SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DECEMBER 29, 1998
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
SALANT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-2433 13-3402444
(STATE OR OTHER (COMMISSION (IRS EMPLOYER
JURISDICTION OF FILE NUMBER) INDENTIFICATION NO.)
INCORPORATION)
1114 Avenue of the Americas, New York, New York 10036
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 221-7500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
<PAGE>
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
On December 29, 1998, Salant Corporation ("Salant") filed a
voluntary petition for relief under chapter 11, title 11, of the United
States Code with the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court"). Salant also filed its
Disclosure Statement and Plan of Reorganization with the Bankruptcy Court
on December 29, 1998.
Also on December 29, 1998, the Bankruptcy Court approved, on an
interim basis, Salant's authority to obtain additional loans and advances
under an $85 million debtor-in-possession facility ("DIP Facility")
provided by Salant's pre-petition working capital lender, The CIT
Group/Commercial Services, Inc. ("CIT"), in an amount not to exceed the
lesser of $15 million and the aggregate amount available under the DIP
Facility.
The foregoing summary does not purport to be complete and is
qualified in its entirety by reference to (i) the Chapter 11 Plan of
Reorganization for Salant Corporation, dated December 29, 1998, (ii) the
Disclosure Statement for Chapter 11 Plan of Reorganization for Salant
Corporation, dated December 29, 1998, (iii) the Ratification and Amendment
Agreement, dated as of December 29, 1998, by and between Salant and CIT,
(iv) the Order Authorizing Interim Financing, Granting Senior Liens and
Priority Administrative Expense, Modifying the Automatic Stay, and
Authorizing Debtor to Enter into Agreements with The CIT Group/Commercial
Services, Inc. and Authorizing the Assumption of the Existing Financing
Agreements with Debtor, dated December 29, 1998, and (v) the press release,
dated December 29, 1998, filed as Exhibits 2.3, 2.4, 10.50, 99.1 and 99.2,
respectively, to this Current Report on Form 8-K, which items are
incorporated by reference herein.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
(c) Exhibits.
The following exhibits are filed as part of this report:
Exhibit
Number Description
- ------- -----------
2.3 Chapter 11 Plan of Reorganization for Salant Corporation, dated
December 29, 1998.
2.4 Disclosure Statement for Chapter 11 Plan of Reorganization, dated
December 29, 1998.
10.50 Ratification and Amendment Agreement, dated as of December 29,
1998, by and between Salant Corporation and The CIT
Group/Commercial Services, Inc.
99.1 Order Authorizing Interim Financing, Granting Senior Liens and
Priority Administrative Expense, Modifying the Automatic Stay,
and Authorizing Debtor to Enter into Agreements with The CIT
Group/Commercial Services, Inc. and Authorizing the Assumption of
the Existing Financing Agreements with Debtor, dated December 29,
1998.
99.2 Press Release, dated December 29, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
SALANT CORPORATION
Dated: January 5, 1999 By: /s/ Todd Kahn
-------------------------
Chief Operating Officer
and General Counsel
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2.3 Chapter 11 Plan of Reorganization for Salant Corporation, dated
December 29, 1998.
2.4 Disclosure Statement for Chapter 11 Plan of Reorganization, dated
December 29, 1998.
10.50 Ratification and Amendment Agreement, dated as of December 29,
1998, by and between Salant Corporation and The CIT
Group/Commercial Services, Inc.
99.1 Order Authorizing Interim Financing, Granting Senior Liens and
Priority Administrative Expense, Modifying the Automatic Stay,
and Authorizing Debtor to Enter into Agreements with The CIT
Group/Commercial Services, Inc. and Authorizing the Assumption of
the Existing Financing Agreements with Debtor, dated December 29,
1998.
99.2 Press Release, dated December 29, 1998.
EXHIBIT 2.3
APPENDIX I
----------
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- -----------------------------------x
:
:
In re: :
: Chapter 11
SALANT CORPORATION, : Case No. 98-10107 (CB)
:
Debtor. :
:
- -----------------------------------x
CHAPTER 11 PLAN OF REORGANIZATION
FOR SALANT CORPORATION
Dated: New York, New York
December 29, 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.................................................1
ARTICLE TWO PROVISIONS FOR TREATMENT OF ADMINISTRATIVE EXPENSES.........9
2.1. Administrative Expenses........................................9
ARTICLE THREE PROVISIONS FOR TREATMENT OF PRIORITY TAX CLAIMS.............9
3.1. Priority Tax Claims............................................9
ARTICLE FOUR CLASSIFICATION OF CLAIMS AND INTERESTS......................9
4.1. Claims........................................................10
4.2. Interests.....................................................10
ARTICLE FIVE IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS
IMPAIRED AND NOT IMPAIRED BY THIS PLAN..................10
5.1. Classes of Claims and Interests Impaired by this Plan and
Entitled to Vote........................................10
5.2. Classes of Claims 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)........................13
6.5. PBGC Claims (Class 5).........................................13
6.6. General Unsecured Claims (Class 6)............................13
6.7. Old Common Stock Interests (Class 7)..........................14
6.8. Other Interests (Class 8).....................................14
ARTICLE SEVEN ACCEPTANCE OR REJECTION OF THIS PLAN; EFFECT OF
REJECTION BY ONE OR MORE IMPAIRED CLASSES OF CLAIMS
OR INTERESTS............................................15
7.1. Impaired Class of Claims and Interests Entitled to Vote.......15
7.2. Acceptance by an Impaired Class of Creditors..................15
7.3. Acceptance by an Impaired Class of Interest Holders...........15
7.4. Classes of Claims Not Impaired by this Plan and
Conclusively Presumed to Accept this Plan...............15
7.5. Class of Interests Deemed Not to Have Accepted this Plan......15
7.6. Confirmation Pursuant to Section 1129(b) of the Bankruptcy
Code....................................................16
ARTICLE EIGHT UNEXPIRED LEASES AND EXECUTORY CONTRACTS...................16
8.1. Assumption and Rejection of Executory Contracts and
Unexpired Leases........................................16
8.2. Bar Date for Rejection Damages................................16
ARTICLE NINE IMPLEMENTATION OF THIS PLAN................................17
9.1. Vesting of Property...........................................17
9.2. Transactions on Business Days.................................17
9.3. Restated Certificate of Incorporation; Restated By-Laws.......17
9.4. Implementation................................................17
9.5. Issuance of New Securities....................................17
9.6. Cancellation of Existing Securities and Agreements............18
9.7. Board of Directors of Reorganized Salant......................18
9.8. Employee Benefit Plans........................................18
9.9. The Stock Award and Incentive Plan............................18
9.10. Survival of Indemnification Obligations......................19
9.11. Listing of New Common Stock; Registration of Securities......19
9.12. Retention and Enforcement of Causes of Action................20
ARTICLE TEN PROVISIONS COVERING DISTRIBUTIONS...........................20
10.1. Timing of Distributions Under this Plan......................20
10.2. Allocation of Consideration..................................21
10.3. Cash Payments................................................21
10.4. Payment of Statutory Fees....................................21
10.5. No Interest..................................................21
10.6. Fractional Securities........................................21
10.7. Withholding of Taxes.........................................22
10.8. Distribution Record Date.....................................22
10.9. Persons Deemed Holders of Registered Securities..............22
10.10. Surrender of Existing Securities............................22
10.11. Special Procedures for Lost, Stolen, Mutilated or
Destroyed Instruments...................................23
10.13. Undeliverable or Unclaimed Distributions....................23
ARTICLE ELEVEN PROCEDURES FOR RESOLVING DISPUTED CLAIMS.................24
11.1. Objections to Claims.........................................24
11.2. Procedure....................................................24
11.3. Payments and Distributions With Respect to Disputed Claims...25
11.4. Timing of Payments and Distributions With
Respect to Disputed Claims..............................25
11.5. Individual Holder Proofs of Interest.........................25
ARTICLE TWELVE DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF
CLAIMS..................................................26
12.1. Discharge of All Claims and Interests and Releases...........26
12.2. Injunction...................................................27
12.3. Exculpation..................................................27
12.4. Guaranties and Claims of Subordination.......................28
ARTICLE THIRTEEN CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND
EFFECTIVE DATE..........................................29
13.1. Conditions Precedent to Entry of the Confirmation Order......29
13.2. Conditions Precedent to the Effective Date...................29
13.3. Waiver of Conditions.........................................29
13.4. Effect of Failure of Conditions..............................30
ARTICLE FOURTEEN MISCELLANEOUS PROVISIONS...............................30
14.1. Bankruptcy Court to Retain Jurisdiction......................30
14.2. Binding Effect of this Plan..................................31
14.3. Nonvoting Stock..............................................31
14.4. Authorization of Corporate Action............................31
14.5. Retiree Benefits.............................................32
14.6. Withdrawal of this Plan......................................32
14.7. Captions.....................................................32
14.8. Method of Notice.............................................32
14.9. Dissolution of Committees....................................33
14.10. Fees, Costs and Expenses of Indenture Trustee...............33
14.11. Amendments and Modifications to Plan........................34
14.12. Section 1125(e) of the Bankruptcy Code......................34
Exhibit A - PEI Licenses
Exhibit B - Registration Rights Agreement
Exhibit C - Reorganized Salant's 1999 Stock Award and Incentive Plan
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) asserted or arising under sections 503(b)
or 507(b) of the Bankruptcy Code, (b) a Claim given the status of an
Administrative Expense by Final Order of the Bankruptcy Court, and (c) all
fees or charges assessed against the Debtor's estate under title 28, United
States Code, Section 1930.
Affiliate: As defined in section 101(2) 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 neither disputed, contingent or unliquidated, and for which no
timely proof of claim has been filed, (c) any Interest registered in the
stock register maintained by or on behalf of the Debtor as of the Record
Date, or (d) any Claim allowed pursuant to this Plan and, in each such case
in (a), (b), and (c) 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 such term is 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 Salant.
Chapter 11 Case: The case under chapter 11 of the Bankruptcy
Code concerning the Debtor which was 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 the 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 held by the Bankruptcy
Court pursuant to section 1128(a) of the Bankruptcy Code 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 pursuant to section 1129 of the Bankruptcy Code.
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, and as ratified and
amended pursuant to that certain Ratification and Amendment Agreement,
dated as of December 29, 1998.
Creditors' Committee: Any official committee of unsecured
creditors appointed in the Chapter 11 Case pursuant to section 1102(a) of
the Bankruptcy Code, as the same may be constituted from time to time.
Debtor: Salant Corporation, as debtor and
debtor-in-possession in the Chapter 11 Case.
Disclosure Statement: The Disclosure Statement that relates
to this Plan and that has been approved by the Bankruptcy Court as
containing adequate information as required by section 1125 of the
Bankruptcy Code.
Disputed: With respect to Claims, any Claim that is not
Allowed.
Distribution Record Date: The date or dates fixed by the
Bankruptcy Court for determining the Holders of Senior Notes and Old Common
Stock, respectively, who are entitled to receive distributions under this
Plan, or if the Bankruptcy Court does not fix such date or dates, the
Record Date.
Effective Date: The date which is 11 days after the
Confirmation Date, or, if such date is not a Business Day, the next
succeeding Business Day, or such earlier date after the Confirmation Date
as agreed to in writing between the Debtor and Magten so long as no stay of
the Confirmation Order is in effect on such date; provided, however, that
if, on or prior to such date, all conditions to the Effective Date set
forth in Article Thirteen of this Plan have not been satisfied, or waived,
then the Effective Date shall be the first Business Day following the day
on which all such conditions to the Effective Date have been satisfied or
waived.
Entity: Any individual, corporation, limited or general
partnership, limited liability company, joint venture, association, joint
stock company, estate, entity, trust, trustee, United States trustee,
unincorporated organization, government, governmental unit (as defined in
the Bankruptcy Code), agency or political subdivision thereof.
Exchange Act: The Securities Exchange Act of 1934, as
amended.
Filing Date: December 29, 1998, which was the date on which
the Debtor filed its voluntary petition for relief commencing the Chapter
11 Case.
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, an Administrative Expense, or any
Claim subordinated under section 510(b) of the Bankruptcy Code).
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.
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.
Management Employment Agreements: The Management Employment
Agreements between Reorganized Salant and Michael Setola and Todd Kahn,
substantially in the form of the exhibit to the Plan to be filed with the
Bankruptcy Court prior to the Disclosure Statement Hearing.
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 allowable as a secured claim
under, 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.
New PIK Senior Notes: Collectively, the pay-in-kind notes,
substantially in the form to be attached to the New PIK Senior Note
Indenture, to be issued to the holders of Allowed Class 3 Claims on the
Effective Date by Reorganized Salant pursuant to the New PIK Senior Note
Indenture, if the PEI Event does not occur on or prior to the Effective
Date, in the aggregate principal amount of $92 million and with a maturity
date on the eighth anniversary of the Effective Date and bearing interest
payable semi-annually in arrears, at the rate of (i) 15% per annum payable
in the form of additional New PIK Senior Notes or (ii) at the sole option
of Reorganized Salant, 12% per annum payable in Cash.
New PIK Senior Note Indenture: The indenture to be dated as
of the Effective Date, substantially in the form of the exhibit to this
Plan to be filed with the Bankruptcy Court prior to the Confirmation
Hearing.
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 or any Claim, if any, relating to Old Common Stock that is
subordinated under section 510(b) of the Bankruptcy Code.
Other Interest: Any Interest other than an Old Common Stock
Interest.
PBGC: The Pension Benefit Guaranty Corporation.
PBGC Agreement: The agreement to be entered into between the
PBGC and Reorganized Salant on or prior to the Effective Date with respect
to any and all PBGC Claims.
PBGC Claims: Any and all Claims of the PBGC.
PEI. Perry Ellis International, Inc.
PEI Event: Either (i) the issuance of a Final Order of the
Bankruptcy Court approving the assumption of the PEI Licenses by the Debtor
and/or Reorganized Salant, as the case may be, and determining that the
Debtor's reorganization under the Plan with the treatment provided to
Senior Note Claims (Class 3) under Section 6.3(a)(i) of the Plan and the
treatment provided to Old Common Stock Interests (Class 7) under Section
6.7(a)(i) of the Plan, and the confirmation and consummation of the Plan
(including, but not limited to, the provisions providing such treatment),
does not and will not give rise to any rights of PEI under the PEI Licenses
based on any "change of control" provision in the PEI Licenses (as that
term is defined in the PEI Licenses) or any similar provision, and does not
and will not for any reason result in any forfeiture, termination or
modification of any rights of Salant existing under the PEI Licenses
immediately prior to the Filing Date, or (ii) the execution of an agreement
or stipulation by and between PEI and the Debtor and/or Reorganized Salant,
as the case may be, to the same effect.
PEI Licenses: Collectively, all licensing agreements by and
between Salant and PEI that are in effect immediately prior to the Filing
Date including, without limitation, those listed on the annexed Exhibit A.
Plan: This Chapter 11 plan of reorganization of the Debtor,
together with all exhibits hereto, as the same may be 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.
Pro Rata Share: A proportionate share, so that the ratio of
the amount of property distributed on account of an Allowed Claim or
Allowed Interest, as the case may be, in a class is the same as the ratio
such Claim or Interest bears to the total amount of all Claims or Interests
(including Disputed Claims or Disputed Interests until disallowed) in such
class.
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 Hearing.
Reorganized Salant Certificate of Incorporation: The
certificate of incorporation of Reorganized Salant, as amended and restated
pursuant to this Plan, in substantially the form to be filed with the
Bankruptcy Court prior to the Confirmation Hearing.
Restricted Stock Plan: Reorganized Salant Restricted Stock
Plan, substantially in the form of the exhibit to this Plan to be filed
with the Bankruptcy Court prior to the Confirmation Hearing.
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 by Salant 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) and
all other Claims against the Debtor, if any, directly or indirectly related
to or arising out of the transactions, agreements or instruments upon which
the Senior Notes are based.
Stock Award and Incentive Plan: Reorganized Salant's 1999
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.
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 sections 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 PBGC Claims.
Class 6. Class 6 consists of all General Unsecured Claims.
4.2. Interests
---------
Class 7. Class 7 consists of all Old Common Stock Interests.
Class 8. Class 8 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), PBGC Claims (Class 5) and
Old Common Stock Interests (Class 7) 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 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 6) 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 8) 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).
---------------
(a) Treatment. 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.
(b) Full Settlement. The distribution provided for in this
Section 6.1 is in full settlement, release and discharge of each Holder's
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 be entitled to receive Cash in an
amount sufficient to render such Allowed CIT Claim Unimpaired under section
1124 of the Bankruptcy Code, (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 Holder's
CIT Claim.
Class 2 is not Impaired.
6.3. Senior Note Claims (Class 3).
------------------
(a) Treatment. (i) If the PEI Event occurs on or prior to
the Effective Date, then 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 9,500,000 shares of New Common Stock (or
90.5805738 shares of New Common Stock for each $1,000 principal amount of
Senior Notes held by such Holder), which in the aggregate shall represent
95% of the issued and outstanding shares of New Common Stock of Reorganized
Salant as of the Effective Date, subject to dilution for shares of New
Common Stock issued under the Stock Award and Incentive Plan and the
Restricted Stock Plan.
(ii) If the PEI Event does not occur on or prior to the
Effective Date, then 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 (A) 4,000,000 shares of New Common Stock (or
38.1391890 shares of New Common Stock for each $1,000 principal amount of
Senior Notes held by such Holder), which in the aggregate shall represent
40% of the issued and outstanding shares of New Common Stock of Reorganized
Salant as of the Effective Date, subject to dilution for shares of New
Common Stock issued under the Stock Award and Incentive Plan and the
Restricted Stock Plan, and (B) the New PIK Senior Notes (or $877.20
aggregate principal amount of New PIK Senior Notes 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
$119,190,277, plus interest in the amount of $30,590 for each day after
December 18, 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. PBGC Claims (Class 5).
-----------
(a) Treatment. On the Effective Date, the Holder of the
Allowed PBGC Claims shall be entitled to receive on account of the Allowed
PBGC Claims the treatment provided for in the PBGC Agreement.
(b) Full Settlement. The distribution provided for in this
Section 6.5 is in full settlement, release and discharge of the Holder's
PBGC Claims.
Class 5 is Impaired.
6.6. General Unsecured Claims (Class 6).
------------------------
(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 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 6.6 is in full settlement, release and discharge of each Holder's
General Unsecured Claim.
Class 6 is not Impaired.
6.7. Old Common Stock Interests (Class 7).
--------------------------
(a) Treatment. (i) If the PEI Event occurs on or prior to
the Effective Date, then 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 500,000 shares of New Common
Stock, which in the aggregate shall represent 5% of the issued and
outstanding shares of New Common Stock of Reorganized Salant as of the
Effective Date, subject to dilution for shares of New Common Stock issued
under the Stock Award and Incentive Plan and the Restricted Stock Plan.
(ii) If the PEI Event does not occur on or prior to the
Effective Date, then 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 6,000,000 shares of New Common
Stock, which in the aggregate shall represent 60% of the issued and
outstanding shares of New Common Stock of Reorganized Salant as of the
Effective Date, subject to dilution for shares of New Common Stock issued
under the Stock Award and Incentive Plan and the Restricted Stock Plan.
(b) Full Settlement. The distribution provided for in this
Section 6.7 is in full settlement, release and discharge of each Holder's
Old Common Stock Interest.
Class 7 is Impaired.
6.8. Other Interests (Class 8). On the Effective Date, all Other
Interests will be extinguished and no distributions will be made in respect
of such Other Interests.
Class 8 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 Allowed Claims in each Impaired Class of Claims (Class 3 -
Senior Note Claims; Class 5 - PBGC Claims) and Interests (Class 7 - Old
Common Stock Interests) are entitled to vote 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, an Impaired Class of 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 such Class 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 7 (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
7 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 6) 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 8) 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 8 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 has not
been expressly assumed or rejected with approval 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. 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, a
proof of claim with respect to 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 a proof of claim with respect to 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 6) 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 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 Reorganized Salant Certificate of Incorporation will provide,
among other things, for a classified board of directors with each class of
directors serving for a three year term. The initial Board of Reorganized
Salant shall consist of the individuals identified on the exhibit to this
Plan to be filed with the Bankruptcy Court prior to the Disclosure
Statement hearing. 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 and Restricted Stock
Plan. (a) 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.
(b) The Restricted Stock Plan shall become effective as of
the Effective Date. Grants under the Restricted Stock Plan shall not be
effective until after the Effective Date. In accordance therewith, on the
Effective Date, Reorganized Salant shall reserve 2% of the New Common Stock
on a fully diluted basis (subject to dilution for shares issued under the
Stock Award and Incentive Plan) for issuance to employees of Reorganized
Salant that may be granted under the Restricted Stock Plan; provided, that,
if the PEI Event does not occur on or prior to the Effective Date then the
percentage of New Common Stock that is reserved for issuance under the
Restricted Stock Plan shall be adjusted so that the amount reserved will
equal 2% of the aggregate distribution to be made to Holders of Senior Note
Claims (Class 3) under Section 6.3(a)(ii) of the Plan.
9.10. Survival of Indemnification and Contribution Obligations.
Notwithstanding anything to the contrary contained in this Plan, the
obligations of the Debtor to indemnify and/or provide contribution to 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,
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 that are Unimpaired pursuant to Section 6.5 of this Plan.
9.11. Listing of New Common Stock; Registration of Securities.
Reorganized Salant shall use its reasonable 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 prior to the Effective Date 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 an appropriate registration statement 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 A 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.
9.13. Management Employment Agreements. The Management Employment
Agreements shall become effective as of the Effective Date. Such agreements
supersede all employment, severance, retention, bonus and other agreements
with respect to Messrs. Setola and Kahn in effect prior to the Effective
Date. On the Effective Date, all Claims and Administrative Expenses of
Messrs. Setola and Kahn against the Debtor under any employment, severance,
retention, bonus and other agreements, if any, between such individual and
the Debtor will be governed by, and completely satisfied in accordance
with, the terms and conditions of each of their Management Employment
Agreements.
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 ten 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 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. For purposes of distribution, fractional shares of New Common Stock
shall be rounded up to the nearest share of New Common Stock.
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. 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.
10.9. Persons Deemed Holders of Registered Securities. Except as
otherwise provided herein and subject to Sections 9.6 and 10.10, 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.
10.10. 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 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.
10.11. 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.
10.12. 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, their
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, Class 5
and Class 7 shall be in complete satisfaction, discharge and release,
effective as of the Effective Date of (i) all Claims and Causes of Action
against, liabilities of, liens on, charges, encumbrances, security
interests, obligations of and Interests in the Debtor, Reorganized Salant,
or the direct or indirect assets and properties of the Debtor or
Reorganized Salant, whether known or unknown, and (ii) all Causes of
Action, whether known or unknown, either directly or derivatively through
the Debtor or Reorganized Salant, against successors and assigns of the
Debtor, present and former Affiliates of the Debtor, and its partners,
directors, officers, agents, attorneys, advisors, financial advisors,
investment bankers, independent accountants, employees of the Debtor and
its Affiliates and any Affiliate of any of the foregoing, and Magten, and
its attorneys, advisors, and financial advisors, based on the same subject
matter as any Claim or Interest, or based on any act or omission,
transaction or other activity or security, instrument or other agreement of
any kind or nature occurring, arising or existing prior to the Effective
Date that was or could have been the subject of any Claim or Interest, in
each case regardless of whether a proof of Claim or Interest was filed,
whether or not Allowed and whether or not the Holder of the Claim or
Interest has voted to accept or reject this Plan.
(c) In addition, but in no way limiting the generality of
the foregoing, except as otherwise specifically provided by this Plan, any
Holder of a Claim in Class 3, Class 5 or Class 7 accepting any distribution
pursuant to this Plan shall be presumed conclusively to have released the
Debtor, Reorganized Salant, successors and assigns of the Debtor, the
present and former Affiliates of the Debtor, directors, officers, agents,
attorneys, independent accountants, advisors, financial advisors,
investment bankers and employees of the Debtor and its Affiliates, and any
Entity claimed to be liable derivatively through any of the foregoing, from
any Cause of Action based on the same subject matter as the Claim on which
the distribution is received. The release described in the preceding
sentence shall be enforceable as a matter of contract against any Entity
that accepts any distribution pursuant to this Plan.
(d) Without in any way limiting Section 12.2 of this Plan,
all injunctions or stays entered in the Chapter 11 Case and existing
immediately prior to the Confirmation Date shall remain in full force and
effect until the Effective Date.
12.2. Injunction. The satisfaction, release and discharge
pursuant to Sections 12.1, 12.3 and 12.4 of this Plan, shall act as an
injunction against any Entity commencing or continuing any action,
employment of process, or act to collect, offset or recover any Claim or
Cause of Action satisfied, released or discharged under this Plan. The
injunction, discharge and releases described in Sections 12.1, 12.2, 12.3
and 12.4 of this Plan shall apply regardless of whether or not a proof of
Claim or Interest based on any Claim, debt, liability or Interests is filed
or whether or not a Claim or Interest based on such Claim, debt, liability
or Interest is Allowed, or whether or not such Entity voted to accept or
reject this Plan.
12.3. Exculpation. In consideration of the distributions under
this Plan, upon the Effective Date, each Holder of a Claim or Interest will
be deemed to have released the Debtor and its directors, officers, agents,
attorneys, independent accountants, advisors, financial advisors,
investment bankers and employees (as applicable) employed by the Debtor
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 a joint obligor 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 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;
(d) PBGC Agreement. The PBGC and Reorganized Salant shall
have entered into the PBGC Agreement and the PBGC Agreement shall have been
approved by the Bankruptcy Court and consummated; and
(e) 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 all the conditions to
effectiveness and the occurrence of the Effective Date have 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 all of the conditions have 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 and Reorganized Salant 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 Disclosure
Statement, or the Related Documents or (c) the classification and proposed
treatment (including any allowance) of any Claim in this Plan.
14.7. Captions. Article and Section captions used in this Plan
are for convenience only and will not affect the construction of this Plan.
14.8. Method of Notice. All notices required to be given under
this Plan, if any, shall be in writing and shall be sent by facsimile
transmission (with hard copy to follow), by first class mail, postage
prepaid, by hand delivery or by overnight courier to:
If to the Debtor to:
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
Attn: Todd Kahn, Esq.
Fax No.: (212) 354-3614
with copies to:
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) 240-2800
Apollo Apparel Partners, L.P.
c/o Apollo Management L.P.
1301 Avenue of the Americas
38th Floor
New York, New York 10019
Attn: Robert Katz
Fax No.: (212) 261-4102
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 Committees. On the Effective Date, any
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
December 29, 1998
Respectfully submitted,
SALANT CORPORATION
Debtor and Debtor-In-Possession
By:/s/ Todd Kahn
-------------
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:/s/ Brad Eric Scheler
---------------------
Brad Eric Scheler, Esq.
<PAGE>
EXHIBIT A
PEI LICENSES
------------
(i) Agreement, by and between Salant and PEI, dated as of October 1,
1980, as amended.
(ii) Agreement, by and between Salant and PEI, dated as of March 11,
1982, as amended.
(iii) Agreement, by and between Salant and PEI, dated as of March 1,
1982, as amended.
(iv) Agreement, by and between Salant and PEI, dated as of January 1,
1987, as amended.
(v) Agreement, by and between Salant and PEI, dated as of March 11,
1982, as amended.
(vi) Letter agreement, by and between Salant and PEI, dated July 21,
1986.
(vii) Agreement, by and between Salant and PEI, dated as of January 1,
1997.
<PAGE>
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of ____ __, 199[ ], by and
among SALANT CORPORATION, a Delaware corporation (the "Company"), and the
other parties listed on the signature pages hereto (the "Initial Holders").
This Agreement is being entered into in connection with the
restructuring of the Company pursuant to the terms and conditions of the
Chapter 11 Plan of Reorganization for Salant Corporation, dated December
__, 1998 (the "Plan"). The Plan provides for the issuance of Common Stock
(as hereinafter defined).
The parties hereto desire to provide certain registration rights to
the Initial Holders with respect to the shares of Common Stock.
Accordingly, the parties hereto agree as follows:
1. Definitions
-----------
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings:
"Account" means, with respect to a Holder or Other Holder who has been
engaged to provide investment management services, each Person (including,
without limitation, any other Holder or Other Holder) on behalf of whom
such Holder or Other Holder provides such services.
"Affiliate" means, at any time, a Person (other than a Subsidiary or a
Holder): (a) that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the
Company; or (b) that beneficially owns (calculated in accordance with Rule
13d-3 under the Exchange Act) or holds ten percent (10%) or more of any
class of the Voting Stock of the Company. As used in this definition,
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or
otherwise.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" means any shares of Common Stock, par value $1.00 per
share, of the Company now or hereafter authorized to be issued, and any and
all securities of any kind whatsoever of the Company which may be issued on
or after the date hereof in respect of, or in exchange for, shares of
Common Stock pursuant to a merger, consolidation, stock split, stock
dividend, recapitalization of the Company or otherwise.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Exchange Act shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
"Holder" means a registered holder of Registrable Common Stock.
"Initial Holders" has the meaning assigned to it in the preamble
hereof.
"Material Disclosure Event" means any pending or imminent event
relating to the Company which, based on (i) the good faith, reasonable
opinion of the Board of Directors of the Company and (ii) the advice of
competent outside counsel to the Board of Directors of the Company, (x)
requires disclosure of material, non-public information relating to such
event in the Shelf Registration so that such registration statement would
not be materially misleading, (y) is otherwise not required to be publicly
disclosed at that time (e.g., on Form 8-K or Form 10-Q) under applicable
federal or state securities laws, and (z) if publicly disclosed at the time
of such event, would have a material adverse effect on the business and
financial condition of the Company.
"Other Holder" means any person or entity to whom the Company has
granted or does grant registration rights.
"Other Holder Registrable Common Stock" means the shares of Common
Stock held by any Other Holder.
"Person" means a corporation, an association, a partnership, an
organization, a business, a trust, an individual, or any other entity or
organization, including a government or political subdivision or an
instrumentality or agency thereof.
"Registrable Common Stock" means (i) the shares of Common Stock issued
to an Initial Holder pursuant to the Plan or (ii) any Common Stock issued
with respect to the Common Stock referred to in clause (i) hereof by way of
a stock dividend, stock split or reverse stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or
otherwise. As to any particular Registrable Common Stock, such securities
shall cease to be Registrable Common Stock when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) they shall
have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (iii) they shall have been otherwise
transferred, new certificates for them not bearing a legend restricting
further transfer shall have been delivered by the Company and subsequent
disposition of them shall not require the registration under the Securities
Act, or (iv) they shall have ceased to be outstanding.
"Registration Expenses" means all expenses incident to the
registration and disposition of the Registrable Common Stock pursuant to
Section 2 hereof, including, without limitation, all registration, filing
and applicable national securities exchange fees; all fees and expenses of
complying with state securities or blue sky laws (including fees and
disbursements of counsel to the underwriters or the Holders in connection
with 'blue sky" qualification of the Registrable Common Stock and
determination of their eligibility for investment under the laws of the
various jurisdictions); all duplicating and printing expenses; all
messenger and delivery expenses; the fees and disbursements of counsel for
the Company and of its independent public accountants, including the
expenses of "cold comfort" letters or, in connection with a registration
pursuant to Section 2.3 only, any special audits required by, or incident
to, such registration; all fees and disbursements of underwriters (other
than underwriting discounts and commissions); all transfer taxes; and the
reasonable fees and expenses of one counsel to the Holders; provided,
however, that Registration Expenses shall exclude and the Holders shall pay
underwriting discounts and commissions in respect of the Registrable Common
Stock being registered.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act shall include a reference to the
comparable section, if any, of any such similar federal statute.
"Subsidiary" means any corporation in which the Company or one or more
Subsidiaries owns sufficient voting securities to enable it or them (as a
group) ordinarily, in the absence of contingencies, to elect a majority of
the directors (or Persons performing similar functions) of such
corporation.
"Voting Stock" means, with respect to any corporation, any shares of
stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether, at the time, stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency).
2. Shelf Registration; Registration Under Securities Act, Etc.
----------------------------------------------------------
2.1 Shelf Registration
------------------
Within 35 days following the date hereof, the Company shall file with
the Commission, at the Company's expense, a "shelf" registration statement
on any appropriate form pursuant to Rule 415 under the Securities Act
covering all Registrable Common Stock (the "Shelf Registration"). The
Company shall use its reasonable commercial efforts to have the Shelf
Registration declared effective as promptly as practicable after such
filing (but not later than 100 days after the date hereof) and to keep the
Shelf Registration continuously effective three years following the date on
which the Shelf Registration is declared effective (subject to Suspension
Periods (as hereinafter defined) and extensions coincident with the length
of such Suspension Periods) (the "Shelf Registration Period"); provided,
however, that if a registration statement on Form S-3 (or such successor
form as is prescribed by the Commission) is available to the Company on the
third anniversary of the date on which the Shelf Registration is declared
effective, the Company shall use its reasonable commercial efforts to keep
the Shelf Registration continuously effective for two additional years. The
Company shall, to the extent necessary, supplement or amend the Shelf
Registration (in each case, at the Company's expense) to keep the Shelf
Registration effective during the Shelf Registration Period. The Company
further agrees to supplement or amend any Shelf Registration, as required
by the registration form utilized by the Company, by the instructions
applicable to such registration form or by the Securities Act or the rules
and regulations thereunder or as reasonably requested by any Holder. The
Company shall furnish to the Holders copies, in substantially the form
proposed to be used and/or filed, of the registration statement and any
such supplement or amendment at least 30 days prior to its being used
and/or filed with the Commission. The Company hereby consents to the use
(in compliance with applicable law) of the prospectus or any amendment or
supplement thereto by each of the selling Holders of Registrable Common
Stock in connection with the offering and sale of the Registrable Common
Stock covered by the prospectus or any amendment or supplement thereto. The
Company shall pay all Registration Expenses incurred in connection with the
Shelf Registration, whether or not it becomes effective. In no event shall
the Shelf Registration include securities other than Registrable Common
Stock, unless the Holders of all Registrable Common Stock consent to such
inclusion. Nothing herein shall obligate the Company to incur or pay for
fees and disbursements of underwriters in connection with a distribution
under the Shelf Registration.
For purposes hereof, "Suspension Period' shall mean a period of time
commencing on the date on which the Company provides notice that the Shelf
Registration is no longer effective, that the prospectus included in the
Shelf Registration no longer complies with the requirements therefor
prescribed by Section 10(a) of the Securities Act, or there is a Material
Disclosure Event and the Board of Directors of the Company has elected (in
its good faith reasonable judgment) to require the suspension of the sale
by the Holder of Registrable Common Stock pursuant to the Shelf
Registration, and shall end on the date when the Holder either receives
copies of the supplemented or amended prospectus contemplated by Section
2.4(g) or such earlier time that the Holder is otherwise advised in writing
by the Company that use of the prospectus may be resumed. The Holder agrees
that it will not sell any Registrable Common Stock pursuant to the Shelf
Registration during any Suspension Period. The Company agrees (i) that the
Company will use its best efforts to ensure that there is not more than one
Suspension Period in any 12-month period, (ii) to cause each Suspension
Period to end as soon as reasonably practicable and (iii) that no
Suspension Period shall exceed 30 consecutive days. The Company further
agrees that no other holder of any shares of the Company's capital stock
will be permitted to sell any such shares of the Company's capital stock
pursuant to a registration statement during a Suspension Period. If one or
more Suspension Periods occur, the Shelf Registration Period shall be
extended by such number of days coincident with the aggregate number of
days included in all Suspension Periods.
2.2 Registration on Request
-----------------------
(a) Request
-------
Subject to the provisions of Section 2.2(h) below, (i) if the Shelf
Registration remains continuously effective during the Shelf Registration
Period in accordance with the terms hereof, at any time or from time to
time after the expiration of the Shelf Registration Period, or (ii) if for
any reason the Shelf Registration does not become effective within 65 days
after the date hereof or ceases to be effective at any time prior to the
expiration of the Shelf Registration Period, at any time or from time to
time after the date which is 65 days from the date hereof (if the Shelf
Registration fails to become effective) or the date on which the Shelf
Registration ceases to be effective, as the case may be, the Holders,
individually and jointly, of more than 10% of issued and outstanding shares
of Common Stock (the "Initiating Holders") shall have the right to require
the Company to effect the registration under the Securities Act of all or
part of the Registrable Common Stock held by such Initiating Holders, by
delivering a written request therefor to the Company specifying the number
of shares of Registrable Common Stock and the intended method of
distribution. The Company shall promptly give written notice of such
requested registration to all other Holders, and thereupon the Company
shall, as expeditiously as possible, use its best efforts to (A) effect the
registration under the Securities Act (including by means of a shelf
registration pursuant to Rule 415 under the Securities Act if so requested
in such request and if the Company is then eligible to use such a
registration) of the Registrable Common Stock which the Company has been so
requested to register by the Initiating Holders, and all other Registrable
Common Stock which the Company has been requested to register by any other
Holder (together with the Initiating Holders, the "Selling Holders") by
written request given to the Company within 10 days after giving of written
notice by the Company, all to the extent necessary to permit distribution
in accordance with the intended method of distribution set forth in the
written request or requests delivered by the Selling Holders, and (B) if
requested by the Selling Holders, obtain acceleration of the effective date
of the registration statement relating to such registration.
(b) Registration of Other Securities
--------------------------------
Whenever the Company shall effect a registration pursuant to this
Section 2.2, no securities (other than Registrable Common Stock) shall be
included among the securities covered by such registration (i) if, in
connection with an underwritten offering by any Selling Holders of
Registrable Common Stock, the managing underwriter of such offering shall
have advised the Company and the Selling Holders in writing that the
inclusion of such other securities would adversely affect such offering or
(ii), if such offering is not an underwritten offering, unless the Selling
Holders of not less than 50% of the Registrable Common Stock to be covered
by such registration shall have consented (which consent shall not be
unreasonably withheld or delayed) in writing to the inclusion of such other
securities.
(c) Registration Statement Form
---------------------------
Registrations under this Section 2.2 shall be on such appropriate
registration form of the Commission as shall be selected by the Company and
as shall be reasonably acceptable to the Selling Holders. The Company
agrees to include in any such registration statement all information which,
in the opinion of counsel to the Selling Holders, counsel to the
underwriters, if any, and counsel to the Company, is required to be
included.
(d) Expenses
--------
The Company shall pay all Registration Expenses in connection with any
registration requested pursuant to this Section 2.2.
(e) Effective Registration Statement
--------------------------------
A registration requested pursuant to this Section 2.2 shall not be
deemed to have been effected (including for purposes of paragraph (h) of
this Section 2.2) (i) unless a registration statement with respect thereto
has become effective and has been kept continuously effective for a period
of at least 120 days (or such shorter period which shall terminate when all
the Registrable Common Stock covered by such registration statement have
been sold pursuant thereto), (ii) if after it has become effective, such
registration is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or
court for any reason not attributable to the Selling Holders and has not
thereafter become effective, or (iii) if the conditions to closing
specified in the underwriting agreement, if any, entered into in connection
with such registration are not satisfied for any reason not attributable to
the Selling Holders or waived.
(f) Selection of Underwriters
-------------------------
The underwriters of each underwritten offering of the Registrable
Common Stock to be registered shall be selected by the Selling Holders and
shall be reasonably satisfactory to the Company.
(g) Priority in Requested Registration
----------------------------------
If the managing underwriter of any underwritten offering shall advise
the Company in writing (with a copy to each Selling Holder) that, in its
opinion, the number of shares of Registrable Common Stock requested to be
included in such registration exceeds the number of shares which can be
sold in such offering within a price range acceptable to the Selling
Holders of Registrable Common Stock, the Company will include in such
registration that number of shares of Registrable Common Stock which the
Company is so advised can be sold in such offering. The Registrable Common
Stock requested to be included in such registration shall be reduced pro
rata among the Selling Holders requesting such registration of Registrable
Common Stock on the basis of the percentage of Registrable Common Stock of
such Selling Holders requesting such registration. In connection with any
such registration to which this Section 2.2(g) is applicable, no securities
other than Registrable Common Stock shall be covered by such registration.
(h) Limitations on Registration on Request
--------------------------------------
Notwithstanding anything to the contrary contained herein, the
registration rights granted to the Holders in Section 2.2(a) are subject to
the following limitations: (i) the Holders shall be entitled to require the
Company to, and the Company shall be required to, effect no more than three
registrations pursuant to Section 2.2(a)(i) hereof and no more than four
registrations pursuant to Section 2.2(a)(ii) hereof, (ii) the Company shall
not be required to effect a registration pursuant to Section 2.2(a) if,
with respect thereto, the managing underwriter, the Commission, the
Securities Act or the rules and regulations thereunder, or the form on
which the registration statement is to be filed, would require the conduct
of an audit other than the regular audit conducted by the Company at the
end of its fiscal year, but rather the filing may be delayed until the
completion of such regular audit (unless the Holders agree to pay the
expenses of the Company in connection with such an audit other than the
regular audit) and (iii) the Holders shall not be entitled to require the
Company to, and the Company shall not be required to, effect a registration
pursuant to Section 2.2(a) within three (3) months following the effective
date of another registration pursuant to Section 2.2(a).
