if such confirmation is not obtained prior to the
Restructuring Date, the Restructuring can, in any event, be consummated on
the same terms and conditions without giving rise to any rights of PEI
under such provision.
In addition to the license agreements with PEI and Disney, the Company
is also a party to several other license agreements. Certain of these other
license agreements 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 (i)
improving the Company's IS to provide and enhance support to all operating
areas and (ii) resolving year 2000 issues, the Company entered into a
working agreement (the "EDS Agreement") with Electronic Data Systems
Corporation ("EDS"). The EDS Agreement constituted the initial phase of a
long-term project to outsource the Company's IS and to remedy year 2000
issues. As part of this initial phase, the Company and EDS identified the
ability of one of the two major enterprise systems in the Company to be
modified to make such system Year 2000 compliant and to migrate the
operations of the Company to one enterprise system (the "System
Conversion"). As a result of the ability to implement the System Conversion
and after reviewing the cost of outsourcing the IS function to EDS, Salant
has determined not to outsource the IS functions to EDS. Instead, the
Company will use internal resources for the System Conversion and other
consultants for the implementation of new software. The Company anticipates
that the System Conversion, as well as the implementation of new software,
will be completed by the first quarter of 1999. The Company anticipates
that the cost of the System Conversion and new software will be
approximately $10 million, to be incurred during 1998 and 1999. 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 or 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 or customers.
LEVERAGE AND DEBT SERVICE
As of July 4, 1998, the Company had outstanding total interest bearing
indebtedness of approximately $157.1 million. 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 $15 million. See
"DESCRIPTION OF NEW CIT CREDIT AGREEMENT." 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,
under certain circumstances, 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 also contain certain
restrictive covenants. See "DESCRIPTION OF NEW CIT 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.
IN ADDITION, IN CONNECTION WITH VOTING ON THE PREPACKAGED PLAN, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED BY NOTEHOLDERS:
DISRUPTION OF OPERATIONS RELATING TO BANKRUPTCY FILING
The Company'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 the Company's and its
subsidiaries' relationships with their customers, suppliers or employees.
If the Company's and its subsidiaries' relationships with customers,
suppliers or employees are adversely affected, the Company's operations
could be materially affected. Weakened operating results could adversely
affect the Company's ability to obtain confirmation of the Prepackaged Plan
or to avoid financial difficulties after consummation of the Prepackaged
Plan. The Company 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.
PRIOR CHAPTER 11 FILINGS
The Company has been a debtor in bankruptcy on two prior occasions.
See "BUSINESS AND PROPERTIES OF THE COMPANY -- Bankruptcy Court Cases." The
Company's first chapter 11 case was commenced on February 22, 1985. The
plan of reorganization with respect to the first chapter 11 case was
confirmed by the Bankruptcy Court on May 19, 1987, and was consummated on
June 2, 1987. The Company's second chapter 11 case was commenced on June
27, 1990. The plan of reorganization with respect to the second chapter 11
case was confirmed by the Bankruptcy Court on July 30, 1993 and was
consummated on September 20, 1993. As a result of the Company's two prior
bankruptcies, the risks inherent in a subsequent chapter 11 case may be
further exacerbated if the Company pursues the Restructuring by means of
the Prepackaged Plan.
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
"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 the Company 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 "VOTING AND
CONFIRMATION OF THE PREPACKAGED PLAN."
Additionally, even if the required acceptances of each of Class 3
(i.e., Noteholders) and Class 6 (i.e., Stockholders) are received, the
Bankruptcy Court might find that the Solicitation of votes or the
Prepackaged Plan 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, the Company may seek to resolicit acceptances,
but confirmation of the Prepackaged Plan could be substantially delayed and
possibly jeopardized. The Company 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. The Company, 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, the Company 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 the Company's
business or an equity interest in the Company 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 the Company 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 the Company 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 "DESCRIPTION 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 the Company 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.
CERTAIN OTHER BANKRUPTCY CONSIDERATIONS
Treatment Of The Warrants
In the event of a subsequent bankruptcy case involving the Company,
the Warrants, which will be received by Holders of Old Common Stock in
partial consideration for dilution of their ownership interest in the
Company, 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.
Failure To File Prepackaged Plan
Absent the Restructuring, the Company 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 the
Company will be able to obtain such refinancing or 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
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 the Company's judgment, to confirm the
Prepackaged Plan, the Company 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. The Company 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 the Company and should, therefore,
substantially reduce the time and costs of such a case, result in a larger
distribution to the Company'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 the Company the best
opportunity to accomplish the Restructuring in a bankruptcy case. If the
Exchange Restructuring is not consummated and the Company does not have the
necessary acceptances from Holders of Interests to confirm the Prepackaged
Plan, the Company 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
"FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF CREDITORS
TEST -- Nonconsensual Confirmation." In such event, the Company would seek
to satisfy the Bankruptcy Code standards for confirmation by means of a
"cramdown" against such Holders of Interests. Alternatively, the Company
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 "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 the Company 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, the Company has prepared an analysis of estimated
recoveries in a liquidation under Chapter 7 of the Bankruptcy Code. See
"RESTRUCTURING FINANCIAL CONSIDERATIONS--Liquidation Analysis." A
description of procedures followed and the assumptions and qualifications
in connection with this Liquidation Analysis is set forth in the notes
thereto.
Effect On Operations
The Company believes that the Solicitation and any subsequent
commencement of a Chapter 11 case in connection with the Prepackaged Plan
should not materially adversely affect the Company's and its subsidiaries'
relationships with customers, employees and suppliers, provided that the
Company 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. The Company 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 the Company, its subsidiaries
and their employees, customers and suppliers. There is a risk that, due to
uncertainty about the Company'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 the Company has been
a debtor in bankruptcy on two prior occasions. If such relationships were
adversely affected, the Company and its subsidiaries' financial performance
and working capital position could materially deteriorate. This
deterioration could adversely affect the Company's ability to complete the
Solicitation or, if such Solicitation is successfully completed, to obtain
confirmation of the Prepackaged Plan.
Nonconsensual Confirmation
The Company 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 (i.e., Other Interests) is
deemed not to have accepted the Prepackaged Plan, the Company 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 "FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF
CREDITORS TEST -- Nonconsensual Confirmation." The Company, however, will
not seek confirmation of the Prepackaged Plan unless it is accepted by
Class 3 (i.e., the Noteholders)
BACKGROUND OF RESTRUCTURING
The following summary of the background of the Restructuring,
including the principal terms of the Letter Agreement, the Letter Agreement
Amendments, the Twelfth Amendment, the Thirteenth Amendment, the Voting
Agreement and the CIT Commitment Letter, 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, the Letter Agreement Amendment, the Twelfth Amendment, the
Thirteenth Amendment, and the CIT Commitment Letter are filed as Exhibit
10.42, Exhibit 10.55, Exhibit 10.43, Exhibit 10.53 and Exhibit 10.54,
respectively, to the Company's Registration Statement. The form of Voting
Agreement is attached to the Company's Registration Statement as Exhibit
9.1. Noteholders may request copies of any or all of these documents by
contacting Todd Kahn, General Counsel and Executive Vice President of the
Company, at (212) 221-7500. 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 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 Plan 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. See "Alternative Transactions" below.
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 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 then 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 Asset Management Corp., the beneficial owner of,
or the investment manager on behalf of the beneficial owners of,
approximately $74 million in aggregate principal face amount of Senior
Notes (the "Magten Notes"), representing approximately 71% of the aggregate
principal amount of all Senior Notes, 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. These
efforts culminated in the Letter Agreement. The substance of the Company's
negotiations with Magten and Apollo primarily centered upon each party's
evaluation of, and opinion concerning, the enterprise value of the Company
(discussed in more detail below) and the Company's Three-Year Business
Plan. The Company believed that it was most productive to engage in
discussions with Magten, Apollo and CIT because, as noted above, Magten is
the beneficial holder of approximately 71% of the Senior Notes, Apollo is
the beneficial holder of approximately 39.6% of the Old Common Stock and
CIT is the Company's working capital lender. The Board fully participated
in the negotiation of the terms of the Restructuring. Although the terms of
the Restructuring were not negotiated with any non-affiliated Stockholders
or any minority Noteholders, the Trustee under the Indenture was provided
with, and commented upon, preliminary drafts of the Company's Registration
Statement, including drafts of the Exchange Restructuring Prospectus, Proxy
Statement/Prospectus, and Prepackaged Plan, prior to the filing of the
Registration Statement with the Commission.
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 Company, Magten and Apollo determined that it was
necessary to assume a total enterprise value for the Company. After a
review of the Company's Three-Year Business Plan, as well as any other
factor deemed relevant by each party, each of the Company, Magten and
Apollo developed its own view as to the total enterprise value of the
Company. After significant discussion, solely for purposes of allocating
the equity of the Company post-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.
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 described below on pages __ to
__), pursuant to which (i) Noteholders would receive 92.5% of the New
Common Stock, which equates to a distribution of equity to Noteholders with
an implied value of $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 amount approximates the aggregate
outstanding amount under the Senior Notes as of the date the Letter
Agreement was entered into - i.e., $104.879 million in aggregate principal
amount and $5.5 million in accrued and unpaid interest as of February 28,
1998); and (ii) Stockholders would receive (a) 7.5% of the New Common
Stock, which equates to a distribution of equity to Stockholders with an
implied value of $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 February 28, 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 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
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.
Subsequent to the execution of the Letter Agreement, the Company,
Magten and Apollo entered into two letter agreements, dated June 1, 1998
and July 8, 1998 (the "Letter Agreement Amendments"), amending the Letter
Agreement. The Letter Agreement Amendments, among other things, extend the
dates for certain Magten Agreement Termination Events and Apollo Agreement
Termination Events upon which Magten and/or Apollo may terminate the Letter
Agreement as follows (and as described in more detail below): (i) the
Company must have obtained the requisite Stockholders' consent of the
Restructuring by November 30, 1998; (ii) the Exchange Offer must have been
commenced by August 31, 1998; and (iii) the Restructuring must have been
consummated by November 30, 1998. References herein to the "Letter
Agreement" shall, when appropriate, refer to the Letter Agreement as
amended by the Letter Agreement Amendments.
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) [ ] 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 (subject to the
proviso in clause (g) below) 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 November 30, 1998;
(b) the Exchange Offer shall not have commenced on or before
August 31, 1998;
(c) the Restructuring Date shall not have occurred on or before
November 30, 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 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 Restructuring Date, other than a voluntary
petition filed in connection with a prepackaged or
prenegotiated chapter 11 case to effectuate the
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 Magten Notes results from an arrangement
in existence on March 2, 1998 under which Magten has been
engaged to perform investment management services on behalf
of a beneficial owner of the Magten 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 subject matter
of the Letter Agreement, or (ii) such beneficial owner on
its own (without any direct or indirect influence from
Magten) directs Magten to dispose of some or all of the
Magten Notes beneficially owned by such beneficial owner;
provided, that, in any case, the Magten Agreement
Termination Event arising pursuant to this clause (g) shall
apply only to, and shall result in the termination of
Magten's obligations under the Letter Agreement solely with
respect to, those Senior Notes as to which Magten's
engagement has been terminated or as to which such a
disposal direction has been issued, and further provided,
that such Magten Agreement Termination Event shall have no
effect whatsoever on any of Magten's other obligations under
the Letter Agreement.
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 Restructuring Date shall not have occurred on or before
November 30, 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 Restructuring Date, other than a
voluntary petition filed in connection with a prepackaged or
prenegotiated chapter 11 case to effectuate the
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 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.
Even though the Company expects the Reverse Split to "normalize" the
post-restructuring trading of the New Common Stock, no assurances can be
made that the Reverse Split will "normalize" post-restructuring trading of
the New Common Stock. If post-restructuring trading is not "normalized,"
the New Common Stock may experience significant price and volume
fluctuations which could materially adversely effect the market price of
the New Common Stock.
THE VOTING AGREEMENT
In accordance with the terms of the Letter Agreement, on August _,
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. For a copy of the form of the Voting Agreement, Noteholders may
contact Todd Kahn, General Counsel and Executive Vice President of the
Company, at (212) 221-7500, to request a copy. Pursuant to the Voting
Agreement, Apollo agreed that, subject to Apollo's receipt of proxy or
other solicitation materials 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 Capital Management, LLC ("DDJ") regarding a possible
refinancing transaction. As of March 10, 1998, DDJ was the beneficial owner
of 1,809,100 shares of Old Common Stock, which represents approximately
12.1% 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 did not wish to enter into such a voting agreement. In discussions
between the Company and DDJ, DDJ stated that it was "disappointed" that the
Company was not pursuing a refinancing. However, DDJ has not expressed
opposition to the Restructuring. 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 date of this Exchange Restructuring Prospectus,
DDJ is the beneficial owner of approximately ____ shares of Old Common
Stock, representing approximately ____% of the issued and outstanding
shares of Old Common Stock.
THE WAIVER AND FORBEARANCE UNDER THE CREDIT AGREEMENT AND COMMITMENT FOR
NEW 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
Twelfth Amendment 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 Twelfth Amendment, 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 Twelfth
Amendment) 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.
In consideration for CIT's agreement to enter into the Twelfth
Amendment, 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 Twelfth Amendment 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.