(i) Postponement
------------
The Company shall be entitled once in any 12-month period to postpone
for a reasonable period of time (but not exceeding 30 days) (the
"Postponement Period") the filing of any registration statement required to
be prepared and filed by it pursuant to this Section 2.2 if the Company
determines, in its reasonable judgment, that such registration and offering
would materially interfere with any material financing, corporate
reorganization or other material transaction involving the Company or any
subsidiary, or would require premature disclosure thereof, and promptly
gives the Selling Holders written notice of such determination, containing
a general statement of the reasons for such postponement and an
approximation of the anticipated delay. If the Company shall so postpone
the filing of a registration statement, the Selling Holders of not less
than 50% of the shares of Registrable Common Stock to be registered shall
have the right to withdraw the request for registration in respect of the
Registrable Common Stock by giving written notice to the Company at any
time and, in the event of any such withdrawal, such request shall not be
counted for purposes of the requests for registration to which the Holders
are entitled pursuant to this Section 2.2.
2.3 Incidental Registration
-----------------------
(a) Right to Include Registrable Common Stock
-----------------------------------------
If the Company at any time prior to the expiration of the Holders'
right to request the registration of Registrable Common Stock pursuant to
Section 2.2(a) hereof proposes to register any of its securities under the
Securities Act by registration on Form S-1, S-2 or S-3 or any successor or
similar form(s) (except registrations on such Form or similar form(s)
solely for registration of securities in connection with an employee stock
option, stock purchase, stock bonus or similar plan, pursuant to a dividend
reinvestment plan, pursuant to a merger, exchange, offer or transaction of
the type specified in Rule 145(a) under the Securities Act or pursuant to a
"shelf" registration), whether or not for sale for its own account, it will
each such time give prompt written notice to the Holders of its intention
to do so and of the Holders' rights under this Section 2.3 and the Holders
shall be entitled to include, subject to the provisions of this Agreement,
Registrable Common Stock on the same terms and conditions (if any) as apply
to other comparable securities of the Company sold in connection with such
registration. Upon the written request of any Holder (a "Requesting
Holder"), specifying the maximum number of shares of Registrable Common
Stock intended to be disposed of by such Requesting Holder, made as
promptly as practicable and in any event within 15 days after the receipt
of any such notice, the Company shall use its best efforts to effect the
registration under the Securities Act of all Registrable Common Stock which
the Company has been so requested to register by the Requesting Holders;
provided, however, that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay
registration of such securities, the Company shall give written notice of
such determination and its reasons therefor to the Holders and (i) in the
case of a determination not to register, shall be relieved of its
obligation under this Section 2.3 to register any Registrable Common Stock
in connection with such registration (but not from any obligation of the
Company to pay the Registration Expenses in connection therewith), without
prejudice, however, to the rights of the Holders to request that such
registration be effected as a registration under Section 2.2, and (ii) in
the case of a determination to delay registering, shall be permitted to
delay registering any Registrable Common Stock, for the same period as the
delay in registering such other securities. No registration effected under
this Section 2.3 shall relieve the Company of its obligation to effect any
registration upon request under Section 2.2. The Company will pay all
Registration Expenses in connection with any registration of Registrable
Common Stock requested pursuant to this Section 2.3.
(b) Right to Withdraw
-----------------
Any Requesting Holder shall have the right to withdraw its request for
inclusion of Registrable Common Stock in any registration statement
pursuant to this Section 2.3 at any time by giving written notice to the
Company of its request to withdraw.
(c) Priority in Incidental Registrations
------------------------------------
If the managing underwriter of any underwritten offering shall inform
the Company by letter of its opinion that the number of shares of
Registrable Common Stock and Other Holder Registrable Common Stock when
added to the number of other securities to be offered in such registration,
would materially adversely affect such offering, then the Company shall
include in such registration that number of shares of Registrable Common
Stock and Other Holder Registrable Common Stock which the Company is so
advised by the managing underwriter can be sold in (or during the time of)
such offering without materially adversely affecting such offering in the
following order of priority:
First: the holder or holders of securities (including the Company
in the case of a primary offering) originally requesting such
registration shall be entitled to participate in accordance with the
relative priorities, if any, that shall exist among them; and then
Second: the holder or holders of Registrable Common Stock shall
be entitled to participate in such offering, pro rata among themselves
in accordance with the number of shares of Registrable Common Stock
which each such holder shall have requested be registered; and then
Third: all other holders (including the Company, if such
registration shall have been originally requested by a person other
than the Company) of securities having the right to include shares of
Common Stock in such registration shall be entitled to participate pro
rata in accordance with the number of shares proposed to be registered
by them.
(d) Plan of Distribution
--------------------
Any participation by the Holders in a registration by the Company
shall be in accordance with the Company's plan of distribution.
2.4 Registration Procedures
-----------------------
If and whenever the Company is required to use its best efforts to
effect the registration of any Registrable Common Stock under the
Securities Act as provided in Sections 2.1, 2.2 and 2.3 hereof, the Company
shall as expeditiously as possible:
(a) prepare and file with the Commission as soon as
practicable the requisite registration statement to effect such
registration (and shall include all financial statements required
by the Commission to be filed therewith) and thereafter use its
best efforts to cause such registration statement to become
effective; provided, however, that before filing such
registration statement (including all exhibits) or any amendment
or supplement thereto or comparable statements under securities
or blue sky laws of any jurisdiction, the Company shall furnish
such documents to each Holder selling Registrable Common Stock
covered by such registration statement and each underwriter, if
any, participating in the offering of the Registrable Common
Stock and their respective counsel, which documents will be
subject to the review and comments of each such Holder, each
underwriter and their respective counsel; and provided further,
that (i) as to registration pursuant to Section 2.1 or 2.2
hereof, the Company may discontinue any registration of its
securities which are not Registrable Common Stock and (ii) as to
registration pursuant to Section 2.3 hereof, the Company may
discontinue any registration of its securities, in each case, at
any time prior to the effective date of the registration
statement relating thereto;
(b) notify each Holder selling Registrable Common Stock
covered by such registration statement of the Commission's
requests for amending or supplementing the registration statement
and the prospectus, and prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to
keep such registration statement effective and to comply with the
provisions of the Securities Act with respect to the disposition
of all Registrable Common Stock covered by such registration
statement for such period as shall be required for the
disposition of all of such Registrable Common Stock in accordance
with the intended method of distribution thereof; provided that,
except with respect to the Shelf Registration and any other such
registration statement filed pursuant to Rule 415 under the
Securities Act, such period need not exceed 120 days;
(c) furnish, without charge, to each Holder selling
Registrable Common Stock covered by such registration statement
and each underwriter such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of
copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, as such Holders and
such underwriters may reasonably request;
(d) use its best efforts (i) to register or qualify all
Registrable Common Stock and other securities covered by such
registration statement under such securities or blue sky laws of
such States of the United States of America where an exemption is
not available and as any Holder or Holders selling Registrable
Common Stock covered by such registration statement or any
managing underwriter shall reasonably request, (ii) to keep such
registration or qualification in effect for so long as such
registration statement remains in effect, and (iii) to take any
other action which may be reasonably necessary or advisable to
enable the Holders to consummate the disposition in such
jurisdictions of the securities to be sold by such Holder or
Holders; provided, however, that the Company shall not for any
purpose be required to execute a general consent to service of
process or to qualify to do business as a foreign corporation in
any jurisdiction where it is not so qualified;
(e) use its best efforts to cause all Registrable Common
Stock covered by such registration statement to be registered
with or approved by such other Federal or state governmental
agencies or authorities as may be necessary in the opinion of
counsel to the Company, counsel to any underwriter, or counsel to
any Holder or Holders selling Registrable Common Stock covered by
such registration statement to consummate the disposition of such
Registrable Common Stock;
(f) furnish to each Holder selling Registrable Common Stock
covered by such registration statement and each underwriter, if
any, participating in the offering of the securities covered by
such registration statement, a signed counterpart of (i) an
opinion of counsel for the Company, and (ii) a "comfort" letter
signed by the independent public accountants who have certified
the Company's financial statements included or incorporated by
reference in such registration statement, covering substantially
the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of the
accountants' comfort letter, with respect to events subsequent to
the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' comfort
letters delivered to the underwriters in underwritten public
offerings of securities (and dated the dates such opinions and
comfort letters are customarily dated) and, in the case of the
legal opinion, such other legal matters, and, in the case of the
accountants' comfort letter, such other financial matters, as
such Holder or Holders, or the underwriters, may reasonably
request;
(g) immediately notify the Holders selling Registrable
Common Stock covered by such registration statement and each
managing underwriter, if any, participating in the offering of
the securities covered by such registration statement (i) when
such registration statement, any pre-effective amendment, the
prospectus or any prospectus supplement related thereto or
post-effective amendment to such registration statement has been
filed, and, with respect to such registration statement or any
post-effective amendment, when the same has become effective;
(ii) of any request by the Commission for amendments or
supplements to such registration statement or the prospectus
related thereto or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or the initiation of
any proceedings for that purpose; (iv) of the receipt by the
Company of any notification with respect to the suspension of the
qualification of any of the Registrable Common Stock for sale
under the securities or blue sky laws of any jurisdiction or the
initiation of any proceeding for such purpose; and (v) at any
time when a prospectus relating thereto is required to be
delivered under the Securities Act or, in the case of the Shelf
Registration, at any time during the Shelf Registration Period,
upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, in the light of the circumstances under which they
were made, and in the case of this clause (v), at the request of
any Holder or Holders selling Registrable Common Stock covered by
such registration statement promptly prepare and furnish to such
Holder or Holders and each underwriter, if any, participating in
the offering of the Registrable Common Stock, a reasonable number
of copies of a supplement to or an amendment of such prospectus
as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include
an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the
circumstances under which they were made;
(h) otherwise comply with all applicable rules and
regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the
first full calendar month after the effective date of such
registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act and Rule
158 promulgated thereunder, and promptly furnish to the Holders a
copy of any amendment or supplement to such registration
statement or prospectus;
(i) cause to be maintained a transfer agent and registrar
(which, in each case, may be the Company) for the Common Stock
from and after the date of such registration;
(j) use its commercially reasonable efforts to cause all
Registrable Common Stock covered by such registration statement
to be (i) listed for trading on the New York Stock Exchange, Inc.
("NYSE"), provided that, if the Company is unable to have the
Registrable Common Stock listed for trading on the NYSE, the
Company will use its best efforts to cause all Registrable Common
Stock to be quoted on the National Market System ("National
Market System") of the NASDAQ Stock Market ("NASDAQ") within the
meaning of Rule 11Aa2-1 of the Commission if the quoting of such
Registrable Common Stock is then permitted under NASDAQ rules; or
(ii) if no similar securities of the Company are then so quoted,
use its best efforts to (x) secure designation of all such
Registrable Common Stock as a NASDAQ National Market System
security or (y) failing that, cause all such Registrable Common
Stock to be listed on another national securities exchange or (z)
failing that, to secure NASDAQ authorization for such shares and,
without limiting the generality of the foregoing, to arrange for
at least two market makers to register as such with respect to
such shares with the National Association of Securities Dealers,
Inc.;
(k) deliver promptly to counsel to the Holders selling
Registrable Common Stock covered by such registration statement
and each underwriter, if any, participating in the offering of
the Registrable Common Stock, copies of all correspondence
between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or
its staff with respect to such registration statement;
(1) use its best efforts to obtain the withdrawal of any
order suspending the effectiveness of the registration statement;
(m) provide a CUSIP number for all Registrable Common Stock,
no later than the effective date of the registration statement;
(n) make available its employees and personnel and otherwise
provide reasonable assistance to the underwriters (taking into
account the needs of the Company's businesses) in their marketing
of Registrable Common Stock; and
(o) in the case of a Shelf Registration, upon the occurrence
of any event or the discovery of any facts, each as contemplated
by Section 2.4(g)(v) hereof, use its best efforts to prepare a
supplement or post-effective amendment to the registration
statement or the related prospectus or any document incorporated
therein by reference or file any other required documents so
that, thereafter, such prospectus will not contain at the time of
such delivery any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading.
The Company may require the Holders selling Registrable Common Stock
covered by such registration statement to furnish the Company such
information regarding the Holders and the distribution of the Registrable
Common Stock as the Company may from time to time reasonably request in
writing. In the event of a registration effected pursuant to Section 2.1,
2.2(a) or 2.3(a) hereof, if a Holder fails to provide such information and
the failure by such Holder to furnish such information would prevent or
unreasonably delay the registration statement relating to such registration
from being declared effective by the Commission, the Company may exclude
such Holder's Registrable Common Stock from such registration, which right
of the Company shall, in the case of a registration effected pursuant to
Section 2.1 or 2.2(a) hereof, be subject to the consent of the Holders of
not less than 50% of the shares of Registrable Common Stock to be included
in such registration (other than such Holder's Registrable Common Stock).
The Holders agree that upon receipt of any notice from the Company of
the happening of any event of the kind described in paragraph (g)(iii) or
(v) of this Section 2.4, each of the Holders will discontinue its
disposition of Registrable Common Stock pursuant to the registration
statement relating to such Registrable Common Stock until, in the case of
paragraph (g)(v) of this Section 2.4, its receipt of the copies of the
supplemented or amended prospectus contemplated by paragraph (g)(v) of this
Section 2.4 and, if so directed by the Company, will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies,
then in its possession, of the prospectus relating to such Registrable
Common Stock current at the time of receipt of such notice. If the
disposition by the Holders of their securities is discontinued pursuant to
the foregoing sentence, the Company shall extend the period of
effectiveness of the registration statement by the number of days during
the period from and including the date of the giving of notice to and
including the date when the Holders shall have received copies of the
supplemented or amended prospectus contemplated by paragraph (g)(v) of this
Section 2.4; and, if the Company shall not so extend such period, the
Holders' request pursuant to which such registration statement was filed
shall not be counted for purposes of the requests for registration to which
the Holders are entitled pursuant to Section 2.2 hereof.
2.5 Underwritten Offerings
----------------------
(a) Requested Underwritten Offerings
--------------------------------
If requested by the underwriters for any underwritten offering by the
Selling Holders pursuant to a registration requested under Section 2.1 or
2.2, the Company shall enter into a customary underwriting agreement with
such underwriter or underwriters. Such underwriting agreement shall be
reasonably satisfactory in form and substance to the Selling Holders and
shall contain such representations and warranties by, and such other
agreements on the part of, the Company and such other terms as are
generally prevailing in agreements of that type, including, without
limitation, such customary provisions relating to indemnification and
contribution by the Company. The Selling Holders shall be parties to such
underwriting agreement and may, at their option, require that any or all of
the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters shall also be
made to and for the benefit of the Selling Holders and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of the
Selling Holders. No Selling Holder shall be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding
such Selling Holder, its ownership of and title to the Registrable Common
Stock, and its intended method of distribution; any liability of any
Selling Holder to any underwriter or other Person under such underwriting
agreement shall be limited to liability arising from misstatements in or
omissions from its representations and warranties and shall be limited to
an amount equal to the net proceeds that it derives from such registration;
and no Selling Holder shall be required to indemnify any underwriter, or
contribute to any payments required to be made by any underwriter in lieu
thereof, to any greater extent than such Selling Holder has agreed in
Section 2.7.
(b) Incidental Underwritten Offerings
---------------------------------
In the case of a registration pursuant to Section 2.3 hereof, if the
Company shall have determined to enter into any underwriting agreements in
connection therewith, all of the Requesting Holders' Registrable Common
Stock to be included in such registration shall be subject to such
underwriting agreements. The Requesting Holders may, at their option,
require that any or all of the representations and warranties by, and the
other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of the Requesting
Holders and that any or all of the conditions precedent to the obligations
of such underwriters under such underwriting agreement be conditions
precedent to the obligations of the Requesting Holders. No Requesting
Holder shall be required to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such Requesting Holder, its ownership of
and title to the Registrable Common Stock, and its intended method of
distribution; and any liability of any Requesting Holder to any underwriter
or other Person under such underwriting agreement shall be limited to
liability arising from misstatements in or omissions from its
representations and warranties and shall be limited to an amount equal to
the net proceeds that it derives from such registration.
2.6 Preparation; Reasonable Investigation
-------------------------------------
In connection with the preparation and filing of each registration
statement under the Securities Act pursuant to this Agreement, the Company
will give the participating Holders, their underwriters, if any, and their
respective counsel, accountants and other representatives and agents the
opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission,
and, to the extent practicable, each amendment thereof or supplement
thereto, and give each of them such access to its books and records and
such opportunities to discuss the business of the Company with its officers
and employees and the independent public accountants who have certified its
financial statements, and supply all other information reasonably requested
by each of them, as shall be necessary or appropriate, in the opinion of
the participating Holders' and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the Securities
Act.
2.7 Indemnification
---------------
(a) Indemnification by the Company
------------------------------
The Company agrees that in the event of any registration of any
securities of the Company under the Securities Act, the Company shall, and
hereby does, indemnify and hold harmless each Holder, its respective
directors, officers, partners, agents and affiliates and each other Person
who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such Holder or any
such underwriter within the meaning of the Securities Act, against any
losses, claims, damages, or liabilities, joint or several, to which such
Holder or any such director, officer, partner, agent or affiliate or
underwriter or controlling Person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities,
joint or several (or actions or proceedings, whether commenced or
threatened, in respect thereof), arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such securities were registered
under the Securities Act, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement
thereto, (ii) any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not
misleading, or (iii) any violation by the Company of any federal, state or
common law rule or regulation applicable to the Company and relating to
action required of or inaction by the Company in connection with any such
registration, and the Company shall reimburse such Holder and each such
director, officer, partner, agent or affiliate, underwriter and controlling
Person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided that the Company shall not be liable in any
such case or to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement
in reliance upon and in conformity with written information furnished to
the Company through an instrument duly executed by or on behalf of the
Holders or underwriter, as the case may be, specifically stating that it is
for use in the preparation thereof; and provided, further, that the Company
shall not be liable to any Person who participates as an underwriter in the
offering or sale of Registrable Common Stock or any other Person, if any,
who controls such underwriter within the meaning of the Securities Act, in
any such case to the extent that any such loss, claim, damage, liability
(or action or proceeding in respect thereof) or expense arises out of such
Person's failure to send or give a copy of the final prospectus, as the
same may be then supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Common Stock
to such Person if such statement or omission was corrected in such final
prospectus. Such indemnity shall remain in full force regardless of any
investigation made by or on behalf of either Holder or any such director,
officer, partner, agent or affiliate or controlling Person and shall
survive the transfer of such securities by such Holder.
(b) Indemnification by the Holders
------------------------------
As a condition to including any Registrable Common Stock in any
registration statement, the Company shall have received an undertaking
reasonably satisfactory to it from each Holder so including any Registrable
Common Stock to indemnify and hold harmless (in the same manner and to the
same extent as set forth in paragraph (a) of this Section 2.7) the Company,
and each director of the Company, each officer of the Company and each
other Person, if any, who controls the Company within the meaning of the
Securities Act, and, to the extent requested, each underwriter, with
respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment
or supplement thereto, but only to the extent such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such Holder specifically stating that it is for
use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement;
provided, however, that the liability of such indemnifying party under this
Section 2.7(b) shall be limited to the amount of net proceeds received by
such indemnifying party in the offering giving rise to such liability. Such
indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any such director,
officer or controlling Person and shall survive the transfer of such
securities by such Holder; and provided, further, that such Holder shall
not be liable to any Person who participates as an underwriter in the
offering or sale of Registrable Common Stock or any other Person, if any,
who controls such underwriter within the meaning of the Securities Act, in
any such case to the extent that any such loss, claim, damage, liability
(or action or proceeding in respect thereof) or expense arises out of such
Person's failure to send or give a copy of the final prospectus, as the
same may be then supplemented or amended, to any other Person asserting an
untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of Registrable
Common Stock to such other Person if such statement or omission was
corrected by such Holder in such final prospectus.
(c) Indemnification for Controlling Person Liability.
------------------------------------------------
In addition to the indemnification provided for in Section 2.7(a), the
Company shall indemnify, to the fullest extent permitted by law, each
Holder, its officers, directors, partners and agents, if any, and each
Person, if any, who controls such Holder within the meaning of Section 15
of the Securities Act, against all losses, claims, damages, liabilities (or
proceedings in respect thereof) and expenses, joint or several, in each
case, under the Securities Act or common law or otherwise, resulting from:
(i) any violation by the Company of the provisions of the
Securities Act;
(ii) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or amendment
thereto or prospectus (and as amended or supplemented if amended or
supplemented) or any preliminary prospectus or caused by any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading,
whether or not, in each such case, the registration statement or
amendment thereto or prospectus (or amendment or supplement thereto)
or preliminary prospectus related or relates to any offering or sale
of Registrable Common Stock by a Holder; and
(iii) any other untrue statement or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact
necessary to make the statements in any document issued or delivered
to any purchaser or potential purchaser or filed with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act (in light
of the circumstances under which they were made) not misleading, in
each case, in connection with any offering or sale of securities of
the Company by any Person, whether or not such securities offered or
sold are or were registered or required to be registered under the
Securities Act;
in each such case, to the extent that such losses, claims, damages,
liabilities (or proceedings in respect thereto) and expenses, joint or
several, are alleged to result from or exist by virtue of the fact that any
Holder controls or is alleged to control (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) the Company or any
Subsidiary or Affiliate of the Company, whether such claim or allegation
arises under Section 15 of the Securities Act or Section 20 of the Exchange
Act or otherwise; provided, however, that such indemnification shall not
extend to losses, claims, damages, liabilities (or proceedings in respect
thereof) or expenses caused by any untrue statement or alleged untrue
statement contained in or by any omission or alleged omission from
information furnished in writing to the Company by such Holder expressly
for use therein, or from any such information provided by an underwriter
selected by the Holders or any of them.
(d) Notices of Claims, Etc.
----------------------
Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in
the preceding subsections of this Section 2.7, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action
or proceeding; provided, however, that the failure of any indemnified party
to give notice as provided herein shall not relieve the indemnifying party
of its obligations under the preceding subsections of this Section 2.7,
except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice, and shall not relieve the indemnifying party
from any liability which it may have to the indemnified party otherwise
than under this Section 2.7. In case any such action or proceeding is
brought against an indemnified party, the indemnifying party shall be
entitled to participate therein and, unless in the opinion of outside
counsel to the indemnified party a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, to
assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action or proceeding include both the indemnified
party and the indemnifying party and if in the opinion of outside counsel
to the indemnified party there may be legal defenses available to such
indemnified party and/or other indemnified parties which are different from
or in addition to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate
counsel to defend such action or proceeding on behalf of such indemnified
party or parties and the indemnifying party shall be obligated to pay the
fees and expenses of such separate counsel or counsels. After notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof and approval by the indemnified party of such
counsel, the indemnifying party shall not be liable to such indemnified
party for any legal expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation (unless the proviso in the preceding sentence shall be
applicable). No indemnifying party shall be liable for any settlement of
any action or proceeding effected without its written consent which shall
not be unreasonably withheld. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
(e) Contribution
------------
If the indemnification provided for in this Section 2.7 shall for any
reason be held by a court to be unavailable to an indemnified party under
subsection (a) or (b) hereof in respect of any loss, claim, damage or
liability, or any action in respect thereof, then, in lieu of the amount
paid or payable under subsection (a) or (b) hereof, the indemnified party
and the indemnifying party under subsection (a) or (b) hereof shall
contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating the same), (i) in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand, and
the indemnified party on the other, which resulted in such loss, claim,
damage or liability, or action in respect thereof, with respect to the
statements or omissions which resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant
equitable considerations, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law or if the allocation provided in
this clause (ii) provides a greater amount to the indemnified party than
clause (i) above, in such proportion as shall be appropriate to reflect not
only the relative fault but also the relative benefits received by the
indemnifying party and the indemnified party from the offering of the
securities covered by such registration statement as well as any other
relevant equitable considerations. The parties hereto agree that it would
not be just and equitable if contributions pursuant to this Section 2.7(e)
were to be determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to in the preceding sentence of this Section 2.7(e). No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute as provided in this subsection (e) are several
and not joint and shall be in proportion to the relative value of their
respective Registrable Common Stock covered by such registration statement.
In addition, no Person shall be obligated to contribute hereunder any
amounts in payment for any settlement of any action or claim effected
without such Person's consent, which consent shall not be unreasonably
withheld. Notwithstanding anything in this subsection (e) to the contrary,
no indemnifying party (other than the Company) shall be required to
contribute any amount in excess of the net proceeds received by such party
from the sale of the Registrable Common Stock in the offering to which the
losses, claims, damages or liabilities of the indemnified parties relate.
(f) Other Indemnification
---------------------
Indemnification and contribution similar to that specified in the
preceding subsections of this Section 2.7 (with appropriate modifications)
shall be given by the Company and the Holders with respect to any required
registration or other qualification of securities under any federal, state
or blue sky law or regulation of any governmental authority other than the
Securities Act. The indemnification agreements contained in this Section
2.7 shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or
contract and shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any indemnified party and
shall survive the transfer of any of the Registrable Common Stock by any of
the Holders.
(g) Indemnification Payments
------------------------
The indemnification and contribution required by this Section 2.7
shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred; provided, however, that such
periodic payments shall only be made upon delivery to the indemnifying
party of an agreement by the indemnified party to repay the amounts
advanced to the extent it is ultimately determined that the indemnified
party is not entitled to indemnification pursuant to this Section 2.7 or
otherwise. The parties hereto agree that for each of them such agreement
shall be deemed to be contained herein. Without limiting the generality of
the foregoing, each indemnifying party, as an interim measure during the
pendency of any claim, action, investigation, inquiry or proceeding arising
out of or based upon any matter or subject for which indemnity (or
contribution in lieu thereof) would be available to any indemnified party
under any provision of this Section 2.7, the Company will promptly
reimburse each indemnified party, as often an invoiced therefor (but in no
event more often than monthly), for all reasonable legal or other expenses
incurred in connection with the investigation or defense of any such claim,
action, investigation, inquiry or proceeding, notwithstanding the absence
of any judicial determination as to the propriety or enforceability of the
indemnifying party's obligation to reimburse the indemnified party for such
expenses and notwithstanding the possibility that the obligations to pay
such expenses might later have been held to be improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
is held to be improper, the indemnified party agrees to promptly return the
amount so advanced to the indemnifying party, together with interest,
compounded monthly, at the prime rate (or other commercial lending rate for
borrowers of the highest credit standing) listed from time to time in The
Wall Street Journal which represents the base rate on corporate loans
posted by a substantial majority of the nation's thirty (30) largest banks.
Any such interim reimbursement payments which are not made to the
indemnified party within thirty (30) days of a request therefor shall bear
interest at such prime rate from the date of such request to the extent
such reimbursement payments are ultimately determined to be proper
obligations of the indemnifying party.
2.8 Limitation on Sale of Securities
--------------------------------
If any registration of Registrable Common Stock or Other Holder
Registrable Common Stock shall be in connection with an underwritten public
offering, each of the Holders or the Other Holders, as the case may be, and
the Company agrees (except, in the case of any Holder or Other Holder, to
the extent that such Holder or Other Holder is prohibited by applicable law
or the exercise of its fiduciary duties from agreeing to withhold
Registrable Common Stock or Other Holder Registrable Common Stock, as the
case may be, from sale) (x) not to effect any public sale or distribution
of any issue of the same class or series as the Registrable Common Stock or
Other Holder Registrable Common Stock being registered in an underwritten
public offering (other than pursuant to an employee stock option, stock
purchase or similar plan, pursuant to a dividend reinvestment plan,
pursuant to a merger, exchange offer or a transaction of the type specified
in Rule 145(a) under the Securities Act), any securities of the Company
similar to any such issue or any securities of the Company or of any
security convertible into or exchangeable or exercisable for any such issue
of the Company during the 15 days prior to, and during the 45 day period
(or such longer period, not in excess of 90 days, as may be reasonably
requested by the underwriter of such offering) beginning on the effective
date of such registration statement (except as part of such registration)
and (y) that any agreement entered into after the date of this Agreement
pursuant to which the Company issues or agrees to issue any privately
placed securities shall contain a provision under which holders of such
securities agree not to effect any public sale or distribution of any such
securities during the period referred to in the foregoing clause (x),
including any sale pursuant to Rule 144 under the Securities Act (except as
part of such registration, if permitted). Without limiting the scope of the
term "fiduciary," a Holder or Other Holder shall be deemed to be acting as
a fiduciary if its actions or the Registrable Common Stock or Other Holder
Registrable Common Stock proposed to be sold is subject to the Employee
Retirement Income Security Act of 1974, as amended, the Investment Advisers
Act of 1940, as amended or the Investment Company Act of 1940, as amended,
or if such Registrable Common Stock or Other Holder Registrable Common
Stock is held in a separate account under applicable insurance law or
regulation. Notwithstanding the foregoing, no Holder or Other Holder who
has been on behalf of an Account shall be required to hold back Registrable
Common Stock or Other Holder Registrable Common Stock attributable to such
Account if such Account directs such Holder or Other Holder to dispose of
some or all of such Registrable Common Stock or Other Holder Registrable
Common Stock, attributable to such Account unless (1) such Holder or Other
Holder shall have directly or indirectly induced such Account to make such
sale or (2) such Account terminates the authority of the Holder or Other
Holder of Registrable Common Stock or Other Holder Registrable Common Stock
to dispose of such securities; provided, however, that any holdback
agreement relating to such underwritten sale shall continue to apply to
Registrable Common Stock or Other Holder Registrable Common Stock
attributable to such Account which such Account has not directed such
Holder or Other Holder to sell.
2.9 No Required Sale
----------------
Nothing in this Agreement shall be deemed to create an independent
obligation on the part of any of the Holders to sell any Registrable Common
Stock pursuant to any effective registration statement.
3. Rule 144
--------
The Company shall take all actions reasonably necessary to enable
holders of Registrable Common Stock to sell such securities without
registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144, or (b) any similar rule or regulation
hereafter adopted by the Commission including, without limiting the
generality of the foregoing, filing on a timely basis all reports required
to be filed by the Exchange Act. Upon the request of any Holder, the
Company will deliver to such holder a written statement as to whether it
has complied with such requirements.
4. Amendments and Waivers
----------------------
This Agreement may not be modified or amended, or any of the
provisions hereof waived, temporarily or permanently, except pursuant to
the written consent of the Holders of not less than 50% of the shares of
Registrable Common Stock and the Company.
5. Adjustments
-----------
In the event of any change in the capitalization of the Company as a
result of any stock split, stock dividend, reverse split, combination,
recapitalization, merger, consolidation, or otherwise, the provisions of
this Agreement shall be appropriately adjusted.
6. Notice
------
All notices and other communications hereunder shall be in writing
and, unless otherwise provided herein, shall be deemed to have been given
when received by the party to whom such notice is to be given at its
address set forth below, or such other address for the party as shall be
specified by notice given pursuant hereto:
(a) If to any Holder, the address of such Holder set forth on
Annex A attached hereto;
(b) If to the Company, to it at:
Salant Corporation
1114 Avenue of the Americas
New York, New York 10036
Attn: Todd Kahn, Esq.
7. Assignment
----------
This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned by the Company. Any
Holder may, at its election, at any time or from time to time, assign its
rights under this Agreement, in whole or in part, to any transferee of
Registrable Common Stock.
8. Remedies
--------
The parties hereto agree that money damages or any other remedy at law
would not be sufficient or adequate remedy for any breach or violation of,
or a default under, this Agreement by them and that, in addition to all
other remedies available to them, each of them shall be entitled to an
injunction restraining such breach, violation or default or threatened
breach, violation or default and to any other equitable relief, including,
without limitation, specific performance, without bond or other security
being required. In any action or proceeding brought to enforce any
provision of this Agreement (including the indemnification provisions
thereof), the successful party shall be entitled to recover reasonable
attorneys' fees in addition to its costs and expenses and any other
available remedy.
9. No Inconsistent Agreements
--------------------------
The Company will not, on or after the date of this Agreement, enter
into any agreement with respect to its securities which is inconsistent
with the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof, other than any customary lock-up
agreement with the underwriters in connection with any registration and
offering by the Company of its securities to the public (an "Offering")
effected hereunder, pursuant to which the Company shall agree not to
register for sale, and the Company shall agree not to sell or otherwise
dispose of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock, as applicable, for a specified period
following such Offering. The Company hereby represents and warrants that
the rights granted to the Holders hereunder do not in any way conflict with
and are not inconsistent with any other agreements to which the Company is
a party or by which it is bound. The Company further agrees that if any
other registration rights agreement entered into after the date of this
Agreement with respect to any of its securities contains terms which are
more favorable to, or less restrictive on, the other party thereto than the
terms and conditions contained in this Agreement are (insofar as they are
applicable) to the Holders, then the terms and conditions of this Agreement
shall immediately be deemed to have been amended without further action by
the Company or the Holders so that the Holders shall be entitled to the
benefit of any such more favorable or less restrictive terms or conditions.
10. Headings
--------
Headings of the sections and paragraphs of this Agreement are for
convenience only and shall be given no substantive or interpretive effect
whatsoever.
11. Governing Law; Jurisdiction
---------------------------
(a) This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of New York, without giving effect to
the conflicts of law principles thereof.
(b) Each of the parties hereto irrevocably and unconditionally
consents to the jurisdiction of the federal courts and courts of the state
of New York situated in New York County, New York in respect of the
interpretation and enforcement of the provisions of this Agreement, and
hereby agrees that service of process in any such action, suit or
proceeding against the other party with respect to this Agreement may be
made upon it in any manner permitted by the laws of New York or the federal
laws of the United States.
12. Counterparts
------------
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
13. Invalidity of Provision
-----------------------
The invalidity or unenforceability of any provision of this Agreement
in any jurisdiction shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of this Agreement, including that provision, in any other
jurisdiction. If any restriction or provision of this Agreement is held
unreasonable, unlawful or unenforceable in any respect, such restriction or
provision shall be interpreted, revised or applied in a manner that renders
it lawful and enforceable to the fullest extent possible under law.
14. Further Assurances
------------------
Each party hereto shall do and perform or cause to be done and
performed all further acts and things and shall execute and deliver all
other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
15. Entire Agreement; Effectiveness
-------------------------------
This Agreement and the other writings referred to herein or delivered
in connection herewith contain the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or understandings with respect thereto.
IN WITNESS WHEREOF, the undersigned have Executed this Agreement as of
the date first above written:
SALANT CORPORATION
By:
-------------------------------------------
Name:
Title:
SALANT CORPORATION, as attorney in fact for
the Holders of Registrable Common Stock
By:
-------------------------------------------
Name:
Title:
MAGTEN ASSET MANAGEMENT CORP., as agent on
behalf of those investment advisory clients
listed on Schedule I hereto
By:
-------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT C
SALANT CORPORATION
1999 STOCK AWARD AND INCENTIVE PLAN
SALANT CORPORATION
1999 STOCK AWARD INCENTIVE PLAN
1. Purpose.
-------
The purpose of this Plan is to strengthen Salant Corporation, a
Delaware corporation (the "Company"), by providing an incentive to its
employees, officers and directors and thereby encouraging them to devote
their abilities and industry to the success of the Company's business
enterprise. It is intended that this purpose be achieved by extending to
employees, officers and directors of the Company and its Subsidiaries an
added long-term incentive for high levels of performance and unusual
efforts through the grant of Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights, Dividend Equivalent Rights, Performance
Awards and Restricted Stock (as each term is herein defined).
2. Definitions.
-----------
For purposes of the Plan:
2.1 "Adjusted Fair Market Value" means, in the event of a Change
in Control, the greater of (i) the highest price per Share paid to holders
of the Shares in any transaction (or series of transactions) constituting
or resulting in a Change in Control or (ii) the highest Fair Market Value
of a Share during the ninety (90) day period ending on the date of a Change
in Control.
2.2 "Affiliate" means any entity, directly or indirectly,
controlled by, controlling or under common control with the Company or any
corporation or other entity acquiring, directly or indirectly, all or
substantially all the assets and business of the Company, whether by
operation of law or otherwise.
2.3 "Agreement" means the written agreement between the Company
and an Optionee or Grantee evidencing the grant of an Option or Award and
setting forth the terms and conditions thereof.
2.4 "Award" means a grant of Restricted Stock, a Stock
Appreciation Right, a Performance Award, a Dividend Equivalent Right or any
or all of them.
2.5 "Board" means the Board of Directors of the Company.
2.6 "Cause" means, unless otherwise provided in an Agreement:
(a) in the case of an Optionee or Grantee whose employment
with the Company or a Subsidiary is subject to the terms of an employment
agreement between such Optionee or Grantee and the Company or Subsidiary,
which employment agreement includes a definition of "Cause", the term
"Cause" as used in this Plan or any Agreement shall have the meaning set
forth in such employment agreement during the period that such employment
agreement remains in effect;
(b) for purposes of Section 6.4, the commission of an act of
fraud or intentional misrepresentation or an act of embezzlement,
misappropriation or conversion of assets or opportunities of the Company or
any of its Subsidiaries; and
(c) in all other cases, (i) intentional failure to perform
reasonably assigned duties, (ii) dishonesty or willful misconduct in the
performance of duties, (iii) involvement in a transaction in connection
with the performance of duties to the Company or any of its Subsidiaries
which transaction is adverse to the interests of the Company or any of its
Subsidiaries and which is engaged in for personal profit or (iv) willful
violation of any law, rule or regulation in connection with the performance
of duties (other than traffic violations or similar offenses).
2.7 "Change in Capitalization" means any increase or reduction in
the number of Shares, or any change (including, but not limited to, in the
case of a spin-off, dividend or other distribution in respect of Shares, a
change in value) in the Shares or exchange of Shares for a different number
or kind of shares or other securities of the Company or another
corporation, by reason of a reclassification, recapitalization, merger,
consolidation, reorganization, spin-off, split-up, issuance of warrants or
rights or debentures, stock dividend, stock split or reverse stock split,
cash dividend, property dividend, combination or exchange of shares,
repurchase of shares, change in corporate structure or otherwise.
2.8 A "Change in Control" shall mean the occurrence during the
term of the Plan of:
(a) An acquisition (other than directly from the Company or
pursuant to the Plan of Reorganization) of any voting securities of the
Company (the "Voting Securities") by any "Person" (as such term is used for
purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of fifty percent (50%) or more of the then outstanding
Shares or the combined voting power of the Company's then outstanding
Voting Securities; provided, however, in determining whether a Change in
Control has occurred, Shares or Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (i) Magten Asset Management
Corp., in its capacity as the beneficial owner, or the investment manager
on behalf of the beneficial owners, of the issued and outstanding Shares
from and after the consummation of the Plan of Reorganization ("Magten"),
(ii) an employee benefit plan (or a trust forming a part thereof)
maintained by (A) the Company or (B) any corporation or other Person of
which a majority of its voting power or its voting equity securities or
equity interest is owned, directly or indirectly, by the Company (for
purposes of this definition, a "Subsidiary"), (iii) the Company or its
Subsidiaries, (iv) a merger or other business combination between the
Company and/or its Subsidiaries, on the one hand, and Perry Ellis
International, Inc. and/or its subsidiaries on the other hand, or (v) any
Person in connection with a "Non-Control Transaction" (as hereinafter
defined);
(b) The individuals who, as of the Effective Date are
members of the Board (the "Incumbent Board"), cease for any reason to
constitute at least two-thirds of the members of the Board; provided,
however, that if the election, or nomination for election by the Company's
common stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of
this Plan, be considered as a member of the Incumbent Board; provided
further, however, that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described in Rule
14a-11 promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(c) The consummation of:
(i) A merger, consolidation or reorganization with or
into the Company or in which securities of the Company are
issued, unless such merger, consolidation or reorganization
is a "Non-Control Transaction." A "Non-Control Transaction"
shall mean a merger, consolidation or reorganization with or
into the Company or in which securities of the Company are
issued where:
(A) the stockholders of the Company, immediately
before such merger, consolidation or reorganization,
own directly or indirectly immediately following such
merger, consolidation or reorganization, at least fifty
percent (50%) of the combined voting power of the
outstanding voting securities of the corporation
resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in
substantially the same proportion as their ownership of
the Voting Securities immediately before such merger,
consolidation or reorganization,
(B) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for such merger, consolidation
or reorganization constitute at least a majority of the
members of the board of directors of the Surviving
Corporation, or a corporation beneficially directly or
indirectly owning a majority of the Voting Securities
of the Surviving Corporation, and
(C) no Person other than (i) Magten, (ii) the
Company, (iii) any Subsidiary, (iv) any employee
benefit plan (or any trust forming a part thereof)
that, immediately prior to such merger, consolidation
or reorganization, was maintained by the Company or any
Subsidiary, or (v) any Person who, immediately prior to
such merger, consolidation or reorganization had
Beneficial Ownership of fifty percent (50%) or more of
the then outstanding Voting Securities or Shares, has
Beneficial Ownership of fifty percent (50%) or more of
the combined voting power of the Surviving
Corporation's then outstanding voting securities or its
common stock, other than as a result of the
consummation of the transactions contemplated under the
Plan of Reorganization.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) The sale or other disposition of all or
substantially all of the assets of the Company to any Person
(other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted amount of the then
outstanding Shares or Voting Securities as a result of the acquisition of
Shares or Voting Securities by the Company which, by reducing the number of
Shares or Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Persons, provided that
if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of Shares or Voting Securities by the
Company, and after such share acquisition by the Company, the Subject
Person becomes the Beneficial Owner of any additional Shares or Voting
Securities which increases the percentage of the then outstanding Shares or
Voting Securities Beneficially Owned by the Subject Person, then a Change
in Control shall occur.