Relative to the June 1, 1998 deadline contained in the Twelfth
Amendment by which the Company was required to obtain a commitment for a
New Credit Agreement, since the beginning of Fiscal 1998, the Company
received and reviewed various proposals for a New Credit Agreement which
were submitted by CIT as well as various other prospective lenders. After
reviewing the proposals for a New Credit Agreement received from the
various lenders, and conducting extensive negotiations with certain of the
lenders who submitted proposals, the Company determined that the proposal
submitted by CIT contains the most advantageous terms and conditions. As a
result, the Company entered into a commitment letter with CIT (the "CIT
Commitment Letter"), which sets forth the principal terms and conditions of
an agreement for a new $140 million secured credit facility with CIT under
the New CIT Credit Agreement that the Company intends to enter into on the
Restructuring Date. The execution of the New CIT Credit Agreement is
subject to various conditions, including, but not limited to, the
consummation of the Restructuring. For a more detailed description of the
new working capital facility to be provided by CIT pursuant to the CIT
Commitment Letter, see "DESCRIPTION OF NEW CIT CREDIT AGREEMENT." Pursuant
to the CIT Commitment Letter and in accordance with the Twelfth Amendment,
no closing or facility fees will be charged to the Company by CIT in
consideration of the execution and delivery of the New CIT Credit
Agreement.
In conjunction with obtaining the financing commitment under the CIT
Commitment Letter, CIT has agreed to further support the Restructuring by
entering into the Thirteenth Amendment and Forbearance Agreement, dated as
of June 1, 1998 (the "Thirteenth Amendment"), wherein CIT agreed (i) to
continue to forbear (subject to certain conditions) from exercising any of
its rights or 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 or by virtue of an event of default arising from
the failure of the Company to make the interest payment on the Senior Notes
due and payable on August 31, 1998; (ii) to continue to make loans,
advances and other financial accommodations to the Company through the
earlier of the Restructuring Date and November 30, 1998, subject to the
terms and conditions of the Thirteenth Amendment; and (iii) to amend
certain provisions of the Credit Agreement, including a reduction of the
rate of interest charged on the revolving credit loans, an increase in the
advance rate for revolving credit loans made under the Credit Agreement and
the elimination of any and all provisions providing for the factoring of
the Company's accounts receivable. Under the Thirteenth Amendment, such
agreement to forbear by CIT will terminate on November 30, 1998 or earlier
upon the happening of (a) the occurrence of any Event of Default (as
defined in the Credit Agreement), other than by virtue of the Company's
failure to make the March 2, 1998 or August 31, 1998 interest payment on
the Senior Notes or the commencement or continuation of a chapter 11 case
to effectuate the Restructuring; or (b) the exercise of any right or remedy
with respect to any of the Collateral by any holder of the Senior Notes or
by the Trustee under the Indenture; or (c) the payment of any interest on
the Senior Notes in respect of the Company's non-payment of the interest
that was payable on March 2, 1998 or that will be payable on August 31,
1998 or otherwise; or (d) the occurrence of an Agreement Termination Event
(as defined in the Letter Agreement), except under certain circumstances.
Moreover, the Thirteenth Amendment provides that in the event that the
Company seeks to consummate the Restructuring by filing a chapter 11 case,
(i) the Credit Agreement will remain in full force and effect (subject to
certain conditions) and (ii) immediately upon commencement of the chapter
11 case, the Company and CIT will seek Bankruptcy Court approval and
authority for CIT to extent post-petition financing to the Company on the
same terms and conditions as set forth in the Credit Agreement. In
accordance with the Twelfth Amendment, no additional closing fees, facility
fees or amendment fees were charged to the Company by CIT in consideration
of the execution and delivery of the Thirteenth Amendment. While the
Company expects that the Restructuring will be consummated prior to
November 30, 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.
ALTERNATIVE TRANSACTIONS
Subsequent to the date that the Company announced the proposed
Restructuring on March 3, 1998, the Company has continued to review all
options which might be available to the Company, including several
indications of interest received from various third parties to purchase all
or part of the Company's businesses or assets. In order to identify and
solicit indications of interest with respect to alternative transactions, the
Company has engaged in detailed discussions with certain of such third
parties in order to explore the possibility of an acquisition transaction or
business combination involving the Company. In that connection, the Company
has entered into confidentiality agreements with such potential third party
purchasers. While certain of these third parties demonstrated varied levels
of interest in further discussions, as of the date hereof, the Company has
not entered into any agreement concerning any such proposed transaction.
Discussions regarding alternative transactions are ongoing.
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 February
28, 1998, was $110.379 million, consisting of $104.879 million principal
amount of, and $5.5 million of accrued interest on, the Senior Notes) into
New Common Stock. Interest charges for the Company will be reduced by $11
million per year and stockholders' equity should be substantially increased
as a result of the Restructuring. The Company's consolidated debt at the
completion of the Restructuring will include approximately $28 million in
revolver debt plus $15 million from 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 the commencement of such
proceeding. In addition, the Company's working capital lender, CIT, agreed
to forbear until November 30, 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."
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 the E&Y Fairness Opinion addressed to the Board
stating its 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 addressed to the Board 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 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 TO THIS EXCHANGE
RESTRUCTURING PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
NOTEHOLDERS 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 4, 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 Company's Registration
Statement, filed with the Commission as of the date of the E&Y Fairness
Opinion. The form of the Restructuring described in the Company's
Registration Statement filed with the Commission as of the date of the E&Y
Fairness Opinion is the same in all material respects as the form of the
Restructuring described herein.
The E&Y Fairness Opinion is necessarily based upon market, economic
and other conditions as they existed and could be evaluated on 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 capital structure of the
Company (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, 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 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 (see "PROJECTED CONSOLIDATED FINANCIAL INFORMATION"), 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 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
$600,000 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 the 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. See "PROJECTED CONSOLIDATED FINANCIAL INFORMATION" for the projected
financial information on which the Three Year Business Plan is based.
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; (iii) develop
strategies designed to return the Company's Children Group to historical
levels of profitability; (iv) implement procedures designed to improve
operational efficiencies in distribution, manufacturing and information
systems; and (v) 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 the following liquidation analysis with the
assistance of its financial advisor, E&Y. The liquidation analysis
estimates the gross value available for distribution in a liquidation under
chapter 7 of the Bankruptcy Code 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 $47,543,000. 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 $114,067,000), the liquidation
would net the Noteholders' between a 10.8% and 41.7% recovery on their
claims and leave existing Stockholders with no consideration, assuming a
strict priority distribution.
THE FOLLOWING LIQUIDATION ANALYSIS IS AN ESTIMATE OF THE PROCEEDS THAT
MAY BE GENERATED AS A RESULT OF A HYPOTHETICAL CHAPTER 7 LIQUIDATION OF THE
ASSETS OF THE COMPANY. THE LIQUIDATION ANALYSIS MAKES NUMEROUS ASSUMPTIONS
WITH RESPECT TO ASSET VALUATION, INDUSTRY PERFORMANCE, BUSINESS AND
ECONOMIC CONDITIONS, AND OTHER MATTERS, MANY OF WHICH ARE BEYOND THE
COMPANY'S CONTROL. MOREOVER, THE METHODS AND ASSUMPTIONS USED IN PREPARING
THE LIQUIDATION ANALYSIS INVOLVE SIGNIFICANT ELEMENTS OF SUBJECTIVE
JUDGMENT ON THE PART OF THE COMPANY AND MAY OR MAY NOT PROVE TO BE CORRECT.
THE LIQUIDATION ANALYSIS DOES NOT PURPORT TO BE A VALUATION OF THE
COMPANY'S ASSETS AND IS NOT NECESSARILY INDICATIVE OF THE VALUES THAT MAY
BE REALIZED IN AN ACTUAL LIQUIDATION WHICH MAY BE SIGNIFICANTLY MORE OR
LESS FAVORABLE THAN THE ESTIMATES CONTAINED IN THE LIQUIDATION ANALYSIS.
<TABLE>
<CAPTION>
SALANT CORPORATION
HYPOTHETICAL LIQUIDATION ANALYSIS
($ IN THOUSANDS)
ESTIMATED
ASSETS ESTIMATED LIQUIDATION VALUE
AVAILABLE FOR % RECOVERY (UNAUDITED)
LIQUIDATION -------------------------- --------------------------
(UNAUDITED) LOW HIGH LOW HIGH NOTE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS TO BE LIQUIDATED
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 $ 249,984 122,541 149,167
===========
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 (3,676) (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 70,874 106,105
LESS: SECURED CLAIMS
Pre-petition Lenders (58,562) (58,562) 9
----------- -----------
PROCEEDS AVAILABLE FOR DISTRIBUTION TO
SENIOR SECURED NOTEHOLDERS 12,312 47,543
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 $106,105 in net proceeds distributable to holders of
secured claims, nonpriority unsecured claims and equity interests in a
hypothetical Chapter 7 liquidation of the Company on the Effective Date and
a comparison to estimated recoveries under the proposed Prepackaged Plan.
The distribution in such liquidation gives effect to strict enforcement of
all contractual subordination provisions.
<TABLE>
<CAPTION>
CHAPTER 7 CHAPTER 11
---------------------------------------------- ----------------------------------------------
CLAIM OR CLAIM OR
EQUITY RECOVERY RECOVERY EQUITY RECOVERY RECOVERY
CLASS INTEREST ($) (%) INTEREST ($) (%)
- ------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
2 $58,562 $58,562 100% $58,562 $58,5621 100%
(CIT Claim)
3 $114,067 $12,312 to 10.8% to $114,067 $110,0002 96.4%
(Senior Note $47,453 41.7%
Claims)
4 $0 $0 -- $0 $0 --
(Misc. Secured
Claims)
5 $57,116 to $0 -- $35,331 to $35,331 to 100%
(General $62,744 $36,331 $36,3313
Unsecured
Claims)
6 Old Common $0 -- Old $15,0004 --
Stock Common Stock
Interests
7 Other $0 -- Other $0 --
Interests Interests
As illustrated by the foregoing, the Company 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 the Company were liquidated
under Chapter 7 of the Bankruptcy Code on the Effective Date. Accordingly,
the Company believes the Prepackaged Plan satisfies the requirements of the
best interests test set forth in Section 1129(a)(7) of the Bankruptcy Code.
- ---------------------
<FN>
1 Estimated aggregate amount due to CIT under the Credit Agreement as of
July 1, 1988 (which date, for purposes of this Liquidation Analysis,
is assumed to be the date that a hypothetical Chapter 7 case would be
commenced). See "Liquidation Analysis" above.
2 Estimated aggregate value attributable to share of New Common Stock to
be issued to Holders of Senior Note Claims. See "BACKGROUND OF
RESTRUCTURING -- The Letter Agreement."
3 Estimated aggregate amount due to holders of General Unsecured Claims
as of July 1, 1988. See "Liquidation Analysis" above.
4 Estimated aggregate value attributable to shares of New Common Stock
and Warrants to be issued to Holders of Old Common Stock Interests.
See "BACKGROUND OF RESTRUCTURING -- The Letter Agreement."
</FN>
</TABLE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Balance Sheet as of
July 4, 1998 and the Unaudited Pro Forma Consolidated Statements of
Operations for the six month period ended July 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
affect to the Exchange 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 July 4, 1998 includes pro forma
adjustments as if the Exchange Restructuring had been completed on that
date. The following Unaudited Pro Forma Consolidated Statement of
Operations for the six month period ended July 4, 1998 and the year ended
January 3, 1998 includes pro forma adjustments as if the Exchange
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 Exchange Restructuring Prospectus 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.
<TABLE>
<CAPTION>
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
HISTORICAL PRO FORMA PRO FORMA
JULY 4, 1998 ADJUSTMENTS JULY 4, 1998
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......... $ 1,160 $ 1,160
Accounts receivable, net ........... 41,195 41,195
Inventories ........................ 107,143 107,143
Prepaid expenses and other current 9,310 (4,452)(C) 4,768
assets
Total current assets ............... 158,808 154,266
(4,452)
Property, plant & equipment, net ... 27,561 27,561
Other assets ....................... 55,920 55,920
--------- --------- ---------
$ 242,289 $ (4,452) $ 237,747
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable ...................... $ 52,176 $ 52,176
Accounts payable ................... 23,604 23,604
Reserve for business restructuring . 869 869
Accrued salaries, wages and other .. 19,953 (9,318)(B) 11,680
liabilities
1,045(c)
Current portion of long term debt .. 104,879 (104,879)(b) --
--------- --------- ---------
Total Current Liabilities ..... 201,481 (113,152) 88,329
Deferred Liabilities ............... 5,340 5,340
Shareholders' equity:
Preferred stock ................. -- --
Common stock .................... 15,405 (234)(d) 19,973
(15,171)(e)
1,517 (e)
18,456 (b)
Additional paid-in capital ...... 107,249 15,171 (e) 206,860
(1,517)(e)
6,100 (b)
85,444 (b)
(5,587)(c)
Deficit ......................... (82,100) (1,380)(d) (79,283)
4,197 (b)
Accumulated other comprehensive (3,472) (3,472)
income...........................