2.9 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.10 "Committee" means a committee, as described in Section 3.1,
appointed by the Board from time to time to administer the Plan and to
perform the functions set forth herein.
2.11 "Company" means Salant Corporation.
2.12 "Consummation Date" means the date of consummation of the
Plan of Reorganization.
2.13 "Director" means a director of the Company.
2.14 "Disability" means, unless otherwise provided in an
Agreement:
(a) in the case of an Optionee or Grantee whose employment
with the Company or a Subsidiary is subject to the terms of an employment
agreement between such Optionee or Grantee and the Company or Subsidiary,
which employment agreement includes a definition of "Disability", the term
"Disability" as used in this Plan or any Agreement shall have the meaning
set forth in such employment agreement during the period that such
employment agreement remains in effect; and
(b) in all other cases, the term "Disability" as used in
this Plan or any Agreement shall mean a physical or mental infirmity which
impairs the Optionee's or Grantee's ability to perform substantially his or
her duties for a period of one hundred eighty (180) consecutive days.
2.15 "Division" means any of the operating units or divisions of
the Company designated as a Division by the Committee.
2.16 "Dividend Equivalent Right" means a right to receive all or
some portion of the cash dividends that are or would be payable with
respect to Shares.
2.17 "Effective Date" has the meaning given such term in Section
21.3 hereof.
2.18 "Eligible Director" means a director of the Company who is
not an officer or employee of the Company or any Subsidiary.
2.19 "Eligible Individual" means any director (other than an
Eligible Director), officer or employee of the Company or a Subsidiary,
designated by the Committee as eligible to receive Options or Awards
subject to the conditions set forth herein.
2.20 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
2.21 "Fair Market Value" on any date means the average of the
high and low sales prices of the Shares on such date on the principal
national securities exchange on which such Shares are listed or admitted to
trading, or, if such Shares are not so listed or admitted to trading, the
average of the per Share closing bid price and per Share closing asked
price on such date as quoted on the National Association of Securities
Dealers Automated Quotation System or such other market in which such
prices are regularly quoted, or, if there have been no published bid or
asked quotations with respect to Shares on such date, the Fair Market Value
shall be the value established by the Board in good faith and, in the case
of an Incentive Stock Option, in accordance with Section 422 of the Code.
2.22 "Formula Option" means an Option granted pursuant to Section
6.
2.23 "Grantee" means a person to whom an Award has been granted
under the Plan.
2.24 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee in
an Agreement as an Incentive Stock Option.
2.25 "Nonemployee Director" means a Director who is a
"nonemployee director" within the meaning of Rule 16b-3 promulgated under
the Exchange Act.
2.26 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.
2.27 "Option" means a Nonqualified Stock Option, an Incentive
Stock Option and/or a Formula Option.
2.28 "Optionee" means a person to whom an Option has been granted
under the Plan.
2.29 "Outside Director" means a director of the Company who is an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder.
2.30 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the
Company.
2.31 "Performance Awards" means Performance Units, Performance
Shares or either or both of them.
2.32 "Performance Cycle" means the time period specified by the
Committee at the time Performance Awards are granted during which the
performance of the Company, a Subsidiary or a Division will be measured.
2.33 "Performance Objectives" has the meaning set forth in
Section 11.
2.34 "Performance Shares" means Shares issued or transferred to
an Eligible Individual under Section 11.
2.35 "Performance Units" means Performance Units granted to an
Eligible Individual under Section 11.
2.36 "Plan" means the Salant Corporation 1998 Stock Award and
Incentive Plan, as amended and restated from time to time.
2.37 "Plan of Reorganization" means the Chapter 11 Plan of
Reorganization for Salant Corporation, dated December __, 1998.
2.38 "Pooling Transaction" means an acquisition of the Company in
a transaction which is intended to be treated as a "pooling of interests"
under generally accepted accounting principles.
2.39 "Restricted Stock" means Shares issued or transferred to an
Eligible Individual pursuant to Section 10.
2.40 "Shares" means the shares of New Common Stock, as defined in
the Plan of Reorganization, par value $1.00 per share, of the Company.*
- -----------------------
* Gives effect to the consummation of the Plan of Reorganization.
2.41 "Stock Appreciation Right" means a right to receive all or
some portion of the increase in the value of the Shares as provided in
Section 8 hereof.
2.42 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect
to the Company.
2.43 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which
issues or assumes a stock option in a transaction to which Section 424(a)
of the Code applies.
2.44 "Ten-Percent Stockholder" means an Eligible Individual, who,
at the time an Incentive Stock Option is to be granted to him or her, owns
(within the meaning of Section 422(b)(6) of the Code) stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company, or of a Parent or a Subsidiary.
3. Administration.
--------------
3.1 The Plan shall be administered by the Committee, which shall
hold meetings at such times as may be necessary for the proper
administration of the Plan. The Committee shall keep minutes of its
meetings. A quorum shall consist of not fewer than two (2) members of the
Committee and a majority of a quorum may authorize any action. Any decision
or determination reduced to writing and signed by a majority of all of the
members of the Committee shall be as fully effective as if made by a
majority vote at a meeting duly called and held. The Committee shall
consist of at least two (2) directors of the Company and may consist of the
entire Board; provided, however, that (A) if the Committee consists of less
than the entire Board, each member shall be a Nonemployee Director and (B)
to the extent necessary for any Option or Award intended to qualify as
performance-based compensation under Section 162(m) of the Code to so
qualify, each member of the Committee, whether or not it consists of the
entire Board, shall be an Outside Director. For purposes of the preceding
sentence, if one or more members of the Committee is not a Nonemployee
Director and an Outside Director but recuses himself or herself or abstains
from voting with respect to a particular action taken by the Committee,
then the Committee, with respect to that action, shall be deemed to consist
only of the members of the Committee who have not recused themselves or
abstained from voting.
3.2 No member of the Committee shall be liable for any action,
failure to act, determination or interpretation made in good faith with
respect to this Plan or any transaction hereunder. The Company hereby
agrees to indemnify each member of the Committee for all costs and expenses
and, to the extent permitted by applicable law, any liability incurred in
connection with defending against, responding to, negotiating for the
settlement of or otherwise dealing with any claim, cause of action or
dispute of any kind arising in connection with any actions in administering
this Plan or in authorizing or denying authorization to any transaction
hereunder.
3.3 Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time to:
(a) determine those Eligible Individuals to whom Options
shall be granted under the Plan and the number of such Options to be
granted and to prescribe the terms and conditions (which need not be
identical) of each such Option, including the exercise price per Share
subject to each Option, and make any amendment or modification to any
Option Agreement consistent with the terms of the Plan;
(b) select those Eligible Individuals to whom Awards shall
be granted under the Plan and to determine the number of Stock Appreciation
Rights, Performance Awards, Shares of Restricted Stock and/or Dividend
Equivalent Rights to be granted pursuant to each Award, the terms and
conditions (which need not be identical) of such Award, including the
restrictions or Performance Objectives relating to Shares, the maximum
value of each Performance Share and make any amendment or modification to
any Award Agreement consistent with the terms of the Plan;
(c) to construe and interpret the Plan and the Options and
Awards granted hereunder and to establish, amend and revoke rules and
regulations for the administration of the Plan, including, but not limited
to, correcting any defect or supplying any omission, or reconciling any
inconsistency in the Plan or in any Agreement, in the manner and to the
extent it shall deem necessary or advisable, including so that the Plan
complies with Rule 16b-3 under the Exchange Act, the Code, and other
applicable law, and otherwise to make the Plan fully effective. All
decisions and determinations by the Committee in the exercise of this power
shall be final, binding and conclusive upon the Company, its Subsidiaries,
the Optionees and Grantees, and all other persons having any interest
therein;
(d) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee or Grantee on an individual
basis without constituting a termination of employment or service for
purposes of the Plan;
(e) to exercise its discretion with respect to the powers
and rights granted to it as set forth in the Plan; and
(f) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the best interests of
the Company with respect to the Plan.
4. Stock Subject to the Plan.
-------------------------
4.1 The maximum number of Shares that may be made the
subject of Options and Awards granted under the Plan is [ ].* No
Eligible Individual may be granted Options and Awards in the aggregate in
respect of more than [ ]* Shares in any one calendar year period. The
maximum dollar amount of cash or the Fair Market Value of Shares that any
Eligible Individual may receive in any calendar year during the term of the
Plan in respect of Performance Units denominated in dollars may not exceed
[$ ]. Upon a Change in Capitalization, the maximum number of Shares
referred to in the first two sentences of this Section 4.1 shall be
adjusted in number and kind pursuant to Section 13. The Company shall
reserve for the purposes of the Plan, out of its authorized but unissued
Shares or out of Shares held in the Company's treasury, or partly out of
each, such number of Shares as shall be determined by the Board.
- --------------------
* Such number gives effect to the consummation of the Plan of
Reorganization.
4.2 Upon the granting of an Option or an Award, the number of
Shares available under Section 4.1 for the granting of further Options and
Awards shall be reduced as follows; provided, however, that if any Option
is exercised by tendering Shares, either actually or by attestation, to the
Company as full or partial payment of the exercise price, the maximum
number of Shares available under Section 4.1 shall be increased by the
number of Shares so tendered.
(a) In connection with the granting of an Option or an Award
(other than the granting of a Performance Unit denominated in dollars), the
number of Shares shall be reduced by the number of Shares in respect of
which the Option or Award is granted or denominated.
(b) In connection with the granting of a Performance Unit
denominated in dollars, the number of Shares shall be reduced by an amount
equal to the quotient of (i) the dollar amount in which the Performance
Unit is denominated, divided by (ii) the Fair Market Value of a Share on
the date the Performance Unit is granted.
4.3 Whenever any outstanding Option or Award or portion thereof
expires, is canceled or is otherwise terminated for any reason without
having been exercised or payment having been made in respect of the entire
Option or Award, the Shares allocable to the expired, canceled or otherwise
terminated portion of the Option or Award may again be the subject of
Options or Awards granted hereunder.
5. Option Grants for Eligible Individuals.
--------------------------------------
5.1 Authority of Committee. Subject to the provisions of the
Plan, the Committee shall have full and final authority to select those
Eligible Individuals who will receive Options, and the terms and conditions
of the grant to such Eligible Individuals shall be set forth in an
Agreement.
5.2 Purchase Price. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Option shall be
determined by the Committee and set forth in the Agreement; provided,
however, that the purchase price per Share under each Option shall not be
less than 100% of the Fair Market Value of a Share on the date the Option
is granted (110% in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder).
5.3 Maximum Duration. Options granted hereunder shall be for such
term as the Committee shall determine and set forth in the Agreement,
provided that an Incentive Stock Option shall not be exercisable after the
expiration of ten (10) years from the date it is granted (five (5) years in
the case of an Incentive Stock Option granted to a Ten-Percent Stockholder)
and a Nonqualified Stock Option shall not be exercisable after the
expiration of ten (10) years from the date it is granted; provided,
however, that the Committee may provide that an Option (other than an
Incentive Stock Option) may, upon the death of the Optionee, be exercised
for up to one (1) year following the date of the Optionee's death even if
such period extends beyond ten (10) years from the date the Option is
granted. The Committee may, subsequent to the granting of any Option,
extend the term thereof, but in no event shall the term as so extended
exceed the maximum term provided for in the preceding sentence.
5.4 Vesting. Subject to Section 7.4, each Option shall become
exercisable in such installments (which need not be equal) and at such
times as may be designated by the Committee and set forth in the Agreement.
To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable,
but not later than the date the Option expires. The Committee may
accelerate the exercisability of any Option or portion thereof at any time.
5.5 Limitations on Incentive Stock Options. To the extent that
the aggregate Fair Market Value (determined as of the date of the grant) of
Shares with respect to which Incentive Stock Options granted under the Plan
and "incentive stock options" (within the meaning of Section 422 of the
Code) granted under all other plans of the Company or its Subsidiaries (in
either case determined without regard to this Section 5.6) are exercisable
by an Optionee for the first time during any calendar year exceeds
$100,000, such Incentive Stock Options shall be treated as Nonqualified
Stock Options. In applying the limitation in the preceding sentence in the
case of multiple grants of Options, Options which were intended to be
Incentive Stock Options shall be treated as Nonqualified Stock Options
according to the order in which they were granted such that the most
recently granted Options are first treated as Nonqualified Stock Options.
6. Option Grants for Nonemployee Directors.
---------------------------------------
6.1 Grant.
-----
(a) Each Eligible Director who is a Director on the
Consummation Date shall be granted a Formula Option in respect of
[ ]* Shares on the Consummation Date.
- ---------------------
* Such number gives effect to the consummation of the Plan of
Reorganization.
(b) Each Eligible Director who becomes a Director for the
first time after the Consummation Date shall, upon becoming a Director, be
granted a Formula Option in respect of [ ]* Shares.
(c) Each Eligible Director shall be granted a Formula Option
in respect of [ ]* Shares on the first business day after the
annual meeting of the stockholders of the Company (other than any annual
meeting pursuant to which such Eligible Director receives a grant pursuant
to paragraph (a) or (b) of this Section 6.1) in each year that the Plan is
in effect provided that the Eligible Director is a Director on such date.
All Formula Options shall be evidenced by an Agreement
containing such other terms and conditions not inconsistent with the
provisions of this Plan as determined by the Board; provided, however, that
such terms shall not vary the price, amount or timing of Formula Options
provided under this Section 6, including provisions dealing with vesting,
forfeiture and termination of such Formula Options.
6.2 Purchase Price. The purchase price for Shares under each
Formula Option shall be equal to 100% of the Fair Market Value of such
Shares on the date the Formula Option is granted.
6.3 Vesting. Subject to Sections 6.4 and 7.4, each Formula Option
shall become fully vested and exercisable with respect to [ ]% of the
Shares subject thereto on the date of grant and on each of the first
through [ ] anniversaries of the date of grant; provided, that the Optionee
continues to serve as a Director as of such date. If an Optionee ceases to
serve as a Director for any reason, the Optionee shall have no rights with
respect to any Formula Option (or portion thereof) which has not then
vested pursuant to the preceding sentence and the Optionee shall
automatically forfeit any Formula Option which remains unvested.
6.4 Duration. Subject to Section 7.4, each Formula Option (or
portion thereof) shall terminate on the date which is the tenth anniversary
of the date of grant (or if later, the first anniversary of the Director's
death if such death occurs prior to such tenth anniversary), unless
terminated earlier as follows:
(a) If an Optionee's service as a Director terminates for
any reason other than Disability, death or Cause, the Optionee may for a
period of three (3) months after such termination exercise his or her
Option to the extent, and only to the extent, that such Option or portion
thereof was vested and exercisable as of the date the Optionee's service as
a Director terminated, after which time the Option shall automatically
terminate in full.
(b) If an Optionee's service as a Director terminates by
reason of the Optionee's resignation or removal from the Board due to
Disability, the Optionee may, for a period of one (1) year after such
termination, exercise his or her Option to the extent, and only to the
extent, that such Option or portion thereof was vested and exercisable, as
of the date the Optionee's service as Director terminated, after which time
the Option shall automatically terminate in full.
(c) If an Optionee's service as a Director terminates for
Cause, the Option granted to the Optionee hereunder shall immediately
terminate in full and no rights thereunder may be exercised.
(d) If an Optionee dies while a Director or within three (3)
months after termination of service as a Director as described in clause
(a) of this Section 6.4 or within twelve (12) months after termination of
service as a Director as described in clause (b) of this Section 6.4, the
Option granted to the Optionee may be exercised at any time within twelve
(12) months after the Optionee's death by the person or persons to whom
such rights under the Option shall pass by will, or by the laws of descent
or distribution, after which time the Option shall terminate in full;
provided, however, that an Option may be exercised to the extent, and only
to the extent, that the Option or portion thereof was exercisable on the
date of death or earlier termination of the Optionee's services as a
Director.
(e) The Formula Option (or portion thereof), to the extent
not yet vested and exercisable as of the date the Director's service as a
Director terminates for any reason shall terminate immediately upon such
date.
7. Terms and Conditions Applicable to All Options.
----------------------------------------------
7.1 Non-Transferability. No Option shall be transferable by the
Optionee otherwise than by will or by the laws of descent and distribution
or, in the case of an Option other than an Incentive Stock Option, pursuant
to a domestic relations order (within the meaning of Rule 16a-12
promulgated under the Exchange Act), and an Option shall be exercisable
during the lifetime of such Optionee only by the Optionee or his or her
guardian or legal representative. Notwithstanding the foregoing, the
Committee may set forth in the Agreement evidencing an Option (other than
an Incentive Stock Option) at the time of grant or thereafter, that the
Option may be transferred to members of the Optionee's immediate family, to
trusts solely for the benefit of such immediate family members and to
partnerships in which such family members and/or trusts are the only
partners, and for purposes of this Plan, a transferee of an Option shall be
deemed to be the Optionee. For this purpose, immediate family means the
Optionee's spouse, parents, children, stepchildren and grandchildren and
the spouses of such parents, children, stepchildren and grandchildren. The
terms of an Option shall be final, binding and conclusive upon the
beneficiaries, executors, administrators, heirs and successors of the
Optionee.
7.2 Method of Exercise. The exercise of an Option shall be made
only by a written notice delivered in person or by mail to the Secretary of
the Company at the Company's principal executive office, specifying the
number of Shares to be purchased and accompanied by payment therefor and
otherwise in accordance with the Agreement pursuant to which the Option was
granted; provided, however, that Options may not be exercised by an
Optionee for twelve months following a hardship distribution to the
Optionee, to the extent such exercise is prohibited under Treasury
Regulation ss. 1.401(k)-1(d)(2)(iv)(B)(4). The purchase price for any
Shares purchased pursuant to the exercise of an Option shall be paid, as
determined by the Committee in its discretion, in either of the following
forms (or any combination thereof): (i) cash or (ii) the transfer, either
actually or by attestation to the Company, of Shares that have been held by
the Optionee for at least six (6) months (or such lesser period as may be
permitted by the Committee), prior to the exercise of the Option, such
transfer to be upon such terms and conditions as determined by the
Committee. In addition, Options may be exercised through a registered
broker-dealer pursuant to such cashless exercise procedures which are, from
time to time, deemed acceptable by the Committee. Any Shares transferred to
the Company as payment of the purchase price under an Option shall be
valued at their Fair Market Value on the day preceding the date of exercise
of such Option. The Optionee shall deliver the Agreement evidencing the
Option to the Secretary of the Company who shall endorse thereon a notation
of such exercise and return such Agreement to the Optionee. No fractional
Shares (or cash in lieu thereof) shall be issued upon exercise of an Option
and the number of Shares that may be purchased upon exercise shall be
rounded to the nearest number of whole Shares.
7.3 Rights of Optionees. No Optionee shall be deemed for any
purpose to be the owner of any Shares subject to any Option unless and
until (i) the Option shall have been exercised pursuant to the terms
thereof, (ii) the Company shall have issued and delivered Shares to the
Optionee, and (iii) the Optionee's name shall have been entered as a
stockholder of record on the books of the Company. Thereupon, the Optionee
shall have full voting, dividend and other ownership rights with respect to
such Shares, subject to such terms and conditions as may be set forth in
the applicable Agreement.
7.4 Effect of Change in Control. Upon the occurrence of a Change
in Control, all Options outstanding on the date of such Change in Control
shall become immediately and fully exercisable. In addition, to the extent
set forth in an Agreement evidencing the grant of an Option, an Optionee
will be permitted to surrender to the Company for cancellation within sixty
(60) days after such Change in Control any Option or portion of an Option
to the extent not yet exercised and the Optionee will be entitled to
receive a cash payment in an amount equal to the excess, if any, of (x) (A)
in the case of a Nonqualified Stock Option, the greater of (1) the Fair
Market Value, on the date preceding the date of surrender, of the Shares
subject to the Option or portion thereof surrendered or (2) the Adjusted
Fair Market Value of the Shares subject to the Option or portion thereof
surrendered or (B) in the case of an Incentive Stock Option, the Fair
Market Value, on the date preceding the date of surrender, of the Shares
subject to the Option or portion thereof surrendered, over (y) the
aggregate purchase price for such Shares under the Option or portion
thereof surrendered.
8. Stock Appreciation Rights.
-------------------------
The Committee may in its discretion, either alone or in
connection with the grant of an Option, grant Stock Appreciation Rights in
accordance with the Plan, the terms and conditions of which shall be set
forth in an Agreement. If granted in connection with an Option, a Stock
Appreciation Right shall cover the same Shares covered by the Option (or
such lesser number of Shares as the Committee may determine) and shall,
except as provided in this Section 8, be subject to the same terms and
conditions as the related Option.
8.1 Time of Grant. A Stock Appreciation Right may be granted (i)
at any time if unrelated to an Option, or (ii) if related to an Option,
either at the time of grant, or at any time thereafter during the term of
the Option.
8.2 Stock Appreciation Right Related to an Option.
---------------------------------------------
(a) Exercise. A Stock Appreciation Right granted in
connection with an Option shall be exercisable at such time or times and
only to the extent that the related Options are exercisable, and will not
be transferable except to the extent the related Option may be
transferable. A Stock Appreciation Right granted in connection with an
Incentive Stock Option shall be exercisable only if the Fair Market Value
of a Share on the date of exercise exceeds the purchase price specified in
the related Incentive Stock Option Agreement.
(b) Amount Payable. Upon the exercise of a Stock
Appreciation Right related to an Option, the Grantee shall be entitled to
receive an amount determined by multiplying (A) the excess of the Fair
Market Value of a Share on the date preceding the date of exercise of such
Stock Appreciation Right over the per Share purchase price under the
related Option, by (B) the number of Shares as to which such Stock
Appreciation Right is being exercised. Notwithstanding the foregoing, the
Committee may limit in any manner the amount payable with respect to any
Stock Appreciation Right by including such a limit in the Agreement
evidencing the Stock Appreciation Right at the time it is granted.
(c) Treatment of Related Options and Stock Appreciation
Rights Upon Exercise. Upon the exercise of a Stock Appreciation Right
granted in connection with an Option, the Option shall be canceled to the
extent of the number of Shares as to which the Stock Appreciation Right is
exercised, and upon the exercise of an Option granted in connection with a
Stock Appreciation Right, the Stock Appreciation Right shall be canceled to
the extent of the number of Shares as to which the Option is exercised or
surrendered.
8.3 Stock Appreciation Right Unrelated to an Option. The
Committee may grant to Eligible Individuals Stock Appreciation Rights
unrelated to Options. Stock Appreciation Rights unrelated to Options shall
contain such terms and conditions as to exercisability (subject to Section
8.7), vesting and duration as the Committee shall determine, but in no
event shall they have a term of greater than ten (10) years. Upon exercise
of a Stock Appreciation Right unrelated to an Option, the Grantee shall be
entitled to receive an amount determined by multiplying (A) the excess of
the Fair Market Value of a Share on the date preceding the date of exercise
of such Stock Appreciation Right over the Fair Market Value of a Share on
the date the Stock Appreciation Right was granted, by (B) the number of
Shares as to which the Stock Appreciation Right is being exercised.
Notwithstanding the foregoing, the Committee may limit in any manner the
amount payable with respect to any Stock Appreciation Right by including
such a limit in the Agreement evidencing the Stock Appreciation Right at
the time it is granted.
8.4 Non-Transferability. No Stock Appreciation Right shall be
transferable by the Grantee otherwise than by will or by the laws of
descent and distribution or pursuant to a domestic relations order (within
the meaning of Rule 16a-12 promulgated under the Exchange Act), and such
Stock Appreciation Right shall be exercisable during the lifetime of such
Grantee only by the Grantee or his or her guardian or legal representative.
The terms of such Stock Appreciation Right shall be final, binding and
conclusive upon the beneficiaries, executors, administrators, heirs and
successors of the Grantee.
8.5 Method of Exercise. Stock Appreciation Rights shall be
exercised by a Grantee only by a written notice delivered in person or by
mail to the Secretary of the Company at the Company's principal executive
office, specifying the number of Shares with respect to which the Stock
Appreciation Right is being exercised. If requested by the Committee, the
Grantee shall deliver the Agreement evidencing the Stock Appreciation Right
being exercised and the Agreement evidencing any related Option to the
Secretary of the Company who shall endorse thereon a notation of such
exercise and return such Agreement to the Grantee.
8.6 Form of Payment. Payment of the amount determined under
Sections 8.2(b) or 8.3 may be made in the discretion of the Committee
solely in whole Shares in a number determined at their Fair Market Value on
the date preceding the date of exercise of the Stock Appreciation Right, or
solely in cash, or in a combination of cash and Shares. If the Committee
decides to make full payment in Shares and the amount payable results in a
fractional Share, payment for the fractional Share will be made in cash.
8.7 Effect of Change in Control. Upon the occurrence of a Change
in Control, all Stock Appreciation Rights shall become immediately and
fully exercisable. In addition, to the extent set forth in an Agreement
evidencing the grant of a Stock Appreciation Right unrelated to an Option,
a Grantee will be entitled to receive a payment from the Company in cash or
stock, in either case, with a value equal to the excess, if any, of (A) the
greater of (x) the Fair Market Value, on the date preceding the date of
exercise, of the underlying Shares subject to the Stock Appreciation Right
or portion thereof exercised and (y) the Adjusted Fair Market Value, on the
date preceding the date of exercise, of the Shares over (B) the aggregate
Fair Market Value, on the date the Stock Appreciation Right was granted, of
the Shares subject to the Stock Appreciation Right or portion thereof
exercised.
9. Dividend Equivalent Rights.
--------------------------
Dividend Equivalent Rights may be granted to Eligible Individuals
in tandem with an Option or Award or as a separate award. The terms and
conditions applicable to each Dividend Equivalent Right shall be specified
in the Agreement under which the Dividend Equivalent Right is granted.
Amounts payable in respect of Dividend Equivalent Rights may be payable
currently or deferred until the lapsing of restrictions on such Dividend
Equivalent Rights or until the vesting, exercise, payment, settlement or
other lapse of restrictions on the Option or Award to which the Dividend
Equivalent Rights relate. In the event that the amount payable in respect
of Dividend Equivalent Rights are to be deferred, the Committee shall
determine whether such amounts are to be held in cash or reinvested in
Shares or deemed (notionally) to be reinvested in Shares. If amounts
payable in respect of Dividend Equivalent Rights are to be held in cash,
there may be credited at the end of each year (or portion thereof) interest
on the amount of the account at the beginning of the year at a rate per
annum as the Committee, in its discretion, may determine. Dividend
Equivalent Rights may be settled in cash or Shares or a combination
thereof, in a single installment or multiple installments.
10. Restricted Stock.
----------------
10.1 Grant. The Committee may grant Awards to Eligible
Individuals of Restricted Stock, which shall be evidenced by an Agreement
between the Company and the Grantee. Each Agreement shall contain such
restrictions, terms and conditions as the Committee may, in its discretion,
determine and (without limiting the generality of the foregoing) such
Agreements may require that an appropriate legend be placed on Share
certificates. Awards of Restricted Stock shall be subject to the terms and
provisions set forth below in this Section 10.
10.2 Rights of Grantee. Shares of Restricted Stock granted
pursuant to an Award hereunder shall be issued in the name of the Grantee
as soon as reasonably practicable after the Award is granted provided that
the Grantee has executed an Agreement evidencing the Award, the appropriate
blank stock powers and, in the discretion of the Committee, an escrow
agreement and any other documents which the Committee may require as a
condition to the issuance of such Shares. If a Grantee shall fail to
execute the Agreement evidencing a Restricted Stock Award, the appropriate
blank stock powers and, in the discretion of the Committee, an escrow
agreement and any other documents which the Committee may require within
the time period prescribed by the Committee at the time the Award is
granted, the Award shall be null and void. At the discretion of the
Committee, Shares issued in connection with a Restricted Stock Award shall
be deposited together with the stock powers with an escrow agent (which may
be the Company) designated by the Committee. Unless the Committee
determines otherwise and as set forth in the Agreement, upon delivery of
the Shares to the escrow agent, the Grantee shall have all of the rights of
a stockholder with respect to such Shares, including the right to vote the
Shares and to receive all dividends or other distributions paid or made
with respect to the Shares.
10.3 Non-transferability. Until all restrictions upon the Shares
of Restricted Stock awarded to a Grantee shall have lapsed in the manner
set forth in Section 10.4, such Shares shall not be sold, transferred or
otherwise disposed of and shall not be pledged or otherwise hypothecated,
nor shall they be delivered to the Grantee.
10.4 Lapse of Restrictions.
---------------------
(a) Generally. Restrictions upon Shares of Restricted Stock
awarded hereunder shall lapse at such time or times and on such terms and
conditions as the Committee may determine. The Agreement evidencing the
Award shall set forth any such restrictions.
(b) Effect of Change in Control. Unless the Committee shall
determine otherwise at the time of the grant of an Award of Restricted
Stock, the restrictions upon Shares of Restricted Stock shall lapse upon a
Change in Control. The Agreement evidencing the Award shall set forth any
such provisions.
10.5 Treatment of Dividends. At the time an Award of Shares of
Restricted Stock is granted, the Committee may, in its discretion,
determine that the payment to the Grantee of dividends, or a specified
portion thereof, declared or paid on such Shares by the Company shall be
(i) deferred until the lapsing of the restrictions imposed upon such Shares
and (ii) held by the Company for the account of the Grantee until such
time. In the event that dividends are to be deferred, the Committee shall
determine whether such dividends are to be reinvested in shares of Stock
(which shall be held as additional Shares of Restricted Stock) or held in
cash. If deferred dividends are to be held in cash, there may be credited
at the end of each year (or portion thereof) interest on the amount of the
account at the beginning of the year at a rate per annum as the Committee,
in its discretion, may determine. Payment of deferred dividends in respect
of Shares of Restricted Stock (whether held in cash or as additional Shares
of Restricted Stock), together with interest accrued thereon, if any, shall
be made upon the lapsing of restrictions imposed on the Shares in respect
of which the deferred dividends were paid, and any dividends deferred
(together with any interest accrued thereon) in respect of any Shares of
Restricted Stock shall be forfeited upon the forfeiture of such Shares.
10.6 Delivery of Shares. Upon the lapse of the restrictions on
Shares of Restricted Stock, the Committee shall cause a stock certificate
to be delivered to the Grantee with respect to such Shares, free of all
restrictions hereunder.
11. Performance Awards.
------------------
11.1 Performance Units. The Committee, in its discretion, may
grant Awards of Performance Units to Eligible Individuals, the terms and
conditions of which shall be set forth in an Agreement between the Company
and the Grantee. Performance Units may be denominated in Shares or a
specified dollar amount and, contingent upon the attainment of specified
Performance Objectives within the Performance Cycle, represent the right to
receive payment as provided in Section 11.3(c) of (i) in the case of
Share-denominated Performance Units, the Fair Market Value of a Share on
the date the Performance Unit was granted, the date the Performance Unit
became vested or any other date specified by the Committee, (ii) in the
case of dollar-denominated Performance Units, the specified dollar amount
or (iii) a percentage (which may be more than 100%) of the amount described
in clause (i) or (ii) depending on the level of Performance Objective
attainment; provided, however, that, the Committee may at the time a
Performance Unit is granted specify a maximum amount payable in respect of
a vested Performance Unit. Each Agreement shall specify the number of
Performance Units to which it relates, the Performance Objectives which
must be satisfied in order for the Performance Units to vest and the
Performance Cycle within which such Performance Objectives must be
satisfied.
(a) Vesting and Forfeiture. Subject to Sections 11.3(c) and
11.4, a Grantee shall become vested with respect to the Performance Units
to the extent that the Performance Objectives set forth in the Agreement
are satisfied for the Performance Cycle.
(b) Payment of Awards. Subject to Section 11.3(c), payment
to Grantees in respect of vested Performance Units shall be made as soon as
practicable after the last day of the Performance Cycle to which such Award
relates unless the Agreement evidencing the Award provides for the deferral
of payment, in which event the terms and conditions of the deferral shall
be set forth in the Agreement. Subject to Section 11.4, such payments may
be made entirely in Shares valued at their Fair Market Value as of the day
preceding the date of payment or such other date specified by the
Committee, entirely in cash, or in such combination of Shares and cash as
the Committee in its discretion shall determine at any time prior to such
payment; provided, however, that if the Committee in its discretion
determines to make such payment entirely or partially in Shares of
Restricted Stock, the Committee must determine the extent to which such
payment will be in Shares of Restricted Stock and the terms of such
Restricted Stock at the time the Award is granted.
11.2 Performance Shares. The Committee, in its discretion, may
grant Awards of Performance Shares to Eligible Individuals, the terms and
conditions of which shall be set forth in an Agreement between the Company
and the Grantee. Each Agreement may require that an appropriate legend be
placed on Share certificates. Awards of Performance Shares shall be subject
to the following terms and provisions:
(a) Rights of Grantee. The Committee shall provide at the
time an Award of Performance Shares is made the time or times at which the
actual Shares represented by such Award shall be issued in the name of the
Grantee; provided, however, that no Performance Shares shall be issued
until the Grantee has executed an Agreement evidencing the Award, the
appropriate blank stock powers and, in the discretion of the Committee, an
escrow agreement and any other documents which the Committee may require as
a condition to the issuance of such Performance Shares. If a Grantee shall
fail to execute the Agreement evidencing an Award of Performance Shares,
the appropriate blank stock powers and, in the discretion of the Committee,
an escrow agreement and any other documents which the Committee may require
within the time period prescribed by the Committee at the time the Award is
granted, the Award shall be null and void. At the discretion of the
Committee, Shares issued in connection with an Award of Performance Shares
shall be deposited together with the stock powers with an escrow agent
(which may be the Company) designated by the Committee. Except as
restricted by the terms of the Agreement, upon delivery of the Shares to
the escrow agent, the Grantee shall have, in the discretion of the
Committee, all of the rights of a stockholder with respect to such Shares,
including the right to vote the Shares and to receive all dividends or
other distributions paid or made with respect to the Shares.
(b) Non-transferability. Until any restrictions upon the
Performance Shares awarded to a Grantee shall have lapsed in the manner set
forth in Sections 11.2(c) or 11.4, such Performance Shares shall not be
sold, transferred or otherwise disposed of and shall not be pledged or
otherwise hypothecated, nor shall they be delivered to the Grantee. The
Committee may also impose such other restrictions and conditions on the
Performance Shares, if any, as it deems appropriate.
(c) Lapse of Restrictions. Subject to Sections 11.3(c) and
11.4, restrictions upon Performance Shares awarded hereunder shall lapse
and such Performance Shares shall become vested at such time or times and
on such terms, conditions and satisfaction of Performance Objectives as the
Committee may, in its discretion, determine at the time an Award is
granted.
(d) Treatment of Dividends. At the time the Award of
Performance Shares is granted, the Committee may, in its discretion,
determine that the payment to the Grantee of dividends, or a specified
portion thereof, declared or paid on Shares represented by such Award which
have been issued by the Company to the Grantee shall be (i) deferred until
the lapsing of the restrictions imposed upon such Performance Shares and
(ii) held by the Company for the account of the Grantee until such time. In
the event that dividends are to be deferred, the Committee shall determine
whether such dividends are to be reinvested in shares of Stock (which shall
be held as additional Performance Shares) or held in cash. If deferred
dividends are to be held in cash, there may be credited at the end of each
year (or portion thereof) interest on the amount of the account at the
beginning of the year at a rate per annum as the Committee, in its
discretion, may determine. Payment of deferred dividends in respect of
Performance Shares (whether held in cash or in additional Performance
Shares), together with interest accrued thereon, if any, shall be made upon
the lapsing of restrictions imposed on the Performance Shares in respect of
which the deferred dividends were paid, and any dividends deferred
(together with any interest accrued thereon) in respect of any Performance
Shares shall be forfeited upon the forfeiture of such Performance Shares.
(e) Delivery of Shares. Upon the lapse of the restrictions
on Performance Shares awarded hereunder, the Committee shall cause a stock
certificate to be delivered to the Grantee with respect to such Shares,
free of all restrictions hereunder.
11.3 Performance Objectives
----------------------
(a) Establishment. Performance Objectives for Performance
Awards may be expressed in terms of (i) earnings per Share, (ii) Share
price, (iii) pre-tax profits, (iv) net earnings, (v) return on equity or
assets, or (vi) any combination of the foregoing. Performance Objectives
may be in respect of the performance of the Company, any of its
Subsidiaries, any of its Divisions or any combination thereof. Performance
Objectives may be absolute or relative (to prior performance of the Company
or to the performance of one or more other entities or external indices)
and may be expressed in terms of a progression within a specified range.
The Performance Objectives with respect to a Performance Cycle shall be
established in writing by the Committee by the earlier of (x) the date on
which a quarter of the Performance Cycle has elapsed or (y) the date which
is ninety (90) days after the commencement of the Performance Cycle, and in
any event while the performance relating to the Performance Objectives
remain substantially uncertain.
(b) Effect of Certain Events. At the time of the granting of
a Performance Award, or at any time thereafter, in either case to the
extent permitted under Section 162(m) of the Code and the regulations
thereunder without adversely affecting the treatment of the Performance
Award as Performance-Based Compensation, the Committee may provide for the
manner in which performance will be measured against the Performance
Objectives (or may adjust the Performance Objectives) to reflect the impact
of specified corporate transactions, accounting or tax law changes and
other extraordinary and nonrecurring events.
(c) Determination of Performance. Prior to the vesting,
payment, settlement or lapsing of any restrictions with respect to any
Performance Award that is intended to constitute Performance-Based
Compensation made to a Grantee who is subject to Section 162(m) of the
Code, the Committee shall certify in writing that the applicable
Performance Objectives have been satisfied.
11.4 Effect of Change in Control. In the event of a Change in
Control:
(a) With respect to Performance Units, the Grantee shall (i)
become vested in all or a portion of the Performance Units as determined by
the Committee at the time of the Award of such Performance Units and as set
forth in the Agreement and (ii) be entitled to receive in respect of all
Performance Units which become vested as a result of a Change in Control a
cash payment within ten (10) days after such Change in Control in an amount
as determined by the Committee at the time of the Award of such Performance
Unit and as set forth in the Agreement.
(b) With respect to Performance Shares, all or a portion of
any unissued Performance Shares shall be issued and restrictions shall
lapse immediately on all or a portion of the Performance Shares in each
case as determined by the Committee at the time of the Award of such
Performance Shares and as set forth in the Agreement.
(c) The Agreements evidencing Performance Shares and
Performance Units shall provide for the treatment of such Awards (or
portions thereof) which do not become vested as the result of a Change in
Control, including, but not limited to, provisions for the adjustment of
applicable Performance Objectives.
11.5 Non-transferability. Until the vesting of Performance
Units or the lapsing of any restrictions on Performance Shares, as the case
may be, such Performance Units or Performance Shares shall not be sold,
transferred or otherwise disposed of and shall not be pledged or otherwise
hypothecated.
12. Effect of a Termination of Employment.
-------------------------------------
The Agreement evidencing the grant of each Option and each
Award shall set forth the terms and conditions applicable to such Option or
Award upon a termination or change in the status of the employment of the
Optionee or Grantee by the Company, a Subsidiary or a Division (including a
termination or change by reason of the sale of a Subsidiary or a Division),
which shall be as the Committee may, in its discretion, determine at the
time the Option or Award is granted or thereafter.
13. Adjustment Upon Changes in Capitalization.
-----------------------------------------
(a) In the event of a Change in Capitalization, the
Committee shall, in its sole discretion, determine the appropriate
adjustments, if any, to (i) the maximum number and class of Shares or other
stock or securities with respect to which Options or Awards may be granted
under the Plan, (ii) the maximum number and class of Shares or other stock
or securities with respect to which Options or Awards may be granted to any
Eligible Individual during any calendar year, (iii) the number and class of
Shares or other stock or securities which are subject to outstanding
Options or Awards granted under the Plan and the purchase price therefor,
if applicable, and (iv) the Performance Objectives.
(b) Any such adjustment in the Shares or other stock or
securities subject to outstanding Incentive Stock Options (including any
adjustments in the purchase price) shall be made in such manner as not to
constitute a modification as defined by Section 424(h)(3) of the Code and
only to the extent otherwise permitted by Sections 422 and 424 of the Code.
(c) If, by reason of a Change in Capitalization, a Grantee
of an Award shall be entitled to, or an Optionee shall be entitled to
exercise an Option with respect to, new, additional or different shares of
stock or securities, such new, additional or different shares shall
thereupon be subject to all of the conditions, restrictions and performance
criteria which were applicable to the Shares subject to the Award or
Option, as the case may be, prior to such Change in Capitalization.