Treasury stock .................. (1,614) 1,614 (d) --
--------- ------------ ---------
Total stockholders' equity .... 35,468 105,942 144,078
$ 242,289 0 $ 237,747
========= ========= =========
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 4, 1998
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------------------------------------------------
<S> <C> <C> <C>
Net sales $ 159,343 $ 159,343
Costs of sales 125,926 125,926
--------- ------------ ---------
Gross profit 33,417 33,417
Selling, general and
administrative expenses (34,333) (34,333)
Royalty Income 2,676 2,676
Goodwill amortization (940) (940)
Other income, net 160 160
Reversal of Division 171 171
restructuring costs --------- ------------ --------
Income from continuing
operations before interest,
income taxes and extraordinary
gain 1,151 ------------ 1,151
Interest expense, net (8,042) 5,506(f) (2,536)
loss from continuing -------- ------------ ---------
operations before income taxes (6,891) 5,506 (1,385)
Income taxes ................. (26) -(g) (26)
--------- ----------- --------
loss from continuing
operations ................... $ (6,865) 5,506 $ (1,359)(h)
========= =========== =========
Basic loss per share
from continuing operations ... (0.45) $ (.07)
========= =========
Weighted average common stock
outstanding .................. 15,170 19,973 (i)
========= =========
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
</TABLE>
<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 (h)
=========== ============= ===========
Basic earnings/(loss) per share
from continuing operations $ (0.71) $ .03
=========== ===========
Weighted average common stock
outstanding $ 15,139 $ 19,973 (i)
=========== ===========
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
</TABLE>
<PAGE>
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 July 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 $6.65 million of accrued interest thereon
for 18,456,350 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 2,216,979 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 expenses of $5,587 (of which $4,542 have been paid as of
July 4, 1998) 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
at original cost.
(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 10 1/2% Senior Notes.
(g) No tax provision was reflected due to the utilization of approximately
$500,000 of net operating loss carryforwards.
(h) The Unaudited Pro Forma Consolidated Statements of Operation do not
include an extraordinary (loss)/gain on early extinguishment of debt
of approximately ($1.2) million and $4.2 million at January 4, 1998
and July 4, 1998, respectively.
(i) The pro forma weighted average shares outstanding assumes all New
Common Stock is outstanding for the entire period.
<PAGE>
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" 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 have 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
November 30, 1998.
2) The Projections assume that the Company will continue to operate
without significant changes to its 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.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
ACTUAL
1997 1998 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales (Millions) $396.8 $374.3 $385.8 $425.0
Total Gross Margin as a % of Sales 21.3% 23.3% 24.7% 25.5%
Total Operating Expenses as a % of 20.3% 19.5% 19.5% 18.6%
Total Sales
----------------------------------------------------------------------------
</TABLE>
SALES
During the Projected Period, sales are assumed to increase from $396.8
million in fiscal 1997 to $425.0 million in fiscal year 2000, a 2.3%
compound annual growth rate. This increase in sales is expected to result
from a combination of additional sales to existing customers and the
development of new customers. In the Perry Ellis division, sales growth
will be driven by the continued opening of in-store shops for the
sportswear collection business, expansion of casual sportswear through the
Perry Cottons line, re-establishment of the Perry Ellis Portfolio Pants
line in at least three department stores, and new door expansion with
existing customers in Canada. Sales growth in the Salant Menswear Group is
expected to result from a strategy of aligning the dress shirt business
with the accessories business by structuring the salesforce around retail
customers rather than product line, by concentrating on private label
growth in dress shirts, bottoms and accessories, and by refocusing Perry
Ellis accessories into department stores. In the Children's Group, sales
growth is expected to result from enhanced brand management of the
sleepwear business by price points and customer type.
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 sales is expected to increase during the
Projected Period primarily as the result of a change in the sales mix and
an improvement related to certain manufacturing, sourcing and distribution
processes. The expected changes in sales mix will reflect a higher
proportion of regular price and incentive price sales and a lower
proportion of off-price sales, in all divisions. This shift will occur as a
result of the minimization of off-price programs, as well as improvements
in the manufacturing process and product quality (i.e., fewer seconds).
Improvements in gross margins will also result from better execution in
sourcing and distribution, such as shifting production to more effective
off-shore facilities. Management believes that the improvements in gross
management are achievable based upon process improvements made to date and
recent trends away from off-price sales, and the continued focus of
recently hired Vice Presidents of Manufacturing and Distribution (two
previously vacant positions).
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 decrease in total dollar amount during the Projected Period
from $80.6 million in fiscal year 1997 to $79.1 million in fiscal year
2000. 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. Management's primary means of reducing
operating expenses as a percentage of sales is to leverage operating
expenses through increased sales, which is expected to result from the
initiatives described above. Other expense reduction initiatives to be
substantially completed by the end of 1998 include the consolidation of the
Perry Ellis Bottoms and Dress Shirts divisions into one operational group
focusing on Portfolio, sub-licensing of the Perry Ellis America line,
consolidation of the Accessories division into Salant Menswear Group, the
installation of a new electronic data processing system and the
discontinuation of the Joe Boxer Sportswear line. However, the impact on
operations from these expense reduction initiatives will be seen throughout
the Projected Period.
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.
INTEREST EXPENSE
During the Projected Period, annual interest expense consists of
interest on the average outstanding Revolver, interest on the average
outstanding Term Loan, annual credit facility fees, and an annual fee
related to average Letter of Credit usage. For the Projected Period, the
assumed interest rate for both the Revolver and the Term Loan is .25
percent in excess of the Prime Rate or 8.75% (based on the Prime Rate as of
August 26, 1998). For the Revolver, the assumed interest rate is multiplied
by the average Revolver borrowings as projected by management resulting
from the operating projections in the business plan. The assumed credit
facility fees for both the Revolver and the Term Loan are $100,000 for 1998
and $200,000 under the new credit facility for 1999 and 2000. The assumed
annual fee on the average Letter of Credit usage was based on a rate of
1.75% for each year in the Projected Period, multiplied by the average
Letters of Credit assumed to be outstanding.
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 "DISCUSSION OF RISK
FACTORS" for a discussion of various factors that could materially affect
the Company's financial condition, results of operations, business,
prospects and securities.
<PAGE>
PROJECTED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(In thousands)
FISCAL YEAR ENDING DEC. 31,
-----------------------------
1998 1999 2000
--------- --------- --------
Net sales $ 374,346 385,788 424,953
Cost of goods sold 287,085 290,652 316,747
--------- -------- --------
Gross profit 87,261 95,136 108,206
Selling, general and administrative (73,114) (75,181) (79,069)
Royalty income 5,528 4,398 4,063
Goodwill amortization (1,881) (1,881) (1,881)
--------- -------- --------
Income from continuing operations
before interest and income taxes 17,794 22,472 31,319
Interest expense, net (3,991) (4,060) (3,205)
--------- -------- --------
Income from continuing operations before
income taxes 13,803 18,412 28,114
Income taxes (5,522) (7,365) (11,246)
--------- -------- --------
Net income $ 8,281 $ 11,047 $ 16,868
========= ======== ========
<PAGE>
PROJECTED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
FISCAL YEAR ENDING DEC. 31,
------------------------------
1998 1999 2000
--------- -------- ---------
ASSETS
CURRENT ASSETS:
Cash $ 2,218 $ 2,218 $ 2,218
Accounts Receivable (Net) 59,713 58,738 62,488
Inventories (Net) 91,204 91,537 99,100
Prepaid Expenses 4,597 4,449 4,627
--------- -------- ---------
TOTAL CURRENT ASSETS 157,732 156,942 168,433
Net Fixed Assets 30,943 31,184 31,833
Other Assets 55,035 51,854 48,573
--------- -------- ---------
TOTAL ASSETS $243,710 $239,980 $248,839
========= ======== =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Loan Payable $26,166 $12,932 $ 6,009
Current Portion of Long-Term Debt 1,750 3,000 10,250
Accounts Payable 28,522 29,086 30,568
Accrued Expenses 11,120 10,762 11,195
Other 2,906 2,906 2,906
--------- -------- ---------
TOTAL CURRENT LIABILITIES 70,463 58,686 60,927
Long-Term Debt 13,250 10,250 0
Other (deferred liab) 5,579 5,579 5,579
--------- -------- ---------
TOTAL LIABILITIES 89,292 74,515 66,506
TOTAL SHAREHOLDERS' EQUITY 154,418 165,465 182,333
--------- -------- ---------
TOTAL LIABILITIES AND EQUITY $243,710 $239,980 $ 248,839
========= ======== =========
<PAGE>
PROJECTED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
FISCAL YEAR ENDING DEC. 31,
-----------------------------
1998 1999 2000
-------- -------- --------
OPERATING ACTIVITIES:
Net Income $8,281 $11,047 $16,868
Adjustment to reconcile net income
to net cash used in operating activities:
Accretion of interest on senior
secured notes 11,012 0 0
Amortization of intangibles 3,004 3,181 3,281
Depreciation 7,188 7,580 7,187
Changes in operating assets
and liabilities
Net accounts receivable (1,058) 975 (3,749)
Inventory 5,434 (332) (7,563)
Prepaids and other assets (380) 148 (179)
Accounts payable 776 564 1,482
Accrued expenses (507) (358) 432
Other current liabilities (4,394) 0 0
-------- -------- --------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES 29,356 22,805 17,759
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 (20,604) (13,234) (6,923)
(Decrease) increase to equity
(restructuring charges) (5,423) 0 0
(Repayments) increase of long-term debt 15,000 (1,750) (3,000)
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (11,027) (14,984) (9,923)
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS 6,637 0 0
Cash and cash equivalents, beginning
of year 2,218 8,855 8,855
======== ======== ========
Cash and cash equivalents, end of year $8,855 $8,855 $8,855
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS:
Conversion of debt to common stock $115,891
<PAGE>
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:
<PAGE>
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 J.J. Farmer
On June 10, 1994, the Company acquired all the capital stock of J.J.
Farmer Clothing Inc. (a Canadian corporation) and the assets of J.J.
Farmer International Limited (a Hong Kong corporation) (collectively "J.J.
Farmer") for approximately $5,311 in cash, subject to adjustment based on a
number of items, including the future profitability of J.J.. Farmer. As
part of the acquisition, the company agreed to pay to the former owners of
J.J. Farmer, certain minimum amounts in the years 1996 through 1999. The
acquisition has been accounted for as a purchase, and accordingly, J.J..
Farmer's operating results have been included in the Company's consolidated
results of operations commencing June 11, 1994. J.J. 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. In the second quarter of 1996, the Company discontinued the J.J.
Farmer product line and recorded a restructuring charge of $5.7 million,
primarily related to the write-off of goodwill and the write-down of other
assets. The Company also entered into an agreement with the former owners
of J.J. Farmer, which eliminated all future minimum payments. As of
January 3, 1998, any assets or liabilities related to J.J. Farmer were not
material.
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 Bankruptcy Court 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 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 1993 Chapter
11 Plan. The 1993 Chapter 11 Plan was consummated on September 20, 1993.
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
1993 Chapter 11 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.
<PAGE>
SELECTED 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 six month periods ended July 4, 1998 and June 28, 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."
The Company's fiscal year ends on the Saturday closest to December 31.
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED
------------------------ -------------------------
JULY 4, JUNE 28, 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)
------------------------------------------------------------------------------------------------------
CONTINUING
OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 159,343 $ 169,601 $ 396,832 $ 417,711 $ 485,825 $398,990 $ 379,012
Reversal of /(Provision
for) Restructuring 160 1,164 (2,066) (11,730) (3,550) -- (5,500)
costs(a)
Income/(loss) from
continuing operations (6,835) (9,540) (10,722) (8,958) (362) 3,398 7,865
DISCONTINUED OPERATIONS:(e) --
Loss from operations,
net of income taxes -- (8,136) (8,136) (365) (136) (9,639) (638)
Estimated loss on
disposal, net of income -- 580 (1,330) -- -- (1,796) --
taxes
Reversal of estimated
loss on disposal, net of
income taxes -- -- -- -- 11,772
Extraordinary gain (b) -- 600 2,100 -- 1,000 63 24,707
Net income/(loss)(a) (6,835) (17,656) (18,088) (9,323) 502 (7,865) 43,706
BASIC EARNINGS/(LOSS PER
SHARE:
Earnings/(loss) per share
from continuing
operations before
extraordinary gain $ (.45) $ (.68) $ (0.71) $ (0.60) $ (0.02) $ (0.23) $ 1.18
Earnings/(loss) per share
from discontinued
operations -- $ (.58) $ $ $ $ $ 1.68
Earnings per share from
extraordinary gain -- .04 0.14 -- 0.06 -- 3.72
Basic earnings/(loss) per (.45) (1.17) (1.19) (0.62) 0.03 (0.53) 6.58
share (a)
DILUTED EARNINGS/(LOSS)
PER SHARE:
Earnings/(loss) per share
from continuing $ (.45) $ (.68) $ (0.71) $ (0.60) $ (0.02) $ 0.23 $ 1.10
operations before
extraordinary gain
Earnings/(loss) per share
from discontinued -- 1.57
operations (.58) (0.62) (0.02) (0.01) (0.76)
Earnings per share from 0.14 -- 0.06 -- 3.48
extraordinary gain -- .04
Diluted earnings/(loss) (.45) (1.17) (1.19) (0.62) 0.03 (0.53) 6.15
per share (a)
CASH DIVIDENDS PER SHARE -- -- -- -- -- -- --
WEIGHTED AVERAGE SHARES:
Shares used in computing
basic earnings per share 15,170 15,108 15,139 15,078 15,008 14,954 6,638
Add - Common stock (d) (d) (d) (d) 110 (d) 465
equivalents
Shares used in computing
diluted earnings per share 15,170 15,108 15,139 1,5078 15,118 14,954 7,103
AT END OF PERIOD:
Current assets $ 158,808 $ 168,929 $ 148,899 $ 150,986 $163,799$ 172,234 $161,375
Total assets 242,289 256,635 233,377 235,251 253,970 266,157 251,946
Current liabilities (c) 201,481 100,190 185,692 59,566 61,704 71,104 44,427
Long-term debt (c) -- 104,879 -- 106,231 110,040 109,908 111,851
Deferred liabilities 5,340 8,453 5,382 8,863 11,373 13,479 16,766
Working
capital/(deficiency) (42,673) 68,739 (36,793) 91,420 102,095 101,130 116,948
Current ratio 0.8:1 1.7:1 0.8:1 2.5:1 2.7:1 2.4:1 3.61:1
Shareholders' equity $ 35,468 $ 43,113 42,303 60,591 70,853 71,666 78,902
Book value per share $ 2.34 $ 2.85 $ 2.79 $ 4.01 $ 4.71 $ 4.78 $ 5.34
Number of shares 15,170 15,108 15,170 15,094 15,041 15,008 14,781
outstanding
</TABLE>
(a) Includes, for the three month periods ended July 4, 1998 and June
28, 1997, a reversal of a previously recorded restructuring
provision of $160 and $1.164, 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 J.J. 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 (Basis 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 six month period ended June 28, 1997 a gain of
$600 for the reversal of excess liabilities previously provided
for the anticipated settlement of claims arising from the prior
chapter 11 proceedings; 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 July 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 of
the Company's Registration Statement 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.