14. Effect of Certain Transactions.
------------------------------
Subject to Sections 7.4, 8.7, 10.4(b) and 11.4 or as otherwise
provided in an Agreement, in the event of (i) the liquidation or
dissolution of the Company or (ii) a merger or consolidation of the Company
(a "Transaction"), the Plan and the Options and Awards issued hereunder
shall continue in effect in accordance with their respective terms, except
that following a Transaction each Optionee and Grantee shall be entitled to
receive in respect of each Share subject to any outstanding Options or
Awards, as the case may be, upon exercise of any Option or payment or
transfer in respect of any Award, the same number and kind of stock,
securities, cash, property or other consideration that each holder of a
Share was entitled to receive in the Transaction in respect of a Share;
provided, however, that such stock, securities, cash, property, or other
consideration shall remain subject to all of the conditions, restrictions
and performance criteria which were applicable to the Options and Awards
prior to such Transaction.
15. Interpretation.
--------------
Following the required registration of any equity security of the
Company pursuant to Section 12 of the Exchange Act:
(a) The Plan is intended to comply with Rule 16b-3
promulgated under the Exchange Act and the Committee shall interpret and
administer the provisions of the Plan or any Agreement in a manner
consistent therewith. Any provisions inconsistent with such Rule shall be
inoperative and shall not affect the validity of the Plan.
(b) Unless otherwise expressly stated in the relevant
Agreement, each Option, Stock Appreciation Right and Performance Award
granted under the Plan is intended to be performance-based compensation
within the meaning of Section 162(m)(4)(C) of the Code. The Committee shall
not be entitled to exercise any discretion otherwise authorized hereunder
with respect to such Options or Awards if the ability to exercise such
discretion or the exercise of such discretion itself would cause the
compensation attributable to such Options or Awards to fail to qualify as
performance-based compensation.
16. Pooling Transactions.
--------------------
Notwithstanding anything contained in the Plan or any Agreement
to the contrary, in the event of a Change in Control which is also intended
to constitute a Pooling Transaction, the Committee shall take such actions,
if any, as are specifically recommended by an independent accounting firm
retained by the Company to the extent reasonably necessary in order to
assure that the Pooling Transaction will qualify as such, including but not
limited to (i) deferring the vesting, exercise, payment, settlement or
lapsing of restrictions with respect to any Option or Award, (ii) providing
that the payment or settlement in respect of any Option or Award be made in
the form of cash, Shares or securities of a successor or acquirer of the
Company, or a combination of the foregoing, and (iii) providing for the
extension of the term of any Option or Award to the extent necessary to
accommodate the foregoing, but not beyond the maximum term permitted for
any Option or Award.
17. Termination and Amendment of the Plan or Modification of
Options and Awards.
--------------------------------------------------------
17.1 Plan Amendment or Termination. The Plan shall terminate
on the day preceding the tenth anniversary of the date of its adoption by
the Board and no Option or Award may be granted thereafter. The Board may
sooner terminate the Plan and the Board may at any time and from time to
time amend, modify or suspend the Plan; provided, however, that:
(a) no such amendment, modification, suspension or
termination shall impair or adversely alter any Options or Awards
theretofore granted under the Plan, except with the consent of the Optionee
or Grantee, nor shall any amendment, modification, suspension or
termination deprive any Optionee or Grantee of any Shares which he or she
may have acquired through or as a result of the Plan; and
(b) to the extent necessary under any applicable law,
regulation or exchange requirement, no amendment shall be effective unless
approved by the stockholders of the Company in accordance with applicable
law, regulation or exchange requirement.
17.2 Modification of Options and Awards. No modification of an
Option or Award shall adversely alter or impair any rights or obligations
under the Option or Award without the consent of the Optionee or Grantee,
as the case may be.
18. Non-Exclusivity of the Plan.
---------------------------
The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive
arrangement or as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or
only in specific cases.
19. Limitation of Liability.
-----------------------
As illustrative of the limitations of liability of the Company,
but not intended to be exhaustive thereof, nothing in the Plan shall be
construed to:
(i) give any person any right to be granted an Option
or Award other than at the sole discretion of the Committee;
(ii) give any person any rights whatsoever with respect
to Shares except as specifically provided in the Plan;
(iii) limit in any way the right of the Company or any
Subsidiary to terminate the employment of any person at any
time; or
(iv) be evidence of any agreement or understanding,
expressed or implied, that the Company will employ any
person at any particular rate of compensation or for any
particular period of time.
20. Regulations and Other Approvals; Governing Law.
----------------------------------------------
20.1 Except as to matters of federal law, the Plan and the rights
of all persons claiming hereunder shall be construed and determined in
accordance with the laws of the State of Delaware without giving effect to
conflicts of laws principles thereof.
20.2 The obligation of the Company to sell or deliver Shares with
respect to Options and Awards granted under the Plan shall be subject to
all applicable laws, rules and regulations, including all applicable
federal and state securities laws, and the obtaining of all such approvals
by governmental agencies as may be deemed necessary or appropriate by the
Committee.
20.3 The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority, or to obtain for Eligible Individuals granted Incentive Stock
Options the tax benefits under the applicable provisions of the Code and
regulations promulgated thereunder.
20.4 Each Option and Award is subject to the requirement that, if
at any time the Committee determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or
the consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option
or Award or the issuance of Shares, no Options or Awards shall be granted
or payment made or Shares issued, in whole or in part, unless listing,
registration, qualification, consent or approval has been effected or
obtained free of any conditions as acceptable to the Committee.
20.5 Notwithstanding anything contained in the Plan or any
Agreement to the contrary, in the event that the disposition of Shares
acquired pursuant to the Plan is not covered by a then current registration
statement under the Securities Act of 1933, as amended (the "Securities
Act"), and is not otherwise exempt from such registration, such Shares
shall be restricted against transfer to the extent required by the
Securities Act and Rule 144 or other regulations thereunder. The Committee
may require any individual receiving Shares pursuant to an Option or Award
granted under the Plan, as a condition precedent to receipt of such Shares,
to represent and warrant to the Company in writing that the Shares acquired
by such individual are acquired without a view to any distribution thereof
and will not be sold or transferred other than pursuant to an effective
registration thereof under said Act or pursuant to an exemption applicable
under the Securities Act or the rules and regulations promulgated
thereunder. The certificates evidencing any of such Shares shall be
appropriately amended to reflect their status as restricted securities as
aforesaid.
21. Miscellaneous.
-------------
21.1 Multiple Agreements. The terms of each Option or Award may
differ from other Options or Awards granted under the Plan at the same
time, or at some other time. The Committee may also grant more than one
Option or Award to a given Eligible Individual during the term of the Plan,
either in addition to, or in substitution for, one or more Options or
Awards previously granted to that Eligible Individual.
21.2 Withholding of Taxes.
--------------------
(a) At such times as an Optionee or Grantee recognizes
taxable income in connection with the receipt of Shares or cash hereunder
(a "Taxable Event"), the Optionee or Grantee shall pay to the Company an
amount equal to the federal, state and local income taxes and other amounts
as may be required by law to be withheld by the Company in connection with
the Taxable Event (the "Withholding Taxes") prior to the issuance, or
release from escrow, of such Shares or the payment of such cash. The
Company shall have the right to deduct from any payment of cash to an
Optionee or Grantee an amount equal to the Withholding Taxes in
satisfaction of the obligation to pay Withholding Taxes. In satisfaction of
the obligation to pay Withholding Taxes to the Company, the Optionee or
Grantee may make a written election (the "Tax Election"), which may be
accepted or rejected in the discretion of the Committee, to have withheld a
portion of the Shares then issuable to him or her having an aggregate Fair
Market Value equal to the Withholding Taxes.
(b) If an Optionee makes a disposition, within the meaning
of Section 424(c) of the Code and regulations promulgated thereunder, of
any Share or Shares issued to such Optionee pursuant to the exercise of an
Incentive Stock Option within the two-year period commencing on the day
after the date of the grant or within the one-year period commencing on the
day after the date of transfer of such Share or Shares to the Optionee
pursuant to such exercise, the Optionee shall, within ten (10) days of such
disposition, notify the Company thereof, by delivery of written notice to
the Company at its principal executive office.
21.3. Effective Date. The Plan shall be effective on the date on
which the plan of reorganization of the Company is consummated (the
"Effective Date"); provided, however, that any Awards granted under the
Plan shall be subject to the requisite approval of the stockholders of the
Company.
EXHIBIT 2.4
THIS IS NOT A SOLICITATION OF ACCEPTANCES OF THE CHAPTER 11 PLAN OF
REORGANIZATION FOR SALANT CORP. ACCEPTANCES MAY NOT BE SOLICITED BY
THE DEBTOR UNTIL A DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE
BANKRUPTCY COURT. THIS DISCLOSURE STATEMENT IS BEING SUBMITTED FOR
APPROVAL BUT HAS NOT YET BEEN APPROVED BY THE BANKRUPTCY COURT.
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ------------------------------------------x
:
:
In re: :
: Chapter 11
SALANT CORPORATION : Case No. 98-10107 (CB)
:
:
:
Debtor. :
- ------------------------------------------x
- ---------------------------------------------------------------------
DISCLOSURE STATEMENT FOR CHAPTER 11 PLAN OF
REORGANIZATION FOR SALANT CORPORATION
- ---------------------------------------------------------------------
Dated: New York, New York
December 29, 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
<PAGE>
TABLE OF CONTENTS
I. INTRODUCTION AND SUMMARY................................................1
A. THE SOLICITATION................................................1
B. RECOMMENDATIONS.................................................2
C. SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND
INTERESTS.......................................................3
D. NOTICE TO HOLDERS OF CLAIMS AND INTERESTS.......................7
II. BACKGROUND............................................................10
A. BUSINESS AND PROPERTIES OF THE DEBTOR..........................10
1. Introduction...............................................10
2. Men's Apparel..............................................10
3. Children's Sleepwear and Underwear.........................11
4. Retail Outlet Stores.......................................11
5. Principal Product Lines....................................12
6. Trademarks Owned by the Company and Related
Licensing Income...........................................14
7. Trademarks Licensed to the Company.........................14
8. Design and Manufacturing...................................15
9. Raw Materials..............................................16
10. Employees..................................................16
11. Competition................................................16
12. Environmental Regulations..................................17
B. EXECUTIVE OFFICES; FINANCIAL INFORMATION.......................17
C. CAPITAL STRUCTURE OF THE DEBTOR................................17
1. Equity.....................................................17
2. Debt.......................................................18
D. THE DEBTOR.....................................................19
E. BACKGROUND AND EVENTS LEADING TO CHAPTER 11 FILING.............20
1. The March 2 Letter Agreement...............................23
2. The Plan Negotiations......................................24
3. The Waiver and Forbearance Under the CIT Credit
Agreement and Commitment for New Credit Agreement..........26
4. The CIT DIP Facility.......................................26
5. The CIT Exit Facility......................................27
6. Sale of Non-Perry Ellis Divisions..........................28
III. EFFECT OF CONSUMMATION OF THE PLAN...................................30
A. DILUTION OF EQUITY INTERESTS...................................30
B. PROVISIONS FOR EMPLOYEES.......................................31
IV. THE CHAPTER 11 CASE...................................................32
A. TIMETABLE FOR THE CHAPTER 11 CASE..............................32
B. COMMITTEES.....................................................33
C. ACTIONS TAKEN UPON COMMENCEMENT OF CASE........................34
1. Applications to Retain Professionals.......................34
2. Motion to Extend Time to File Schedules and
Statement of Financial Affairs.............................34
3. Motion to Maintain Prepetition Bank Accounts, Use
Existing Business Forms, Stationary and Checks.............35
4. Motion for Authority to Pay Prepetition Employee
Wages Commissions, Salaries, Reimbursable Employee
Expenses, Worker's Compensation and Associated
Benefits...................................................35
5. Chapter 11 Financing.......................................36
6. Motion Restraining and Enjoining Utilities from
Discontinuing Service......................................36
7. Motion to Pay Custom Duties, Broker Charges,
Shipping Charges and Related Possessory Liens..............36
8. Motion for Authority to Pay Sales and Use Taxes............36
9. Deadline for Filing Proofs of Claim........................37
V. SUMMARY OF THE PLAN....................................................37
A. BRIEF EXPLANATION OF CHAPTER 11................................37
B. GENERAL INFORMATION CONCERNING TREATMENT OF CLAIMS AND
INTERESTS......................................................38
C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS...........39
1. Unclassified Claims........................................41
2. Classified Claims And Interests............................43
3. Employee Claims............................................48
D. SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN.........49
1. The New Common Stock.......................................49
2. Market And Trading Information.............................51
3. The New PIK Senior Notes...................................51
E. SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS.....................51
F. EXECUTORY CONTRACTS AND UNEXPIRED LEASES.......................51
1. Generally..................................................51
2. Assumption and Rejection...................................52
3. Deadline for Filing Rejection Damage Claims................52
G. IMPLEMENTATION OF THIS PLAN....................................52
1. Vesting of Property........................................52
2. Transactions on Business Days..............................53
3. Restated Certificate of Incorporation; Restated
By-Laws....................................................53
4. Implementation.............................................53
5. Issuance of New Securities.................................53
6. Cancellation of Existing Securities and Agreements.........53
7. Board of Directors of Reorganized Salant...................54
8. Employee Benefit Plans.....................................54
9. The Stock Award and Incentive Plan.........................54
10. The Restricted Stock Plan..................................55
11. Survival of Indemnification and Contribution
Obligations................................................55
12. Listing of New Common Stock; Registration of
Securities.................................................55
13. The Management Employment Agreements.......................56
14. Retention and Enforcement of Causes of Action..............56
H. PROVISIONS COVERING DISTRIBUTIONS..............................56
1. Timing of Distributions Under the Plan.....................56
2. Allocation of Consideration................................57
3. Cash Payments..............................................57
4. Payment of Statutory Fees..................................57
5. No Interest................................................57
6. Fractional Securities......................................58
7. Withholding of Taxes.......................................58
8. Distribution Record Date...................................58
9. Persons Deemed Holders of Registered Securities............58
10. Surrender of Existing Securities...........................59
11. Special Procedures for Lost, Stolen, Mutilated or
Destroyed Instruments......................................59
12. Undeliverable or Unclaimed Distributions...................59
I. PROCEDURES FOR RESOLVING DISPUTED CLAIMS.......................60
1. Objections to Claims.......................................60
2. Procedure..................................................60
3. Payments and Distributions With Respect to Disputed
Claims.....................................................61
4. Timing of Payments and Distributions With Respect
to Disputed Claims.........................................61
5. Individual Holder Proofs of Interest.......................61
J. DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF
CLAIMS.........................................................61
1. Discharge of All Claims and Interests and Releases.........61
2. Injunction.................................................63
3. Exculpation................................................63
4. Guaranties and Claims of Subordination.....................63
K. CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND
EFFECTIVE DATE.................................................64
1. Conditions Precedent to Entry of the Confirmation
Order......................................................64
2. Conditions Precedent to the Effective Date.................65
3. Waiver of Conditions.......................................65
4. Effect of Failure of Conditions............................65
L. MISCELLANEOUS PROVISIONS.......................................66
1. Bankruptcy Court to Retain Jurisdiction....................66
2. Binding Effect of this Plan................................67
3. Nonvoting Stock............................................67
4. Authorization of Corporate Action..........................67
5. Retiree Benefits...........................................67
6. Withdrawal of the Plan.....................................67
7. Dissolution of Committees..................................68
8. Fees, Costs and Expenses of Indenture Trustee..............68
9. Amendments and Modifications to the Plan...................68
10. Section 1125(e) of the Bankruptcy Code.....................68
VI. DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT...........................69
VII. DESCRIPTION OF STOCK AWARD AND INCENTIVE PLAN.........................69
A. PURPOSE OF THE STOCK AWARD AND INCENTIVE PLAN..................70
B. ELIGIBILITY....................................................70
C. PLAN ADMINISTRATION AND SHARES SUBJECT TO THE STOCK
AWARD AND INCENTIVE PLAN.......................................70
D. AWARDS.........................................................71
E. CHANGE IN CONTROL..............................................73
F. TRANSFERABILITY................................................73
G. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS......................73
H. TREATMENT OF OLD OPTIONS.......................................75
VIII. CHANGES IN MANAGEMENT................................................73
A. EMPLOYMENT OF MICHAEL SETOLA...................................77
B. EMPLOYMENT OF TODD KAHN........................................77
C. EXISTING EMPLOYMENT AGREEMENTS WITH JERALD POLITZER AND
PHILIP FRANZEL.................................................78
IX. RISK FACTORS..........................................................81
A. DISRUPTION OF OPERATIONS RELATING TO BANKRUPTCY FILING.........81
B. CERTAIN RISKS OF NON-CONFIRMATION..............................81
C. CERTAIN BANKRUPTCY CONSIDERATIONS..............................83
1. Failure To Consummate Plan.................................83
2. Effect On Operations.......................................84
3. Nonconsensual Confirmation.................................84
D. BUSINESS RISK FACTORS..........................................85
1. Results of Operations Subject to Variable
Influences; Intense Competition............................85
2. Dilution...................................................85
3. Limitation on Use of Net Operating Losses..................85
4. Volatility; Lack of Trading Market and Potential
De-Listing of the New Common Stock.........................86
5. Possible Volatility of Stock Price.........................86
6. Concentrated Ownership of New Common Stock.................86
7. Absence of and/or Restrictions on Dividends................87
8. History of Losses; Effect of Transaction...................87
9. Cash Flow From Operations..................................87
10. Declines in Net Sales and Gross Profits....................88
11. Retail Environment.........................................89
12. Apparel Industry Cycles and Other Economic Factors.........90
13. Seasonality and Fashion Risk...............................90
14. Dependence on Certain Customers and Licensees;
Effect of Plan on Licenses.................................90
15. Foreign Operations and Sourcing; Import Restrictions.......92
16. Dependence on Contract Manufacturing.......................93
17. Information Systems and Control Procedures.................94
18. Leverage and Debt Service..................................94
19. Need for Sustained Trade Support...........................94
X. APPLICATION OF SECURITIES ACT..........................................95
A. ISSUANCE AND RESALE OF NEW SECURITIES UNDER THE PLAN...........95
XI. FINANCIAL PROJECTIONS AND ASSUMPTIONS USED............................96
XII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN..................96
A. FEDERAL INCOME TAX CONSEQUENCES TO REORGANIZED SALANT..........97
1. Cancellation Of Indebtedness Income........................97
2. Limitation On Net Operating Loss Carryovers................97
3. Limitation on Interest Deductions..........................99
B. FEDERAL INCOME TAX CONSEQUENCES TO NOTEHOLDERS.................99
1. General....................................................99
2. Market Discount...........................................101
3. Application of Original Issue Discount Rules to New
PIK Senior Notes..........................................101
4. Disposition of New Common Stock and New PIK Senior
Notes.....................................................104
C. FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS...............104
1. General...................................................104
2. Disposition...............................................104
XIII. REQUIREMENTS FOR CONFIRMATION OF PLAN..............................105
A. CONFIRMATION HEARING..........................................105
B. FEASIBILITY OF THE PLAN.......................................107
C. BEST INTERESTS TEST...........................................107
D. LIQUIDATION ANALYSIS..........................................110
D. NONCONSENSUAL CONFIRMATION....................................112
1. No Unfair Discrimination..................................112
2. Fair and Equitable Test...................................112
XIV. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN..........113
A. CONTINUATION OF THE CHAPTER 11 CASE...........................114
B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11.....................114
XV. VOTING AND CONFIRMATION OF THE PLAN..................................115
A. VOTING DEADLINE...............................................115
B. HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE.......116
C. VOTE REQUIRED FOR ACCEPTANCE BY A CLASS.......................116
D. VOTING PROCEDURES.............................................116
Holders of Class 3 Senior Note Claims and Class 7 Old
Common Stock Interests....................................117
XVI. CONCLUSION AND RECOMMENDATION.......................................120
Appendix I - Plan
<PAGE>
Salant Corporation, a Delaware corporation ("Salant"), as debtor and
debtor-in-possession (the "Debtor") under Chapter 11 of title 11 of the
United States Code (the "Bankruptcy Code"), hereby proposes and files this
Disclosure Statement (the "Disclosure Statement") for the Chapter 11 Plan
of Reorganization for Salant Corporation, dated _________, 1998 (the
"Plan").
THE DEBTOR STRONGLY URGES ALL HOLDERS OF CLAIMS AND INTERESTS IN
IMPAIRED CLASSES RECEIVING BALLOTS TO ACCEPT THE PLAN.
NONE OF THE SUBSIDIARIES OF THE DEBTOR ARE PARTIES TO THE PLAN, AND
WILL THEREFORE CONTINUE TO OPERATE IN THE ORDINARY COURSE OF BUSINESS
DURING THE DEBTOR'S CHAPTER 11 CASE. AS SUCH, THE PLAN DOES NOT AFFECT THE
CONTINUING AND TIMELY PAYMENT IN FULL OF THE SUBSIDIARIES' OBLIGATIONS TO
SUPPLIERS, EMPLOYEES, AND OTHER CREDITORS. IN ADDITION, THE PLAN PROVIDES
FOR ALL HOLDERS OF GENERAL UNSECURED CLAIMS AGAINST THE DEBTOR, INCLUDING,
WITHOUT LIMITATION, TRADE CREDITORS, TO BE PAID IN FULL IN ACCORDANCE WITH
THEIR TERMS, AND SUCH CREDITORS WILL NOT, THEREFORE, BE IMPAIRED BY, AND
WILL BE DEEMED TO ACCEPT, THE PLAN, AND THEIR VOTE ON THE PLAN WILL NOT BE
SOUGHT.
THIS DISCLOSURE STATEMENT IS DESIGNED TO SOLICIT YOUR ACCEPTANCE OF
THE ATTACHED PLAN AND CONTAINS INFORMATION RELEVANT TO YOUR DECISION.
PLEASE READ THIS DISCLOSURE STATEMENT, THE PLAN AND THE OTHER MATERIALS
COMPLETELY AND CAREFULLY. THE DEBTOR BELIEVES THAT ACCEPTANCE OF THE PLAN
IS IN THE BEST INTERESTS OF ITS CREDITORS AND EQUITY HOLDERS. THE PLAN IS
ATTACHED AS APPENDIX I TO THIS DISCLOSURE STATEMENT. PLAN SUMMARIES AND
STATEMENTS MADE IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR
ENTIRETY BY REFERENCE TO THE PLAN, OTHER APPENDICES ANNEXED HERETO AND
OTHER DOCUMENTS REFERENCED AS FILED WITH THE COURT BEFORE OR CONCURRENTLY
WITH THE FILING OF THIS DISCLOSURE STATEMENT. FURTHERMORE, THE PROJECTED
FINANCIAL INFORMATION CONTAINED HEREIN HAS NOT BEEN THE SUBJECT OF AN
AUDIT. SUBSEQUENT TO THE DATE HEREOF, THERE CAN BE NO ASSURANCE THAT: (A)
THE INFORMATION AND REPRESENTATIONS CONTAINED HEREIN WILL CONTINUE TO BE
MATERIALLY ACCURATE; OR (B) THE DISCLOSURE STATEMENT CONTAINS ALL MATERIAL
INFORMATION.
THE ONLY CLASSES OF CLAIMS AND INTERESTS IMPAIRED (AS DEFINED IN THE
BANKRUPTCY CODE) UNDER THE PLAN AND ENTITLED TO VOTE ON THE PLAN, ARE CLASS
3 SENIOR NOTE CLAIMS, CLASS 5 PBGC CLAIMS AND CLASS 7 OLD COMMON STOCK
INTERESTS. CLASS 1 PRIORITY CLAIMS, CLASS 2 CIT CLAIMS, CLASS 4
MISCELLANEOUS SECURED CLAIMS AND CLASS 6 GENERAL UNSECURED CLAIMS ARE
UNIMPAIRED, AND HOLDERS OF CLAIMS IN SUCH CLASSES ARE CONCLUSIVELY PRESUMED
TO HAVE ACCEPTED THE PLAN PURSUANT TO SECTION 1126(f) OF THE BANKRUPTCY
CODE. CLASS 8 OTHER INTERESTS IS IMPAIRED AND WILL NOT RECEIVE OR RETAIN
ANY PROPERTY UNDER THE PLAN AND HOLDERS OF INTERESTS IN CLASS 8 ARE DEEMED
NOT TO HAVE ACCEPTED THE PLAN PURSUANT TO SECTION 1126(g) OF THE BANKRUPTCY
CODE.
HOLDERS OF IMPAIRED CLASS 3 SENIOR NOTE CLAIMS, CLASS 5 PBGC CLAIMS
AND CLASS 7 OLD COMMON STOCK INTERESTS ARE ENCOURAGED TO READ AND CAREFULLY
CONSIDER THE MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT, INCLUDING
THOSE UNDER "RISK FACTORS," PRIOR TO SUBMITTING BALLOTS OR MASTER BALLOTS
VOTING ON THE PLAN. IN MAKING A DECISION TO ACCEPT OR REJECT THE PLAN, EACH
HOLDER OF A CLASS 3 SENIOR NOTE CLAIM, CLASS 5 PBGC CLAIM OR CLASS 7 OLD
COMMON STOCK INTEREST MUST RELY ON ITS OWN EXAMINATION OF THE DEBTOR AS
DESCRIBED IN THIS DISCLOSURE STATEMENT AND THE TERMS OF THE PLAN, INCLUDING
THE MERITS AND RISKS INVOLVED. IN ADDITION, CONFIRMATION AND CONSUMMATION
OF THE PLAN ARE SUBJECT TO CONDITIONS PRECEDENT THAT COULD LEAD TO DELAYS
IN CONSUMMATION OF THE PLAN. THERE CAN BE NO ASSURANCE THAT EACH OF THESE
CONDITIONS WILL BE SATISFIED OR WAIVED (AS PROVIDED IN THE PLAN) OR THAT
THE PLAN WILL BE CONSUMMATED. EVEN AFTER THE EFFECTIVE DATE, DISTRIBUTIONS
UNDER THE PLAN MAY BE SUBJECT TO SUBSTANTIAL DELAYS FOR HOLDERS OF CLAIMS
AND INTERESTS THAT ARE DISPUTED.
CLASS 3 (SENIOR NOTE CLAIMS) WILL BE DEEMED TO HAVE ACCEPTED THE PLAN
IF THE HOLDERS OF SENIOR NOTE CLAIMS (OTHER THAN ANY HOLDER DESIGNATED
UNDER SUBSECTION 1126(E) OF THE BANKRUPTCY CODE) WHO CAST VOTES IN FAVOR OF
THE PLAN HOLD AT LEAST TWO-THIRDS IN DOLLAR AMOUNT AND MORE THAN ONE-HALF
IN NUMBER OF THE ALLOWED CLAIMS ACTUALLY VOTING IN SUCH CLASS. CLASS 7 (OLD
COMMON STOCK INTERESTS) WILL BE DEEMED TO HAVE ACCEPTED THE PLAN IF THE
HOLDERS OF OLD COMMON STOCK INTERESTS (OTHER THAN ANY HOLDER DESIGNATED
UNDER SUBSECTION 1126(E) OF THE BANKRUPTCY CODE) WHO CAST VOTES IN FAVOR OF
THE PLAN HOLD AT LEAST TWO-THIRDS IN AMOUNT OF ALLOWED INTERESTS ACTUALLY
VOTING IN SUCH CLASS.
THE DEBTOR WILL REQUEST THAT THE BANKRUPTCY COURT CONFIRM THE PLAN
UNDER BANKRUPTCY CODE SECTION 1129(B). SECTION 1129(B) PERMITS CONFIRMATION
OF THE PLAN DESPITE REJECTION BY ONE OR MORE CLASSES IF THE BANKRUPTCY
COURT FINDS THAT THE PLAN "DOES NOT DISCRIMINATE UNFAIRLY" AND IS "FAIR AND
EQUITABLE" AS TO THE CLASS OR CLASSES THAT DO NOT ACCEPT THE PLAN. BECAUSE
CLASS 8 IS DEEMED NOT TO HAVE ACCEPTED THE PLAN, THE DEBTOR WILL REQUEST
THAT THE BANKRUPTCY COURT FIND THAT THE PLAN IS FAIR AND EQUITABLE AND DOES
NOT DISCRIMINATE UNFAIRLY AS TO CLASS 8 (AND ANY OTHER CLASS THAT FAILS TO
ACCEPT THE PLAN). FOR A MORE DETAILED DESCRIPTION OF THE REQUIREMENTS FOR
ACCEPTANCE OF THE PLAN AND OF THE CRITERIA FOR CONFIRMATION, SEE SECTION
XIII HEREIN, ENTITLED "REQUIREMENTS FOR CONFIRMATION OF PLAN."
THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY ORDER OF THE BANKRUPTCY
COURT AS CONTAINING ADEQUATE INFORMATION OF A KIND AND IN SUFFICIENT DETAIL
TO ENABLE HOLDERS OF CLAIMS AND INTERESTS TO MAKE AN INFORMED JUDGMENT WITH
RESPECT TO VOTING TO ACCEPT OR REJECT THE PLAN. HOWEVER, THE BANKRUPTCY
COURT'S APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT CONSTITUTE A
RECOMMENDATION OR DETERMINATION BY THE BANKRUPTCY COURT WITH RESPECT TO THE
MERITS OF THE PLAN.
NO PARTY IS AUTHORIZED BY THE DEBTOR TO GIVE ANY INFORMATION OR MAKE
ANY REPRESENTATIONS WITH RESPECT TO THE PLAN OR THE NEW COMMON STOCK OTHER
THAN THAT WHICH IS CONTAINED IN THIS DISCLOSURE STATEMENT. NO
REPRESENTATIONS OR INFORMATION CONCERNING THE DEBTOR, ITS FUTURE BUSINESS
OPERATIONS OR THE VALUE OF ITS PROPERTIES HAVE BEEN AUTHORIZED BY THE
DEBTOR OTHER THAN AS SET FORTH HEREIN.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION
1125 OF THE BANKRUPTCY CODE AND NOT IN ACCORDANCE WITH FEDERAL OR STATE
SECURITIES LAWS OR OTHER APPLICABLE NONBANKRUPTCY LAWS. ENTITIES HOLDING OR
TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING CLAIMS AGAINST,
INTERESTS IN OR SECURITIES OF, THE DEBTOR SHOULD EVALUATE THIS DISCLOSURE
STATEMENT ONLY IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED.
IF THE REQUISITE ACCEPTANCES OF THE PLAN ARE RECEIVED, THE PLAN IS
CONFIRMED BY THE BANKRUPTCY COURT AND THE EFFECTIVE DATE OCCURS, ALL
HOLDERS OF ALLOWED SENIOR NOTE CLAIMS (AS DEFINED IN THE PLAN), HOLDERS OF
ALLOWED PBGC CLAIMS (AS DEFINED IN THE PLAN) AND HOLDERS OF ALLOWED OLD
COMMON STOCK INTERESTS (AS DEFINED IN THE PLAN) (INCLUDING THOSE WHO DO NOT
SUBMIT BALLOTS OR MASTER BALLOTS TO ACCEPT OR TO REJECT THE PLAN AND THE
TRANSACTIONS CONTEMPLATED THEREBY) WILL BE BOUND BY THE PLAN AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR BY ANY STATE
SECURITIES COMMISSION OR SIMILAR PUBLIC, GOVERNMENTAL OR REGULATORY
AUTHORITY, AND NEITHER SUCH COMMISSION NOR ANY SUCH AUTHORITY HAS PASSED
UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF
THE DATE HEREOF AND NEITHER THE DELIVERY OF THIS DISCLOSURE STATEMENT NOR
ANY DISTRIBUTION OF PROPERTY HEREUNDER PURSUANT TO THE PLAN WILL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE
DEBTOR SINCE THE DATE HEREOF.
EACH CREDITOR AND EQUITY SECURITY HOLDER OF THE DEBTOR SHOULD CONSULT
WITH SUCH CREDITOR'S OR EQUITY SECURITY HOLDER'S LEGAL, BUSINESS, FINANCIAL
AND TAX ADVISORS AS TO ANY SUCH MATTERS CONCERNING THE SOLICITATION OF
VOTES TO ACCEPT OR REJECT THE PLAN, THE PLAN AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
<PAGE>
I. INTRODUCTION AND SUMMARY
This Disclosure Statement is being furnished by the Debtor, pursuant
to section 1125 of the Bankruptcy Code, in connection with the solicitation
of votes to accept or reject the Plan (as it may be altered, amended,
modified or supplemented as described herein) from Holders of (i) Senior
Notes Claims, (ii) PBGC Claims, and (iii) Old Common Stock Interests. All
capitalized terms used in this Disclosure Statement have the meanings
ascribed to such terms in the Plan, a copy of which is annexed hereto as
Appendix I, except as otherwise indicated. The following introduction and
summary is qualified in its entirety by, and should be read in conjunction
with, the more detailed information and financial statements and notes
thereto appearing elsewhere in this Disclosure Statement.
A. THE SOLICITATION
On December 29, 1998 (the "Filing Date"), the Debtor filed its Plan
with the Bankruptcy Court. Simultaneously therewith, the Debtor filed this
Disclosure Statement with the Bankruptcy Court pursuant to section 1125 of
the Bankruptcy Code and in connection with the solicitation of votes to
accept or reject the Plan (the "Solicitation").
On __________, 1998, the Bankruptcy Court determined that this
Disclosure Statement contains "adequate information" in accordance with
section 1125 of the Bankruptcy Code. Pursuant to section 1125(a)(1) of the
Bankruptcy Code, "adequate information" is defined as "information of a
kind, and in sufficient detail, as far as is reasonably practicable in
light of the nature and history of the debtor and the condition of the
debtor's books and records, that would enable a hypothetical reasonable
investor typical of holders of claims or interests of the relevant class to
make an informed judgment about the plan . . ." 11 U.S.C. ss. 1125(a)(1).
THE BANKRUPTCY COURT HAS SCHEDULED A HEARING TO CONSIDER CONFIRMATION
OF THE PLAN FOR ____________, 1998 BEFORE THE HONORABLE __________________,
UNITED STATES BANKRUPTCY JUDGE FOR THE SOUTHERN DISTRICT OF NEW YORK,
ALEXANDER HAMILTON CUSTOMS HOUSE, ONE BOWLING GREEN, NEW YORK, NEW YORK
10004, AT _____ A.M. NEW YORK CITY TIME. THE HEARING MAY BE ADJOURNED FROM
TIME TO TIME WITHOUT FURTHER NOTICE OTHER THAN BY ANNOUNCEMENT IN THE
BANKRUPTCY COURT ON THE SCHEDULED DATE OF SUCH HEARING. ANY OBJECTIONS TO
CONFIRMATION OF THE PLAN MUST BE IN WRITING AND MUST BE FILED WITH THE
CLERK OF THE BANKRUPTCY COURT AND SERVED ON THE COUNSEL LISTED BELOW TO
ENSURE RECEIPT BY THEM ON OR BEFORE _____________, 1998 AT 5:00 P.M. NEW
YORK CITY TIME. COUNSEL ON WHOM OBJECTIONS MUST BE SERVED ARE:
FRIED, FRANK, HARRIS, SHRIVER
& JACOBSON
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
ATTN: BRAD ERIC SCHELER, ESQ. COUNSEL FOR THE DEBTOR
LAWRENCE A. FIRST, ESQ. AND DEBTOR-IN-POSSESSION
UNITED STATES TRUSTEE FOR THE
SOUTHERN DISTRICT OF NEW YORK
33 WHITEHALL STREET
21ST FLOOR
NEW YORK, NEW YORK 10004
ATTN: CAROLYN SCHWARTZ, ESQ. UNITED STATES TRUSTEE
B. RECOMMENDATIONS
THE DEBTOR RECOMMENDS THAT EACH ENTITY ENTITLED TO VOTE ON THE PLAN
VOTE TO ACCEPT THE PLAN. The Debtor believes that:
1. the Plan provides the best possible result for the Holders of
Claims and Interests;
2. with respect to each Impaired Class of Claims or Interests entitled
to vote on the Plan, the distributions under the Plan are not less
than the amounts that would be received if the Debtor was liquidated
under Chapter 7 of the Bankruptcy Code; and
3. acceptance of the Plan is in the best interests of Holders of
Claims and Interests.
<PAGE>
C. SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND INTERESTS
The Plan categorizes into eight Classes the Claims against, and
Interests in, the Debtor which will exist on the Filing Date. The Plan also
(i) provides that allowed Administrative Expenses incurred by the Debtor
during the Chapter 11 Case will be paid in full in Cash on the later of (a)
the Effective Date and (b) the date on which the Bankruptcy Court enters an
order allowing such Administrative Expense; provided, however, that allowed
Administrative Expenses representing obligations incurred in the ordinary
course of business, consistent with past practice, or assumed by the Debtor
will 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, will 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; (ii) provides that Allowed Priority Tax
Claims will receive (a) Cash payments made in equal annual installments
beginning on or before the first anniversary following the Effective Date
with the final installment being payable no later than the sixth
anniversary of the date of the assessment of such Allowed Priority Tax
Claim together with interest on the unpaid balance of such Allowed Priority
Tax Claim from the Effective Date calculated at the Market Rate, or (b)
such other treatment agreed to by the Holder of such Allowed Priority Tax
Claim and the Debtor or Reorganized Salant, as the case may be; and (iii)
specifies the manner in which the Claims and Interests in each Class are to
be treated.
The table below provides a summary of the classification and treatment
of, and distributions in respect of Claims and Interests in each Class
under the Plan. For a more precise explanation, please refer to the
discussion in Section V herein, entitled "SUMMARY OF THE PLAN" and to the
Plan itself.
- -------------------------------------------------------------------------------
TYPE OF CLAIM
CLASS OR EQUITY INTEREST DISTRIBUTION
- -------------------------------------------------------------------------------
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
DEBTOR 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 DEBTOR 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) CASH IN AN AMOUNT SUFFICIENT TO
RENDER SUCH ALLOWED CIT CLAIM
UNIMPAIRED UNDER SECTION 1124 OF THE
BANKRUPTCY CODE, (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 DEBTOR AND CIT.
- -------------------------------------------------------------------------------
3 SENIOR NOTE CLAIMS IF THE PEI EVENT OCCURS ON OR PRIOR TO
(IMPAIRED) THE EFFECTIVE DATE, THEN 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
9,500,000 SHARES OF NEW COMMON STOCK
(OR 90.5805738 SHARES OF NEW COMMON
STOCK FOR EACH $1,000 PRINCIPAL FACE
AMOUNT OF SENIOR NOTES HELD BY SUCH
HOLDER).
IF THE PEI EVENT DOES NOT OCCUR ON OR
PRIOR TO THE EFFECTIVE DATE, THEN 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 (A)
4,000,000 SHARES OF NEW COMMON STOCK
(OR 38.1391890 SHARES OF NEW COMMON
STOCK FOR EACH $1,000 PRINCIPAL AMOUNT
OF SENIOR NOTES HELD BY SUCH HOLDER),
AND (B) THE NEW PIK SENIOR NOTES (OR
$877.20 AGGREGATE PRINCIPAL AMOUNT OF
NEW PIK SENIOR NOTES FOR EACH $1,000
PRINCIPAL AMOUNT OF SENIOR NOTES HELD
BY SUCH HOLDER).
- -------------------------------------------------------------------------------
4 MISCELLANEOUS SECURED AT THE ELECTION OF THE DEBTOR PRIOR TO
CLAIMS (UNIMPAIRED) 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
DEBTOR AND SUCH HOLDER.
- -------------------------------------------------------------------------------
5 PBGC CLAIMS (IMPAIRED) ON THE EFFECTIVE DATE, THE HOLDER OF
THE ALLOWED PBGC CLAIMS WILL BE
ENTITLED TO RECEIVE ON ACCOUNT OF THE
ALLOWED PBGC CLAIMS THE TREATMENT
PROVIDED FOR IN THE PBGC AGREEMENT.
- -------------------------------------------------------------------------------
6 GENERAL UNSECURED CLAIMS AT THE ELECTION OF THE DEBTOR PRIOR TO
(UNIMPAIRED) 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
DEBTOR AND SUCH HOLDER.
- -------------------------------------------------------------------------------
7 OLD COMMON STOCK IF THE PEI EVENT DOES NOT OCCUR ON OR
INTERESTS (IMPAIRED) PRIOR TO THE EFFECTIVE DATE, THEN 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 500,000 SHARES OF NEW COMMON
STOCK.
IF THE PEI EVENT DOES NOT OCCUR ON OR
PRIOR TO THE EFFECTIVE DATE, THEN 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 6,000,000 SHARES OF
NEW COMMON STOCK.
- -------------------------------------------------------------------------------
8 OTHER INTERESTS (IMPAIRED) ON THE EFFECTIVE DATE, OTHER INTERESTS
WILL BE EXTINGUISHED AND NO
DISTRIBUTIONS WILL BE MADE IN RESPECT
OF SUCH OTHER INTERESTS.
- -------------------------------------------------------------------------------
For projected financial information and valuation estimates, see
Section XI herein, entitled "FINANCIAL PROJECTIONS AND ASSUMPTIONS USED."
For a more detailed description of the foregoing Classes of Claims and
Interests, see Section V herein, entitled "SUMMARY OF THE PLAN."