(e) 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 through
March 1998. 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.
<PAGE>
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.
As part of the Company's business restructuring from Fiscal 1997 the
Company closed all retail outlet stores other than Perry Ellis outlet
stores. The Company anticipates an improvement in operating income, as a
result of closing the retail stores, of approximately $1,591 which
represents the three year average operating loss from those closed stores.
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
Second Quarter of 1998 Compared with Second 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 July 4, 1998 and
June 28, 1997 and the percentage contribution of each of those segments to
total net sales:
Three Months Ended Percentage
------------------ Increase/
July 4, 1998 June 28, 1997 (Decrease)
------------ ------------- ----------
(dollars in millions)
Men's Apparel $69.4 93% $75.9 93% (9%)
Children's Sleepwear
and Underwear 5.1 7% 5.5 7% (7%)
----- --- ----- --- ----
Total $74.5 100% $81.4 100% (9%)
===== ==== ===== ====
Sales of men's apparel decreased by $6.5 million, or 9%, in the second
quarter of 1998, as compared to the second quarter of 1997. This decrease
primarily resulted from (a) a $2.4 million decrease in dress shirts,
primarily due to a reduction of off-price sales for Perry Ellis dress
shirts and reduced sales of Gant dress shirts, (b) a $2.2 million decrease
related to the closure of all non-Perry Ellis retail stores in the fourth
quarter of 1997 and (c) a $2.0 million decrease in sales of men's slacks
due to initial shipments of the Canyon River Khakis program in the second
quarter of 1997 and the discontinuance of sales under the Thomson brand in
1998.
Sales of children's sleepwear and underwear decreased by $0.4 million,
or 7%, in the second quarter of 1998, as compared to the second quarter of
1997. This decrease was primarily a result of lower sales of licensed
character sleepwear, partially offset by higher off-price sales related to
the disposal of the Joe Boxer sportswear line. 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 $0.8 million in the second
quarter of 1998 and $0.3 million in the second quarter of 1997. 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 July 4, 1998 and
June 28, 1997:
Three Months Ended
------------------
July 4, 1998 June 28, 1997
------------ -------------
(dollars in millions)
Men's Apparel $16.9 24.3% $16.0 21.1%
Children's Sleepwear
and Underwear (0.4) (7.0%) 0.6 10.3%
Total $16.5 22.2% $16.6 20.4%
===== =====
The increase in gross profit and gross profit margin in the men's
apparel segment was primarily attributable to the change in sales mix,
reflecting decreased off-price sales in the second quarter of 1998, and the
continuing elimination of unprofitable programs.
The decline in gross profit and gross profit margin in children's
sleepwear and underwear was primarily attributable to the higher off-price
sales discussed above and increased inventory markdowns related to the
discontinuance of the Joe Boxer sportswear line.
Selling, General and Administrative Expenses
As a result of initiatives begun in 1997, selling, general and
administrative ("SG&A") expenses for the second quarter of 1998 decreased
to $17.2 million (23.1% of net sales) from $20.8 million (25.6% of net
sales) for the second quarter of 1997. The decrease primarily resulted from
(a) a $2.0 million decrease related to the closure of all non-Perry Ellis
retail stores in the fourth quarter of 1997 and (b) a continuing focus by
the Company on cost saving opportunities.
Reversal of Provision for Restructuring
In the second quarter of 1997, the Company reversed a previously
recorded restructuring provision by $0.4 million, as these amounts were no
longer needed. This provision was for estimated liabilities related to the
previously disclosed closure of a manufacturing facility.
The cash portion of the remaining reserve for restructuring of $0.9
million is expected to be expended in the last half of 1998.
Income/(Loss) from Operations Before Interest and Income Taxes
The following table sets forth income/(loss) 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 July 4, 1998 and June 28, 1997:
Three Months Ended
------------------
July 4, 1998 June 28, 1997
------------ -------------
(dollars in millions)
Men's Apparel(a) $4.0 5.9% ($0.1) (0.1%)
Children's Sleepwear
and Underwear (2.1) (41.8%) (1.2) (22.8%)
--- ----
1.9 2.6% (1.3) (1.6%)
Corporate expenses (2.7) (2.6)
Licensing division income 1.3 1.1
--- ---
Income/(loss) from
operations before
interest and income taxes $0.5 0.7% ($2.8) (3.4%)
==== =====
(a) Includes the reversal of restructuring charges of $0.4 million in the
second quarter of 1997.
Interest Expense, Net
Net interest expense was $4.1 million for the second quarter of 1998,
compared with $3.9 million for the second quarter of 1997. The increase in
interest expense resulted from higher average borrowings during the second
quarter of 1998, primarily due to the loss from operations over the past
year.
Discontinued Operations
In the second quarter of 1997, the Company recognized a charge of $7.9
million, or $(0.53) per share, related to the discontinuance of the Made in
the Shade division. This charge included a write-off of goodwill of $4.5
million and an accrual of $580 thousand for estimated operating losses
during the phase-out period. Net sales of the division for the three months
ended June 28, 1997 were $0.9 million.
Extraordinary Gain
In the second quarter of 1997, the Company recorded an extraordinary
gain of $0.6 million related to the reversal of excess liabilities
previously provided for the anticipated settlement of claims arising from
the Company's prior chapter 11 cases.
Net Loss
In the second quarter of 1998, the Company reported a net loss of $3.6
million, or ($0.24) per share, as compared with a net loss of $14.1
million, or ($0.94) per share, in the second quarter of 1997.
Earnings/(Loss) Before Interest, Taxes, Depreciation, Amortization,
Restructuring Charges, Discontinued Operations and Extraordinary Gain
Earnings/(loss) before interest, taxes, depreciation, amortization,
restructuring charges, discontinued operations and extraordinary gain was
$2.9 million (3.9% of net sales) in the second quarter of 1998, compared to
($1.0) million ((1.2%) of net sales) in the second quarter of 1997, an
increase of $3.9 million. 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.
Year to Date 1998 Compared with Year to Date 1997
- -------------------------------------------------
Net Sales
The following table sets forth the net sales of each of the Company's
principal business segments for the six months ended July 4, 1998 and June
28, 1997 and the percentage contribution of each of those segments to total
net sales:
Percentage
Three Months Ended Increase/
July 4, 1998 June 28, 1997 (Decrease)
------------ ------------- ----------
(dollars in millions)
Men's Apparel $146.3 92% $159.7 94% (8%)
Children's Sleepwear
and Underwear 13.0 8% 9.9 6% (32%)
----- --- ----- --- ----
Total $159.3 100% $169.6 100% (6%)
====== ==== ===== ====
Sales of men's apparel decreased by $13.4 million, or 8%, in the first
half of 1998, as compared to the first half of 1997. This decrease
primarily resulted from (i) a $4.6 million reduction in dress shirt sales,
of which $3.4 million was related to lower Perry Ellis off-price sales and
$1.2 million related to reduced Gant sales, (ii) a $4.3 million reduction
related to the closure of all non-Perry Ellis retail stores in the fourth
quarter of 1997, (iii) a $2.3 million reduction for Canyon River Blues
jeans, resulting from higher initial shipments for new loose fit and wide
leg programs, which began in the first half of 1997, and (iv) a $2.0
million reduction for sales under the discontinued Thomson brand in 1998.
Sales of children's sleepwear and underwear increased by $3.1 million,
or 32%, in the first half of 1998, as compared to the first half of 1997.
This increase was primarily a result of (i) increased sales of Joe Boxer
sportswear in 1998 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 $2.3 million in the first half
of 1998, as compared to $0.3 million in the first half of 1997. 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 six months ended July 4, 1998 and June
28, 1997:
Six Months Ended
------------------
July 4, 1998 June 28, 1997
------------ -------------
(dollars in millions)
Men's Apparel(a) $33.2 22.7% $35.0 21.9%
Children's Sleepwear
and Underwear (0.2) 1.2% 1.4 13.8%
--- ---
Total $33.4 21.0% $36.4 21.4%
==== ====
The decline in gross profit in the men's apparel segment was primarily
attributable to the reduction in net sales discussed above. The increase in
gross profit margin was primarily due to the elimination of unprofitable
programs as discussed above.
The decline in gross profit margin in children's sleepwear and
underwear was primarily attributable to (i) the underabsorption of
manufacturing costs in the first half of 1998 related to the planned shift
of production closer to the order taking process and (ii) the
discontinuance and sell-off of the Joe Boxer sportswear line at
significantly reduced margins.
Selling, General and Administrative Expenses
As a result of initiatives begun in 1997, selling, general and
administrative ("SG&A") expenses for the first half of 1998 decreased to
$34.3 million (21.5% of net sales) from $41.4 million (24.4% of net sales)
for the first half of 1997. The decrease primarily resulted from (a) a $4.0
million decrease related to the closure of all non-Perry Ellis retail
stores in the fourth quarter of 1997 and (b) a continuing focus by the
Company on cost saving opportunities.
Reversal of Provision for Restructuring
In the first half of 1997, the Company reversed previously recorded
restructuring provisions of $1.2 million, primarily resulting from the
settlement of liabilities for less than the carrying amount.
Income/(Loss) from Operations Before Interest and Income Taxes
The following table sets forth income/(loss) 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 six
months ended July 4, 1998 and June 28, 1997:
Six Months Ended
----------------
July 4, 1998 June 28, 1997
------------ -------------
(dollars in millions)
Men's Apparel (a) $7.8 5.4% $3.0 1.9%
Children's Sleepwear (3.6) (27.8%) (2.3) (22.7%)
and Underwear
4.2 2.7% 0.7 0.4%
Corporate expenses (5.2) (4.7)
Licensing division income 2.2 1.9
---- ----
Income/(loss) from operations
before
interest and income taxes $1.2 0.7% ($2.1) (1.2%)
==== ====
(a) Includes the reversal of restructuring charges of $1.2 million in 1997.
Interest Expense, Net
Net interest expense was $8.0 million for the first half of 1998,
compared with $7.8 million for the first half of 1997. The increase in
interest expense resulted from higher average borrowings during the first
half of 1998, primarily due to the loss from operations over the past year.
Discontinued Operations
In the first half of 1997, the Company recognized a charge of $8.7
million, or $(0.58) per share, related to the discontinuance of the Made in
the Shade division. This charge included a write-off of goodwill of $4.5
million and an accrual of $580 thousand for estimated operating losses
during the phase-out period. Net sales of the division for the six months
ended June 28, 1997 were $2.2 million.
Extraordinary Gain
In the first half of 1997, the Company recorded an extraordinary gain
of $0.6 million related to the reversal of excess liabilities previously
provided for the anticipated settlement of claims arising from the
Company's prior chapter 11 cases.
Net Loss
In the first half of 1998, the Company reported a net loss of $6.9
million, or ($0.45) per share, as compared with a net loss of $17.7
million, or $1.17 per share, in the first half of 1997.
Earnings Before Interest, Taxes, Depreciation, Amortization, Restructuring
Charges, Discontinued Operations and Extraordinary Gain
Earnings before interest, taxes, depreciation, amortization,
restructuring charges, discontinued operations and extraordinary gain was
$5.8 million (3.6% of net sales) in the first half of 1998, compared to
$1.2 million (0.7% of net sales) in the first half of 1997, an increase of
$4.6 million. 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:
Fiscal 1997 Fiscal 1996
Three Months Ended Percentage
------------------ Increase/
July 4, 1998 June 28, 1997 (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 J.J.. 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 J.J. 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 J.J.
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 1997 Fiscal 1996
----------- -----------
(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 J.J. 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 J.J.
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 millions)
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 (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 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 Twelfth Amendment.
See "BACKGROUND OF RESTRUCTURING--The Waiver and Forbearance Under the
Credit Agreement and Commitment for New Credit Agreement." In addition, as
discussed below, in furtherance of the Restructuring, the Company and CIT
executed the Thirteenth Amendment. See "BACKGROUND OF RESTRUCTURING--The
Waiver and Forbearance Under the Credit Agreement and Commitment for New
Credit Agreement."
On June 1, 1998, the Company and CIT executed the Thirteenth Amendment
to the Credit Agreement. The Thirteenth Amendment reduced the interest rate
on direct borrowings, increased borrowings allowed against eligible
inventory, eliminated factoring of accounts receivable and modified the
covenant related to maximum net loss. Under the Thirteenth Amendment, CIT
also agreed to continue to forbear until November 30, 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 interest
on its Senior Notes.
The Company has also received a commitment from CIT, under the CIT
Commitment Letter, for a new $140 million secured credit facility to become
effective upon completion of the Restructuring. The new credit facility
will provide financing through December 31, 2001, and is comprised of a
$125 million revolving credit facility and a $15 million term loan
facility, and includes terms consistent with the Thirteenth Amendment. The
closing of the new credit facility with CIT is subject to the satisfaction
of a number of conditions.
Pursuant to the Credit Agreement, the interest rate charged on direct
borrowings is 0.25 percent in excess of the prime rate of The Chase
Manhattan Bank, N.A. (the "Prime Rate", which was 8.5% at July 4, 1998) or
2.25% above the London Late Eurodollar rate (the "Eurodollar Rate", which
was 5.69% at July 4, 1998). Prior to the Thirteenth Amendment to the Credit
Agreement, the Company sold to CIT, without recourse, certain eligible
accounts receivable. The credit risk for such accounts was thereby
transferred to CIT. Pursuant to the Thirteenth Amendment, new accounts
receivable are no longer sold to CIT. The credit risk for accounts
receivable previously sold to CIT remains with CIT. The amounts due from
CIT have been offset against the Company's direct borrowings from CIT in
the accompanying balance sheets. The amounts that have been offset were
$9.8 million at July 4, 1998 and $9.7 million at June 28, 1997.
On July 4, 1998, direct borrowings (including borrowings under the
Eurodollar option) and letters of credit outstanding under the Credit
Agreement were $52.2 million, respectively, and the Company had unused
availability of $0.1 million. On June 28, 1997, direct borrowings and
letters of credit outstanding under the Credit Agreement were $53.4 million
and $25.3 million, respectively, and the Company had unused availability of
$13.8 million. During the first half of 1998, the maximum aggregate amount
of direct borrowings and letters of credit outstanding under the Credit
Agreement was $84.6 million at which time the Company had unused
availability of $7.0 million. During the first half of 1997, the maximum
aggregate amount of direct borrowings and letters of credit outstanding
under the Credit Agreement was $92.8 million at which time the Company had
unused availability of $10.3 million. 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 half of
1998 was $15.6 million, which primarily reflects a $10.5 million increase
in inventory and the loss from continuing operations of $6.9 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. Cash used for
investing activities in the first half of 1998 was $3.8 million, which
represented capital expenditures of $3.4 million and the installation of
store fixtures in department stores of $0.4 million. During 1998, the
Company plans to make capital expenditures of approximately $11.6 million
and to spend an additional $1.7 million for the installation of store
fixtures in department stores. Cash provided by financing activities in the
first half of 1998 was $18.4 million, which represented short-term
borrowings under the Credit Agreement. 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 to maintain a minimum level of unused
availability. As of July 4, 1998, the Company was in compliance with this
covenant.
The Indenture governing the 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.
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.
As of July 4, 1998, interest accrued on the Senior Notes was $9.3 million.
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. Pursuant to an amendment to the Letter Agreement, Magten has
also agreed to provide a similar written forbearance direction to the
Trustee upon the failure by the Company to make the interest payment on the
Senior Notes that is due and payable on August 31, 1998. 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 the New Credit Agreement. There can be no
assurance, however, (i) that the Company will consummate the Restructuring
and secure the New Credit Agreement, or (ii) that future developments and
general economic trends will not adversely affect the Company's operations
and, hence, its anticipated cash flow.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Company adopted 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 required the Company to report changes in the excess of
additional pension liability over unrecognized prior service cost and
foreign currency translation adjustment accounts, previously 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". The
statement establishes accounting and reporting standards requiring that
derivative instruments (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at fair value. The statement requires that changes in a
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company formally
document, designate, and assess the effectiveness of transactions that
receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999; however, it may be adopted earlier. It cannot
be applied retroactively to financial statements of prior periods. The
Company has not yet quantified the impact of adopting SFAS No. 133 on their
financial statements and has not determined the timing of or method of
adoption.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
This Exchange Restructuring Prospectus 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:
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 (i)
improving the Company's IS to provide and enhance support to all operating
areas and (ii) resolving year 2000 issues, the Company entered into a
working agreement (the "EDS Agreement") with Electronic Data Systems
Corporation ("EDS"). The EDS Agreement constituted the initial phase of a
long-term project to outsource the Company's IS and to remedy year 2000
issues. As part of this initial phase, the Company and EDS identified the
ability of one of the two major enterprise systems in the Company to be
modified to make such system Year 2000 compliant and to migrate the
operations of the Company to one enterprise system (the "System
Conversion"). As a result of the ability to implement the System Conversion
and after reviewing the cost of outsourcing the IS function to EDS, Salant
has determined not to outsource the IS functions to EDS. Instead, the
Company will use internal resources for the System Conversion and other
consultants for the implementation of new software. The Company anticipates
that the System Conversion, as well as the implementation of new software,
will be completed by the first quarter of 1999. The Company anticipates
that the cost of the System Conversion and new software will be
approximately $10 million, to be incurred during 1998 and 1999. 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.
SUBSTANTIAL LEVEL OF INDEBTEDNESS AND THE ABILITY TO RESTRUCTURE DEBT
The Company had current indebtedness of $157.1 million and $149.5
million and $138.7 million as of July 4, 1998 and April 4, 1998 and January
3, 1998, respectively. Of this amount, $104.9 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
In 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 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.
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, which is described below. 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 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 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 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 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. For a
discussion of the claims settlement process, see "BUSINESS AND PROPERTIES
OF THE COMPANY -- Legal Proceedings."
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. 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 provide that the total number of shares of
all classes of stock which the Company shall have authority to issue is
fifty million shares, of which forty-five million shall be common stock,
par value $1.00 per share, and five million 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 Company 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 the Charter
Amendment becomes effective, and without any further action on the part of
the Company or its stockholders, each ten shares of common stock, then
issued and outstanding, shall be changed and reclassified into one fully
paid and nonassessable share of common stock, par value $1.00, and each
holder of record of ten shares of the Old Common Stock with a par value of
$1.00 will have, or be entitled to, a certificate representing one share of
New Common Stock with par value $1.00. In lieu of the issuance of any
fractional shares that would otherwise result from the Reverse Split, the
Company will issue one additional share of New Common Stock.
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 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.
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.
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 up 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 filed as
Exhibit 10.50 to the Company's Registration Statement. Noteholders may
request a copy of the Stock Award and Incentive Plan by contacting Todd
Kahn, General Counsel and Executive Vice President of the Company, at (212)
221-7500. 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 of the Board of Directors of the
Company from and after the Restructuring Date (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 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 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 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.
TREATMENT OF OPTIONS UNDER OLD PLANS
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."
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, 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. A
copy of the Registration Rights Agreement is attached as Exhibit 10.51 to
the Company's Registration Statement. Noteholders may obtain a copy of the
Registration Rights Agreement by contacting Todd Kahn, General Counsel and
Executive Vice President of the Company, at (212) 221-7500.
DESCRIPTION OF RIGHTS PLAN
The Company is a party to the Rights Plan, which provides for a
dividend distribution of one Right 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 and 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 the Credit Agreement 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 Twelfth Amendment 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
Twelfth Amendment; (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 Twelfth Amendment and prior to the effectiveness
of the Thirteenth Amendment, to the extent that the Company failed to
maintain certain levels of borrowing under its asset-based borrowing
formula, the Company was required to maintain a certain minimum interest
coverage ratio and was subject to a covenant limiting the maximum loss the
Company could incur in any twelve consecutive calendar months. In
consideration for CIT's entering into the Twelfth Amendment, the Company
agreed to pay CIT certain fees. See "BACKGROUND TO THE RESTRUCTURING -- The
Waiver and Forbearance Agreement Under the Credit Agreement and Commitment
for New Credit Agreement." Under the Twelfth Amendment, such agreement to
forbear by CIT was to 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 Twelfth
Amendment), 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 Twelfth Amendment created 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.
In conjunction with obtaining the financing commitment under the CIT
Commitment Letter, CIT has agreed to further support the Restructuring by
entering into the Thirteenth Amendment, dated as of June 1, 1998, wherein
CIT agreed (i) to continue to forbear (subject to certain conditions) from
exercising any of its rights or 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 or by virtue of an event of default
arising from the failure of the Company to make the interest payment on the
Senior Notes due and payable on August 31, 1998; (ii) to continue to make
loans, advances and other financial accommodations to the Company through
the earlier of the Restructuring Date and November 30, 1998, subject to the
terms and conditions of the Thirteenth Amendment; and (iii) to amend
certain provisions of the Credit Agreement, including a reduction of the
rate of interest charged on the revolving credit loans, an increase in the
advance rate for revolving credit loans made under the Credit Agreement and
the elimination of any and all provisions providing for the factoring of
the Company's accounts receivable. Under the Thirteenth Amendment, such
agreement to forbear by CIT will terminate on November 30, 1998 or earlier
upon the happening of (a) the occurrence of any Event of Default (as
defined in the Credit Agreement), other than by virtue of the Company's
failure to make the March 2, 1998 or August 31, 1998 interest payment on
the Senior Notes or the commencement or continuation of a chapter 11 case
to effectuate the Restructuring; or (b) the exercise of any right or remedy
with respect to any of the Collateral by any holder of the Senior Notes or
by the Trustee under the Indenture; or (c) the payment of any interest on
the Senior Notes in respect of the Company's non-payment of the interest
that was payable on March 2, 1998 or that will be payable on August 31,
1998 or otherwise; or (d) the occurrence of an Agreement Termination Event
(as defined in the Letter Agreement), except under certain circumstances.
In accordance with the Twelfth Amendment, no additional closing fees,
facility fees or amendment fees were charged to the Company by CIT in
consideration of the execution and delivery of the Thirteenth Amendment.
Pursuant to the Thirteenth Amendment, CIT also agreed (i) to reduce
the interest rate on direct borrowings from .75% in excess of the Prime
Rate or 3.00% in excess of the Eurodollar Rate to .25% and 2.25%,
respectively; and (ii) to increase the borrowings allowed against eligible
inventory to 65% for the period from June 1, 1998 through September 20,
1998. The Thirteenth Amendment also amends the Credit Agreement to include
a maximum net loss covenant that provides that, if on the last day of June,
July or August 1998, the Company fails to maintain Excess Availability (as
defined in the Credit Agreement) of at least an amount equal to five
percent of the value of Eligible Inventory (as defined in the Credit
Agreement), then the aggregate cumulative net loss (exclusive of certain
costs incurred in connection with the Restructuring) incurred by the
Company during Fiscal 1998 through the end of any such month on which the
Company failed to maintain at least such Excess Availability, shall not
exceed $8,850.000. The Thirteenth Amendment also provides that in the event
that the Company seeks to consummate the Restructuring by filing a chapter
11 case, (i) the Credit Agreement will remain in full force and effect
(subject to certain conditions) and (ii) immediately upon commencement of
the chapter 11 case, the Company and CIT will seek an order of Bankruptcy
Court approving and authorizing the extension of post-petition financing by
CIT to the Company on the same terms and conditions as set forth in the
Credit Agreement (the "Financing Order").
In addition, the Thirteenth Amendment created two new Events of
Default under the Credit Agreement as follows: if, in the event a chapter
11 case is commenced to effectuate the Prepackaged Plan, (i) there is a
violation of the Financing Order or (ii) the chapter 11 case is converted
to a proceeding under chapter 7 of the Bankruptcy Code, or is terminated or
dismissed prior to the consummation of the transactions contemplated by the
Restructuring, or a plan of reorganization other than the Prepackaged Plan
is confirmed.
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. 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. 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.
DESCRIPTION OF THE CHAPTER 11 CASE
TIMETABLE FOR THE CHAPTER 11 CASE
In the event that the Company pursues the Restructuring pursuant to
the Prepackaged Plan, following the Filing Date, the Company 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, the Company intends to seek an order that the
hearing to consider the adequacy of the disclosure made to Noteholders and
Stockholders, at which the Bankruptcy Court would consider whether the
Solicitation of votes to accept or reject the Prepackaged Plan 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. The Company 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. The Company 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
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 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, the Company 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.
ADEQUACY OF DISCLOSURE
In order for the Prepackaged Plan to be consummated, among other
things, the Bankruptcy Court must determine that the Solicitation of
acceptances for the Prepackaged Plan was in compliance with section 1126(b)
of the Bankruptcy Code. Section 1126(b) provides, in pertinent part, that
the solicitation of acceptances or rejections on a plan of reorganization
must be in compliance with any applicable nonbankruptcy law, rule, or
regulation governing the adequacy of disclosure in connection with such
solicitation. Thus, the Bankruptcy Court must determine that the
Solicitation of acceptances for the Prepackaged Plan was in compliance with
applicable non-bankruptcy laws rules and regulations, including, but not
limited to, the Securities Act, the Exchange Act and state "blue sky"
securities laws.
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.
ACTIONS TO BE TAKEN UPON COMMENCEMENT OF CASE
The Company does not expect the Chapter 11 Case to be protracted. To
expedite its emergence from Chapter 11, the Company 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.