D. NOTICE TO HOLDERS OF CLAIMS AND INTERESTS
The Plan provides for, among other things: (i) the issuance and
distribution of New Common Stock to Noteholders; and (ii) the issuance and
distribution of New Common Stock to Stockholders. In consideration of such
distributions, the Senior Notes held by the Noteholders and the Old Common
Stock held by the Stockholders will be canceled.
NONE OF THE SUBSIDIARIES OF THE DEBTOR ARE PARTIES TO THE PLAN, AND
WILL THEREFORE CONTINUE TO OPERATE IN THE ORDINARY COURSE OF BUSINESS
DURING THE DEBTOR'S CHAPTER 11 CASE. AS SUCH, THE PLAN DOES NOT AFFECT THE
CONTINUING AND TIMELY PAYMENT IN FULL OF THE SUBSIDIARIES' OBLIGATIONS TO
SUPPLIERS, EMPLOYEES, AND OTHER CREDITORS. IN ADDITION, THE PLAN PROVIDES
FOR ALL HOLDERS OF GENERAL UNSECURED CLAIMS AGAINST THE DEBTOR, INCLUDING,
WITHOUT LIMITATION, TRADE CREDITORS, TO BE PAID IN FULL IN ACCORDANCE WITH
THEIR TERMS, AND SUCH CREDITORS WILL NOT, THEREFORE, BE IMPAIRED BY, AND
WILL BE DEEMED TO ACCEPT, THE PLAN, AND THEIR VOTE ON THE PLAN WILL NOT BE
SOUGHT.
Noteholders and Stockholders should read this Disclosure Statement,
together with the Plan, the form of Ballot and/or Master Ballot, as
applicable, and the applicable Voting Instructions (collectively, the
"Solicitation Materials"), in their entirety before voting on the Plan.
Pursuant to the provisions of the Bankruptcy Code, only Impaired
Classes of Claims and Interests are entitled to vote to accept or reject
the Plan. The only Classes of Claims impaired under the Plan consists of
the Holders of Class 3 Senior Note Claims and the Holder of the Class 5
PBGC Claims. The only Classes of Interests impaired under the Plan consist
of the Holders of Class 7 Old Common Stock Interests and Class 8 Other
Interests. See Section V herein, entitled "SUMMARY OF THE PLAN" for a
description of these Classes. The Debtor is seeking acceptance of the Plan
from Holders of Class 3 Senior Note Claims, the Holder of Class 5 PBGC
Claims and Holders of Class 7 Old Common Stock Interests. CLASS 1 PRIORITY
CLAIMS, CLASS 2 CIT CLAIMS, CLASS 4 MISCELLANEOUS SECURED CLAIMS AND CLASS
6 GENERAL UNSECURED CLAIMS ARE UNIMPAIRED, AND HOLDERS OF CLAIMS IN SUCH
CLASSES ARE CONCLUSIVELY PRESUMED TO HAVE ACCEPTED THE PLAN PURSUANT TO
SECTION 1126(f) OF THE BANKRUPTCY CODE. CLASS 8 OTHER INTERESTS ARE
IMPAIRED AND DO NOT RECEIVE OR RETAIN ANY PROPERTY UNDER THE PLAN AND
HOLDERS OF INTERESTS IN CLASS 8 ARE DEEMED NOT TO HAVE ACCEPTED THE PLAN
PURSUANT TO SECTION 1126(g) OF THE BANKRUPTCY CODE.
UNLESS OTHERWISE DIRECTED BY THE BANKRUPTCY COURT, ONLY VOTES CAST BY
OR AT THE DIRECTION OF BENEFICIAL INTEREST HOLDERS OF SENIOR NOTES AND OLD
COMMON STOCK IN ACCORDANCE WITH THE VOTING INSTRUCTIONS WILL BE COUNTED FOR
PURPOSES OF VOTING ON THE PLAN. SEE SECTION XV HEREIN, ENTITLED "VOTING AND
CONFIRMATION OF THE PLAN."
The Solicitation will expire at 5:00 p.m., New York City time on
________, 1998 (the "Voting Deadline"), unless the Voting Deadline is
extended or waived by the Debtor. After carefully reviewing this Disclosure
Statement, the Plan and the other applicable Solicitation Materials, each
Holder of a Senior Note Claim, the Holder of a PBGC Claim and each Holder
of an Old Common Stock Interest should vote to accept or reject the Plan in
accordance with the Voting Instructions, and return the appropriate
Ballot(s) or Master Ballot(s) in accordance with the instructions set forth
therein so they are received prior to the Expiration Date. For further
information, see Section XV herein, entitled "VOTING AND CONFIRMATION OF
THE PLAN."
This Disclosure Statement is being transmitted only to holders of
Impaired Claims against and Impaired Interests in the Debtor who are
entitled to vote to accept or reject the Plan.
WHEN CONFIRMED BY THE BANKRUPTCY COURT, THE PLAN WILL BIND ALL HOLDERS
OF CLAIMS AGAINST AND INTERESTS IN THE DEBTOR, WHETHER OR NOT THEY ARE
ENTITLED TO VOTE OR DID VOTE ON THE PLAN AND WHETHER OR NOT THEY RECEIVE OR
RETAIN ANY DISTRIBUTIONS OR PROPERTY UNDER THE PLAN. THUS, ALL HOLDERS OF
IMPAIRED CLAIMS AGAINST AND IMPAIRED INTERESTS IN THE DEBTOR ARE ENCOURAGED
TO READ THIS DISCLOSURE STATEMENT AND ITS EXHIBITS CAREFULLY AND IN THEIR
ENTIRETY BEFORE VOTING TO ACCEPT OR TO REJECT THE PLAN. THIS DISCLOSURE
STATEMENT CONTAINS IMPORTANT INFORMATION ABOUT THE PLAN, CONSIDERATIONS
PERTINENT TO ACCEPTANCE OR REJECTION OF THE PLAN, AND DEVELOPMENTS
CONCERNING THE CHAPTER 11 CASE.
CERTAIN OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS
BY ITS NATURE FORWARD LOOKING AND CONTAINS ESTIMATES, ASSUMPTIONS, AND
PROJECTIONS THAT MAY BE MATERIALLY DIFFERENT FROM ACTUAL FUTURE RESULTS.
Except with respect to the projections referenced in Section XI herein,
entitled "FINANCIAL PROJECTIONS AND ASSUMPTIONS USED" (the "Projections")
and except as otherwise specifically and expressly stated herein, this
Disclosure Statement does not reflect any events that may occur subsequent
to the date hereof. Such events may have a material impact on the
information contained in this Disclosure Statement. The Debtor and
Reorganized Salant do not intend to update the Projections. Thus, the
Projections will not reflect the impact of any subsequent events not
already accounted for in the assumptions underlying the Projections.
Further, the Debtor does not anticipate that any amendments or supplements
to this Disclosure Statement will be distributed to reflect such
occurrences. Accordingly, the delivery of this Disclosure Statement shall
not under any circumstances imply that the information herein is correct or
complete as of any time subsequent to the date hereof.
EXCEPT WHERE SPECIFICALLY NOTED, THE FINANCIAL INFORMATION CONTAINED
HEREIN HAS NOT BEEN AUDITED BY A CERTIFIED PUBLIC ACCOUNTANT AND HAS NOT
BEEN PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
If you did not receive a Ballot in your package of Solicitation
Materials and believe that you should have, please contact the Information
Agent named below at the address or telephone number set forth in Section
XV of this Disclosure Statement entitled "VOTING AND CONFIRMATION OF THE
PLAN."
II. BACKGROUND
A. BUSINESS AND PROPERTIES OF THE DEBTOR
1. Introduction
------------
Salant is a designer, manufacturer, importer and marketer of a broad
line of men's apparel, neckwear and belts and children's sleepwear and
underwear. None of the subsidiaries of Salant are debtors under the
Bankruptcy Code and, absent a specific order of the Bankruptcy Court, are
not subject to the jurisdiction of the Bankruptcy Court. Salant, which was
incorporated in Delaware in 1987, is the successor to a business founded in
1893 and incorporated in New York in 1919. Salant, together with its
wholly-owned subsidiaries (collectively, 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.
2. Men's Apparel
-------------
The men's apparel business is comprised of the Perry Ellis division
and Salant Menswear Group. The Perry Ellis division markets dress shirts,
slacks and sportswear under the Perry Ellis, Portfolio By Perry Ellis and
Perry Ellis America trademarks. Salant Menswear Group is comprised of the
Accessories division, the Bottoms division and all dress shirt businesses
other than those selling products bearing the Perry Ellis trademarks. The
Accessories division markets neckwear, belts and suspenders under a number
of different trademarks, including Portfolio By Perry Ellis, John Henry,
Save The Children and Peanuts. The Bottoms division primarily manufactures
men's and boys' jeans, principally under the Sears, 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.
In order to effectuate the consummation of the Plan, the Debtor
intends to sell or otherwise dispose of all of its businesses, other than
its Perry Ellis business, during the Chapter 11 Case and, following the
Effective Date, intends to operate as a stand-alone Perry Ellis business.
As a result, the Debtor intends to sell or otherwise dispose of the Salant
Menswear Group during the Chapter 11 Case. See "BACKGROUND AND EVENTS
LEADING TO CHAPTER 11 FILING - Sale of Non-Perry Ellis Divisions."
3. Children's Sleepwear and Underwear
----------------------------------
The children's sleepwear and underwear business is conducted by the
Salant Children's Apparel Group (the "Children's Group"). The Children's
Group markets blanket sleepers primarily using a number of well-known
licensed cartoon characters created by, among others, Disney and Warner
Bros. The Children's Group also markets pajamas under the Oshkosh B'gosh
trademark, and sleepwear and underwear under the Joe Boxer trademark. At
the end of the first quarter of 1998, the Company determined not to
continue with its Joe Boxer sportswear line for Fall 1998. Instead,
consistent with the approach that the Joe Boxer Corporation (the Company's
licensor of the Joe Boxer trademark) has taken, the Company focused on its
core business of underwear and sleepwear.
As noted above, in order to effectuate the consummation of the Plan,
the Debtor intends to sell or otherwise dispose of all of its businesses
other than its Perry Ellis businesses, during the Chapter 11 Case and,
following the Effective Date, intends to operate as a stand-alone Perry
Ellis business. As a result, the Debtor intends to sell or otherwise
dispose of the Children's Group during the Chapter 11 Case. See "BACKGROUND
AND EVENTS LEADING TO CHAPTER 11 FILING - Sale of Non-Perry Ellis
Divisions."
4. Retail Outlet Stores
--------------------
The retail outlet stores business of the Company consists of a chain
of factory outlet stores (the "Stores division"), through which it sells
products manufactured by the Company and other apparel manufacturers. In
December 1997, the Company announced the restructuring of the Stores
division, pursuant to which the Company closed all stores other than its
Perry Ellis outlet stores. This resulted in the closing of 42 outlet
stores. At the end of Fiscal 1997, the Company operated 17 Perry Ellis
outlet stores. Commencing with the 1998 fiscal year, as a result of the
restructuring of this division, the retail outlet stores were reported as
part of the men's apparel segment of the Company.
5. Principal Product Lines
-----------------------
The following table sets forth, for fiscal years 1995 through 1997,
the percentage of the Company's total net sales contributed by each
category of product:
Fiscal Year
-----------
1995 1996 1997
---- ---- ----
Men's Apparel 86% 83% 82%
Children's Sleepwear and Underwear 8% 11% 12%
Retail Outlet Stores 6% 6% 6%
In Fiscal 1997, approximately 17% of the Company's net sales were made
to Sears, approximately 11% of the Company's net sales were made to
Federated 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.
6. Trademarks Owned by the Company and Related
Licensing Income
-------------------------------------------
Denton Mills, Inc. ("Denton Mills"), a wholly-owned subsidiary of
Salant, owns the Dr. Denton Trademark. Frost Bros. Enterprises, Inc.
("Frost Bros."), also a wholly-owned subsidiary of Salant, owns the John
Henry trademark. Salant owns the Lady Manhattan, Manhattan and Thomson
trademarks. All of the significant brand names owned by the Company have
been registered or are pending registration with the United States Patent
and Trademark Office.
The Company has sought to capitalize on the consumer recognition of
and interest in its trademarks by licensing various of those trademarks to
others. As of the end of Fiscal 1997, licenses were outstanding to
approximately 18 licensees to make or sell apparel products and accessories
in the United States and to 34 licensees in 30 other countries under the
Manhattan, Lady Manhattan, John Henry, and Vera trademarks, which produced
royalty income of approximately $5.6 million in Fiscal 1997. Products under
license include men's belts, dress shirts, leather accessories, neckwear,
optical frames, outerwear, pajamas, robes, scarves, shorts, slacks, socks,
sportcoats, sunglasses, suspenders and underwear, and women's blouses and
tops, gloves, intimate apparel, lingerie, optical frames, scarves and
shirts.
7. Trademarks Licensed to the Company
----------------------------------
The name Perry Ellis and related trademarks are licensed to Salant
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.
For a further discussion of the effect of the Chapter 11 Case upon the
PEI licensing agreements with Salant, see "Background and Events Leading to
Chapter 11 Filing - The December Agreement" and "Certain Bankruptcy
Considerations - Dependency on Certain Customers and Licensees; Effect of
Plan on Licenses."
8. Design and Manufacturing
------------------------
Products sold by the Company's various divisions are manufactured to
the designs and specifications (including fabric selections) of designers
employed by those divisions. In limited cases, the Company's designers may
receive input from one or more of the Company's licensors on general themes
or color palettes.
During Fiscal 1997, approximately 12% of the products produced by the
Company (measured in units) were manufactured in the United States, with
the balance manufactured in foreign countries. Facilities operated by the
Company accounted for approximately 75% of its domestic-made products and
37% of its foreign-made products; the balance in each case was attributable
to unaffiliated contract manufacturers. In Fiscal 1997, approximately 47%
of the Company's foreign production was manufactured in Mexico,
approximately 18% was manufactured in Guatemala and approximately 12% was
manufactured in the Dominican Republic.
The Company's foreign sourcing operations are subject to various risks
of doing business abroad, including currency fluctuations (although the
predominant currency used is the U.S. dollar), quotas and, in certain parts
of the world, political instability. Although the Company's operations have
not been materially adversely affected by any of such factors to date, any
substantial disruption of its relationships with its foreign suppliers
could adversely affect its operations. Some of the Company's imported
merchandise is subject to United States Customs duties. In addition,
bilateral agreements between the major exporting countries and the United
States impose quotas, which limit the amounts of certain categories of
merchandise that may be imported into the United States. Any material
increase in duty levels, material decrease in quota levels or material
decrease in available quota allocations could adversely affect the
Company's operations.
9. Raw Materials
-------------
The raw materials used in the Company's manufacturing operations
consist principally of finished fabrics made from natural, synthetic and
blended fibers. These fabrics and other materials, such as leathers used in
the manufacture of various accessories, are purchased from a variety of
sources both within and outside the United States. The Company believes
that adequate sources of supply at acceptable price levels are available
for all such materials. Substantially all of the Company's foreign
purchases are denominated in U.S. currency. No single supplier accounted
for more than 10% of the Company's raw material purchases during Fiscal
1997. In Fiscal 1997, the Company entered into forward foreign exchange
contracts, relating to 80% of its projected 1998 Mexican peso needs, to fix
its cost of acquiring pesos and diminish the risk of foreign currency
fluctuation.
10. Employees
---------
As of the end of Fiscal 1997, the Company employed approximately 3,800
persons, of whom 3,200 were engaged in manufacturing and distribution
operations and the remainder were employed in executive, marketing and
sales, product design, engineering and purchasing activities and in the
operation of the Company's retail outlet stores. Substantially all of the
manufacturing employees are covered by collective bargaining agreements
with various unions, which expire between 1998 and 2000. The Company
believes that its relations with its employees are satisfactory.
11. Competition
-----------
The apparel industry in the United States is highly competitive and
characterized by a relatively small number of multi-line manufacturers
(such as the Company) and a larger number of specialty manufacturers. The
Company faces substantial competition in its markets from manufacturers in
both categories. Many of the Company's competitors have greater financial
resources than the Company. The Company seeks to maintain its competitive
position in the markets for its branded products on the basis of the strong
brand recognition associated with those products and, with respect to all
of its products, on the basis of styling, quality, fashion, price and
customer service.
12. Environmental Regulations
-------------------------
Current environmental regulations have not had, and in the opinion of
the Company, assuming the continuation of present conditions, are not
expected to have a material effect on the business, capital expenditures,
earnings or competitive position of the Company.
B. EXECUTIVE OFFICES; FINANCIAL INFORMATION
The Debtor's headquarters are located at 1114 Avenue of the Americas,
New York, New York 10036 and its telephone number is (212) 221-7500.
Financial information regarding the Debtor is set forth in Appendices
II and III hereto, consisting of the Debtor's Form 10-K for Fiscal Year
1997 and the Debtor's Form 10-Q for the third quarter of fiscal year 1998,
which contains unaudited condensed consolidated financial statements for
Salant and its subsidiaries (i) at January 3, 1998 and October 3, 1998,
(ii) for the three months ended October 3, 1998 and September 27, 1997, and
(iii) for the nine months ended October 3, 1998 and September 27, 1997.
C. CAPITAL STRUCTURE OF THE DEBTOR
1. Equity
------
The equity portion of Salant's capital structure is comprised of
50,000,000 authorized shares of stock, consisting of 45,000,000 shares of
common stock, par value $1.00 per share, and 5,000,000 authorized shares of
preferred stock, par value $2.00 per share (the "Series A Preferred
Stock").
Old Common Stock. The Old Common Stock is traded on the New York
Stock Exchange (the "NYSE") under the trading symbol SLT. On December 17,
1998 the NYSE advised the Debtor that trading of the Old Common Stock will
be suspended prior to the opening of the NYSE on December 30, 1998.
The NYSE has advised Salant that this action was being taken in view
of the fact that Salant has fallen below the NYSE's continued listing
criteria relating to: the aggregate market value of all outstanding shares
(less than $12 million), together with average net income after taxes for
the past three years (less than $600,000); net tangible assets available to
common stock (less than $12 million), together with average net income
after taxes for the past three years (less than $600,000); and aggregate
market value of publicly held shares (less than $8 million). The Debtor
will use its best efforts to encourage the development of an alternative
trading market for the Old Common Stock.
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, 1997 and 1998 are set forth below. Salant 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 Debtor.
As of January 3, 1998, Salant 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
Third 5/8 13/32
Second 5/8 9/16
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 December 17, 1998, the day on which the NYSE advised the Debtor
that trading of the Old Common Stock will be suspended prior to the opening
of the NYSE on December 30, 1998, the closing market price of the Old
Common Stock was 1/8 per share.
Series A Preferred Stock. Pursuant to its certificate of
incorporation, Salant is authorized to issue 5,000,000 shares of Series A
Preferred Stock. No shares of Series A Preferred Stock are currently issued
and outstanding and, no shares of Series A Preferred Stock will be issued
pursuant to the Plan.
2. Debt
----
On September 20, 1993, in connection with the 1993 Chapter 11 Plan,
Salant consummated an offering of $111.9 million principal amount of
10-1/2% Senior Secured Notes, due December 31, 1998. The Senior Notes were
distributed pursuant to the 1993 Chapter 11 Plan. No principal payments
have been made on the Senior Notes. None of the subsidiaries of Salant is a
guarantor of the Senior Notes. The Senior Notes were issued pursuant to the
Indenture, dated as of September 20, 1993, with Bankers Trust Company
acting as Indenture Trustee.
Prior to the Filing Date, the Debtor financed its working and other
capital needs through a working capital facility provided by CIT under the
Credit Agreement, which provided the Debtor with working capital financing
in the form of direct borrowings and letters of credit up to an aggregate
of $120 million, subject to an asset-based borrowing formula. As collateral
for borrowings under the Credit Agreement, the Debtor granted to CIT a
security interest in all of the assets of the Debtor. As of the Filing
Date, the Debtor's borrowings under the Credit Agreement totaled
approximately $70,547,401, consisting of $46,893,092 aggregate principal
amount outstanding under the revolving loan facility, including letters of
credit outstanding of approximately $23,654,308.
In connection with the filing of the Chapter 11 Case, CIT agreed to
provide the Debtor with a debtor-in-possession facility, in the form of a
general working capital facility, up to an aggregate principal amount of
$85 million. See Section II.E.4 herein, entitled "THE CIT DIP FACILITY." In
addition, CIT also agreed to provide the Debtor with exit financing, in the
form of a syndicated revolving credit facility, up to an aggregate
principal amount of $85 million, upon consummation of the Plan. See Section
II.E.5 herein, entitled "THE CIT EXIT FACILITY."
D. THE DEBTOR
Salant, which was incorporated in Delaware in 1987, is the successor
to a business founded in 1893 and incorporated in New York in 1919. Salant
is a designer, manufacturer, importer and marketer of a broad line of men's
apparel, neckwear and belts and children's sleepwear and underwear.
Salant's apparel products are sold under internationally recognized owned
and licensed brand names, including PERRY ELLIS, MANHATTAN, JOHN HENRY and
JOE BOXER trademarks, as well as under retailers' private labels. Salant's
collection of PERRY ELLIS menswear, which includes collection sportswear,
casual and dress shirts, slacks, jeans, neckwear and belts, is Salant's
largest product offering. In Fiscal 1997, products sold under the PERRY
ELLIS, PERRY ELLIS PORTFOLIO and PERRY ELLIS AMERICA brand names
represented 44% of the Debtor's total Fiscal 1997 net sales.
Salant's merchandise is sold throughout the United States to leading
retailers, including Federated Department Stores, Inc., May Company,
Dillards Department Stores, Dayton Hudson Corporation, Sears, Roebuck &
Co., Wal-Mart and K-Mart. Salant believes its relationships with a wide
variety of leading retailers, design expertise, low-cost manufacturing and
sourcing relationships allow it to participate in numerous areas of the
men's apparel industry.
As described in more detail above, Salant is currently comprised of
three different businesses: (i) the men's apparel business; (ii) the
children's sleepwear and underwear business; and (iii) the retail outlet
stores business. As noted above, in order to effectuate the consummation of
the Plan, the Debtor intends to sell or otherwise dispose of all of its
businesses other than its Perry Ellis business, during the Chapter 11 Case
and, following the Effective Date, intends to operate as a stand-alone
Perry Ellis business.
E. BACKGROUND AND EVENTS LEADING TO CHAPTER 11 FILING
On February 22, 1985, Salant Corporation, a New York corporation
("Salant NY"), and its two largest subsidiaries at the time, Thomson
Company, Inc. ("Thomson") and Obion Company, Inc. ("Obion"), filed with the
Bankruptcy Court separate voluntary petitions for relief under Chapter 11
of the Bankruptcy Code (Case Nos. 85-B-10229 (PBA) through 85-B-10231
(PBA), inclusive). Salant NY's other United States, Canada and Mexico
subsidiaries at the time did not seek relief under the Bankruptcy Code or
other foreign insolvency laws. 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 and the inactive subsidiaries of Salant NY merged with a
wholly-owned subsidiary of Salant NY. Salant is the surviving corporation
of such merger.
On June 27, 1990, Salant 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 Salant and Denton Mills
(the "1993 Chapter 11 Plan"). The 1993 Chapter 11 Plan was consummated on
September 20, 1993. From that date through January 3, 1998, Salant made
cash payments of $9.7 million, issued $111.9 million of its 10-1/2% Senior
Secured Notes, due December 31, 1998 (the "Senior Notes"), and issued 11.1
million shares of common stock in settlement of claims in the 1990 Chapter
11 Case. Salant has prepetition obligations (estimated, based on its
perception of the claims that ultimately will be allowed) to distribute an
additional $1.8 million in cash and an additional 206,392 shares of common
stock (subject to dilution as a result of the issuance of the New Common
Stock under the Plan) in connection with the remaining claims in the 1990
Chapter 11 Case. Provisions for such distributions were made in the
consolidated financial statements at the time of emergence from 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.
Pursuant to the 1993 Chapter 11 Plan, on September 20, 1993, Salant
issued its Senior Notes. While issuance of the Senior Notes facilitated
Salant's emergence from Chapter 11, Salant, 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 Salant believed
that, based upon projected operating results, Salant would be able to
refinance the Senior Notes prior to their final maturity. The 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, Salant 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 the fiscal year ending
January 3, 1998 ("Fiscal 1997") through the Filing Date, Salant has from
time to time received indications of interest from various third parties to
purchase all or a portion of its businesses or assets. During this period,
Salant'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, Salant, working with its various
investment banking firms, its Board of Directors (the "Board") and
management, analyzed and assessed its financial situation and explored the
availability of capital in both the private and public debt and equity
markets for the purpose of recapitalizing. The investment banking firms
advised Salant that they did not believe that it could recapitalize by use
of the capital markets, in light of Salant's past inconsistent operating
performance, together with the reluctance of investors to invest in apparel
companies suffering from high debt-to-equity ratios.
Salant'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, 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
Salant's concern that absent a restructuring or other extraordinary
transaction, it would be difficult for Salant 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, Salant 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 Salant by eliminating
non-core businesses and correcting operational issues, these actions had a
detrimental effect on Salant's earnings and profitability in Fiscal 1997.
As a result, heading into fiscal year 1998, Salant was concerned that,
in light of its inconsistent operating performance and inability to access
the capital markets to refinance or retire its indebtedness under the
Senior Notes, Salant's ability to maintain the support and confidence of
its trade vendors was at risk. In that connection, Salant, in consultation
with its financial advisors, decided that it needed to immediately address
its 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 Salant's performance during Fiscal 1997,
as of January 3, 1998, Salant failed to meet certain of the financial
covenants (the "CIT Financial Covenants") contained in the Revolving
Credit, Factoring and Security Agreement, dated as of September 20, 1993,
as amended (the "Credit Agreement") between Salant and The CIT
Group/Commercial Services, Inc. ("CIT"), its working capital lender. In
this connection, Salant 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, Salant began discussions with CIT, regarding a
possible restructuring of Salant's indebtedness under the Senior Notes
(including various issues relating to its future ability to meet the CIT
Financial Covenants and the March 1998 interest payment on the Senior
Notes). Salant 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 Salant. Salant also concluded that holders of Senior
Notes (the "Noteholders") and its equity security holders (the
"Stockholders") would best be served by converting the Senior Notes into
equity, thus allowing Salant to eliminate a significant portion of its debt
and substantially improve its balance sheet.
1. The March 2 Letter Agreement
----------------------------
In furtherance of its continuing efforts to deleverage, Salant
approached Magten Asset Management Corp. ("Magten"), 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, 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
Senior Notes held by Magten. In connection with a possible restructuring,
Salant agreed to finance the retention of Hebb & Gitlin, a Professional
Corporation ("H&G"), as special counsel to Magten, and Allen and Company
Incorporated, as financial advisor to H&G. During the months of January and
February 1998, Salant continued to actively discuss a restructuring with
Magten and Apollo Apparel Partners, L.P. ("Apollo"), the beneficial owner
of 5,924,352 shares of the Old Common Stock, representing approximately
39.5% of the issued and outstanding shares. During this period, Salant
continued its negotiations with CIT to ensure its support of a
restructuring. These efforts culminated in the execution of a letter
agreement dated March 2, 1998, as amended by and among Salant, Magten and
Apollo (the "March 2 Letter Agreement").
Pursuant to the March 2 Letter Agreement, the parties agreed, among
other things, to support a restructuring on the following terms: (i) the
entire $104.879 million outstanding aggregate principal amount of, and all
accrued and unpaid interest on, the Senior Notes would be converted into
92.5% of Salant's issued and outstanding new common stock, subject to
dilution, and (ii) the Old Common Stock would be converted into 7.5% of
Salant's issued and outstanding new common stock, subject to dilution;
additionally, Stockholders would receive seven year warrants to purchase up
to 10% of Salant's issued and outstanding new common stock, on a fully
diluted basis. CIT agreed to support Salant's restructuring efforts under
the March 2 Letter Agreement. In furtherance of Salant's restructuring
effort, in order to facilitate the consummation of the terms of the March 2
Letter Agreement, on April 22, 1998, Salant filed its Registration
Statement on Form S-4 (the "Registration Statement") with the Securities
and Exchange Commission (the "Commission") to register the securities to be
issued in accordance with the March 2 Letter Agreement. Thereafter, Salant
filed amendments to the Registration Statement on May 18, 1998, May 26,
1998 and August 31, 1998.
In furtherance of the March 2 Letter Agreement, during the period of
March 1998 thorough the Filing Date, Salant obtained various extensions and
forbearance agreements from Magten and CIT related to Salant's failure to
pay interest due on the Senior Notes that was due and payable on March 2,
1998 and August 31, 1998.
After Salant entered into the March 2 Letter Agreement and while it
continued to pursue implementation of such agreement, Salant received
various proposals from third parties to purchase all or a part of Salant's
businesses or assets which if consummated would have provided significantly
more value to Noteholders and Stockholders than would otherwise have been
achieved under the March 2 Letter Agreement.
Salant engaged in intense negotiations with certain of such parties
regarding a combination transaction. However, by reason of certain market
changes which, among other things, caused a reduction in the value of
certain of Salant's business units, no such transaction was able to be
consummated. Moreover, Salant, together with Magten and Apollo, determined
to review their continued pursuit of the transactions contemplated by the
March 2 Letter Agreement in light of, among other things, the significant
additional time required to consummate such transactions and the occurrence
of certain events (including, but not limited to, a reduction in the value
of certain of Salant's business units) that caused various assumptions upon
which the March 2 Letter Agreement was premised to no longer be true.
2. The Plan Negotiations
---------------------
Thereafter, in contemplation of filing the Chapter 11 Case, Salant,
Magten and Apollo agreed to pursue a restructuring of Salant pursuant to
which all of the Senior Notes would be converted to equity of Reorganized
Salant and that provided for Salant to continue to operate after the
restructuring as a stand-alone Perry Ellis business. The terms for Salant's
restructuring agreed to among the parties prior to the Filing Date form the
basis for the Plan. Under the Plan, so long as the PEI Event (as described
below) has occurred on or prior to the Confirmation Date, (i) the entire
$104.879 million outstanding aggregate principal amount of, and all accrued
and unpaid interest on, the Senior Notes would be converted into 95% of
Salant's issued and outstanding new common stock, subject to dilution for
shares issued under the Stock Award and Incentive Plan and the Restricted
Stock Plan, and (ii) the Old Common Stock would be converted into 5% of
Salant's issued and outstanding new common stock, subject to dilution for
shares issued under the Stock Award and Incentive Plan and the Restricted
Stock Plan.
The parties further agreed that if either of the following (the "PEI
Event") does not occur on or prior to the Confirmation Date: (i) the
issuance of a Final Order of the Bankruptcy Court approving the assumption
of the PEI Licenses by the Debtor and/or Reorganized Salant, as the case
may be, and determining that the Debtor's reorganization under the Plan
with the treatment provided to Senior Note Claims (Class 3) under Section
6.3(a)(i) of the Plan and the treatment provided to Old Common Stock
Interests (Class 7) under Section 6.7(a)(i) of the Plan, and the
confirmation and consummation of the Plan (including, but not limited to,
the provisions providing such treatment), does not and will not give rise
to any rights of PEI under the PEI Licenses based on any "change of
control" provision in the PEI Licenses (as that term is defined in the PEI
Licenses) or any similar provision, and does not and will not for any
reason result in any forfeiture, termination or modification of any rights
of Salant existing under the PEI Licenses immediately prior to the Filing
Date, or (ii) the execution of an agreement or stipulation by and between
PEI and the Debtor and/or Reorganized Salant, as the case may be, to the
same effect; then, pursuant to the Plan, (A) Noteholders will instead
receive 40% of Salant's issued and outstanding new common stock, subject to
dilution for shares issued under the Stock Award and Incentive Plan and the
Restricted Stock Plan, plus pay-in-kind notes (the "New PIK Senior Notes")
to be issued by Reorganized Salant in the aggregate principal amount of $92
million, with a maturity date on the eighth anniversary, the Effective Date
and bearing interest, payable semi-annually in arrears, at the rate of (i)
15% per annum payable in the form of additional New PIK Senior Notes, or
(ii) at the sole option of Reorganized Salant, 12% per annum payable in
Cash, and (B) the holders of the Old Common Stock will instead receive 60%
of Salant's issued and outstanding new common stock, subject to dilution
for shares issued under the Stock Award and Incentive Plan and the
Restricted Stock Plan.
As described in more detail below (see "The CIT DIP Facility" and the
"CIT Exit Facility"), CIT has agreed to support Salant's restructuring
efforts under the Plan.
In connection with the negotiations leading up to the formulation of
the Plan, Salant, Magten and Apollo agreed that the enterprise value of the
company was less than the amount of Salant's outstanding indebtedness and,
therefore, no value remained for the Stockholders. However, to reach a
consensual agreement and avoid the costs associated with a protracted
litigation, the parties agreed to the terms of the Plan summarized above.
3. The Waiver and Forbearance Under the CIT Credit Agreement and
Commitment for New Credit Agreement
-------------------------------------------------------------
As noted above, CIT agreed to support Salant's restructuring efforts
under the March 2 Letter Agreement and, in that connection, during the
period from March 1998 through the Filing Date, CIT entered into various
waivers and forbearance agreements with Salant in respect of its working
capital facility. In addition, CIT committed to provide a new working
capital facility to Salant upon completion of the restructuring
contemplated by the March 2 Letter Agreement.
As noted above, thereafter Salant, together with Magten and Apollo,
determined to review their continued pursuit of the transactions
contemplated by the March 2 Letter Agreement. In that connection, and in
contemplation of filing the Chapter 11 Case and pursuing the restructuring
of Salant pursuant to the Plan, CIT agreed to provide to Salant a
debtor-in-possession facility (the "CIT DIP Facility") in the Chapter 11
Case and an exit facility (the "CIT Exit Facility") upon consummation of
Salant's restructuring. The terms and conditions of the CIT DIP Facility
and Exit Facility are described below.
4. The CIT DIP Facility
--------------------
As noted above, upon commencement of the Chapter 11 Case, the Debtor
filed a motion seeking the authority of the Bankruptcy Court to enter into
a revolving credit facility with CIT pursuant to and in accordance with the
terms of the Ratification and Amendment Agreement, dated as of December __,
1998 (the "Amendment") which, together with related documents are referred
to herein as the ("CIT DIP Facility"), effective as of the Filing Date,
which would replace the Debtor's existing working capital facility under
the Credit Agreement. On December __, 1998, the Bankruptcy Court approved
the CIT DIP Facility on an interim basis. After a hearing before the
Bankruptcy Court held on January __, 1998 to consider the final approval of
the CIT DIP Facility, the Bankruptcy Court approved the CIT DIP Facility on
a final basis.
The CIT DIP Facility provides for a general working capital facility,
in the form of direct borrowings and letters of credit, up to $85 million
subject to an asset-based borrowing formula. The CIT DIP Facility consists
of an $85 million revolving credit facility, with a $30 million letter of
credit subfacility. As collateral for borrowings under the CIT DIP
Facility, the Debtor granted to CIT a first priority lien on and security
interest in substantially all of the Debtor's assets and those of its
subsidiaries, with superpriority administrative claim status over any and
all administrative expenses in the Debtor's Chapter 11 Case, subject to a
$2,000,000 carve-out for professional fees and the fees of the United
States Trustee. The CIT DIP Facility has an initial term of 150 days,
subject to renewal, in CIT's discretion, for an additional 90 day period
and, thereafter, for an additional 120 day period.
The CIT DIP Facility also provides, among other things, that the
Debtor will be charged an interest rate on direct borrowings of 1.0% in
excess of the Reference Rate (as defined in the Credit Agreement). If the
Debtor does not consummate the Plan by the end of the initial 150 day term,
and CIT elects to renew the CIT DIP Facility for an additional 90 day
period, as described above, pursuant to the CIT DIP Facility, the Debtor is
required to pay CIT the amount of $250,000 and the interest rate under the
CIT DIP Facility will be increased to 1.25% in excess of the Reference
Rate. If the Debtor does not consummate the Plan by the end of the first 90
day renewal under the CIT DIP Facility, and CIT elects to renew the CIT DIP
Facility for an additional 120 day period, as described above, pursuant to
the CIT DIP Facility, the Debtor is required to pay CIT the amount of
$250,000 and the interest rate under the CIT DIP Facility will be increased
to 1.75% in excess of the Reference Rate. CIT may, in its sole discretion,
make loans to the Debtor in excess of the borrowing formula but within the
$85,000,000 limit of the revolving credit facility. In addition, the CIT
DIP Facility provides that the accounts of the Debtor's non-Perry Ellis
business units will be factored by CIT beginning January 1, 1999 on a
non-notification basis for the first 150 days and on a notification basis
thereafter.
Pursuant to the terms of the CIT DIP Facility, the Debtor will pay the
following fees: (i) a documentary letter of credit fee of 1/8 of 1.0% on
issuance and 1/8 of 1/0% on negotiation; (ii) a standby letter of credit
fee of 1% per annum plus bank charges; (iii) a factoring commission of
.75%; (iv) a collateral management fee of $4,167 per month; and (v) a field
exam fee of $750 per day, plus out-of-pocket expenses. In addition, the
Debtor will be liable for all of CIT's costs and expenses incurred in
connection with the DIP Facility, including attorneys' fees and expenses.
5. The CIT Exit Facility
---------------------
As noted above, upon confirmation and consummation of the Plan, the
Debtor intends to enter into a syndicated revolving credit facility (the
"CIT Exit Facility") with CIT pursuant to and in accordance with the terms
of a commitment letter dated December 7, 1998 (the "CIT Commitment
Letter"), effective as of the Effective Date of the Plan, which will
replace the CIT DIP Facility described above. A copy of the CIT Commitment
Letter is attached to this Disclosure Statement at Appendix IV.
The CIT Exit Facility will provide for a general working capital
facility, in the form of direct borrowings and letters of credit, up to $85
million subject to an asset-based borrowing formula. The CIT Exit Facility
will consist of a $85 million revolving credit facility, with a $30 million
letter of credit subfacility. As collateral for borrowings under the CIT
Exit Facility, Reorganized Salant will grant to CIT and a syndicate of
lenders to be arranged by CIT (the "Lenders") a first priority lien on and
security interest in substantially all of the assets of Reorganized Salant.
The CIT Exit Facility will have an initial term commencing on the Effective
Date and will expire three years from the Effective Date.
The CIT Exit Facility will also provide, among other things, that (i)
Reorganized Salant will be charged an interest rate on direct borrowings of
.50% in excess of the Reference Rate; provided, however, that if
Reorganized Salant meets certain mutually agreed upon financial tests based
upon opening financial statements, then the interest rate shall be .25% in
excess of the Reference Rate or 2.25% in excess of LIBOR (as defined in the
Credit Agreement), and (ii) the Lenders may, in their sole discretion, make
loans to Reorganized Salant in excess of the borrowing formula but within
the $85,000,000 limit of the revolving credit facility.
Pursuant to the CIT Exit Facility, Reorganized Salant will pay the
following fees: (i) a documentary letter of credit fee of 1/8 of 1.0% on
issuance and 1/8 of 1.0% on negotiation; (ii) a standby letter of credit
fee of 1.0% per annum plus bank charges; (iii) a commitment fee of
$325,000; (iv) an unused line fee of .25%; (v) an agency fee of $100,000
(only for the second and third years of the term of the CIT Exit Facility);
(vi) a collateral management fee of $8,333 per month; and (vii) a field
exam fee of $750 per day plus out-of-pocket expenses. In addition,
Reorganized Salant will be liable for all of the Lenders' costs and
expenses incurred in connection with the Facility, including attorneys'
fees and expenses, whether or not the Lenders and Reorganized Salant close
upon the CIT Exit Facility.
The execution of the CIT Exit Facility is subject to various
conditions, including, but not limited to, satisfaction of the Plan
requirements and approval of the financing facility by CIT's Executive
Credit Facility. Moreover, Salant is required to consummate the CIT Exit
Facility no later than June 30, 1999. There is no assurance that such
conditions will be satisfied or that the CIT Exit Facility will be
executed.
6. Sale of Non-Perry Ellis Divisions
---------------------------------
In order to effectuate the consummation of the Plan, the Debtor
intends to sell or otherwise dispose of all of its businesses, other than
its Perry Ellis business, during the Chapter 11 Case and, following the
Effective Date, intends to operate as a stand-alone Perry Ellis Business.
In that connection, if the Debtor is able to successfully market and
negotiate the sale of its non-Perry Ellis businesses, the Debtor expects to
request that the Bankruptcy Court establish bidding procedures with respect
to such sales and, thereafter approve such sales pursuant to section 363 of
the Bankruptcy Code. As a result, during the Chapter 11 Case, the Debtor
intends to sell or otherwise dispose of its two non-Perry Ellis businesses,
the Children's Group and the Salant Menswear Group, as well as certain
related assets owned by non-debtors wholly owned subsidiaries of Salant.
Under the CIT DIP Facility, the proceeds from the sale of these businesses
will be paid to CIT and will reduce the outstanding indebtedness under such
facility. Upon consummation of the Plan, Reorganized Salant will only
consist of the operations and business related to the manufacture, design,
import and marketing of PERRY ELLIS products and the operation of 20 PERRY
ELLIS outlet stores.