Applications to Retain Professionals
Upon commencement of the Chapter 11 Case, the Company intends to file
applications to retain the reorganization professionals who will assist and
advise the Company in connection with administration of the Chapter 11
Case. The Company 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.
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. The Company believes that
the Chapter 11 Case constitutes an ideal case wherein the filing of the
Statement and the Schedules should not be required. Therefore, the Company
intends to request that the Bankruptcy Court order that the Company not be
required to file the Schedules and the Statement.
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, the Company will request that the Company, or its noticing agent,
be authorized to mail all required notices in the Chapter 11 Case.
Motion to Continue Using Existing Bank Accounts,
Payroll Accounts and Business Forms
Because the Company 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, the Company 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 the Company's
current bank accounts, payroll accounts and business forms, the Company's
normal business activities would be disrupted, to the detriment of the
Company's estate and its creditors.
Continued use of its existing bank accounts, payroll accounts and
business forms will facilitate the Company's smooth and orderly transition
into Chapter 11, minimize the disruption to its businesses while in Chapter
11, and expedite the Company's emergence from Chapter 11. Requiring the
Company 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 the Company's efforts
to reorganize expeditiously.
Motion for Authority to Pay Prepetition
Employee Wages and Associated Benefits
The Company believes that any delay in paying prepetition compensation
or benefits to its employees would destroy the Company's relationships with
employees and irreparably harm employee morale at a time when the
dedication, confidence and cooperation of the Company's employees are most
critical. Accordingly, in order to ensure the continuity of its work force
and to further accommodate the unimpaired treatment of employee benefits,
the Company 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 (or to issue replacement checks),
to permit the Company's employees to utilize their paid vacation time which
was accrued prior to the commencement of the Chapter 11 Case (so long as
they remain employees of the Company) and to continue paying medical and
other benefits under all applicable employee health and insurance plans.
The Company 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 of the Prepackaged Plan or as soon thereafter as
such payment or other obligation becomes due or performable. The Company
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. See "DESCRIPTION OF THE PREPACKAGED PLAN."
Motion for Authority to Maintain Workers' Compensation
Insurance Policies and to Pay Prepetition Workers' Compensation Claims
To ensure that the Company's workers' compensation, automobile and
general liability insurance coverages remain in effect, the Company shall
seek authority to maintain its workers' compensation, automobile and
general liability insurance policies. Likewise, to the extent necessary,
the Company 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 the Company or
their officers to criminal penalties.
Chapter 11 Financing
In order to ensure that the Company's business operations can continue
without interruption during the Chapter 11 Case, in accordance with the
terms of the Company's existing pre-bankruptcy working capital facility
with CIT under the Credit Agreement, the Company intends, subject to
Bankruptcy Court approval, to enter into a debtor-in-possession financing
arrangement with CIT on the same terms and conditions as the facility
provided under the Credit Agreement.
Motion to Honor Commission and Expense Checks
Prior to the commencement of the Chapter 11 Case and in the ordinary
course of business, the Company owed its sales agents (the "Agents")
certain prepetition commissions and expenses accrued in the rendition of
services of its Agents. The Company needs to be authorized to pay and
reimburse its Agents for all current, accrued and unpaid commissions and
expenses. The Company believes that it is essential to the continued
operation of its business and to a successful restructuring that it retain
its Agents, therefore, the Company will request that it be allowed to pay
those certain prepetition commissions and expenses.
Motion Restraining and Enjoining Utilities from Discontinuing Service
In connection with its ongoing business operations, the Company
obtains electricity, natural gas, water, telephone services, trash removal
and other utility services from various utility companies. The Company 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 the Company's efforts to restructure, therefore, the
Company will request that the utilities be enjoined from interrupting and
discontinuing service.
Motion to Pay Custom Duties, Broker Charges,
Shipping Charges and Related Possessory Liens
It is essential to the Company'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 the Company or its customers at a critical point in its
Restructuring. The Company intends to forestall any break in the flow of
goods by requesting that it be allowed to pay the appropriate charges
described herein.
Hearing to Consider the Adequacy of Disclosure Pursuant to
ss.1126/Confirmation Hearings
As discussed above, the Company 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 the disclosure made to Noteholders pursuant to this Exchange
Restructuring Prospectus and made to Stockholders pursuant to the Proxy
Statement/Prospectus, and the Company's solicitation of votes on the
Prepackaged Plan under ss. 1126 of the Bankruptcy Code and (ii)
confirmation of the Prepackaged Plan. The Company anticipates that notice
of these hearings will be published in The New York Times (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 "FEASIBILITY OF THE PREPACKAGED PLAN AND THE
BEST INTERESTS OF CREDITORS TEST."
DESCRIPTION OF THE PREPACKAGED PLAN
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.
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 "DESCRIPTION OF NEW COMMON STOCK" and "DESCRIPTION OF
WARRANTS" 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 the Company to complete a financial restructuring in the
manner which will maximize its enterprise value, the Company 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.
The Company 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.
Management of the Company 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
"VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN."
The Company 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, the Company 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 "FEASIBILITY
OF THE PREPACKAGED PLAN AND BEST INTERESTS OF CREDITORS TEST."
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.
The Company also is required, as discussed above under Section 1122 of the
Bankruptcy Code, to classify Claims against and Interests in the Company
into Classes that contain Claims and Interests that are substantially
similar to the other Claims and Interests in such Classes. The Company
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, the Company 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 "DESCRIPTION OF NEW COMMON STOCK" and
"DESCRIPTION OF WARRANTS" for a description of the manner in which the
number of shares of New Common Stock and number of Warrants will be
determined and "DISCUSSION OF 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" 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).
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.
ADMINISTRATIVE EXPENSES
Administrative Expenses are the actual and necessary costs and
expenses of the Company'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 the Company 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 the Company'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 the Company
or liabilities arising under loans or advances to the Company after the
Filing Date, whether or not incurred in the ordinary course of business,
will be paid by the Company 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 as to which the Company and the Holder of such Administrative
Expense agree.
The Company 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 the Company's
assumption of executory contracts and unexpired leases under the
Prepackaged Plan. The Company 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 the
Company's professionals).
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 the
Company 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 the Company shall be
paid in full or performed by the Company or Reorganized Salant in the
ordinary course of business, consistent with past practice; provided
further, however, that allowed Administrative Expenses incurred by the
Company 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 Company or Reorganized
Salant, as the case may be, in the ordinary course of business and without
further Bankruptcy Court approval.
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. The Company estimates that
on the Effective Date, the Allowed Priority Tax Claims will aggregate no
more than $[____].
At the sole option of the Company, 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 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 the Company 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.
CLASSIFIED CLAIMS AND INTERESTS
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 the Company 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.
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 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 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 the Company and CIT. The Class 2 CIT Claim is
Unimpaired and, accordingly, the Holder of such Claims is not entitled to
vote for or against the Prepackaged Plan and will be deemed to have
accepted the Prepackaged Plan.
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 the Company 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.
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 the Company 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 the Company
and such Holder. Class 4 Miscellaneous Secured Claims are Unimpaired and,
accordingly, the Holders of such Claims are not entitled to vote for or
against the Prepackaged Plan and will be deemed to have accepted the
Prepackaged Plan.
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 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.
The Prepackaged Plan provides that, 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 of the Bankruptcy Code; or (iii) such other
treatment as mutually agreed to by the Company 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.
Upon commencement of the Chapter 11 Case, the Company 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 the Company's work force and
to further accommodate the unimpaired treatment of employee benefits, the
Company 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 the
Company) and to continue paying medical and other benefits under all
applicable employee health and insurance plans. The Company 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. The Company 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 the Existing Equity-Based Plans.
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.
Class 7--Other Interests
Class 7 Interests are Impaired. Class 7 consists of all Other
Interests. Other Interests consist of any equity interests in the Company,
including, without limitation, 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, 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.
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 the new
credit facility provided to Reorganized Salant under the New Credit
Agreement.
<PAGE>
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Generally
Under Section 365 of the Bankruptcy Code, the Company 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 the Company, it will be
treated as if the Company 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.
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
the Company 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 the Company remaining with
Reorganized Salant after the Effective Date, the Company intends that the
existing employment agreements with its senior management will be assumed
pursuant to the Prepackaged Plan.
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 the Company 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 the Company, Reorganized Salant, or the property or interests in
property of the Company 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.
IMPLEMENTATION OF THIS PLAN
Vesting of Property
Except as otherwise provided in the Prepackaged Plan, on the Effective
Date, title to all property of the Company'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 the Company'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.
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.
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.
Implementation
Pursuant to the Prepackaged Plan, the Company 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. The
Company 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.
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.
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 the Company to issue, transfer, or
sell any shares of Old Common Stock or any other capital stock of the
Company will be canceled. Except for purposes of effectuating the
distributions under the Prepackaged Plan, on the Effective Date, the
Indenture will be canceled.
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.
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 the
Company, and the Company'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.
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 the Company, the Stock Award and Incentive Plan and any
grants made thereunder shall be subject to the subsequent approval of the
stockholders of Reorganized Salant.
Survival of Indemnification Obligations
Notwithstanding anything to the contrary contained in the Prepackaged
Plan, the obligations of the Company 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 Company, 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.
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 "DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT."
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 the Company, 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.
PROVISIONS COVERING DISTRIBUTIONS
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 the Company, 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.
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.
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 the Company 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.
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 the Company on
or before the Effective Date.
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.
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 to the nearest
share of New Common Stock or Warrant, as the case may be.
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.
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.
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 the Company, 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.
Persons Deemed Holders of Registered Securities
Pursuant to the Prepackaged Plan, except as otherwise provided
therein, the Company, 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 the Company, 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.
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.
Special Procedures for Lost, Stolen, Mutilated or Destroyed
Instruments
Pursuant to the Prepackaged Plan, in addition to any requirements
under the Company'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.
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 (the "Distribution Agent")
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; provided, however, that in the case
of an undeliverable distribution to a Holder of a Senior Note Claim or an
Old Common Stock Interest, the Distribution Agent shall conduct two
database searches using at least one information database service (as such
term is defined in Rule 19b-4 of the Securities Act). The database searches
will be conducted by using such Holder's tax identification number or name,
if the tax identification number is not likely to locate such Holder, will
be without charge to such Holder of the Allowed Claim or Allowed Interest
and will be conducted (i) between three and twelve months after the date
such distribution becomes undeliverable and (iii) between six and twelve
months after the first search. The Distribution Agent need not conduct the
database searches if (i) it has received documentation that the Holder of a
Senior Note Claim or an Old Common Stock Interest is deceased, (ii) the
aggregate value of accounts listed in the master Holder file or all
accounts owned by such Holder as recorded in the Distribution Agent's
master Holder files is less than $25, and (iii) such Holder is not a
natural person. 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. The Distribution
Agent shall maintain information in a master Holder file with respect to
the total number of lost Holder accounts and the percentage (as compared to
the total number of accounts) of lost Holder accounts for Holders of Senior
Note Claims or Old Common Stock Interests lost one year or less, three
years or less, five years or less, more than five years and for assets
which have ascheated to unclaimed property administrators. Such reports
shall be filed with the Commission. Subject to the obligations of the
Distribution Agent set forth above, 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
PROCEDURES FOR RESOLVING DISPUTED CLAIMS
Objections to Claims
Pursuant to the Prepackaged Plan, only the Company 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 the Company nor
Reorganized Salant shall object to the allowance of the Senior Note Claims
as described in Section 6.3(c) of the Prepackaged Plan.
Procedure
Pursuant to the Prepackaged Plan, unless otherwise ordered by the
Bankruptcy Court or agreed to by written stipulation of the Company or
Reorganized Salant, or until an objection thereto by the Company or by
Reorganized Salant is withdrawn, the Company 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, the
Company, 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.
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.
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.
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.
DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS
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 the Company, 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 all Claims and
Causes of Action against, liabilities of, liens on, charges, encumbrances,
security interests, obligations of and Interests in the Company,
Reorganized Salant, or the direct or indirect assets and properties of the
Company or Reorganized Salant, whether known or unknown, 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 the Company and Reorganized Salant 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.
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.
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 the Company's estate.
Guaranties and Claims of Subordination
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 the Company of
obligations of any Entity or Entities, and that the Company may be joint
obligors with another Entity or Entities with respect to the same
obligation. All Claims against the Company 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 the Company.
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 the Company, 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 Company, 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.
CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE
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 the Company, Magten and Apollo.
Conditions Precedent to the Effective Date
Pursuant to the Prepackaged Plan, the following conditions must occur
and be satisfied or waived by the Company 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.
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, the Company may waive one or more of the conditions
precedent to the confirmation or effectiveness of the Prepackaged Plan set
forth in the Prepackaged Plan.
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 the Company 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 the Company or (b) prejudice in any manner the rights
of the Holder of any claim or equity interest in the Company.
MISCELLANEOUS PROVISIONS
Bankruptcy Court to Retain Jurisdiction
Pursuant to the Prepackaged Plan, the business and assets of the
Company 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.
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 the Company,
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.
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.
Authorization of Corporate Action
Pursuant to the Prepackaged Plan, the entry of the Confirmation Order
will constitute a direction and authorization to and of the Company 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.
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.
Withdrawal of the Prepackaged Plan
Pursuant to the Prepackaged Plan, the Company 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 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 Exchange
Restructuring Prospectus or the Related Documents or (c) the classification
and proposed treatment (including any allowance) of any Claim in the
Prepackaged Plan.
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.