(a) SALE OF THE SALANT'S NON-PERRY ELLIS DRESS SHIRT BUSINESS
Pursuant to a Purchase and Sale Agreement, dated as of December __,
1998, (the "Salant Dress Shirt Sale Agreement"), Salant, Frost Bros., and
Maquiladora Sur, S.A. de C.V., a Mexican corporation and wholly-owned
subsidiary of Salant ("Maquiladora"), agreed to sell to Supreme
International Corporation ("Supreme"), all of Salant's right to, title and
interest in, certain assets of Salant's non-Perry Ellis dress shirt
business. These assets consist of, among other things, (i) all leasehold
interests pertaining to Maquiladora's dress shirt facility located in Valle
Hermosa, Mexico, (ii) all personal property located at the Valle Hermosa
facility and the Debter's facility in Andalusia, Alabama; (iii) all JOHN
HENRY and MANHATTAN dress shirt inventory including all raw material,
work-in-progress, and finished goods and (iv) the intellectual property
relating to JOHN HENRY, MANHATTAN and LADY MANHATTAN names. As
consideration for the purchase of these assets, pursuant to the Salant
Dress Shirt Sale Agreement, Supreme has agreed, among other things, to pay
the following amounts: (i) $1 million will be deposited in escrow as a good
faith deposit, (ii) the Net Book Value (as defined in the Salant Dress
Shirt Sale Agreement) for the purchased inventory and (iii) $17 million,
less the $1 million good faith deposit for all transferred assets other
than the inventory.
(b) SALE OF SALANT'S OTHER NON-PERRY ELLIS BUSINESSES
Salant has begun the process of marketing for sale its Children's
Group and the Bottoms Division of its Menswear Group. In that connection,
prior to the Filing Date, Salant has had significant negotiations with at
least one potential purchaser in respect of a sale of the Children's Group.
In addition, Salant intends to begin marketing for sale the Accessories
division of its Menswear Group.
III. EFFECT OF CONSUMMATION OF THE PLAN
If confirmed, the Plan will implement a restructuring of the Debtor's
businesses by providing for, among other things (i) the issuance of New
Common Stock, together with the New PIK Senior Notes if the PEI Event does
not occur on or prior to the Effective Date, to the Noteholders in exchange
for Senior Notes, and (ii) the issuance of New Common Stock to Stockholders
in exchange for Old Common Stock. The Plan also provides that the PBGC
Claims will receive treatment in accordance with the terms and conditions
of the PBGC Agreement.
If the Plan is confirmed, all Holders of Senior Note Claims, PBGC
Claims and Old Common Stock Interests will be bound by the terms of the
Plan, whether or not they have voted to accept the Plan in accordance with
the Plan and the Voting Instructions. To be counted, Ballots and Master
Ballots to vote to accept or reject the Plan described herein must be
submitted in accordance with the voting instructions accompanying the
Ballots and Master Ballots (the "Voting Instructions"). See Section XV
herein, entitled "VOTING AND CONFIRMATION OF THE PLAN."
A. DILUTION OF EQUITY INTERESTS
Under the Plan, each Noteholder of record will be entitled to receive,
in full and final satisfaction of such Holder's Allowed Class 3 Senior Note
Claim, (i) if the PEI Event occurs on or prior to the Effective Date,
90.5805738 shares of New Common Stock for each $1,000 principal face amount
of Senior Notes held by such Holder, or (ii) if the PEI Event does not
occur on or prior to the Effective Date, 38.1391890 shares of New Common
Stock for each $1,000 principal face amount of Senior Notes held by such
Holder, thus in either case enabling such Holder to participate in the
economic results and any future growth of Reorganized Salant. The issuance
to Noteholders of shares of New Common Stock upon consummation of the Plan
will result in significant dilution of the equity interests of the existing
holders of Old Common Stock. Following consummation of the Plan, (i) if the
PEI Event occurs on or prior to the Effective Date, the 9,500,000 shares of
New Common Stock issued directly to Holders of Allowed Class 3 Senior Note
Claims pursuant to the Plan will represent 95% of the total issued and
outstanding shares of New Common Stock as of the Effective Date, and (ii)
if the PEI Event does not occur on or prior to the Effective Date, the
4,000,000 shares of New Common Stock issued directly to the Noteholders
pursuant to the Plan will represent 40% of the total issued and outstanding
shares of New Common Stock as of the Effective Date (in each case, subject
to dilution for shares of New Common Stock issued under the Stock Award and
Incentive Plan and the Restricted Stock Plan). See Section V.D. herein,
entitled "SUMMARY OF THE PLAN -- SECURITIES TO BE ISSUED AND TRANSFERRED
UNDER THE PLAN."
Under the Plan, each Holder of a Class 7 Old Common Stock Interest
will be entitled to receive, in full and final satisfaction of such
Holder's Allowed Class 7 Old Common Stock Interest, for each share of Old
Common Stock held by such Holder, such Holders' Pro Rata Share of the
following: (i) if the PEI Event occurs on or prior to the Effective Date,
500,000 shares of New Common Stock, or (ii) if the PEI Event does not occur
on or prior to the Effective Date, 6,000,000 shares of New Common Stock. As
of November 13, 1998, there were 14,984,608 shares of Old Common Stock
issued and outstanding. Assuming consummation of the Plan, the Stockholders
will receive, in exchange for their shares of Old Common Stock, an
aggregate of (i) in the event that the PEI Event occurs, 500,000 shares of
New Common Stock, constituting 5% of the New Common Stock issued and
outstanding immediately after the Effective Date, or (ii) in the event that
the PEI Event does not occur, 6,000,000 shares of New Common Stock
constituting 60% of the New Common Stock issued and outstanding immediately
after the Effective Date (in each case, subject to dilution for shares of
New Common Stock issued under the Stock Award and Incentive Plan and the
Restricted Stock Plan). As a result, upon consummation of the Plan, the
equity interests of the Stockholders represented by the Old Common Stock,
as a percentage of the total number of issued and outstanding shares of the
New Common Stock, will be significantly diluted from 100% of the Old Common
Stock to 5% or 60%, as the case may be, 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 Restricted Stock Plan).
B. PROVISIONS FOR EMPLOYEES
Salant intends for salaries, commissions, reimbursable employee
expenses and wages, as the case may be, workers' compensation, accrued paid
vacation, health-related benefits, severance benefits and similar employee
benefits to be unaffected by the Chapter 11 Case. Employee benefit claims
that accrue prior to the Filing Date will receive unimpaired treatment
under the terms of the Plan. See Section V herein, entitled "SUMMARY OF THE
PLAN."
In order to ensure the continuity of its work force and to further
accommodate the unimpaired treatment of employee benefits, Salant sought
authorization from the Bankruptcy Court, immediately upon commencement of
the Chapter 11 Case (i) to pay accrued and unpaid prepetition wages,
commissions, salaries, reimbursable employee expenses, workers'
compensation and employee benefits (such as vacation and sick day
commitments and medical insurance) and applicable taxes, tax deposits and
processing fees in connection therewith and (ii) to direct Salant's banks
to honor outstanding payroll and expense checks. Salant also sought
authorization from the Bankruptcy Court to reissue, if necessary,
post-petition checks to fulfill its obligations to its employees. The
Bankruptcy Court has entered an order approving the above-described
treatment of employee payroll and benefits on [ , 1998]. Employee claims
and benefits not paid or honored, as the case may be, prior to the
consummation of the Plan will be paid or honored upon consummation of the
Plan or as soon thereafter as such payment or other obligation becomes due
or performable. The Debtor also intends, pursuant to the terms and
conditions of the Plan, to leave unaltered all other legal, equitable and
contractual rights of employees under Salant's employment and severance
policies, compensation and benefit plans and all other agreements,
contracts and programs applicable to Salant's employees, other than any
equity or equity-based incentive plans. See Section V herein, entitled
"SUMMARY OF THE PLAN."
IV. THE CHAPTER 11 CASE
On the Filing Date, the Debtor commenced a voluntary Chapter 11 Case.
Since the Filing Date, the Debtor has continued to operate as a
Debtor-in-Possession subject to the supervision of the Bankruptcy Court in
accordance with the Bankruptcy Code. The Debtor is authorized to operate in
the ordinary course of business. Transactions out of the ordinary course of
business have required Bankruptcy Court approval. In addition, the
Bankruptcy Court has supervised the Debtor's employment of attorneys,
accountants and other professionals.
An immediate effect of the filing of the bankruptcy petitions was the
imposition of the automatic stay under the Bankruptcy Code which, with
limited exceptions, enjoined the commencement or continuation of all
collection efforts by creditors, the enforcement of liens against the
Debtor and litigation against the Debtor. This injunction remains in
effect, unless modified or lifted by order of the Bankruptcy Court, until
consummation of a plan of reorganization.
A. TIMETABLE FOR THE CHAPTER 11 CASE
Following the Filing Date, the Debtor 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 Debtor filed this Disclosure Statement and the
Plan and sought an order that the Disclosure Statement hearing be held as
soon as possible. The Bankruptcy Court has scheduled the Disclosure
Statement hearing for January __, 1998 at __:__ __.m. The deadline to
object to approval of the Disclosure Statement is January __, 1998 at 5:00.
The Debtor anticipates that the hearing on confirmation of the Plan will
occur on or about 30 days after Disclosure Statement hearing. The Debtor
anticipates that at least 25 days' notice of the Confirmation Hearing and
of the time for filing objections to confirmation of the Plan will be given
to all creditors and interest holders.
Assuming that the Plan is confirmed at the initial Confirmation
Hearing, the 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 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 the 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 Debtor would emerge from the
Chapter 11 Case within 90 days after the Filing Date. There can be no
assurance, however, that this projected timetable will be achieved.
B. COMMITTEES
To facilitate negotiations and otherwise provide for a unified and
efficient representation of unsecured creditors and equity interest holders
with similar rights and interests, the United States Trustee will generally
appoint one or more 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 prenegotiated nature of the 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 Case, including
the confirmation of a plan of reorganization and, additionally, would be
entitled to consult with the Debtor concerning the administration of the
Chapter 11 Case and perform such other functions and services that would
further the interests of those creditors or interest holders they
represent.
C. ACTIONS TAKEN UPON COMMENCEMENT OF CASE
The Debtor does not expect the Chapter 11 Case to be protracted. To
expedite its emergence from Chapter 11 and to facilitate the administration
of the Chapter 11 Case, the Debtor sought the relief detailed below, among
other relief, from the Bankruptcy Court on the Filing Date.
1. Applications to Retain Professionals
------------------------------------
On the Filing Date, the Debtor filed applications to retain the
reorganization professionals to assist and advise the Debtor in connection
with administration of the Chapter 11 Case, including, among others, (i)
Fried, Frank, Harris, Shriver & Jacobson, as counsel to the Debtor, (ii)
Conway, Del Genio, Gries & Co., LLP, as financial advisors to the Debtor,
and (iii) Deloitte & Touche, LLP, as accountants for the Debtor
(collectively, the "Professionals"). The Bankruptcy Court approved the
retention and employment of the Professionals by separate orders dated
___________.
2. Motion to Extend Time to File Schedules and Statement of
Financial Affairs
--------------------------------------------------------
Section 521 of the Bankruptcy Code and Bankruptcy Rule 1007 direct
that a debtor must prepare and file certain schedules of assets and
liabilities, current income and current expenditures, 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 extend the
time for a debtor to file the Schedules and the Statement pursuant to
Bankruptcy Rule 1007. On the Filing Date, the Debtor filed an application
requesting that the Bankruptcy Court grant the Debtor an extension of the
time to file the Schedules and the Statement until 45 days after the Filing
Date. The Bankruptcy Court granted an extension of time to file the
Schedules and the Statement until __________, pursuant to an order of the
Court dated _______. Accordingly, the Debtor filed its Schedules and the
Statement with the Bankruptcy Court on ___________.
3. Motion to Maintain Prepetition Bank Accounts, Use Existing
Business Forms, Stationary and Checks
----------------------------------------------------------
Because the Debtor expects the Chapter 11 Case to be pending for less
than three months, and because of the administrative hardship that any
operating changes would impose upon it, the Debtor sought authority on the
Filing Date to continue using its existing bank accounts, and to use
existing business forms, stationary and checks. Absent the Bankruptcy
Court's authorization of the continued use of its current bank accounts,
business forms, stationary and checks, the Debtor's normal business
activities would be disrupted, to the detriment of the Debtor's estate and
its creditors. The Bankruptcy Court approved the Debtor's request, thereby
minimizing the disruption to the Debtor's business while in Chapter 11 and
potentially expediting the Debtor's emergence from Chapter 11, pursuant to
an order dated ____________.
4. Motion for Authority to Pay Prepetition Employee Wages
Commissions, Salaries, Reimbursable Employee Expenses, Worker's
Compensation and Associated Benefits
---------------------------------------------------------------
In light of the Debtor's belief that any delay in paying prepetition
compensation or benefits to its employees would destroy its relationships
with employees and irreparably harm employee morale at a time when the
dedication, confidence and cooperation of such employees are most critical,
the Debtor sought authority to pay, among other things, compensation,
reimbursable expenses, workers' compensation and benefits to its employees
which were accrued but unpaid as of the Filing Date. Additionally, the
Debtor sought an order directing its banks to honor checks drawn
prepetition in connection with its employees. The Debtor further sought
authority to reissue, if necessary, post-petition checks to its employees.
Pursuant to an order dated _________, the Bankruptcy Court approved the
Debtor's payment of prepetition compensation and benefits to their
employees.
5. Chapter 11 Financing
--------------------
In order to ensure that the Debtor's business operations would
continue without interruption during the Chapter 11 Case, the Debtor sought
Bankruptcy Court approval to enter into a debtor-in-possession financing
arrangement with CIT. See Section II.E.4 above entitled "THE CIT DIP
FACILITY," for a description of the terms and conditions of the financing
arrangement. The Bankruptcy Court entered an interim order approving the
CIT DIP Facility on __________. A final order approving the terms and
conditions of the CIT DIP Facility was entered on __________.
6. Motion Restraining and Enjoining Utilities from Discontinuing
Service
-------------------------------------------------------------
In connection with its ongoing operations, the Debtor obtains
electricity, natural gas, water, telephone services, trash removal and
other utility services from various utility companies. The Debtor sought an
order directing the utility companies not to refuse or discontinue service.
If services were disrupted, even for a brief period, irreparable harm could
have been caused to the Debtor's efforts to restructure. The Bankruptcy
Court entered an order requiring the utilities to continue service on
__________.
7. Motion to Pay Custom Duties, Broker Charges, Shipping Charges and
Related Possessory Liens
-----------------------------------------------------------------
It is essential to the Debtor'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 Debtor and its customers at a critical point in its
restructuring pursuant to the Plan. The Debtor filed several motions on the
Filing Date to forestall any break in the flow of goods by requesting that
it be allowed to pay the appropriate charges described herein. The
Bankruptcy Court entered separate orders approving the requested relief on
________.
8. Motion for Authority to Pay Sales and Use Taxes
-----------------------------------------------
In connection with the Debtor's normal operations of its 20 PERRY
ELLIS outlet stores, the Debtor collects sales and use taxes from its
customers on behalf of various state taxing authorities. Salant pays the
taxes collected periodically to the appropriate taxing authority. As of the
Filing Date, the Debtor held amounts owed to the taxing authorities but not
yet scheduled for payment, thus, the Debtor sought authority to pay these
funds to the appropriate taxing authority. Pursuant to an order dated
__________, the Bankruptcy Court approved the Debtor's payment of the taxes
to the appropriate taxing authority.
9. Deadline for Filing Proofs of Claim
-----------------------------------
The Bankruptcy Court entered an order on _________ requiring all
creditors to file proofs of claim in the Bankruptcy Court by _________ (the
"Bar Date"). Creditors whose obligations are listed as undisputed,
liquidated, noncontingent liabilities on the Debtor's schedules of assets
and liabilities are not required to file proofs of claim.
V. SUMMARY OF THE PLAN
A. BRIEF EXPLANATION OF CHAPTER 11
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under Chapter 11 of the Bankruptcy Code, a debtor is
authorized to reorganize its business for the benefit of itself and its
creditors and stockholders. In addition to permitting rehabilitation of the
debtor, another goal of Chapter 11 is to promote equality of treatment of
creditors and equity security holders, respectively, who hold substantially
similar claims or interests with respect to the distribution of the value
of a debtor's assets. In furtherance of these two goals, upon the filing of
a petition for relief under Chapter 11, section 362 of the Bankruptcy Code
generally provides for an automatic stay of substantially all acts and
proceedings against a 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
Plan. The following summaries of the material provisions of the Plan do not
purport to be complete and are qualified in their entirety by reference to
all the provisions of the Plan, including all exhibits thereto, all
documents described therein and the definitions therein of certain terms
used below.
B. GENERAL INFORMATION CONCERNING TREATMENT OF CLAIMS AND INTERESTS
The Plan provides (i) that each Holder of an Allowed Administrative
Expense, Allowed Priority Tax Claim, Allowed Priority Claim, or the Allowed
CIT Claim will receive payment in full or other treatment as agreed upon by
such Holder and the Debtor, and (ii) that the rights of each Holder of an
Allowed Miscellaneous Secured Claim or Allowed General Unsecured Claim will
remain unaltered or that such Claim will be reinstated or otherwise treated
as agreed upon by such Holder and the Debtor. The Plan provides that the
PBGC in respect of the Allowed PBGC Claims will receive treatment in
accordance with an agreement to be negotiated between the Debtor and the
PBGC. In the event that the PEI Event occurs, the Plan provides that
Holders of Allowed Senior Note Claims will receive New Common Stock
pursuant to Section 6.3(a)(i) of the Plan in exchange for their Allowed
Senior Note Claims and that Holders of Allowed Old Common Stock Interests,
which will be canceled pursuant to the Plan, will also receive New Common
Stock pursuant to Section 6.7(a)(i) of the Plan on account of their Allowed
Old Common Stock Interests. In the event that the PEI Event does not occur
prior to the Effective Date, the Holders of Allowed Senior Note Claims will
receive the treatment provided under Section 6.3(a)(ii) of the Plan and the
Holders of Old Common Stock Interests will receive the treatment provided
under Section 6.7(a)(ii) of the Plan. See "CLASSIFICATION AND TREATMENT OF
CLAIMS AND INTERESTS" in Section V.C. Holders of Other Interests will
receive no distribution under the Plan. See "SECURITIES TO BE ISSUED AND
TRANSFERRED UNDER THE PLAN" in Section V.D. for a description of the New
Common Stock. The Debtor 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 Debtor to complete a financial restructuring in the
manner which will maximize its enterprise value, the Debtor is soliciting
acceptances of the Plan from Holders of Senior Notes Claims, the PBGC
Claims and Old Common Stock Interests. Holders of Other Interests do not
receive or retain any property under the Plan. Under section 1126(g) of the
Bankruptcy Code, the Holders of Other Interests are deemed not to have
accepted the Plan, and the acceptance of such Holders will not be
solicited. The Debtor presently intends to seek to consummate the Plan and
to cause the Effective Date to occur as soon as practicable. In any event,
pursuant to the CIT Commitment Letter, the Debtor is required to emerge
from Chapter 11 no later than June 30, 1999 in order to be able to
consummate the CIT Exit Facility. 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 Plan, including matters
that are expected to affect the timing of the receipt of distributions by
Holders of Claims and Interests in certain Classes and that could affect
the amount of distributions ultimately received by such Holders, are
described in "PROVISIONS COVERING DISTRIBUTIONS" in Section V.H.
Management of the Debtor believes that the 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 Plan. Many of
these tests are designed to protect the interests of Holders of Claims or
Interests who do not vote to accept the Plan, but who will be bound by the
provisions of the Plan if it is confirmed by the Bankruptcy Court. The
"cramdown" provisions of section 1129(b) of the Bankruptcy Code, for
example, permit confirmation of a Chapter 11 plan of reorganization in
certain circumstances even if the plan is not accepted by all impaired
classes of claims and interests. See Section XV herein, entitled "VOTING
AND CONFIRMATION OF THE PLAN."
The Debtor will request that the Bankruptcy Court confirm the Plan
under Bankruptcy Code section 1129(b). Section 1129(b) permits confirmation
of the Plan despite rejection by one or more impaired classes if the
Bankruptcy Court finds that the Plan "does not discriminate unfairly" and
is "fair and equitable" as to the rejecting class or classes. Because Class
8 is deemed not to have accepted the Plan, the Debtor will request that the
Bankruptcy Court find that the Plan is fair and equitable and does not
discriminate unfairly as to Class 8 (and any other class that fails to
accept the Plan). For a more detailed description of the requirements for
acceptance of the Plan and of the criteria for confirmation notwithstanding
rejection by certain classes, see Section XIII herein, entitled
"REQUIREMENTS FOR CONFIRMATION OF PLAN."
C. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS
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 property of a value that is not less than
the value 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 the 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 Plan divides
Claims and Interests into eight 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 Debtor also is required,
as discussed above, under section 1122 of the Bankruptcy Code, to classify
Claims against and Interests in the Debtor into Classes that contain Claims
and Interests that are substantially similar to the other Claims and
Interests in such Classes. The Debtor believes that the Plan has classified
all Claims and Interests in compliance with the provisions of section 1122
of the Bankruptcy Code, but 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 Plan to be confirmed. In such event, the Debtor intends, to the
extent permitted by the Bankruptcy Court and the Plan, to make such
reasonable modifications of the classifications under the Plan to permit
confirmation and to use the 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 Plan, by
changing the composition of such Class and the vote required of that Class
for approval of the Plan. Furthermore, a reclassification of a Claim or
Interest after solicitation of acceptances of the Plan could necessitate a
resolicitation of acceptances of the Plan.
The classification of Claims and Interests and the nature of
distributions to Holders of Impaired Claims or Impaired Interests in each
Class are summarized below. See "SECURITIES TO BE ISSUED AND TRANSFERRED
UNDER THE PLAN" in Section V.D. for a description of the manner in which
the number of shares of New Common Stock will be determined and Section IX
herein, entitled "RISK FACTORS," for a discussion of various other factors
that could materially affect the value of the New Common Stock distributed
pursuant to the Plan.
1. Unclassified Claims
-------------------
The Bankruptcy Code does not require classification of certain
priority claims against a debtor. In this Chapter 11 Case, these
unclassified claims include Administrative Expenses and Priority Tax
Claims. All distributions referred to below that are scheduled for the
Effective Date will be made on the Effective Date or as soon as practicable
thereafter.
(a) ADMINISTRATIVE EXPENSES
Administrative Expenses are the actual and necessary costs and
expenses of the Debtor's Chapter 11 Case that are allowed under sections
503(b) and 507 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 Debtor 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 Debtor'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 Debtor
or liabilities arising under loans or advances to the Debtor after the
Filing Date, whether or not incurred in the ordinary course of business,
will be paid by the Debtor 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 Debtor and the Holder of such Administrative
Expense agree.
The Debtor 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 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 Debtor's assumption of
executory contracts and unexpired leases under the Plan. The Debtor
estimates that, assuming the Effective Date occurs ninety 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 Debtor's professionals).
All payments to professionals for compensation and reimbursement of
expenses and all payments to reimburse expenses of members of 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 Debtor and other
parties-in-interest may participate, and if appropriate, object to the
allowance thereof.
Under the 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 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.
(b) PRIORITY TAX CLAIMS
Priority Tax Claims essentially consist of unsecured claims by federal
and state governmental units for taxes specified in section 507(a)(8) of
the Bankruptcy Code, such as certain income taxes, property taxes, excise
taxes, and employment and withholding taxes. These unsecured claims are
given a statutory priority in right of payment. The Debtor estimates that
on the Effective Date, the Allowed Priority Tax Claims will aggregate no
more than $[____].
At the sole option of the Debtor, 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 Debtor 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
Plan.
2. Classified Claims And Interests
-------------------------------
(a) CLASS 1-PRIORITY CLAIMS
Class 1 Claims are Unimpaired. Class 1 consists of all Allowed
Priority Claims. A Priority Claim is a Claim against Salant for an amount
entitled to priority under section 507(a) 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 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 Debtor 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.
Allowed Priority Claims in Class 1 are not Impaired under the Plan and,
accordingly, the Holders of Allowed Priority Claims in Class 1 are not
entitled to vote for or against the Plan and will be deemed to have
accepted the Plan.
(b) CLASS 2-CIT CLAIM
Class 2 Claims are Unimpaired. Class 2 consists of the CIT Claim. The
CIT Claim is any and all Claims in respect of all or any portion of the
aggregate outstanding and unpaid amount of principal and interest due and
owing under, and subject to the terms and provisions of, the Credit
Agreement and any and all related documents, 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. Under
the Plan, at the election of the Debtor 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) CIT will be entitled to receive Cash in an amount
sufficient to render such Allowed CIT Claim Unimpaired under section 1124
of the Bankruptcy Code, (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.
The Class 2 CIT Claim is Unimpaired and, accordingly, the Holder of such
Claim is not entitled to vote for or against the Plan and will be deemed to
have accepted the Plan.
(c) CLASS 3-SENIOR NOTES CLAIMS
Class 3 Claims are Impaired. Class 3 consists of all Senior Note
Claims. The Senior Note Claims are any and all Claims in respect of all or
any portion of the aggregate outstanding and amount of 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 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) and
all other Claims against the Debtor, if any, directly or indirectly related
to or arising out of the transactions, agreements or instruments upon which
the Senior Notes are based. Under the Plan, if the PEI Event occurs on or
prior to the Effective Date, then on the Effective Date, or as soon as
practicable thereafter, each Holder of an Allowed Class 3 Senior Note Claim
will receive, on account of such Holder's Allowed Senior Note Claim, such
Holder's Pro Rata Share of 9,500,000 shares of New Common Stock (or
90.5805738 shares of New Common Stock for each $1,000 principal face amount
of Senior Notes held by such Holder), which in the aggregate shall
represent 95% of the issued and outstanding shares of New Common Stock of
Reorganized Salant as of the Effective Date, subject to dilution for shares
of New Common Stock issued under the Stock Award Incentive Plan and the
Restricted Stock Plan.
If the PEI Event does not occur on or prior to the Effective Date,
then on the Effective Date or and 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 (A) 4,000,000 shares of New Common Stock (or 38.1391890 shares of
New Common Stock for each $1,000 principal amount of Senior Notes held by
such Holder), which in the aggregate shall represent 40% of the issued and
outstanding shares of New Common Stock of Reorganized Salant as of the
Effective Date, subject to dilution for shares of New Common Stock issued
under the Stock Award and Incentive Plan and the Restricted Stock Plan, and
(B) the New PIK Senior Notes (or $877.20 aggregate principal amount of New
PIK Senior Notes for each $1,000 principal 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 $119,190,277, plus interest in the amount of
$30,590 for each day after December 18, 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 the 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 Plan. 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 the
Plan. Class 3 Senior Notes Claims are Impaired, and, accordingly, the
Holders of such Claims are entitled to vote to accept or reject the Plan.
(d) CLASS 4-MISCELLANEOUS SECURED CLAIMS
Class 4 Claims are Unimpaired. Class 4 consists of all Miscellaneous
Secured Claims. Miscellaneous Secured Claims are any Claims other than the
CIT Claim, the Senior Note Claims or an Administrative Expense, that is a
Secured Claim within the meaning of, and to the extent allowable as a
secured claim under, 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 Plan, 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 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
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 Debtor 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 Plan and will be
deemed to have accepted the Plan.
(e) CLASS 5-PBGC CLAIMS
Class 5 Claims are Impaired. Class 5 consists of all PBGC Claims. PBGC
Claims are any and all Claims of the PBGC.
The Plan provides that, on the Effective Date, the Holder of the
Allowed PBGC Claim will be entitled to receive on account of such Holder's
Allowed PBGC Claim, the treatment provided for in the PBGC Agreement. The
PBGC Agreement is an agreement to be entered into between the PBGC and
Reorganized Salant on or prior to the Effective Date with respect to, among
other things, any pension plan liability of the Debtor. The PBGC Agreement,
when finalized, will be presented to the Bankruptcy Court for its review
and approval after notice to all parties in interest and an opportunity to
be heard. Class 5 PBGC Claims are Impaired and, accordingly, the Holder of
such Claim is entitled to vote to accept or reject the Plan.
(f) CLASS 6-GENERAL UNSECURED CLAIMS
Class 6 Claims are Unimpaired. Class 6 consists of all General
Unsecured Claims. General Unsecured Claims are any Claims 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, or any Claim subordinated under section 510(b) of the Bankruptcy
Code.
The Plan provides that, 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 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 Debtor and such Holder. Allowed General Unsecured Claims in Class 6 are
not Impaired under the Plan and, accordingly, the Holders of General
Unsecured Claims in Class 6 will be deemed to have accepted the Plan.
(g) CLASS 7-HOLDERS OF OLD COMMON STOCK INTERESTS
Class 7 Interests are Impaired. Class 7 consists of all Old Common
Stock Interests. Old Common Stock Interests are any Interests evidenced by
Old Common Stock or any Claim, if any, relating to Old Common Stock that is
subordinated under section 510(b) of the Bankruptcy Code. Under the Plan,
if the PEI Event occurs on or prior to the Effective Date, then on the
Effective Date, or as soon as practicable thereafter, each Holder of an
Allowed Class 7 Old Common Stock Interest will receive on account of such
Holder's Allowed Old Common Stock Interest such Holder's Pro Rata Share of
500,000 shares of New Common Stock, which in the aggregate shall represent
5% of the issued and outstanding shares of New Common Stock of Reorganized
Salant as of the Effective Date, subject to dilution for shares of New
Common Stock issued under the Stock Award and Incentive Plan and the
Restricted Stock Plan.
If the PEI Event does not occur on or prior to the Effective Date,
then 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 6,000,000 shares of New Common Stock, which in the
aggregate shall represent 40% of the issued and outstanding shares of New
Common Stock of Reorganized Salant as of the Effective Date, subject to
dilution for shares of New Common Stock issued under the Stock Award and
Incentive Plan and the Restricted Stock Plan.
The distributions provided for under the Plan are in full settlement,
release and discharge of each Holder's Old Common Stock Interests. Allowed
Old Common Stock Interests are Impaired under the Plan and, accordingly,
the Holders of Allowed Old Common Stock Interests in Class 7 are entitled
to vote to accept or reject the Plan.
(h) CLASS 8-OTHER INTERESTS
Class 8 Interests are Impaired. Class 8 consists of all Other
Interests. Other Interests consist of any equity interests in the Debtor,
including, without limitation, 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, but excluding any Old Common Stock
Interest. Under the Plan, on the Effective Date, all Other Interests will
be extinguished and no distributions will be made in respect of such Other
Interests.
Class 8 Other Interests do not receive or retain any property under
the Plan. Under section 1126(g) of the Bankruptcy Code, the Holders of
Other Interests are deemed not to have accepted the Plan, and the
acceptance of such Holders will not be solicited.
3. Employee Claims
---------------
Upon commencement of the Chapter 11 Case, the Debtor filed various
motions requesting that salaries, commission, reimbursable expenses, wages,
as the case may be, workers' compensation, accrued paid vacation, health
related benefits, severance benefits and similar employee benefits continue
unaffected by the Debtor's Chapter 11 filing. The Bankruptcy Court approved
the motions by order dated ________. Employee benefit claims that accrue
prior to the Filing Date will receive unimpaired treatment under the terms
of the Plan. To ensure the continuity of the Debtor's work force and to
further accommodate the unimpaired treatment of employee benefits, the
Debtor sought immediate authorization from the Bankruptcy Court (i) to pay
accrued and unpaid prepetition wages, commissions, salaries, reimbursable
employee expenses, workers' compensation and employee benefits (such as
vacation and sick day commitments and medical insurance) and applicable
taxes, tax deposits and processing fees in connection therewith, and (ii)
to direct the Debtor's banks to honor outstanding payroll and expense
checks. The Bankruptcy Court approved all of these measures by orders dated
________. Employee claims and benefits not paid or honored, as the case may
be, prior to consummation of the Plan will be paid or honored upon
consummation of the Plan or as soon as such payment or other obligation
becomes due or performable thereafter. The Debtor also intends, pursuant to
the Plan, to leave unaltered all other legal, equitable and contractual
rights of employees under the Debtor's employment and severance policies,
compensation and benefit plans and all other agreements, contracts and
programs applicable to their employees, other than the Debtor's existing
equity or equity-based plans.
D. SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN
As of the Effective Date, Reorganized Salant will issue the New Common
Stock. The New Common Stock will be issued for distribution in accordance
with the Plan to Holders of Allowed Class 3 Senior Note Claims and Holders
of Allowed Class 7 Old Common Stock Interests.
1. The New Common Stock
--------------------
In accordance with the Reorganized Salant Certificate of
Incorporation, Reorganized Salant will have 50,000,000 authorized shares of
stock, consisting of 45,000,000 shares of New Common Stock, par value $1.00
per share, and 5,000,000 authorized shares of Series A Preferred Stock, par
value $2.00 per share. Following consummation of the Plan, 10,000,000
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. If the PEI Event occurs on or prior to the Effective Date,
then 9,500,000 shares of New Common Stock will be issued to Noteholders as
of immediately after the Effective Date and 500,000 shares of New Common
Stock will be issued to Stockholders as of immediately after the Effective
Date (not including shares of New Common Stock issuable upon the exercise
of stock options granted to the Debtor's employees and directors under the
Stock Award and Incentive Plan and the Restricted Stock Plan). If the PEI
Event does not occur on or prior to the Effective Date, then 4,000,000
shares of New Common Stock will be issued to Noteholders as of immediately
after the Effective Date and 6,000,000 shares of New Common Stock will be
issued to Stockholders as of immediately after the Effective Date (in each
case, exclusive of shares of New Common Stock issued under the Stock Award
and Incentive Plan and the Restricted Stock Plan. All of the New Common
Stock issued and outstanding as of the Effective Date will be fully paid
and nonassessable.
(a) DISTRIBUTIONS
Subject to such preferential rights as may be granted by the Board of
Reorganized Salant in connection with future issuances of Series A
Preferred Stock, holders of shares of New Common Stock will be entitled to
receive ratably such dividends as may be declared by the Board of
Reorganized Salant in its discretion from funds legally available therefor.
The Credit Agreement contains negative covenants that restrict, among other
things, the ability of the Debtor to pay dividends and the Debtor believes
that the CIT Exit Facility will contain similar restrictions. In the event
of a liquidation, dissolution or winding up of the Debtor, the holders of
New Common Stock will be entitled to share ratably in all assets remaining
after payment of liabilities and any liquidation preference owed to holders
of any preferred stock. Holders of New Common Stock will have no preemptive
rights and have no rights to convert their New Common Stock into any other
securities.
(b) VOTING
Subject to any preferential rights of holders of Series A Preferred
Stock, holders of shares of New Common Stock will be entitled to one vote
per share on all matters to be voted on by stockholders. Matters submitted
for stockholder approval require a majority vote of the shares, except
where the vote of a greater number is required by the DGCL. Article Sixth
of Reorganized Salant's Certificate of Incorporation provides that any
action required or permitted to be taken by the stockholders of Reorganized
Salant must be effected at a duly called annual or special meeting of such
holders and may not be effected by written consent of the stockholders.
Article Sixth may not be repealed or amended in any respect except with the
approval of 67% of the outstanding shares of New Common Stock.
(c) ELECTION OF DIRECTORS
Article Fifth of the Reorganized Salant's Certificate of Incorporation
divides the Board into three classes, with each class serving a three year
term. Any vacancies in the Board, for any reason, and any directorships
resulting from any increase in the number of directors, may be filled only
by the affirmative vote of a majority of the Board, although less than a
quorum. Article Fifth may not be repealed or amended in any respect except
with the approval of 67% of the outstanding shares of New Common Stock and
subject to the provisions of any preferred stock outstanding.
(d) SHARES RESERVED IN CONNECTION WITH THE 1993 CHAPTER 11 PLAN
In accordance with the 1993 Chapter 11 Plan, Salant 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, Salant continues to have 206,392 shares of Old Common Stock
reserved for such purpose. Upon the consummation of the Plan, such shares
will be canceled and Reorganized Salant intends to reserve for issuance
approximately 10,209 shares of New Common Stock for the purpose of settling
any remaining claims in the 1990 Chapter 11 Case for which a settlement of
stock may be appropriate.
2. Market And Trading Information
------------------------------
The Old Common Stock is currently traded on the NYSE and is quoted
under the symbol "SLT." On December 17, 1998, the NYSE advised the Debtor
that trading of the Debtor's Old Common Stock will be suspended prior to
the opening of the NYSE on Wednesday, December 30, 1998. On the date that
the NYSE advised the Debtor of the suspension, the closing sale price for
the Old Common Stock was $1/8 per share. The Debtor intends to use its best
efforts to encourage the development of an alternative trading market for
the Old Common Stock.
3. The New PIK Senior Notes
------------------------
The New PIK Senior Notes will be issued under the New PIK Senior Note
Indenture to the holders of Allowed Class 3 Claims on the Effective Date by
Reorganized Salant pursuant to the New PIK Senior Note Indenture, if the
PEI Event does not occur on or prior to the Effective Date. The New PIK
Senior Notes will be issued in the aggregate principal amount of $92
million and will mature on the eighth anniversary of the Effective Date.
Interest on the New PIK Senior Notes will be payable semi-annually in
arrears at a rate of (i) 15% per annum payable in the form of New PIK
Senior Notes or (ii) at the sole option of Reorganized Salant, 12% per
annum payable in Cash.
Reorganized Salant, in its sole discretion, will have the option to
repurchase the New PIK Senior Notes, at 100% of the principal amount
thereof plus accrued interest thereon to the date of such repurchase.
E. SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS
Except as otherwise provided in the Plan or the Confirmation Order,
all Cash necessary for Reorganized Salant to make payments pursuant to the
Plan will be obtained from the CIT Exit Facility.
F. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
1. Generally
---------
Under section 365 of the Bankruptcy Code, the Debtor 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 Debtor, it will be
treated as if the Debtor 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 Plan.
2. Assumption and Rejection
------------------------
Pursuant to the Plan, each executory contract or unexpired lease that
has not been expressly assumed or rejected with approval 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 Debtor unless there is then pending
before the Bankruptcy Court a motion to reject such unexpired lease or
executory contract. 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.
3. Deadline for Filing Rejection Damage Claims
-------------------------------------------
Pursuant to the Plan, unless otherwise provided by an order of the
Bankruptcy Court entered prior to the Confirmation Date, a proof of claim
with respect to 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 a proof of claim with respect to its Claim arising from
such a rejection within the period set forth above will 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 will be classified as a General Unsecured Claim (Class 6)
under the Plan.
G. IMPLEMENTATION OF THIS PLAN
1. Vesting of Property
-------------------
Except as otherwise provided in the 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 the
Plan (subject to the occurrence of the Effective Date) will be binding and
the Debtor's debts, without in any way limiting the discharge and release
provisions contained in Article Twelve of the Plan, will be discharged as
provided in section 1141 of the Bankruptcy Code.
2. Transactions on Business Days
-----------------------------
Pursuant to the Plan, if the Effective Date or any other date on which
a transaction may occur under the Plan will occur on a day that is not a
Business Day, the transactions contemplated by the Plan to occur on such
day will instead occur on the next succeeding Business Day.
3. Restated Certificate of Incorporation; Restated By-Laws
-------------------------------------------------------
Pursuant to the 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 Plan, on the Effective Date, the Reorganized Salant By-Laws will
become the by-laws of Reorganized Salant.
4. Implementation
--------------
Pursuant to the Plan, the Debtor will be authorized to take all
necessary steps, and perform all necessary acts, to consummate the terms
and conditions of the Plan. Pursuant to the 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 the Plan and the
other agreements referred to herein. The Debtor 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
Plan.
5. Issuance of New Securities
--------------------------
Pursuant to the Plan, the issuance and distribution of the New Common
Stock by Reorganized Salant is authorized and directed without the need for
any further corporate action, under applicable law, regulation, order, rule
or otherwise.
6. Cancellation of Existing Securities and Agreements
--------------------------------------------------
Pursuant to the 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 Debtor to issue, transfer, or sell any shares of
Old Common Stock or any other capital stock of the Debtor will be canceled.
Except for purposes of effectuating the distributions under the Plan, on
the Effective Date, the Indenture will be canceled.
7. Board of Directors of Reorganized Salant
----------------------------------------
Pursuant to the 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 Reorganized Salant
Certificate of Incorporation will provide, among other things, for a
classified board of directors with each class of directors serving for a
three-year term. The initial Board of Reorganized Salant will consist of
the individuals identified on the exhibit to the Plan to be filed with the
Bankruptcy Court prior to the Disclosure Statement hearing. Such directors
will be deemed elected or appointed, as the case may be, pursuant to the
Confirmation Order, but will not take office and will not be deemed to be
elected or appointed until the occurrence of the Effective Date. Those
directors not continuing in office will be deemed removed therefrom as of
the Effective Date pursuant to the Confirmation Order.
8. Employee Benefit Plans
----------------------
Pursuant to the Plan and subject to the occurrence of the Effective
Date, all employee benefit plans, policies, and programs of the Debtor, and
the Debtor's obligations thereunder, will survive confirmation of the 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 Plan), but will
exclude all of the Debtor's existing equity or equity-based plans.
9. The Stock Award and Incentive Plan
----------------------------------
Pursuant to the 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
Debtor, the Stock Award and Incentive Plan and any grants made thereunder
shall be subject to the subsequent approval of the stockholders of
Reorganized Salant.
10. The Restricted Stock Plan
-------------------------
Pursuant to the Plan, the Restricted Stock Plan will become effective
as of the Effective Date. Grants under the Restricted Stock Plan will not
be effective until after the Effective Date. In accordance therewith, on
the Effective Date, Reorganized Salant will reserve 2% of the New Common
Stock on a fully diluted basis (subject to dilution for shares issued under
the Stock Award and Incentive Plan) for issuance to employees of
Reorganized Salant that may be granted under the Restricted Stock Plan;
provided, that, if the PEI Event does not occur on or prior to the
Effective Date then the percentage of New Common Stock that is reserved for
issuance under the Restricted Stock Plan shall be adjusted so that the
amount reserved will equal 2% of the aggregate distribution to be made to
Holders of Senior Note Claims (Class 3) under Section 6.3(a)(ii) of the
Plan. The Debtor expects that following the Effective Date, shares reserved
under the Restricted Stock Plan will be issued to certain members of senior
management of Reorganized Salant.
11. Survival of Indemnification and Contribution Obligations
--------------------------------------------------------
Notwithstanding anything to the contrary contained in the Plan, the
obligations of the Debtor to indemnify and/or provide contribution to 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,
shall not be discharged or impaired by confirmation or consummation of the
Plan but shall survive unaffected by the reorganization contemplated by the
Plan and shall be treated as, and deemed to be, Allowed General Unsecured
Claims that are Unimpaired pursuant to Section 6.5 of the Plan.
12. Listing of New Common Stock; Registration of Securities
-------------------------------------------------------
Pursuant to the Plan, Reorganized Salant will use its reasonable 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 prior to the Effective
Date 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 an appropriate registration
statement 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 Plan. See Section VI herein, entitled "DESCRIPTION OF
REGISTRATION RIGHTS AGREEMENT."
13. The Management Employment Agreements
------------------------------------
Pursuant to the Plan, the Management Employment Agreements will become
effective as of the Effective Date. Such agreements will supersede all
employment, severance, retention, bonus and other agreements with respect
to Messrs. Setola and Kahn in effect prior to the Effective Date. On the
Effective Date, all Claims and Administrative Expenses of Messrs. Setola
and Kahn against the Debtor under any employment, severance, retention,
bonus and other agreements, if any, between such party and the Debtor will
be governed by, and completely satisfied in accordance with, the terms and
conditions of each of their Management Employment Agreements.
14. Retention and Enforcement of Causes of Action
---------------------------------------------
Pursuant to the 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 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, the Plan.
H. PROVISIONS COVERING DISTRIBUTIONS
1. Timing of Distributions Under the Plan
--------------------------------------
Pursuant to the Plan, except as otherwise provided therein, payments
and distributions in respect of Allowed Claims and Allowed Interests which
are required by the Plan to be made on the Effective Date will 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 will be made at the addresses of the
registered Holders of the Senior Notes last provided in writing to the
Indenture Trustee. Distributions of New Common Stock to the Stockholders
will be made at the addresses of the holders of record of the Old Common
Stock as of the Distribution Record Date.
2. Allocation of Consideration
---------------------------
Pursuant to the Plan, the aggregate consideration to be distributed to
the Holders of Allowed Claims in each Class under the Plan will be treated
as first satisfying an amount equal to the stated principal amount of the
Allowed Claim for such Holders and any remaining consideration as
satisfying accrued, but unpaid, interest, if any.
3. Cash Payments
-------------
Pursuant to the Plan, cash payments made pursuant to the Plan will be
in U.S. dollars. Cash payments of $1,000,000 or more to be made pursuant to
the Plan will, to the extent requested in writing no later than ten 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 the 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 Plan.
4. Payment of Statutory Fees
-------------------------
Pursuant to the 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 Debtor on or before the Effective
Date.
5. No Interest
-----------
Pursuant to the Plan, except with respect to Holders of Unimpaired
Claims entitled to interest under applicable non-bankruptcy law or as
expressly provided herein, no Holder of an Allowed Claim or Interest will
receive interest on the distribution to which such Holder is entitled
hereunder, regardless of whether such distribution is made on the Effective
Date or thereafter.
6. Fractional Securities
---------------------
Pursuant to the Plan, and notwithstanding any other provision of the
Plan, only whole numbers of shares of New Common Stock will be issued or
transferred, as the case may be, pursuant to the Plan. Reorganized Salant
will not distribute any fractional shares of New Common Stock. For purposes
of distribution, fractional shares of New Common Stock will be rounded up
or down to the nearest share of New Common Stock.
7. Withholding of Taxes
--------------------
Pursuant to the Plan, Reorganized Salant will withhold from any
property distributed under the 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 Plan, Reorganized Salant or its designee, as the case may be, may
request that the Holder of any Allowed Claim provide such Holder's taxpayer
identification number and such other certification as may be deemed
necessary to comply with applicable tax reporting and withholding laws.
8. Distribution Record Date
------------------------
Pursuant to the 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 Debtor, or its respective agents, will be closed.
Reorganized Salant, and 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 the Plan to recognize and deal only with those
Holders of record as of the close of business on the Distribution Record
Date.
9. Persons Deemed Holders of Registered Securities
-----------------------------------------------
Pursuant to the Plan, except as otherwise provided therein, 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 the Plan unless the Debtor, Reorganized Salant, its
designee or the Indenture 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 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. Surrender of Existing Securities
--------------------------------
Pursuant to the Plan, as a condition to receiving any distribution
under the 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 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 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 Plan.
11. Special Procedures for Lost, Stolen, Mutilated or Destroyed
Instruments
-----------------------------------------------------------
Pursuant to the Plan, in addition to any requirements under the
Debtor's Certificates 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 Plan, the Holder of a Claim or Interest evidenced by any
such lost, stolen, mutilated or destroyed Instrument will, for all purposes
under the Plan, be deemed to have surrendered such Instrument.
12. Undeliverable or Unclaimed Distributions
----------------------------------------
Pursuant to the Plan, any Entity that is entitled to receive a Cash
distribution under the 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 Plan. If the distribution to any Holder of an
Allowed Claim or Allowed Interest is returned to Reorganized Salant or its
designee as undeliverable, no further distributions will be made to such
Holder unless and until Reorganized Salant or its designee is notified in
writing of such Holder's then-current address. Undeliverable distributions
will remain in the possession of Reorganized Salant or its designee
pursuant to the Plan until such time as a distribution becomes deliverable.
All claims for undeliverable distributions will have to be made on or
before the later to occur of (i) the second anniversary of the Effective
Date and (ii) six months following the date such Holder's Claim or Interest
becomes an Allowed Claim or Allowed Interest. After such date, all
unclaimed property will revert to Reorganized Salant and the claim of any
Holder or successor to such Holder with respect to such property will be
discharged and forever barred notwithstanding any federal or state escheat
laws to the contrary.
I. PROCEDURES FOR RESOLVING DISPUTED CLAIMS
1. Objections to Claims
--------------------
Pursuant to the Plan, only the Debtor 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 Debtor nor Reorganized
Salant shall object to the allowance of the Senior Note Claims as described
in Section 6.3(c) of the Plan.
2. Procedure
---------
Pursuant to the Plan, 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 will 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.
3. Payments and Distributions With Respect to
Disputed Claims
------------------------------------------
Pursuant to the Plan, no payments or distributions will be made in
respect of a Disputed Claim until such Disputed Claim becomes an Allowed
Claim.
4. Timing of Payments and Distributions With
Respect to Disputed Claims
-----------------------------------------
Pursuant to the Plan, and subject to the provisions of the 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 Plan.
5. Individual Holder Proofs of Interest
------------------------------------
Pursuant to the 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 Debtor's stock
register.
J. DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS
1. Discharge of All Claims and Interests and Releases
--------------------------------------------------
Pursuant to the Plan and except as otherwise specifically provided by
the Plan, the confirmation of the Plan (subject to the occurrence of the
Effective Date) will discharge and release the Debtor, Reorganized Salant,
their 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 Plan.
Furthermore, except as otherwise specifically provided by the Plan,
the distributions and rights that are provided in the Plan to Class 3,
Class 5 and Class 7 will be in complete satisfaction, discharge and
release, effective as of the Effective Date (i) 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, and (ii) all Causes of
Action, whether known or unknown, either directly or derivatively through
the Debtor or Reorganized Salant, against successors and assigns of the
Debtor, present and former Affiliates of the Debtor, and its partners,
directors, officers, agents, attorneys, advisors, financial advisors,
investment bankers, independent accountants, employees of the Debtor and
its Affiliates and any Affiliate of any of the foregoing, and Magten, and
its attorneys, advisors, and financial advisors, based on the same subject
matter as any Claim or Interest, or based on any act or omission,
transaction or other activity or security, instrument or other agreement of
any kind or nature occurring, arising or existing prior to the Effective
Date that was or could have been the subject of any Claim or Interest, in
each case regardless of whether a proof of Claim or Interest was filed,
whether or not Allowed and whether or not the Holder of the Claim or
Interest has voted to accept or reject the Plan.
In addition, except as otherwise specifically provided by the Plan,
any Holder of a Claim in Class 3, Class 5 or Class 7 accepting any
distribution pursuant to the Plan will be presumed conclusively to have
released the Debtor, Reorganized Salant, successors and assigns of the
Debtor, the present and former Affiliates of the Debtor, directors,
officers, agents, attorneys, independent accountants, advisors, financial
advisors, investment bankers and employees of the Debtor and its
Affiliates, and any Entity claimed to be liable derivatively through any of
the foregoing, from any Cause of Action based on the same subject matter as
the Claim on which the distribution is received. The release described in
the preceding sentence shall be enforceable as a matter of contract against
any Entity that accepts any distribution pursuant to the Plan.
All injunctions or stays entered in the Chapter 11 Case and existing
immediately prior to the Confirmation Date will remain in full force and
effect until the Effective Date.
2. Injunction
----------
Pursuant to the Plan, the satisfaction, release and discharge
provisions of the 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 Plan. The injunction, discharge and releases
provisions of the 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 Plan.
3. Exculpation
-----------
Pursuant to the Plan, in consideration of the distributions under the
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 Debtor
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 the 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.
4. Guaranties and Claims of Subordination
--------------------------------------
(a) Guaranties
Pursuant to the Plan, the classification and the manner of satisfying
all Claims under the 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 a joint obligor with another Entity or
Entities with respect to the same obligation. All Claims against the Debtor
based upon any such guaranties will be satisfied, discharged and released
in the manner provided in the Plan and the Holders of Claims will be
entitled to only one distribution with respect to any given obligation of
the Debtor.
(b) Claims of Subordination
Pursuant to the Plan, except as expressly provided for in the 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, will be terminated on the Effective Date and
discharged in the manner provided in the 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 Plan or of any distribution pursuant to the Plan. Except as
otherwise provided in the 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 Plan.
Pursuant to the Plan, and pursuant to Bankruptcy Rule 9019 and any
applicable state law and as consideration for the distributions and other
benefits provided under the Plan, the provisions regarding Claims of
subordination of the Plan will constitute a good faith compromise and
settlement of any Causes of Action relating to the matters described in
such provisions of the Plan which could be brought by any Holder of a Claim
or Interest against or involving another Holder of a Claim or Interest,
which compromise and settlement is in the best interests of Holders of
Claims and Interests and is fair, equitable and reasonable. This settlement
will be approved by the Bankruptcy Court as a settlement of all such Causes
of Action. Entry of the Confirmation Order will constitute the Bankruptcy
Court's approval of this settlement pursuant to Bankruptcy Rule 9019 and
its finding that this is a good faith settlement pursuant to any applicable
state law, including, without limitation, the laws of the States of New
York and Delaware, given and made after due notice and opportunity for
hearing, and will bar any such Cause of Action by any Holder of a Claim or
Interest against or involving another Holder of a Claim or Interest.
K. CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND
EFFECTIVE DATE
1. Conditions Precedent to Entry of the Confirmation Order
-------------------------------------------------------
Pursuant to the Plan, the following condition must occur and be
satisfied or waived in accordance with the Plan on or before the
Confirmation Date for the Plan to be confirmed on the Confirmation Date:
the Confirmation Order is in form and substance reasonably acceptable to
the Debtor, Magten and Apollo.
2. Conditions Precedent to the Effective Date
------------------------------------------
Pursuant to the Plan, the following conditions must occur and be
satisfied or waived by the Debtor on or before the Effective Date for the
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 E to
the 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;
4. PBGC Agreement. The PBGC and Reorganized Salant will have
entered into the PBGC Agreement and the PBGC Agreement will
have been approved by the Bankruptcy Court and consummated;
and
5. Authorizations, Consents and Approvals. All authorizations,
consents and regulatory approvals required (if any) in
connection with the Plan's effectiveness will have been
obtained.
3. Waiver of Conditions
--------------------
Pursuant to the Plan, with the prior written consent (which consent
will 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 the Plan set forth in the Plan.
4. Effect of Failure of Conditions
-------------------------------
Pursuant to the Plan, if all the conditions to effectiveness and the
occurrence of the Effective Date have 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 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 Debtor or any party in interest
made before the time that all of the conditions have been satisfied or duly
waived, the order confirming the Plan may be vacated by the Bankruptcy
Court; provided, however, that notwithstanding the filing of such a motion,
the order confirming the 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 Plan is vacated pursuant to the
foregoing provision of the Plan, the Plan will be null and void in all
respects, and nothing contained in the Plan will (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.
L. MISCELLANEOUS PROVISIONS
1. Bankruptcy Court to Retain Jurisdiction
---------------------------------------
Pursuant to the Plan, the business and assets of the Debtor 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 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 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 Plan; (h) to enforce and interpret any provisions of
the 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 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 Plan and the Related
Documents; (l) to hear and determine any issue for which the Plan or any
Related Document requires a Final Order of the Bankruptcy Court; (m) to
hear and determine matters concerning state, local, and federal taxes in
accordance with sections 346, 505, and 1146 of the Bankruptcy Code; (n) to
hear and determine any issue related to the composition of the initial
Board of Reorganized Salant; (o) to hear any other matter not inconsistent
with the Bankruptcy Code; and (p) to enter a Final Decree closing the
Chapter 11 Case.
2. Binding Effect of this Plan
---------------------------
Pursuant to the Plan, the provisions of the Plan will 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 the Plan.
3. Nonvoting Stock
---------------
Pursuant to the Plan, and in accordance with section 1123(a)(6) of the
Bankruptcy Code, the Reorganized Salant Certificate of Incorporation will
contain a provision prohibiting the issuance of nonvoting equity securities
by Reorganized Salant for a period of one year following the Effective
Date.
4. Authorization of Corporate Action
---------------------------------
Pursuant to the Plan, the entry of the Confirmation Order will
constitute a direction and authorization to and of the Debtor and
Reorganized Salant to take or cause to be taken any action necessary or
appropriate to consummate the provisions of the Plan and the Related
Documents prior to and through the Effective Date (including, without
limitation, the filing of the Reorganized Salant Certificate of
Incorporation), and all such actions taken or caused to be taken will be
deemed to have been authorized and approved by the Bankruptcy Code.
5. Retiree Benefits
----------------
Pursuant to the 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 Debtor prior to the Confirmation Date.
6. Withdrawal of the Plan
----------------------
Pursuant to the Plan, the Debtor reserves the right, at any time prior
to the entry of the Confirmation Order, to revoke or withdraw the Plan. If
the Debtor revokes or withdraws the Plan, if the Confirmation Date does not
occur, or if the Effective Date does not occur then (i) the Plan will be
deemed null and void and (ii) the Plan will be of no effect and will be
deemed vacated, and the Chapter 11 Case will continue as if the Plan and
the Disclosure Statement had never been filed and, in such event, the
rights of any Holder of a Claim or Interest will not be affected nor will
such Holder be bound by, for purposes of illustration only, and not
limitation, (a) the Plan, (b) any statement, admission, commitment,
valuation or representation contained in the Plan, this Disclosure
Statement or the Related Documents or (c) the classification and proposed
treatment (including any allowance) of any Claim in the Plan.
7. Dissolution of Committees
-------------------------
Pursuant to the Plan, on the Effective Date, any committees appointed
in the Chapter 11 Case pursuant to section 1102 of the Bankruptcy Code will
cease to exist and its members and employees or agents (including, without
limitation, attorneys, investment bankers, financial advisors, accountants
and other professionals) shall be released and discharged from further
duties, responsibilities and obligations relating to and arising from and
in connection with this Chapter 11 Case.
8. Fees, Costs and Expenses of Indenture Trustee
---------------------------------------------
Pursuant to the Plan, and subject to applicable provisions of the
Bankruptcy Code and Bankruptcy Court authorization and approval to the
extent necessary, the Indenture 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 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.
9. Amendments and Modifications to the Plan
----------------------------------------
Pursuant to the Plan, the 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.
10. Section 1125(e) of the Bankruptcy Code
--------------------------------------
The Plan provides that upon confirmation of the Plan, (i) the Debtor
will be deemed to have solicited acceptances of the 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) 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 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
Plan or the offer, issuance, sale, or purchase of the securities offered
and sold under the Plan.
Pursuant to the 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 Plan, on the Effective Date, the Reorganized Salant By-Laws will
become the by-laws of Reorganized Salant.
VI. DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT
On the Effective Date, Reorganized Salant will enter into a
registration rights agreement (the "Registration Rights Agreement"), in the
form of Exhibit A to the Plan, with the holders of the New Common Stock.
Under the terms and conditions of the Registration Rights Agreement,
Reorganized Salant must use reasonable best 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 Reorganized Salant 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.
VII. DESCRIPTION OF STOCK AWARD AND INCENTIVE PLAN
On the Effective Date, pursuant to the Plan, the Board will be deemed
to have 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 Salant and its subsidiaries. The Stock Award and Incentive
Plan and any grants thereunder are subject to subsequent approval by
Salant's stockholders. The Stock Award and Incentive Plan is designed with
the intention that compensation resulting from options, stock appreciation
rights and certain other awards may qualify as "performance-based
compensation" under Section 162(m) ("Section 162(m)") of the Internal
Revenue Code of 1986, as amended (the "Tax Code"), and to comply with the
conditions for exemption from the short-swing profit recovery rules under
Rule 16b-3 ("Rule 16b-3") of the Exchange Act of 1934, as amended (the
"Exchange Act"). The summary that follows is not intended to be complete
and is qualified in its entirety by the actual terms of the Stock Award and
Incentive Plan, a copy of which is attached to the Plan as Exhibit B.
Capitalized terms used but not otherwise defined in the summary that
follows shall have the respective meanings ascribed to them in the Stock
Award and Incentive Plan.
A. PURPOSE OF THE STOCK AWARD AND INCENTIVE PLAN
The purpose of the Stock Award and Incentive Plan is to strengthen
Salant by providing an incentive to its directors, officers and employees
and thereby encouraging them to devote their abilities and industry to the
success of Salant's business enterprise.
B. ELIGIBILITY
Awards may be made by the Awards Committee (as defined below), in its
discretion, to directors, officers and employees of Salant and its
subsidiaries. Directors of Salant who are not also employees of Salant or
any of its subsidiaries are entitled to automatic option grants as provided
in the Stock Award and Incentive Plan and described below.
C. PLAN ADMINISTRATION AND SHARES SUBJECT TO THE STOCK AWARD AND INCENTIVE
PLAN
[1,000,000] shares of New Common Stock (subject to adjustment as
provided in the Stock Award and Incentive Plan), representing, on a fully
diluted basis, 10% of the aggregate shares of New Common Stock to be issued
and reserved on the Effective Date, will be reserved for Awards to be
granted under the Stock Award and Incentive Plan. These Awards will be
granted (subject to stockholder approval) by a committee of the Board of
Salant from and after the Effective Date (the "Awards Committee") comprised
solely of two or more "non-employee directors" within the meaning of Rule
16b-3(b)(3) (or any successor rule) of the Exchange Act, and unless
otherwise determined by the Board of Salant, "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 Salant and
held in its treasury. Subject to the terms of the Stock Award and Incentive
Plan, the Awards Committee has the right to grant Awards to eligible
participants and to determine the terms and conditions of Agreements
evidencing Awards, including the vesting schedule and exercise price of
such Awards. Pursuant to the Stock Award and Incentive Plan, if a Change in
Control (as defined in the Stock Award and Incentive Plan) occurs all Stock
Appreciation Rights shall become immediately and fully exercisable.
Upon the occurrence of a Change in Capitalization, the Stock Award and
Incentive Plan permits the Awards Committee to make appropriate adjustments
to the type and aggregate number of shares subject to the Stock Award and
Incentive Plan or any Award, and to the purchase or exercise price to be
paid or the amount to be received in connection with the realization of any
Award.
D. AWARDS
Stock Options. Stock options granted pursuant to the Stock Award and
Incentive Plan may either be incentive stock options within the meaning of
Section 422 of the Tax Code ("ISOs"), or non-qualified stock options
("NQSOs") as determined by the Awards Committee. The exercise price for
each share of New Common Stock subject to an option will be determined by
the Awards Committee at the time of grant and set forth in an Agreement,
provided that the exercise price may not be less than the Fair Market Value
of the New Common Stock on the date the option is granted. The option
exercise price may be paid in the discretion of the Awards Committee on the
date of the grant, in cash or by the delivery of shares then owned by the
participant or as otherwise determined by the Awards Committee. No option
will be exercisable later than ten years after the date on which it is
granted, provided that the Awards Committee may (and in the case of a
Formula Option shall) provide that an NQSO may, upon the death of a
participant, be exercised for up to one year following the date of such
participant's death, even if such period extends beyond ten years from the
date such option is granted. ISOs may not be granted to any participant who
owns stock possessing (after application of the attribution rules of
Section 424(d) of the Tax Code) more than 10% of the total combined voting
power of all outstanding classes of stock of Salant, 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 Salant who are not also
employees of Salant and its subsidiaries. Such directors will be granted
initial Formula Options in respect of [ ] Shares (on the Effective Date or,
if applicable, when becoming a director for the first time) as well as
annual Formula Options in respect of [ ] shares at each subsequent annual
stockholders meeting of Salant. Formula Options will be granted with per
share exercise prices equal to the Fair Market Value on the date of grant,
with ten year terms and subject to the vesting schedule set forth in the
Stock Award and Incentive Plan.
Stock Appreciation Rights. Under the Stock Award and Incentive Plan, a
stock appreciation right in respect of a share of New Common Stock
represents the right to receive payment in cash and/or New Common Stock in
an amount equal to the excess of the Fair Market Value of such share of New
Common Stock on the date the right is exercised over the Fair Market Value
on the date the right is granted. The Awards Committee may grant stock
appreciation rights to the holders of any options under the Stock Award and
Incentive Plan. Such rights may also be granted independently of options.
Restricted Stock. The Awards Committee will determine the terms and
conditions applicable to Restricted Stock at the time of grant, including
the price, if any, to be paid by the grantee for the Restricted Stock, the
restrictions placed on the shares, and the time or times when the
restrictions will lapse. In addition, at the time of grant, the Awards
Committee, in its discretion, may decide: (i) whether any 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 of New Common Stock or held in cash, (iii) whether
interest will be accrued on any dividends not reinvested in additional
shares of Restricted Stock and (iv) whether any stock dividends paid will
be subject to the restrictions applicable to the Restricted Stock Award.
Performance Units and Performance Shares. Performance Units and
Performance Shares will be awarded as the Awards Committee may determine,
and the vesting of Performance Units and Performance Shares will be based
upon Salant's attainment within an established period of specified
performance objectives to be determined by the Awards Committee. Upon
granting Performance Units or Performance Shares, the Awards Committee may
provide, to the extent permitted under Section 162(m) of the Tax Code, the
manner in which performance will be measured against the performance
objectives, or may adjust the performance objectives to reflect the impact
of specified corporate transactions, accounting or tax law changes, and
other similar extraordinary and nonrecurring events. Performance Units may
be denominated in dollars or in Shares, and payments in respect of
Performance Units will be made in cash, Shares, shares of Restricted Stock
or any combination of the foregoing, as determined by the Awards Committee.
The Agreement evidencing Performance Shares or Performance Units will set
forth the terms and conditions thereof. Unless otherwise determined by the
Awards Committee at the time of grant, such awards that can be so granted,
may be granted in a manner which is intended to qualify for the performance
based compensation exemption of Section 162(m). In such event, either the
granting or vesting of such awards will be based upon one or more of the
following factors: earnings per share, New Common Stock share price,
pre-tax profit, net earnings, return on stockholders' equity or assets or
any combination of the foregoing.
E. CHANGE IN CONTROL
In the event of a Change in Control, the vesting of options and stock
appreciation rights will accelerate and, to the extent provided by the
Awards Committee in an Agreement, the restrictions on Restricted Stock will
lapse and Performance Units and Performance Shares will vest.
F. TRANSFERABILITY
Awards under the Stock Award and Incentive Plan will not be
transferable except by will or the laws of descent or distribution. Awards
will only be exercisable during the lifetime of a participant by such
participant only. However, at the discretion of the Awards Committee, any
option, other than an ISO, may permit the transfer of such option by a
participant to certain family members or trusts for the benefit of such
family members by such persons.
G. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain relevant federal income tax
effects applicable to certain awards granted under the stock award and
incentive plan.
ISOs. In general, a recipient will not recognize income upon the grant
or exercise of an ISO, and Salant 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 Salant 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, Salant 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
Salant 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 Salant 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 Salant
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. Salant has structured the Stock Award and Incentive Plan with the
intention that compensation resulting from options, stock appreciation
rights, Performance Shares and Performance Units may qualify as
"performance-based compensation" and, if so qualified, would be deductible.
The approval of the Stock Award and Incentive Plan by the Stockholders
may be required by the applicable rules of the NYSE.
H. TREATMENT OF OLD OPTIONS
Pursuant to the Plan, all Old Options held by directors, officers and
employees of Salant 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 Plan. In addition, each of the Old Plans shall be terminated and of no
further force or effect as of the consummation of the Plan.
VIII. CHANGES IN MANAGEMENT
As of the Effective Date, the directors identified on Exhibit _ to the
Plan will serve as the initial members of the Board of Reorganized Salant.
Such directors shall be elected or appointed, as the case may be, pursuant
to the Confirmation Order, but shall not take office and shall not be
deemed to be elected or appointed until the occurrence of the Effective
Date. Those directors and officers of the Debtor not continuing in office
shall be deemed removed therefrom as of the Effective Date pursuant to the
Confirmation Order.
As noted above, in connection with the Debtor's efforts to effectuate
the consummation of the Plan, the Debtor intends to sell or otherwise
dispose of all of its business, other than its Perry Ellis business. In
that connection, effective as of the Filing Date, Salant has appointed
Michael Setola, the former President of Salant's Perry Ellis division, to
serve as the Chief Executive Officer and Chairman of the Board of the
Debtor. Jerald Politzer, Salant's former Chairman of the Board and Chief
Executive Officer, will continue as a member of Salant's Board and will be
employed by Salant as a consultant to assist in the transition of Salant's
business to a stand-alone Perry Ellis business. In addition, effective as
of the Filing Date, Todd Kahn, Salant's former Executive Vice President and
General Counsel, will become Salant's Chief Operating Officer and will
continue to be General Counsel. During the Chapter 11 Case, the Debtor
expects that Messrs. Setola and Kahn will continue their employment with
Salant under the same terms and conditions of their existing employment
arrangements other than the change in titles and duties referred to above.
Effective as of the Effective Date, the Debtor intends to enter into
new employment agreements with Mr. Setola (the "Setola Agreement") and Todd
Kahn (the "Kahn Agreement"). Copies of the Setola Agreement and the Kahn
Agreement will be filed with the Bankruptcy Court prior to the Disclosure
Statement hearing. The principal terms and conditions of the Setola
Agreement and the Kahn Agreement are described below. In addition, on or
prior to the Effective Date, the Debtor expects that Awadhesh Sinha, the
current Executive Vice President of Salant's Perry Ellis Division, will
become the Chief Financial Officer of the Debtor and, from and after the
Effective Date, of the Reorganized Debtor. As a consequence, the Debtor
expects that on or prior to the Effective Date, Mr. Philip Franzel, the
current Chief Financial Officer of the Debtor, will cease to be employed by
the Debtor.
A. EMPLOYMENT OF MICHAEL SETOLA
Pursuant to the terms of the Setola Agreement, Mr. Setola will serve
as the Chairman and Chief Executive Officer of Reorganized Salant.
The Setola Agreement provides for a term of employment of three years,
commencing on the Effective Date and supercedes any existing employment
agreement between Mr. Setola and the Debtor. Base salary for Mr. Setola
will be $650,000 for year one; $700,000 for year two; and $750,000 for year
three. The Setola Agreement also provides for the payment of an annual
bonus and fringe benefits to Mr. Setola, subject to certain terms and
conditions. In addition, the Setola Agreement contains provisions with
respect to restricted stock and stock option plans.
B. EMPLOYMENT OF TODD KAHN
Pursuant to the terms of the Kahn Agreement, Mr. Kahn will serve as
the Chief Operating Officer and General Counsel of Reorganized Salant until
the expiration of the term of his employment under the Kahn Agreement.
The Kahn Agreement provides for a term of employment of one year,
commencing on January 1, 1999, and will supercede any existing employment
agreement between Mr. Kahn and the Debtor. Given that the term of the Kahn
Agreement will, under the terms thereof, begin prior to the Effective Date
but the Kahn Agreement will not become effective until the Effective Date,
the Kahn Agreement will have retroactive effect to January 1, 1999. Base
salary for Mr. Kahn will be $25,000 per month. The Kahn Agreement also
provides for a bonus in the amount of $25,000 per month from February 15,
1999 through December 31, 1999, payable as follows: for the period from
February 15, 1999 through March 31, 1999, payable on February 15, 1999 in
advance; and for the period from April 1, 1999 through December 31, 1999,
payable quarterly in advance. Notwithstanding the foregoing, upon the later
to occur of (i) the Debtor's emergence from Chapter 11, and (ii) the
wind-down and/or sale of all of the Debtor's non-Perry Ellis businesses,
Mr. Kahn will receive a lump sum payment of $262,500 less any aggregate
bonus payments actually made to him prior to that event. In addition, the
Kahn Agreement will provide for the payment of a $150,000 retention bonus
to Mr. Kahn on February 15, 1999. If Mr. Kahn is terminated without cause
prior to December 31, 1999, under the Kahn Agreement, Mr. Kahn will be
entitled to receive the aggregate amount of $565,500 plus his retention
bonus of $150,000, less any aggregate base salary and bonus payments made
prior to his termination.
C. EXISTING EMPLOYMENT AGREEMENTS WITH JERALD POLITZER AND PHILIP FRANZEL
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 (collectively, the "Severance Payments") (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. Prior to the Filing Date, the Debtor implemented a
Management Retention Incentive Program. Pursuant to the Management
Retention Incentive Program, Mr. Politzer will receive a payment of
$700,000 if he remains employed by the Debtor until February 15, 1999 or if
terminated by the Debtor without cause (the "Retention Amount," and,
together with the Severance Payments, the "Termination Amount").
As of the Filing Date, Mr. Politzer ceased to be the Chief Executive
Officer and Chairman of the Board of the Debtor and became a consultant to
the Debtor pursuant to an amendment to the Politzer Agreement (the
"Politzer Agreement Amendment") entered into by and between Mr. Politzer
and the Debtor. The Politzer Agreement Amendment provides that during the
period (the "Consulting Period") from the Filing Date to the Effective
Date, Mr. Politzer will provide services to the Debtor as a consultant on
an as-needed basis, and will provide advice and guidance to Mr. Setola, as
the newly-appointed Chief Executive Officer, and the Board, as requested by
the Board or Mr. Setola, including, (i) assisting the Debtor in connection
with the transition of its management, (ii) assisting the Debtor in
effectuating a corporate restructuring of its three current business units
into a Perry Ellis only business unit; and (iii) providing guidance and
advice to the Debtor in connection with transition and strategic decision
making.
Under the Politzer Agreement Amendment, from and after the Filing Date
and terminating on March 31, 2000 (the "Continuation Period"), Mr. Politzer
will continue to receive bi-weekly payments equal to the bi-weekly salary
payments to which Mr. Politzer was entitled as of the Filing Date (the "Fee
Payments"), subject to the limitation described in the following paragraph.
On February 15, 1999, Mr. Politzer will receive, pursuant to the terms of
the Management Retention Program, a bonus in an amount equal to $700,000.
In addition, during the period commencing on the Filing Date and
terminating on the date (the "Target Date") that is the earlier of (i) the
Effective Date and (ii) April 30, 1999, Mr. Politzer will be entitled to
the continuation of certain benefits including the maintenance of an office
and a secretary and reimbursement of expenses associated with maintaining
an automobile and an apartment (the "Housing and Car Reimbursements").
Following the Target Date, the aggregate amount of any and all Fee
Payments that Mr. Politzer would otherwise have been entitled to receive
under the Politzer Agreement Amendment from the Target Date through the end
of the Continuation Period will be reduced by an amount equal to (i)
$250,000 minus (ii) an amount equal to the cost that would be incurred by
Reorganized Salant to provide the Housing and Car Reimbursements to Mr.
Politzer during the period from the Target Date through the Continuation
Period. The payments and other benefits to be provided to Mr. Politzer
pursuant to the Politzer Agreement Amendement will be in full satisfaction
and release of all claims (including, but not limited to, any claims for
severance) arising out of Mr. Politzer's employment with Salant or the
termination thereof. The Politzer Agreement Amendment (i) provides that the
non-compete provision contained in the existing agreement will terminate on
the later to occur of the Effective Date or April 30, 1999 and (ii)
includes a non-disparagement provision which will terminate on March 31,
2001.
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). Pursuant to the
Management Retention Incentive Program implemented by the Debtor prior to
the Filing Date, Mr. Franzel will receive a payment of $150,000 if he
remains employed by the Debtor until February 15, 1999 or if terminated by
the Debtor without cause.
As noted above, on or prior to the Effective Date, the Debtor expects
that Mr. Franzel will cease to be employed by the Debtor as the Chief
Financial Officer of the Debtor. Unless otherwise mutually agreed to by the
Debtor and Mr. Franzel, any and all amounts owed by the Debtor to Mr.
Franzel will be governed by and subject to the terms of the above
agreements.
IX. RISK FACTORS
THE HOLDER OF AN IMPAIRED CLAIM AGAINST OR IMPAIRED INTEREST IN THE
DEBTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE DECIDING
WHETHER TO VOTE TO ACCEPT OR TO REJECT THE PLAN.
A. DISRUPTION OF OPERATIONS RELATING TO BANKRUPTCY FILING
The commencement of the Chapter 11 Case could adversely affect the
Debtor's and its subsidiaries' relationships with their customers,
suppliers or employees. If the Debtor's and its subsidiaries' relationships
with customers, suppliers or employees are adversely affected, the Debtor's
operations could be materially affected. Weakened operating results could
adversely affect the Debtor's ability to obtain confirmation of the Plan or
to avoid financial difficulties after consummation of the Plan. The Debtor
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 Plan.
NONE OF THE SUBSIDIARIES OF THE DEBTOR ARE PARTIES TO THE PLAN, AND
WILL THEREFORE CONTINUE TO OPERATE IN THE ORDINARY COURSE OF BUSINESS
DURING THE DEBTOR'S CHAPTER 11 CASE. AS SUCH, THE PLAN DOES NOT AFFECT THE
CONTINUING AND TIMELY PAYMENT IN FULL OF THE SUBSIDIARIES' OBLIGATIONS TO
SUPPLIERS, EMPLOYEES, AND OTHER CREDITORS. IN ADDITION, THE PLAN PROVIDES
FOR ALL HOLDERS OF GENERAL UNSECURED CLAIMS AGAINST THE DEBTOR, INCLUDING,
WITHOUT LIMITATION, TRADE CREDITORS, TO BE PAID IN FULL IN ACCORDANCE WITH
THEIR TERMS, AND SUCH CREDITORS WILL NOT, THEREFORE, BE IMPAIRED AND WILL
BE DEEMED TO ACCEPT THE PLAN.
B. CERTAIN RISKS OF NON-CONFIRMATION
Even if the requisite acceptances are received, there can be no
assurance that the Bankruptcy Court will confirm the 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 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 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 was liquidated under Chapter 7 of the
Bankruptcy Code. See Section XIII herein, entitled "REQUIREMENTS FOR
CONFIRMATION OF PLAN." There can be no assurance that the Bankruptcy Court
will conclude that these requirements have been met, but the Debtor
believes that the Bankruptcy Court should be able to find that the Plan
will not be followed by a need for further financial reorganization and
that non-accepting creditors and Interest Holders will receive
distributions at least as great as would be received following a
liquidation pursuant to Chapter 7 of the Bankruptcy Code. See Section XV
herein, entitled "VOTING AND CONFIRMATION OF THE PLAN."
Additionally, even if the required acceptances of each of Class 3,
Class 5 and Class 7 are received, the Bankruptcy Court might find that the
Solicitation of votes or the Plan did not comply with the solicitation
requirements made applicable by section 1125 of the Bankruptcy Code. In
such an event, the Debtor may seek to resolicit acceptances, but
confirmation of the Plan could be substantially delayed and possibly
jeopardized. The Debtor believes that its Solicitation of acceptances of
the Plan complies with the requirements of section 1125 of the Bankruptcy
Code, 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 Plan should be
confirmed by the Bankruptcy Court.
Should the Bankruptcy Court fail to confirm the Plan, the Debtor 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 its
business or an equity interest in the Debtor 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 the Debtor's and its
subsidiaries' businesses, operations, employees, customers and supplier
relations and their ultimate ability to function effectively and
competitively.
Even if the Plan is confirmed by the Bankruptcy Court, there can be no
assurance that the Debtor 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 Debtor has been a debtor in bankruptcy on two
prior occasions.
The confirmation and consummation of the Plan are also subject to
certain conditions. See Section V.K. above, entitled "SUMMARY OF THE PLAN
- -- CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE."
If the 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 Debtor would have to liquidate assets,
in which case Holders of Claims and Interests could receive less than they
would have received pursuant to the Plan.
C. CERTAIN BANKRUPTCY CONSIDERATIONS
1. Failure To Consummate Plan
--------------------------
Absent the restructuring under the Plan, the Debtor 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 Debtor will be able to obtain such refinancing or capital infusion. If
the Debtor determines that it is or will be unable to complete the
restructuring pursuant to the Plan, the Debtor will consider all other
available financial alternatives, including the sale of all or a part of
the Debtor's business. There can be no assurance, however, that any
alternative would be on terms as favorable to Holders of Senior Notes, the
PBGC Claim, Old Common Stock or General Unsecured Claims as the proposed
restructuring under the 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 Plan, the Debtor has prepared an analysis of estimated recoveries in a
liquidation under Chapter 7 of the Bankruptcy Code. See Section XIII
herein, entitled "REQUIREMENTS FOR CONFIRMATION OF PLAN." A description of
procedures followed and the assumptions and qualifications in connection
with this analysis is set forth in the notes thereto.
2. Effect On Operations
--------------------
The Debtor believes that the Solicitation and the commencement of the
Chapter 11 Case in connection with the Plan should not materially adversely
affect the Debtor's and its subsidiaries' relationships with customers,
employees and suppliers, provided that the Debtor can demonstrate
sufficient liquidity to continue to operate the business and a likelihood
of success for the Plan.
It is possible that despite the belief and intent of the Debtor, the
commencement of the Chapter 11 Case or the Solicitation could adversely
affect the relationships between the Debtor, its subsidiaries, and their
employees, customers and suppliers. There is a risk that, due to
uncertainty about the Debtor'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 Debtor has been
a debtor in bankruptcy on two prior occasions. If such relationships were
adversely affected, the Debtor's and its subsidiaries' financial
performance and working capital position could materially deteriorate. This
deterioration could adversely affect the Debtor's ability to complete the
Solicitation or, if such Solicitation is successfully completed, to obtain
confirmation of the Plan.
3. Nonconsensual Confirmation
--------------------------
The Debtor will request that the Bankruptcy Court confirm the Plan
under Bankruptcy Code section 1129(b). Section 1129(b) permits confirmation
of the Plan despite rejection by one or more impaired classes if the
Bankruptcy Court finds that the Plan "does not discriminate unfairly" and
is "fair and equitable" as to the non-accepting class or classes. Because
Class 8 is deemed not to have accepted the Plan, the Debtor will request
that the Bankruptcy Court find that the Plan is fair and equitable and does
not discriminate unfairly as to Class 8 (and any other class that fails to
accept the Plan). For a more detailed description of the requirements for
acceptance of the Plan and of the criteria for confirmation notwithstanding
rejection by certain classes, see Section XIII.E. herein, entitled
"REQUIREMENTS FOR CONFIRMATION OF PLAN -- NONCONSENSUAL CONFIRMATION." The
Debtor, however, will not seek confirmation of the Plan unless it is
accepted by Class 3.
D. BUSINESS RISK FACTORS
1. Results of Operations Subject to Variable Influences; Intense
Competition
-------------------------------------------------------------
The Debtor's business is sensitive to changes in consumer spending
patterns, consumer preferences and overall economic conditions. The Debtor
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 Debtor) and a large number of specialty
manufacturers. The Debtor faces substantial competition in its markets from
manufacturers in both categories. Many of the Debtor's competitors have
significantly greater financial resources than the Debtor. The Debtor also
competes for private label programs with the internal sourcing
organizations of its own customers. Reorganized Salant'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 Reorganized Salant's results of operations and financial
condition.
2. Dilution
--------
As described in more detail above, pursuant to the Plan, on or after
the Effective Date, Reorganized Salant will issue shares of New Common
Stock directly to exchanging Noteholders which 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. See Section
III above, entitled "EFFECT OF CONSUMMATION OF THE PLAN." There can be no
assurance that Reorganized Salant 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 Reorganized Salant's New Common Stock.
3. Limitation on Use of Net Operating Losses
-----------------------------------------
As a result of the receipt by Noteholders of New Common Stock in
exchange for the Senior Notes pursuant to the Plan, Reorganized Salant
will, if the PEI Event occurs, undergo an "ownership change" for Federal
income tax purposes. Accordingly, Reorganized Salant will be limited in its
ability to use its net operating losses and net operating loss carryovers
(collectively, "NOLs") and certain tax credit carryforwards to offset
future taxable income. If the PEI Event does not occur, it is unclear
whether Reorganized Salant will undergo an ownership change for Federal
income tax purposes. However, if Reorganized Salant does not undergo an
ownership change upon consummation of the Plan, it is possible that it will
undergo an ownership change following consummation of the Plan resulting in
an even greater limitation on the use of its tax attributes. See Section
XIII.A. herein, entitled "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
PLAN -- FEDERAL INCOME TAX CONSEQUENCES TO REORGANIZED SALANT."
4. Volatility; Lack of Trading Market and 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 the New Common Stock or the
price at which any sales may occur.
The Debtor 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. On December 17, 1998, the NYSE
advised the Debtor that trading of the Debtor's Old Common Stock will be
suspended prior to the opening of the NYSE on Wednesday, December 30, 1998.
Reorganized Salant will use its reasonable best efforts to cause all New
Common Stock 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 Reorganized Salant would be successful in such efforts.
5. Possible Volatility of 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
Reorganized Salant. The Debtor believes that factors such as the
commencement of the Chapter 11 Case, quarterly fluctuations in the
financial results of Reorganized Salant or its competitors and general
conditions in the industry, the overall economy, the financial markets and
other risks described herein could cause the price of the New Common Stock
to fluctuate substantially.
6. Concentrated Ownership of New Common Stock
------------------------------------------
Following consummation of the Plan, 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 PEI Event occurs on or prior to
the Effective Date and the current holders of the Senior Notes do not
significantly change prior to the Effective Date, Reorganized Salant will
be controlled by a few stockholders who are currently holders of the Senior
Notes. These holders of New Common Stock may seek to influence the
direction of Reorganized Salant. For instance, following consummation of
the Plan, Magten will own in excess of 67% of the issued and outstanding
shares of New Common Stock. As a result, Magten may have the ability to
control Reorganized Salant's management, policies and financing decisions,
to elect a majority of the members of Reorganized Salant's Board and to
control the vote on all matters coming before the stockholders of
Reorganized Salant. The Debtor 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 Reorganized Salant or to otherwise act in
concert following the consummation of the Plan. There can be no assurance,
however, that such agreements do not exist.
7. Absence of and/or Restrictions on Dividends
-------------------------------------------
The Debtor did not pay any dividends on the Old Common Stock in 1995,
1996, 1997 or 1998 and does not anticipate that Reorganized Salant will pay
dividends on the New Common Stock at any time in the foreseeable future.
Moreover, the Credit Agreement places restrictions on the ability to
declare or pay cash dividends on the Old Common Stock and the CIT Exit
Facility is expected to similarly restrict the payment of dividends on the
New Common Stock.
8. History of Losses; Effect of Transaction
----------------------------------------
Although the Debtor 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 Debtor 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 Reorganized Salant will regain its
profitability, or have earnings or cash flow sufficient to cover its fixed
charges.
9. Cash Flow From Operations
-------------------------
During the fiscal years ended December 28, 1996 and January 3, 1998,
the Debtor had a positive cash flow from operating activities of $17.1
million and a negative cash flow from operating activities of $9.8 million,
respectively. The Fiscal 1996 figure reflects a $17.5 million reduction in
inventories due to improved inventory management, and the effects of the
implementation of a strategic business plan for the men's apparel group.
The lower inventory balance was partially offset by an increase in accounts
receivable, due to changes in the Debtor'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 Debtor'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 Debtor believes that its future
cash flows together with funds available under the CIT DIP Facility should
be adequate to meet the financing requirements it anticipates during the
next twelve months provided that the Debtor consummates the Plan and closes
the CIT Exit Facility. There can be no assurance, however, (i) that the
Debtor will consummate the Plan, (ii) the Debtor will be able to close the
CIT Exit Facility on favorable terms, or (iii) that future developments and
general economic trends will not adversely affect Reorganized Salant's
operations and, hence, its anticipated cash flow.
The Debtor's capital expenditure levels assumed in preparation of the
projected financial data contained herein may be inadequate to maintain
Reorganized Salant's long-term competitive position depending on the demand
for Reorganized Salant's goods and as a result of competitive regulatory
and technological developments (including new market developments and new
opportunities) in Reorganized Salant's industry.
10. Declines in Net Sales and Gross Profits
---------------------------------------
Sales of men's apparel decreased by $18.9 million, or 5.5%, in Fiscal
1997. This decrease resulted from (a) a $12.4 million reduction in sales of
men's slacks, of which $8.4 million reflected the elimination of
unprofitable programs and the balance was primarily due to operational
difficulties experienced in the first quarter of Fiscal 1997 related to the
move of manufacturing and distribution out of the Debtor'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 Debtor's JJ. FARMER and MANHATTAN sportswear lines, as offset by an
$11.0 million increase in sales of PERRY ELLIS sportswear product, (c) a
$5.1 million decrease in sales of men's accessories, primarily due to the
slow-down of the novelty neckwear business and (d) a $4.7 million reduction
in sales of certain dress shirt lines, which reflected the elimination of
unprofitable businesses. 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 Debtor 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
Debtor.
11. Retail Environment
------------------
The retail industry has experienced significant consolidation and
other ownership changes resulting in a decrease in the number of retailers.
In addition, various retailers, including some of the Debtor'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 Debtor'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 Reorganized Salant's results of
operations and financial condition.
12. Apparel Industry Cycles and Other Economic Factors
--------------------------------------------------
The apparel industry historically has been subject to substantial
cyclical variations, with consumer spending on apparel tending to decline
during recessionary periods. A decline in the general economy or
uncertainties regarding future economic prospects may affect consumer
spending habits, which, in turn, could have a material adverse effect on
Reorganized Salant's results of operations and financial condition.
13. Seasonality and Fashion Risk
----------------------------
The Debtor's principal products are organized into seasonal lines for
resale at the retail level during the Spring, Fall and Holiday seasons.
Typically, the Debtor'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 Debtor's products is
often dependent on the ability of the Debtor to successfully anticipate the
needs of the Debtor's retail customers and the tastes of the ultimate
consumer up to a year prior to the relevant selling season. In addition,
the Debtor experiences seasonal fluctuations in its net sales and net
income, with a disproportional amount of the Debtor'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 Debtor's quarterly results of operations may also fluctuate
significantly as a result of a variety of other factors, including the
Debtor's ability to source, manufacture and distribute its products.
14. Dependence on Certain Customers and Licensees; Effect of Plan on
Licenses
----------------------------------------------------------------
Certain of the Debtor's customers, including some under common
ownership, have accounted for significant portions of the Debtor's gross
revenues.
In Fiscal 1997, approximately 17% of the Debtor's net sales were made
to Sears, approximately 11% of the Debtor's net sales were made to
Federated and approximately 10% of the Debtor's net sales were made to TJX.
In 1996, approximately 13% of the Debtor's net sales were made to Sears. In
1996 and 1995, net sales to Federated represented approximately 11% and 12%
of the Debtor's net sales, respectively. In 1995, approximately 11% of the
Debtor's net sales were made to TJX. In 1995, approximately 13% of the
Debtor'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 Debtor 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 Debtor or to cease carrying the Debtor's products could materially
adversely affect Reorganized Salant.
In Fiscal 1997, approximately 44% of the Debtor'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 Debtor
under a series of license agreements with PEI. The license agreements
contain renewal options which, subject to compliance with certain
conditions contained therein, permit the Debtor to extend the terms of such
license agreements. Assuming the exercise by the Debtor of all available
renewal options, the license agreements covering men's apparel and
accessories will expire on December 31, 2015. If the Debtor was unable to
exercise its right to renew the agreements or the agreements were
terminated by their terms (as a result of, among other things, the failure
of the Debtor to make payments to PEI in accordance with the agreements and
the expiration of the applicable grace periods or the failure by the Debtor
to perform any of its other obligations under the agreements, including its
obligations in respect of the production of the products licensed
thereunder), the resulting inability to sell products bearing a PERRY ELLIS
trademark would have a material adverse effect on Salant.
The Debtor 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 Debtor until the year 2015. The Debtor 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 Debtor's businesses. Certain of
the Disney licenses expire as early as December 31, 1998.
The Debtor'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. On or prior to the Confirmation Date,
the Debtor intends to seek either (i) the issuance of a Final Order of the
Bankruptcy Court approving the assumption of the PEI Licenses by the Debtor
and/or Reorganized Salant, as the case may be, and determining that the
Debtor's reorganization under the Plan with the treatment provided to
Senior Note Claims (Class 3) under Section 6.3(a)(i) of the Plan and the
treatment provided to Old Common Stock Interests (Class 7) under Section
6.7(a)(i) of the Plan, and the confirmation and consummation of the Plan
(including, but not limited to, the provisions providing such treatment),
does not and will not give rise to any rights of PEI under the PEI Licenses
based on any "change of control" provision in the PEI Licenses (as that
term is defined in the PEI Licenses) or any similar provision, and does not
and will not for any reason result in any forfeiture, termination or
modification of any rights of Salant existing under the PEI Licenses
immediately prior to the Filing Date, or (ii) the execution of an agreement
or stipulation by and between PEI and the Debtor and/or Reorganized Salant,
as the case may be, to the same effect. In the event that such Final Order
is not issued, or such agreement or stipulation is not executed prior to
the Effective Date, the holders of Senior Note Claims (Class 3) will
receive the treatment provided under Section 6.3(a)(ii) of the Plan and the
holders of Old Common Stock Interests (Class 7) will receive the treatment
provided under Section 6.7(a)(ii) of the Plan. In any event, as noted above
in the section entitled "Background and Events Leading to Chapter 11 Filing
- -- the December Agreement," PEI's consent and approval of the Plan is not
required in order to confirm or consummate the Plan.
In addition to the license agreement with PEI, the Debtor is also a
party to several other license agreements. Certain of these license
agreements, including the license agreements with PEI and The Walt Disney
Company, contain "change of control" provisions which may be triggered by
the Plan, or otherwise contain provisions that enable the licensor to
terminate the license or exercise other remedies thereunder as a result of
the Restructuring. The Debtor intends to seek a waiver of any such
provisions from the applicable licensors. However, there can be no
assurance that any such waivers will be obtained, or to the extent such
waivers are obtained, on what terms they would be granted.
15. Foreign Operations and Sourcing; Import Restrictions
----------------------------------------------------
During Fiscal 1997, approximately 12% of the products produced by the
Debtor (measured in units) were manufactured in the United States, with the
balance manufactured in foreign countries. Facilities operated by the
Debtor 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 Debtor's foreign production was manufactured in Mexico,
approximately 18% was manufactured in Guatemala and approximately 12% was
manufactured in the Dominican Republic.
The Debtor'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 Debtor's
operations. Some of the Debtor'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 Debtor's operations. The Debtor'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 Debtor's risks associated with its 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
Debtor 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 Debtor's business, and in particular its sources of supply
and royalty income cannot be determined at this time. There can be no
assurance that such factors would not have a material adverse effect on
Reorganized Salant's results of operations.
16. Dependence on Contract Manufacturing
------------------------------------
In Fiscal 1997, the Debtor 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 Debtor to difficulty in obtaining timely delivery of products
of acceptable quality. In addition, as is customary in the industry, the
Debtor does not have any long-term contracts with its fabric suppliers or
product manufacturers. While the Debtor 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 Reorganized Salant's performance.
17. Information Systems and Control Procedures
------------------------------------------
The Debtor 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 Salant's overall operations. As
of November 17, 1998, the Debtor has completed the implementation of new
financial systems that are year 2000 compliant ("Y2K"). In addition, the
Debtor has completed all testing of software modifications to correct the
Y2K problems on certain existing software programs, including its primary
enterprise systems (the "AMS System") at a total cost of $3.5 million. The
Debtor anticipates that any business units that are using software that is
not Y2K compliant will be converted to the modified software by the end of
the first quarter of 1999, at an estimated cost of $2.0 million. The
funding for these activities has or will come from internally generated
cash flow and/or borrowings under the Debtor's working capital facility. As
a result of the Debtor's (i) successful implementation of its new financial
systems, (ii) completed testing of the modifications to the AMS Systems,
and (iii) expectation that all non-Y2K Systems will be converted by the end
of the second quarter of 1999, the Debtor has not developed a contingency
plan to address Y2K issues. If however, Reorganized Salant or the Debtor
fail 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 Reorganized Salant.
18. Leverage and Debt Service
-------------------------
Reorganized Salant is expected to continue to have annual fixed debt
service requirements under the CIT Exit Facility. See Section II.E.5.
herein, entitled the "The CIT Exit Facility." The ability of Reorganized
Salant to make principal and interest payments under the Debtor's working
capital facility, will be dependent upon Reorganized Salant's future
performance, which is subject to financial, economic and other factors
affecting Reorganized Salant, some of which are beyond its control. There
can be no assurance that Reorganized Salant will be able to meet its fixed
charges as such charges become due.
19. Need for Sustained Trade Support
--------------------------------
The Debtor's ability to achieve sales growth and profitability
includes significant reliance on continued support from its vendors. If the
Debtor's major vendors reduce their credit lines or product availability to
the Debtor, it could have a material adverse effect on Reorganized Salant's
sales, cash position and liquidity.
X. APPLICATION OF SECURITIES ACT
A. ISSUANCE AND RESALE OF NEW SECURITIES UNDER THE 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 to be issued on the Effective Date as
provided in the Plan generally will be exempt from the registration
requirements of the Securities Act, and state and local securities laws.
Such securities may be resold without registration under the Securities Act
of 1933, as amended (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 (see discussion below). 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 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 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, with respect to
such securities.
Notwithstanding the foregoing, statutory underwriters may be able to
sell securities without registration pursuant to the resale limitations of
Rule 144 under the Securities Act which, in effect, permits the resale of
securities received by statutory underwriters pursuant to a Chapter 11
plan, subject to applicable volume limitation, notice and manner of sale
requirements, and certain other conditions. Parties which believe they may
be statutory underwriters as defined in section 1145 of the Bankruptcy Code
are advised to consult with their own counsel as to the availability of the
exemption provided by Rule 144. For a description of the Registration
Rights Agreement, see Section VI above, entitled "DESCRIPTION OF
REGISTRATION RIGHTS AGREEMENT."
There can be no assurance that an active market for any of the
securities to be distributed under the 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 DEBTOR MAKES NO REPRESENTATION
CONCERNING THE ABILITY OF ANY PERSON TO DISPOSE OF THE SECURITIES TO BE
DISTRIBUTED UNDER THE 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 DEBTOR RECOMMENDS THAT RECIPIENTS OF SECURITIES UNDER THE PLAN
CONSULT WITH LEGAL COUNSEL CONCERNING THE LIMITATIONS ON THEIR ABILITY TO
DISPOSE OF SUCH SECURITIES.
XI. FINANCIAL PROJECTIONS AND ASSUMPTIONS USED
[TO BE PROVIDED PRIOR TO DISCLOSURE STATEMENT HEARING]
XII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following is a summary of certain Federal income tax consequences
expected to result from the consummation of the Plan to Noteholders,
Stockholders, and Reorganized Salant and is for general information
purposes only. This summary is based on the Federal income tax law now in
effect, which is subject to change, possibly retroactively. This summary
does not discuss all aspects of Federal income taxation which may be
important to particular Noteholders or Stockholders in light of their
individual investment circumstances, including Stockholders who acquired
their Old Common Stock pursuant to the exercise of stock options or
otherwise as compensation, or to Noteholders or Stockholders subject to
special tax rules (e.g., financial institutions, broker-dealers, insurance
companies, tax-exempt organizations, traders or dealers in securities,
foreign taxpayers and Noteholders or Stockholders who hold the Senior Notes
or shares of Old Common Stock as part of a hedging transaction, "straddle,"
conversion transaction or other integrated transaction). In addition, this
summary does not address state, local or foreign tax consequences. This
summary assumes that Noteholders and Stockholders hold their Senior Notes
or Old Common Stock, and will hold their New Common Stock and New PIK
Senior Notes as "capital assets" (generally, property held for investment)
under the Tax Code. The summary does not address the tax consequences to
subsequent holders of New PIK Senior Notes. No rulings have been or will be
requested from the Internal Revenue Service with respect to any of the
matters discussed herein, and no opinion of counsel has been sought or
obtained by the Debtor with respect thereto. NOTEHOLDERS AND STOCKHOLDERS
ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC FEDERAL,
STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES RESULTING FROM
THE CONSUMMATION OF THE PLAN.
Although it is not entirely free from doubt, the discussion below
assumes, and Reorganized Salant intends to take the position that, if
issued, the new PIK Senior Notes will be treated as debt (and not equity)
for Federal income tax purposes. If the New PIK Senior Notes were treated
as equity for Federal income tax purposes, the tax consequences to
Reorganized Salant and to Noteholders would be different than those
discussed below.
A. FEDERAL INCOME TAX CONSEQUENCES TO REORGANIZED SALANT
1. Cancellation Of Indebtedness Income
-----------------------------------
Reorganized Salant will realize cancellation of indebtedness ("COI")
income, for Federal income tax purposes, in an amount equal to the excess,
if any, of the adjusted issue price of the Senior Notes (including any
accrued but unpaid interest) over either, (i) if the PEI Event occurs, the
fair market value of the New Common Stock received by Noteholders pursuant
to the Plan, or (ii) if the PEI Event does not occur, the sum of the issue
price (as described below) of the New PIK Senior Notes and the fair market
value of the New Common Stock received by Noteholders. COI income that is
realized in a case under the Bankruptcy Code (i.e., pursuant to the Plan)
will not be included in Reorganized Salant's gross income under Section 108
of the Tax Code. Reorganized Salant will 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 so
included.
2. Limitation On Net Operating Loss Carryovers
-------------------------------------------
As a result of the confirmation and consummation of the Plan,
Reorganized Salant will, if the PEI Event occurs, undergo an "ownership
change" for purposes of Section 382 of the Tax Code and, accordingly,
Reorganized Salant will be limited in its ability to use its NOLs
(including for this purpose any deductions attributable to any "recognized
built-in loss" within the meaning of Section 382(h) of the Tax Code which
could include deductions for depreciation and amortization of Reorganized
Salant's assets, which existed at the time of the implementation of the
Plan) 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 Reorganized Salant's equity
immediately before the ownership change by the long-term tax-exempt rate
(currently ____%). Because Reorganized Salant will undergo an ownership
change in a case under the Bankruptcy Code, however, the Debtor anticipates
that the value of its equity for purposes of determining the Section 382
Limitation would be adjusted to reflect the increase in such value arising
from the cancellation of the Senior Notes.
If the PEI Event does not occur, it is unclear whether Reorganized
Salant will, as a result of the confirmation and consummation of the Plan,
undergo an ownership change for purposes of Section 382 of the Tax Code.
Under Section 382, an ownership change will occur if, on the Effective
Date, the interest of "5% Shareholders" (as defined under Section 382) of
Reorganized Salant have cumulatively increased by more than 50 percentage
points above their lowest level during the preceding 3 year period. If the
PEI Event does not occur, and the Senior Noteholders do not own, within the
meaning of Section 382 of the Tax Code, any Old Common Stock, the issuance
of New Common Stock to Senior Noteholders will increase the percentage of
stock owned by the Senior Noteholders (which will by treated as a single 5%
Shareholder for this purpose) by 40 percentage points. Thus, if on the
Effective Date, the interests of any other 5% Shareholders have increased
by 10 percentage points over their lowest level during the preceding 3 year
period, an ownership change would occur. If Reorganized Salant does undergo
an ownership change at such time, it would be subject to the Section 382
Limitation on use of NOL's. However, the Section 382 Limitation would,
subject to the next paragraph, be more restrictive in this circumstance
than in the circumstances covered by the preceding paragraph because the
value of Reorganized Salant's equity at the time of the ownership change
would, as a result of the issuance of the New PIK Senior Notes, be smaller.
If the PEI Event does not occur but an ownership change does occur
upon the Plan's consummation, Reorganized Salant may elect to entirely
avoid the application of the Section 382 Limitation under Section 382(l)(5)
of the Tax Code. Reorganized Salant would, however, be required to reduce
its NOLs and possibly other tax attributes by any interest deductions
claimed by Salant with respect to any indebtedness converted into New
Common Stock for (i) the three year period preceding the date of the
"ownership change" and (ii) the portion of the year of the ownership change
prior to the Effective Date. Moreover, under Section 382(l)(5)(D) of the
Tax Code, if a second ownership change with respect to Reorganized Salant
were to occur within the two year period following the Effective Date, the
Section 382(l)(5) exception would not apply and any NOLs remaining after
the second ownership change will be eliminated. If the PEI Event does not
occur but an ownership change does occur upon the Plan's consummation,
Reorganized Salant will determine whether to elect the application of
Section 382(l)(5) of the Tax Code.
If Reorganized Salant does not undergo an ownership change as a result
of the consummation of the Plan, no Section 382 Limitation upon use of
NOL's would arise at such time. However, if, during the succeeding 3 year
period, an equity shift in Reorganized Salant occurs which, when aggregated
with the equity shift arising as a result of the Plan gave rise to a 50%
change in ownership under the rules described above, a new Section 382
Limitation would be imposed at such time. If such ownership change occurred
within two years of the consummation of the Plan, the value of Reorganized
Salant's equity for purposes of computing such limitation would not include
the increase in value created by the retirement of the Senior Notes
pursuant to the Plan.
3. Limitation on Interest Deductions
---------------------------------
Under certain provisions of the Tax Code the New PIK Senior Notes will
likely constitute "applicable high yield discount obligations." As a
result, (i) Reorganized Salant will be denied an interest deduction on the
New PIK Senior Notes to the extent the yield to maturity on such New PIK
Senior Notes exceeds six percentage points over the applicable federal rate
in effect for the month in which the Effective Date occurs, and (ii)
Reorganized Salant will not be entitled to an interest deduction for the
remainder of the interest accruing on such New PIK Senior Notes until such
interest is paid. The New PIK Senior Notes will constitute an "applicable
high yield discount obligation" if their yield to maturity is at least
equal to the applicable federal rate plus five percentage points. The
applicable federal rate for indebtedness whose term is eight years is
currently _______.
B. FEDERAL INCOME TAX CONSEQUENCES TO NOTEHOLDERS
1. General
-------
The Plan, if confirmed and consummated as described herein, should,
assuming that the Senior Notes and the New PIK Senior Notes, if issued, are
"securities" for federal income tax purposes, 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 or, if the PEI Event does not occur, the New
PIK Senior Notes pursuant to the Plan, except that the holder will
recognize income to the extent of the value of the New Common Stock or, if
applicable, New PIK Senior Notes received pursuant to the Plan which is
allocable to any interest on the Senior Notes that accrued on or after the
beginning of the holder's holding period and which was not previously
included in the holder's taxable income (the "Accrued Interest");
(ii) if the PEI event occurs, the aggregate tax basis of the New
Common Stock received by a Noteholder pursuant to the Plan will be the same
as the aggregate tax basis of the Senior Notes exchanged therefor, except
that the basis of the shares of New Common Stock received (or fractions
thereof) which are treated as attributable to Accrued Interest will be
equal to the fair market value of such shares (or fractions thereof) on the
Effective Date. If the PEI event does not occur, the aggregate tax basis of
the New Common Stock and the New PIK Senior Notes will, subject to the next
sentence, equal the aggregate tax basis of the Senior Notes exchanged
therefor which aggregate amount will be divided amongst the New PIK Senior
Notes and the New Common Stock in accordance with their relative fair
market values on the Effective Date. To the extent shares of New Common
Stock and New PIK Senior Notes are treated as attributable to Accrued
Interest, such shares or notes will have a basis equal to the fair market
value of such shares (or fractions thereof) or notes on the Effective Date;
and
(iii) the holding period of the New Common Stock and, if
applicable, New PIK Senior Notes in the hands of a Noteholder will include
the holding period of the Senior Notes exchanged therefor, except that the
holding period of the shares of New Common Stock (or fractions thereof)
and, if applicable, the New PIK Senior Notes treated as attributable to
Accrued Interest will begin the day after the Effective Date.
(iv) The Plan provides that shares of New Common Stock and, if
applicable New PIK Senior Notes, issued to Noteholders will be allocated
first to the principal amount of the Senior Notes held by such Noteholders
and thereafter to accrued interest. Certain legislative history provides
that an allocation provided in a bankruptcy plan may be binding for federal
income tax purposes. However, the Internal Revenue Service may take the
position that the shares of New Common Stock and, if applicable, the New
PIK Senior Notes received by Noteholders should be allocated either between
principal and accrued interest in proportion to the relative amounts
thereof, or first, to accrued interest to the extent thereof and thereafter
to principal. Noteholders should consult their own tax advisors as to the
proper allocation between principal and interest.
2. Market Discount
---------------
Noteholders who acquired their Senior Notes at a "market discount"
subsequent to the initial offering of the Senior Notes may be required to
carry over any accrued (but unrecognized) market discount to the New Common
Stock and, if applicable, the New PIK Senior Notes received pursuant to the
Plan, which discount will be recognized as ordinary income upon disposition
of such New Common Stock or, if applicable, the New PIK Senior Notes.
However, it is possible (although unlikely) that any such accrued market
discount would be required to be recognized to the extent of any gain
realized.
3. Application of Original Issue Discount Rules to New PIK Senior
Notes
--------------------------------------------------------------
a. General Rules
The federal income tax treatment of ownership of, and payments
with respect to, the New PIK Senior Notes to be issued by the Debtor under
the Plan will be governed by Treasury regulations concerning original issue
discount (the "OID Regulations"). The OID Regulations are extremely complex
and ambiguous in some respects; thus, their application is subject to
uncertainty. Noteholders that receive New PIK Senior Notes are urged to
consult their own tax advisors concerning the application of the OID
Regulations to the New PIK Senior Notes.
Under the OID Regulations, holders of New PIK Senior Notes that
bear OID must include such OID in income under a method that reflects the
economic accrual of interest based on a constant yield. Thus, such holders
may be required to include amounts in income prior to the receipt of the
cash associated with such income.
The total amount of OID on the New PIK Senior Notes will equal
the excess of the "stated redemption price at maturity" of such notes over
their "issue price." The stated redemption price at maturity of the New PIK
Senior Notes is the sum of all payments to be made on such notes other than
payments of stated interest in cash or other property (other than debt
instruments of the issuer) at a single fixed rate that are unconditionally
payable at least annually over the entire term of such issue ("qualified
stated interest").
Because interest is not unconditionally payable in cash or
property (other than debt instruments of Reorganized Salant) at least
annually on the New PIK Senior Notes, none of the interest on such debt
obligations will be treated as qualified stated interest. Consequently, the
stated redemption price at maturity of such debt obligations will be the
sum of ALL payments to be made on such obligations (whether denominated
principal or interest). The OID Regulations require one to assume, for
purposes of computing the stated redemption price at maturity, that
Reorganized Salant will exercise the option to make cash interest payments
at the lower 12% rate rather than issuing additional New PIK Senior Notes
as interest at a 15% rate. If Reorganized Salant does not exercise this
option but instead issues New PIK Senior Notes as a payment of interest,
the amount and accrual of OID on the New PIK Senior Notes will be adjusted
in the manner described below under "Issuance of Additional New PIK Senior
Notes as Interest."
The issue price of the New PIK Senior Notes will depend on
whether such notes or the Senior Notes are treated as publicly traded for
purposes of the OID regulations. Under the OID Regulations, the Senior
Notes and New PIK Senior Notes would generally be treated as publicly
traded if, at any time during the 60-day period ending 30 days after the
date such notes are issued, (i) they are listed on a national securities
exchange or certain interdealer quotation systems or (ii) they appear on a
system of general circulation that provides a reasonable basis to determine
fair market value by disseminating either recent price quotations of one or
more qualified brokers, dealers or traders, or actual prices of recent
sales transactions.
The Debtor does not believe that either the Senior Notes or the
New PIK Senior Notes have met or will meet this definition. Consequently,
under the OID Regulations, the issue price of the New PIK Senior Notes will
likely be their stated principal amount. If, however, the Senior Notes or
New PIK Senior Notes did satisfy the OID Regulations' definition of
"publicly traded," the issue price of the New PIK Senior Notes would be
determined under different rules.
Holders of New PIK Senior Notes will be required to include in
income the sum of the "daily portions" of OID with respect to the debt
instrument for each day during the taxable year or portion of the taxable
year in which such holder held the debt instrument. "Daily portions" are
determined by allocating to each day in any "accrual period" a pro rata
portion of the OID allocable to that accrual period. The amount of OID
allocable to an accrual period will equal (i) the product of the annual
"yield to maturity" of the instrument, appropriately adjusted for the
length of such accrual period, and the "adjusted issue price" of the
instrument at the beginning of that accrual period, (ii) minus the amount
of qualified stated interest payments allocable to the accrual period. The
annual "yield to maturity" of a debt instrument is the discount rate at
which the present value of all payments due under the instrument from the
date of issue equals the issue price of the instrument. The "adjusted issue
price" of a debt instrument generally equals the issue price of the
instrument increased by the amount of OID previously includible in the
gross income of a holder, and decreased by the amount of any payment
previously made on the instrument other than a payment of qualified stated
interest. The OID Regulations provide that holders that acquire New PIK
Senior Notes will be allowed to amortize any "acquisition premium" as an
offset to otherwise includible OID. New PIK Senior Notes will be considered
to be acquired at an "acquisition premium" to the extent the holder's
initial tax basis for such New PIK Senior Notes is greater than the issue
price but less than the stated redemption price at maturity of such notes.
If, as is likely, the New PIK Senior Notes constitute "applicable
high yield discount obligations" (See "Federal Income Tax Consequences to
Reorganized Salant: Limitation on Interest Deductions"), holders of New PIK
Senior Notes that are corporations may be entitled to a dividends-received
deduction for the portion of the OID on such notes for which Reorganized
Salant is denied an interest deduction. Corporate holders of New PIK Senior
Notes should consult their tax advisors as to the applicability and
consequences to them of this rule.
b. Issuance of Additional New PIK Senior Notes as Interest.
If Reorganized Salant exercises the option at any time to make a
semi-annual interest payment in the form of New PIK Senior Notes (at a 15%
annual rate), such issuance will not be treated as a payment on the New
PIK Senior Notes for tax purposes. Instead, the New PIK Senior Notes will,
solely for purposes of computing the accrual of OID, be treated as reissued
on such date for an amount equal to their adjusted issue price on such
date. Corresponding adjustments will be made to the stated redemption price
at maturity, yield to maturity, and subsequent accrual of OID on such New
PIK Senior Notes. The net effect of the issuance of New PIK Senior Notes as
interest will be to increase the amount of OID taken into income over the
life of the New PIK Senior Notes, reflecting the increased amount of cash
to be ultimately received over the life of these instruments as a result of
such issuance.
4. Disposition of New Common Stock and New PIK Senior Notes
--------------------------------------------------------
Upon a sale, exchange or other disposition of the New Common Stock or
New PIK Senior Notes, if applicable, a holder will, subject to the
discussion of "Market Discount" under "Federal Income Tax Consequences to
Noteholders," recognize a capital gain or loss in an amount equal to the
difference between the amount realized on such disposition and the holder's
adjusted tax basis in the New Common Stock and New PIK Senior Notes. A
holder's adjusted tax basis in a New PIK Senior Note will generally equal
the issue price of such note, as described above under "Application of
Original Issue Discount Rules to New PIK Senior Notes", increased by the
amount of any OID previously includible in income by such holder with
respect to such New PIK Senior Note, and reduced by any principal and
interest payments received by such holder with respect to such note. Any
such gain or loss recognized with respect to shares of New Common Stock
and, if applicable, New PIK Senior Notes will be long-term (and, in the
case of individual holders, subject to taxation at reduced rates) if the
shares of New Common Stock or New PIK Senior Notes, if applicable, have a
holding period of more than one year.
C. FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS
1. General
-------
In general, the receipt of New Common Stock by Stockholders pursuant
to the Plan will not be a taxable event, except that Stockholders will
recognize gain or loss to the extent of any cash received in lieu of a
fractional share. Each stockholder will have an aggregate tax basis in its
shares of New Common Stock equal to its aggregate tax basis in the shares
of Old Common Stock exchanged therefor (reduced by any basis apportionable
to any fractional share settled in cash as described above). Such aggregate
amount shall be allocated ratably among the shares of New Common Stock
received by each such Stockholder. The holding period of the New Common
Stock will include the holding period of the Old Common Stock.
2. Disposition
-----------
Upon a sale, exchange, or other disposition of the New Common Stock a
Stockholder will recognize a capital gain or loss in an amount equal to the
difference between the amount realized and the Stockholder's adjusted tax
basis in such New Common Stock. Such gain or loss will be long-term (and,
in the case of individual Stockholders, subject to taxation at reduced
rates) if the shares of New Common Stock have been held for more than one
year.
XIII. REQUIREMENTS FOR CONFIRMATION OF PLAN
A. CONFIRMATION HEARING
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold a hearing on confirmation of a plan. As promptly as
practicable after the commencement by the Debtor of the Chapter 11 Case,
the Debtor 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 Plan. Pursuant to the
Bankruptcy Rules, any objection to confirmation of the 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 Debtor'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 Debtor and Debtor-in-Possession, 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, 33 Whitehall Street, Twenty-First Floor, New York,
New York 10004, Attention: Carolyn S. Schwartz, Esq., [and (iii) the
attorneys for any official committee of unsecured creditors that may be
appointed in the Debtor'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 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
Plan only if all of the following requirements of section 1129(a) of the
Bankruptcy Code are met:
1. The Plan complies with the applicable provisions of the
Bankruptcy Code.
2. The Debtor has complied with the applicable provisions of
the Bankruptcy Code.
3. The 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 Debtor, or by an
entity issuing securities, or acquiring property under the
Plan, for services or for costs and expenses in, or in
connection with, the Chapter 11 Case or in connection with
the Plan and incident to the Chapter 11 Case has been
approved by, or is subject to the approval of, the
Bankruptcy Court as reasonable.
5. The Debtor has disclosed the identity and affiliations of
any individual proposed to serve, after confirmation of the
Plan, as a director or officer of Reorganized Salant, or a
successor to the Debtor under the 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 Debtor 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 Plan or will receive or retain under the 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 Debtor was
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 Plan or is not Impaired by the
Plan. If this requirement is not met, the Plan may still be
confirmed pursuant to section 1129(b) of the Bankruptcy
Code. See Section XIII.E. herein, entitled "REQUIREMENTS FOR
CONFIRMATION OF PLAN -- NONCONSENSUAL CONFIRMATION."
8. Except to the extent that the Holder of a particular Claim
has agreed to a different treatment of its Claim, the 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
Plan, the 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 Plan, at least
one Class of Claims that is Impaired by the Plan has
accepted the Plan, determined without including any
acceptance of the Plan by any "insider."
10. Confirmation of the Plan is not likely to be followed by the
liquidation, or the need for further financial
reorganization, of the Debtor or any successor of the Debtor
under the 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 Plan provides for the payment
of all such fees on the Effective Date.
12. The 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 Plan, for the duration of the period the Debtor has
obligated itself to provide such benefits.
The Debtor believes that the Plan satisfies all of the statutory
requirements of Chapter 11 of the Bankruptcy Code. Certain of these
requirements are discussed in more detail below.
B. FEASIBILITY OF THE PLAN
In connection with confirmation of the Plan, section 1129(a)(11)
requires that the Bankruptcy Court find that confirmation of the Plan is
not likely to be followed by the liquidation or the need for further
financial reorganization of the Debtor. This is the so-called "feasibility"
test.
[DISCUSSION OF PROJECTIONS TO BE PROVIDED PRIOR TO THE DISCLOSURE
STATEMENT HEARING]
C. BEST INTERESTS TEST
As described above, the Bankruptcy Code requires that each holder of
an impaired claim or equity interest either (a) accepts the plan or (b)
receives or retains under the plan property of a value, as of the effective
date of the plan, that is not less than the value such holder would receive
or retain if the Debtor was 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 Debtor'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
Debtor's assets and the cash held by the Debtor 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 Debtor'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
Plan on the Effective Date.
The Debtor'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 Debtor during a Chapter 11
case and allowed in a Chapter 7 case, such as compensation for attorneys,
financial advisors, appraisers, accountants and other professionals, and
costs and expenses of members of any 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 Debtor 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 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 Debtor'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. 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 Debtor 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 Debtor believes
that in a Chapter 7 case, Holders of Senior Note Claims would likely
receive less than they would receive under the Plan and Holders of General
Unsecured Claims, PBGC 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 Debtor has determined that confirmation
of the 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
Debtor under Chapter 7 of the Bankruptcy Code.
Moreover, the Debtor 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
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.
D. LIQUIDATION ANALYSIS
[TO BE PROVIDED PRIOR TO THE DISCLOSURE STATEMENT HEARING]
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
[TO BE PROVIDED PRIOR TO THE DISCLOSURE STATEMENT HEARING]
DISTRIBUTION OF NET PROCEEDS
($ IN THOUSANDS)
[TO BE PROVIDED PRIOR TO THE DISCLOSURE STATEMENT HEARING]
As illustrated by the foregoing, the Debtor believes that under the
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 Debtor was liquidated under Chapter
7 of the Bankruptcy Code on the Effective Date. Accordingly, the Debtor
believes the Plan satisfies the requirements of the best interests test set
forth in section 1129(a)(7) of the Bankruptcy Code.
D. NONCONSENSUAL CONFIRMATION
In the event that any Impaired Class of Claims or Interests does not
accept the Plan, the Bankruptcy Court may nevertheless confirm the 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 Plan, the Bankruptcy Court determines that the 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 Plan, excluding any
acceptance of the Plan by an "insider" (as that term is defined in section
101 of the Bankruptcy Code). In the event Class 3 accepts the Plan, the
Debtor intends to seek confirmation of the Plan notwithstanding the
nonacceptance of one or more other Impaired Classes.
1. No Unfair Discrimination
------------------------
A plan of reorganization does not "discriminate unfairly" with respect
to a nonaccepting Class if the value of the cash and/or securities to be
distributed to the nonaccepting Class is equal or otherwise fair when
compared to the value of distributions to other Classes whose legal rights
are the same as those of the nonaccepting Class. The Debtor believes that
the Plan would not discriminate unfairly against any nonaccepting Class of
Claims or Interests.
2. Fair and Equitable Test
-----------------------
The "fair and equitable" test of section 1129(b) of the Bankruptcy
Code requires absolute priority in the payment of claims and interests with
respect to any nonaccepting Class or Classes. The "fair and equitable" test
established by the Bankruptcy Code is different for secured claims,
unsecured claims and equity interests, and includes the following
treatment:
SECURED CLAIMS. A plan is fair and equitable with respect to a
nonaccepting class of secured claims if (1) the holder of each claim in
such class will retain its lien or liens and receive deferred cash payments
totaling the allowed amount of its claim, of a value, as of the effective
date of the plan, equal to the value of such holder's interest in the
collateral, (2) the holder of each claim in such class will receive the
proceeds from any sale of such collateral or (3) the holder of each claim
in such class will realize the indubitable equivalent of its allowed
secured claim.
UNSECURED CLAIMS. A plan is fair and equitable with respect to a
nonaccepting class of unsecured claims if (1) the holder of each claim in
such class will receive or retain under the plan property of a value, as of
the effective date of the plan, equal to the allowed amount of its claim,
or (2) holders of claims or interests that are junior to the claims of such
creditors will not receive or retain any property under the plan on account
of such junior claim or interest.
EQUITY INTERESTS. A plan is fair and equitable with respect to a
nonaccepting class of interests if the plan provides that (1) each member
of such class receives or retains on account of its interest property of a
value, as of the effective date of the plan, equal to the greatest of the
allowed amount of any fixed liquidation preference to which such holder is
entitled, any fixed