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 the Company or Reorganized Salant
decides, in its sole discretion, that the fees, costs and expenses of the
Trustee are reasonable, the Company or Reorganized Salant may pay the same
without application to or further order of the Bankruptcy Court unless the
Confirmation Order provides otherwise.
Amendments and Modifications to the Prepackaged Plan
Pursuant to the Prepackaged Plan, the Prepackaged Plan may be altered,
amended or modified by the Company, after consultation with Magten, before
or after the Confirmation Date, as provided in Section 1127 of the
Bankruptcy Code.
Section 1125(e) of the Bankruptcy Code
The Prepackaged Plan provides that upon confirmation of the
Prepackaged Plan, (i) the Company 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) the Company,
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.
FEASIBILITY OF THE PREPACKAGED
PLAN AND THE BEST INTERESTS OF CREDITORS TEST
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 the Company of the Chapter 11 Case,
the Company 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 the
Company'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 the
Company, 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 the
Company'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. The Company 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 the Company, 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. The Company 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 the Company 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. The
Company 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 the Company 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 "FEASIBILITY OF
THE PREPACKAGED PLAN AND THE BEST INTERESTS OF CREDITORS
TEST -- Nonconsensual 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) allowed 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 the Company or any successor of
the Company 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 the Company has obligated itself to provide such
benefits.
The Company 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.
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 the Company. This is the
so-called "feasibility" test.
To support its belief in the feasibility of the Prepackaged Plan, the
Company 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 "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, the Company believes that the
Prepackaged Plan complies with the standard of Section 1129(a)(11) of the
Bankruptcy Code. As noted in the Projections, however, the Company 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 the Company. 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 the Company's financial results. As
discussed elsewhere in this Exchange Restructuring Prospectus, there are
numerous circumstances that may cause actual results to vary from the
projected results, and the variations may be material and adverse. See
"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 THE COMPANY'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 THE COMPANY. CONSEQUENTLY, THE
PROJECTIONS SHOULD NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY THE
COMPANY, OR ANY OTHER PERSON, THAT THE PROJECTIONS WILL BE REALIZED. ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN THE PROJECTIONS.
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 the Company 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 the Company'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 the
Company's assets and the cash held by the Company 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 the Company'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.
The Company'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 the Company 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 the Company
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 the Company'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.
The Company 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, the Company
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 General Unsecured Claims, 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, the Company 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 the Company under Chapter 7 of the Bankruptcy Code.
Moreover, the Company 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.
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, the Company intends to seek confirmation of the Prepackaged Plan
notwithstanding the nonacceptance of one or more other Impaired Classes.
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. The Company believes that
the Prepackaged Plan would not discriminate unfairly against any
nonaccepting Class of Claims or Interests.
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, the Company 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.
SECURITIES ISSUED UNDER PREPACKAGED PLAN --
APPLICATION OF SECURITIES ACT
THE SOLICITATION
The Company 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 the Company pursuant to the
Solicitation.
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 "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, THE COMPANY 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.
THE COMPANY RECOMMENDS THAT RECIPIENTS OF SECURITIES UNDER THE
PREPACKAGED PLAN CONSULT WITH LEGAL COUNSEL CONCERNING THE LIMITATIONS ON
THEIR ABILITY TO DISPOSE OF SUCH SECURITIES. ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PREPACKAGED PLAN
ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PREPACKAGED PLAN
If the Chapter 11 case is commenced but 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 the Company under Chapter 7 or Chapter 11 of the Bankruptcy
Code.
CONTINUATION OF THE CHAPTER 11 CASE
If the Company were to commence the Chapter 11 Case and remain in
Chapter 11, the Company 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
the Company could survive as a going-concern in a protracted Chapter 11
case. The Company could have difficulty sustaining the high costs,
operating financing, and the confidence of the Company's and its
subsidiaries customers and trade vendors, of the Company remaining in
Chapter 11. Ultimately, the Company (or other parties in interest) could
propose another plan or attempt to liquidate the Company under Chapter 7 or
Chapter 11. Such plans might involve either a reorganization and
continuation of the Company's business, or an orderly liquidation of its
assets, or a combination of both.
LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11
If the Chapter 11 Case is commenced, but the Prepackaged Plan is not
confirmed, the Company'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 the
Company.
The Company 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 trustee, 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 the Company's operations and the failure to realize the
greater going-concern value of the Company's assets.
The Company could also be liquidated pursuant to the provisions of a
Chapter 11 plan of reorganization. In a liquidation under Chapter 11, the
Company's 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.
The Company's liquidation analysis, prepared with its financial
advisors and included above in this Exchange Restructuring Prospectus, is
by law premised upon a liquidation in a Chapter 7 case. In that analysis,
the Company 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.
TENDERING AND VOTING PROCEDURES
The following tendering and voting procedures relate to the Exchange
Offer. The instructions for voting on the Prepackaged Plan are set forth in
the section entitled "VOTING AND CONFIRMATION OF THE PREPACKAGED PLAN"
below and in the instructions attached to the Ballots and Master Ballots.
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 175.977555 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.
This Exchange Restructuring Prospectus and the Letter of Transmittal
are first being mailed to registered Noteholders on or about ______ __,
1998.
GENERAL
As of February 28, 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 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 9:00
a.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 Restructuring Date does
not occur on or before November 30, 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 with the Bankruptcy Court, 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 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 and properly
insured, is recommended, and sufficient time should be allowed to assure
timely delivery. No documents should be sent to the Company, the Company's
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 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, distributions in respect
of 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 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 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 at any time prior to the earlier of (i) the Filing
Date and (ii) the Expiration Date. If a bankruptcy case has been commenced,
withdrawal or change of such votes thereafter may be effected only with the
approval of the Bankruptcy Court. See "VOTING PROCEDURES FOR PREPACKAGED
PLAN AND REQUIREMENTS." If a Noteholder properly withdraws the tender of
its Senior Note(s) such withdrawal will not affect such Noteholder's vote
on the Prepackaged Plan. Similarly, if a Noteholder properly withdraws or
changes its vote on the Prepackaged Plan, such withdrawal or change will
not affect such Noteholder's tender of its Senior Note(s).
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 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 reasonable judgment of the Company, materially affect the
contemplated benefits to the Company of the Exchange Restructuring;
(f) there exists, in the reasonable 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 are 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 AND CONFIRMATION OF THE PREPACKAGED PLAN
In the event that the Company pursues the Prepackaged Restructuring
and files the Chapter 11 Case, 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 the Company, 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) the Company has
complied with applicable provisions of the Bankruptcy Code, (iv) the
Company 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
"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 the Company, (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 the Company 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 AND TENDER
PROCEDURES IN CONNECTION WITH THE EXCHANGE OFFER.
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 "DESCRIPTION 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, if 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. The Company
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. The Company 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 the Company. For a discussion of
other significant conditions to confirmation under the Bankruptcy Code, see
"FEASIBILITY OF THE PREPACKAGED PLAN AND THE BEST INTERESTS OF CREDITORS
TEST -NONCONSENSUAL CONFIRMATION."
The appropriate Ballots, together with either this Exchange
Restructuring Prospectus or the Proxy Statement/Prospectus, as applicable,
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.
WHO MAY VOTE
Under the Prepackaged Plan, the Claims against and the Interests in
the Company 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
[______].
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 Exchange Restructuring Prospectus and an appropriate
Ballot to their customers and to beneficial owners. Any beneficial owner
who has not received an Exchange Restructuring Prospectus 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 Exchange Restructuring Prospectus (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 the Company'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 EXCHANGE RESTRUCTURING
PROSPECTUS, 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.
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.
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
Exchange Restructuring Prospectus 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 outlined 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
Exchange Restructuring Prospectus 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.
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.
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. 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 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.
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. The Company 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, the Company 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 the Company 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.
WITHDRAWAL OF VOTES ON THE PREPACKAGED PLAN
The Solicitation of acceptances of the Prepackaged Plan will expire on
the Voting Deadline. Any voter who has delivered a valid Ballot or Master
Ballot may withdraw its vote by delivering a written notice of withdrawal
to the Voting Agent before the Voting Deadline. To be valid, the notice of
withdrawal must (a) describe the claim or equity interest to which it
relates, (b) be signed by the party who signed the Ballot or Master Ballot
to be revoked, and (c) be received by the Voting Agent before the Voting
Deadline. The Company may contest the validity of any withdrawals.
Any holder who has delivered a valid Ballot or Master Ballot may
change its vote by delivering to the Voting Agent a properly completed
subsequent Ballot or Master Ballot so as to be received before the Voting
Deadline. In the case where more than one timely, properly completed Ballot
or Master Ballot is received, only the Ballot or Master Ballot that bears
the latest date will be counted. After the Chapter 11 Case is commenced, a
properly submitted Ballot may be withdrawn only with the approval of the
Bankruptcy Court.
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 Exchange
Restructuring Prospectus, 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].
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
1998
Second
First $1 13/16 3/8
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.
<TABLE>
<CAPTION>
New Common Stock Issuable with
Old Common Stock Beneficially Respect
Owned to Such Holdings of Old Common
as of March 16, Stock
1998 Upon Consummation of
Restructuring**
---------------
No. Of
Holder 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 2,200 * 220 *
Jordan (e)
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 6,535,277(m) 43.6% 653,528 3.2%
officers as a
group (14
persons)
</TABLE>
- --------------------------
* 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 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. However, the NYSE has reviewed the
terms and conditions of the Restructuring set forth herein and has informed
the Company that it will continue to list the Company's common stock during
the period prior to consummation of the Restructuring and intends to list
the Company's common stock from and after the Restructuring Date. However,
the NYSE has advised the Company that after consummation of the
Restructuring, the NYSE intends to monitor the performance of the Company
based upon the Projections set forth herein to ensure compliance with the
NYSE's original listing standards in respect of the New Common Stock. The
Company believes that as a result of the consummation of the Restructuring,
following the Restructuring Date, the Company will be able to return to
compliance with the original listing standards in respect of the New Common
Stock and the Warrants and the New Common Stock and the Warrants will
continue to be listed for trading on the NYSE. However, the NYSE has
advised the Company that the Company's failure to meet the Projections
following the Restructuring could result in the suspension from trading and
subsequent delisting of the New Common Stock.
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: NOTEHOLDERS
The following summary of certain Federal income tax consequences of
the Restructuring to the Noteholders and the Company, insofar as it makes
statements of law, reflects the opinion of Fried, Frank, Harris, Shriver &
Jacobson. 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. 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, [assuming the Senior Notes constitute securities
for federal income tax purposes] and assuming it is 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 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 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
Restructuring Date.
The Prepackaged Restructuring provides that the New Common Stock
received by Noteholders will be allocated first to principal and only
thereafter to accrued interest. However, there is some uncertainty as to
whether allocations between principal and interest will be respected for
federal income tax purposes. The Exchange Restructuring does not provide an
express allocation between principal and interest. Noteholders should
consult their own tax advisors as to how to allocate the New Common Stock
received between principal and interest.
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. However, it is
possible (although unlikely) that any such accrued market discount would be
required to be recognized in the Restructuring to the extent of any gain
realized.
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 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 5.02%). This is likely to limit
significantly the Company's use of its NOLs in any one year (including for
this purpose any deductions attributable to any "recognized built-in-loss"
within the meaning of Section 382(h) of the Code, which could include
deductions for depreciation and amortization of the Company's assets, which
existed at the time of the Restructuring). 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 Exchange 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) [_____] 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 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 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 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 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.
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 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.................. 2,200 (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 6,607,773 (n) 43.6%
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 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 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 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.
(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
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, 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
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.
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 as voting agent for 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 Noteholders for the Exchange Offer.
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 or the Proxy Statement Prospectus, as the
case may be, 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 and the related financial statement schedule
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>
GLOSSARY OF CERTAIN DEFINED TERMS
As used in this Exchange Restructuring Prospectus, 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 the Company's estate
under title 28, United States Code,
Section 1930.
"Affiliate"........................means "affiliate" as defined in Section
101 of the Bankruptcy Code.
"Agent's Message".................means a message transmitted by DTC,
received by the Depositary and forming
part of the confirmation of book-entry
transfer, as set forth in "TENDERING AND
VOTING PROCEDURES -- How to Tender on
the Exchange Offer."
"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.
"Apollo Shares"....................means the shares of Old Common Stock
beneficially held by Apollo.
"Awards Committee".................means the committee of the Board of the
Company from and after the Restructuring
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.
"Book-Entry Transfer Facility......means, collectively, DTC and
Philadelphia Depository Trust Company.
"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 Certificate of
Incorporation.
"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 the Company or
for which the Company may be liable in
connection therewith.
"CIT Commitment Letter"............means that certain commitment letter,
dated June 1, 1998, between the Company
and CIT, pursuant to which CIT agreed to
enter into a new working capital
facility with the Company on the
Restructuring Date, and filed as Exhibit
10.54 to the Company's Registration
Statement of which this Exchange
Restructuring Prospectus is a part.
"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.
"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 Plan Record Date.
"DTC"..............................means the Depository Trust Company.
"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 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
in connection with the Exchange Offer.
"Exchange Restructuring Date"......means the date of consummation of the
Exchange Restructuring.
"Exchange..........................Restructuring Prospectus" means the
Exchange Offer Prospectus and Disclosure
Statement to be delivered to the
Noteholders in connection with the
Exchange Offer and the Prepackaged Plan.
"Exercise Price"...................means $6.2648 per share, subject to
adjustment.
"Existing Equity-Based Plans"......means all of the Company's existing
equity or 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 a Chapter 11 case to
effectuate the Restructuring 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.
"GAAP".............................means generally accepted accounting
principles.
"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, as amended from
time to time regarding the basic terms
and conditions of the Restructuring, and
filed as Exhibit 10.42 to the Company's
Registration Statement.
"Letter Agreement Amendments"......means collectively those certain letter
agreements, dated June 1, 1998 and July
8, 1998, among Magten, Apollo and the
Company, amending certain provisions of
the Letter Agreement, and filed as
Exhibits 10.55 and 10.56, respectively,
to the Company's Registration Statement.
"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, approximately $74 million in
aggregate principal face amount of the
Senior Notes.
"Magten Notes".....................means the Senior Notes beneficially held
by Magten.
"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 new shares of common stock of
the Company, par value $1.00 per share,
to be issued in accordance with and
pursuant to the Restructuring.
"New CIT Credit Agreement"........means the agreement in respect of a new
working capital facility to be entered
into by the Company and CIT on the
Exchange Date, on the terms and
conditions set forth in the CIT
Commitment Letter, and which will
replace the Company's current working
capital facility under the Credit
Agreement.
"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
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 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.
"Plan Record Date".................means ________ ___, 1998.
"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
Annex II.
"Prepackaged Restructuring"........means the proposed financial
restructuring of the Company pursuant to
the Prepackaged Plan.
"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 to
be entered into on the Restructuring
Date by and among Reorganized Salant and
certain holders of the New Common Stock
as of the Restructuring Date and
included as Exhibit 10.51 to the
Company's Registration Statement.
"Registration Statement"...........means the Registration Statement on Form
S-4, as amended, 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
Exchange Restructuring Prospectus 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 at least 10 days 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, to be filed with the Bankruptcy
Court at least 10 days prior to the
Confirmation Date.
"Restructuring"....................means the financial restructuring of the
Company pursuant to either the Exchange
Restructuring or the Prepackaged
Restructuring, as the case may be.
"Restructuring Date"...............means the date of consummation of the
Restructuring, by means of the
Prepackaged Plan or the Exchange Offer.
"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 schedules of assets and
liabilities to be filed by the Company
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 tenders in the Exchange
Offer and acceptances of the Prepackaged
Plan as contemplated under the Exchange
Restructuring Prospectus, as applicable.
"Stock Award and Incentive Plan"...means the Company's proposed 1998 Stock
Award and Incentive Plan, and included
as Exhibit 10.50 to the Company's
Registration Statement.
"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.
"Thirteenth Amendment".............means the Thirteenth Amendment and
Forbearance Agreement, dated as of June
1, 1998, by and between the Company and
CIT.
"Twelfth Amendment"................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.
"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 exercisable for shares of
New Common Stock and issued in
connection with the Restructuring and in
accordance with the Warrant Agreement.
"Warrant Agreement"................means the Warrant Agreement pursuant to
which the Warrants will be issued, and
included as Exhibit 10.52 to the
Company's Registration Statement.
"Warrant Shares"...................means shares of New Common Stock issued
to holders of Warrants upon exercise of
their Warrants.
<PAGE>
ANNEX II
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.
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.
Exchange Restructuring Prospectus: The Exchange Offer Prospectus and
Disclosure Statement distributed to the Noteholders for the purpose of
voting to accept or reject this Plan in accordance with section 1126(b) of
the Bankruptcy Code and Bankruptcy Rule 3018.
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, as amended.
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.
Proxy Statement/Prospectus: The Proxy Statement/Prospectus and
Disclosure Statement distributed to the Holders of the Old Common Stock for
the purpose of voting to accept or reject this Plan in accordance with
section 1126(b) of the Bankruptcy Code and Bankruptcy Rule 3018.
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
treated as, and deemed to be, Allowed General Unsecured Claims pursuant to
Section 6.5 of this Plan, 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 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 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, 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
and Reorganized Salant 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 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 Proxy
Statement/Prospectus, the Exchange Restructuring Prospectus 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>
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. 2 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.
8.1 Tax Opinion of Fried, Frank, Harris,
Shriver & Jacobson.
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.
10.55 Letter Agreement Amendment, dated
June 1, 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.
10.56 Letter Agreement Amendment, dated
July 8, 1998, by and among Salant
Corporations, Magten Asset
management Corp., as agent on
behalf of certain of its accounts,
and Apollo Apparel Partners, L.P.
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-31.
(c) Fairness Opinion.
A copy of the E&Y Fairness Opinion is attached as Annex I to each of
the Proxy Statement/Prospectus and the Exchange Restructuring Prospectus.
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. 2 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 31st DAY OF AUGUST, 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. 2 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 August 31, 1998
- ---------------------- of Directors and Chief
Jerald S. Politzer Executive Officer
/s/ Philip A. Franzel Executive Vice August 31, 1998
- ---------------------- President and Chief
Philip A. Franzel Financial Officer
/s/ Ann Dibble Jordan Director August 31, 1998
- ----------------------
Ann Dibble Jordan
/s/ Harold Leppo Director August 31, 1998
- ----------------------
Harold Leppo
/s/ Bruce F. Roberts Director August 31, 1998
- ----------------------
Bruce F. Roberts
/s/ Robert H. Falk Director August 31, 1998
- ----------------------
Robert H. Falk
/s/ Robert Katz Director August 31, 1998
- ----------------------
Robert Katz
/s/ John S. Rodgers Director August 31, 1998
- ----------------------
John S. Rodgers
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Salant
Corporation on Post-Effective Amendment No. 2 to Form S-4 of our report
dated March 6, 1998, April 8, 1998 as to Note 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 Proxy
Statement/Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Proxy Statement/Prospectus.
/s/ Deloitte & Touche LLP
- --------------------------
New York, New York
August 31, 1998
<PAGE>
August 20, 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 amendment number two to the Company's Registration
Statement on Form S-4 (the "Registration Statement") to be filed by
September 1, 1998 with the Securities and Exchange Commission in connection
with the Restructuring (as defined in the Registration Statement) and
references made to our firm and such opinion in the Registration Statement.
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
<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.
8.1 Tax Opinion of Fried, Frank,
Harris, Shriver & Jacobson
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.
10.55 Letter Agreement Amendment, dated
June 1, 1998, by and among Salant
Corporation, Magten Asset Management
Corp., as agent on behalf of its
accounts, and Apollo Apparel
Partners, L.P.
10.56 Letter Agreement Amendment, dated
July 8, 1998, by and among Salant
Corporation, Magten Asset Management
Corp., as agent on behalf of its
accounts, and Apollo Apparel
Partners, L.P.
21 List of Subsidiaries of the Company.
27 Financial Data Schedule.
* constitutes a management contract or compensatory plan or arrangement.
[FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LETTERHEAD]
August 31, 1998 212-859-8168
(FAX: 212-859-8588)
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
Ladies and Gentlemen:
We have acted as your special counsel in connection with the
Registration Statement on Form S-4 (File No. 333-50761) (the "Registration
Statement") being filed today with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act").
We hereby confirm, based on the assumptions and subject to the
qualifications and limitations set forth therein, that the statements in
the sections of the Registration Statement captioned "Certain Federal
Income Tax Considerations: Stockholders," "Certain Federal Income Tax
Considerations: Noteholders," to the extent that such statements constitute
statements of law, reflect our opinion regarding the material federal
income tax consequences of the Exchange Restructuring and the Prepackaged
Restructuring (each as defined in the Registration Statement) to holders of
Salant Common Stock and to holders of Salant's 10-1/2% Senior Secured
Notes due December 31, 1998. No opinion is expressed on matters other than
those specifically referred to herein.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement. In giving this 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.
The opinion expressed herein is solely for your benefit and may
not be relied upon in any manner or for any purpose by any other person and
may not be quoted in whole or in part without our prior written consent.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By:/s/ Jack Jacobson
-----------------------------------
Jack Jacobson
EXHIBIT 10.55
-------------
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
(212) 221-7500
June 1, 1998
Magten Asset Management Corp.
35 East 21st Street
New York, New York 10010
Attention: Mr. Talton R. Embry
Apollo Apparel Partners, L.P.
c/o Apollo Management, L.P.
1301 Avenue of the Americas, 38th Floor
New York, New York 10019
Attention: Mr. Robert Katz
Mr. Edward Yorke
RE: SALANT CORPORATION ("SALANT")
--- -----------------------------
Gentlemen:
Reference is made to that certain letter agreement, dated March 2,
1998, by and among Magten Asset Management Corp., as agent on behalf of
certain of its accounts ("Magten"), Apollo Apparel Partners, L. P.
("Apollo") and Salant (the "Letter Agreement"). Initially capitalized terms
not otherwise defined herein shall have their respective meanings as set
forth in the Letter Agreement.
Salant, Magten and Apollo hereby agree to amend the Letter Agreement
as follows:
1. Amendment to Section 2(d). Section 2(d) of the Letter Agreement is
hereby amended by adding "(i)" immediately prior to the phrase "promptly
following" in the third line thereof and adding the following language
immediately prior to the proviso contained in such section: ", and (ii)
promptly following August 31, 1998, directing the Indenture Trustee to
forbear during the term of this Letter Agreement from taking any action in
connection with the failure by Salant to make the interest payment on the
Senior Notes that is payable on August 31, 1998, including, without
limitation, the exercise of any of the Indenture Trustee's rights under the
Senior Note Indenture arising by virtue of such failure."
2. Amendment of Section 4. Section 4 of the Letter Agreement is hereby
amended by adding the phrase "(subject to the proviso in Section 4(g)
hereof)" immediately following the phrase "Magten's obligations hereunder
shall" in the first line thereof.
3. Amendment of Sections 4(a), 4(b) and 4(c). Sections 4(a), 4(b) and
4(c) of the Letter Agreement are hereby amended in their entirety to read
as follows:
"(a) Salant shall not have obtained the requisite shareholder
consent at the Special Meeting (as such term is defined in
the Term Sheet) on or before November 30, 1998;
(b) the Exchange Offer shall not have commenced on or before
July 15, 1998;
(c) the Effective Date (as such term is defined in the Term
Sheet) shall not have occurred on or before November 30,
1998;"
4. Amendment of Section 4(g). Section 4(g) of the Letter Agreement is
hereby amended by replacing the proviso at the end of such section in its
entirety with the following language: "provided, that, an Agreement
Termination Event arising pursuant to this Section 4(g) shall apply only
to, and shall result in the termination of Magten's obligations hereunder
solely with respect to, those Senior Notes as to which Magten's engagement
has been terminated or as to which such a disposal direction has been
issued, and further, provided, that such Agreement Termination Event shall
have no effect whatsoever on any of Magten's other obligations hereunder."
Except as hereinabove amended, the Letter Agreement remains in full
force and effect in accordance with its terms.
Please indicate your agreement to the foregoing by executing a copy of
this letter where indicated below and returning it to us.
Very truly yours,
SALANT CORPORATION
By: /s/ Todd Kahn
-----------------------------
Name: Todd Kahn
Title: EVP & General Counsel
Accepted and Agreed as of
the date first written above
MAGTEN ASSET MANAGEMENT
CORP., as agent on behalf of certain
of its accounts
By: /s/ Talton R. Embry
----------------------------
Name: Talton R. Embry
Title: Chairman
APOLLO APPAREL PARTNERS, L.P.
By: AIF II, L.P., its General Partner
By: /s/ Edward Yorke
----------------------------
Name: Edward Yorke
Title:
EXHIBIT 10.56
-------------
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
(212) 221-7500
July 8, 1998
Magten Asset Management Corp.
35 East 21st Street
New York, New York 10010
Attention: Mr. Talton R. Embry
Apollo Apparel Partners, L.P.
c/o Apollo Management, L.P.
1301 Avenue of the Americas, 38th Floor
New York, New York 10019
Attention: Mr. Robert Katz
Mr. Edward Yorke
RE: SALANT CORPORATION ("SALANT")
-----------------------------------
Gentlemen:
Reference is made to that certain letter agreement, dated March 2,
1998, by and among Magten Asset Management Corp., as agent on behalf of
certain of its accounts ("Magten"), Apollo Apparel Partners, L. P.
("Apollo") and Salant, as amended by that certain letter agreement, dated
June 1, 1998 (the "Letter Agreement"). Capitalized terms not otherwise
defined herein shall have their respective meanings set forth in the Letter
Agreement.
Salant, Magten and Apollo hereby agree to amend the Letter Agreement
as follows:
1. Amendment of Section 4(b). Section 4(b) of the Letter Agreement is
hereby amended in its entirety to read as follows:
"b) the Exchange Offer shall not have commenced on or before
August 31, 1998; "
Except as hereinabove amended, the Letter Agreement remains in full
force and effect in accordance with its terms.
Please indicate your agreement to the foregoing by executing a copy of
this letter where indicated below and returning it to us.
Very truly yours,
SALANT CORPORATION
By: /s/ Todd Kahn
-----------------------------
Name: Todd Kahn
Title: EVP & General Counsel
Accepted and Agreed as of
the date first written above
MAGTEN ASSET MANAGEMENT
CORP., as agent on behalf of certain
of its accounts
By: /s/ Talton R. Embry
------------------------------
Name: Talton R. Embry
Title: Chairman
APOLLO APPAREL PARTNERS, L.P.
By: AIF II, L.P., its General Partner
By: /s/ Edward Yorke
---------------------------------
Name: Edward Yorke
Title:
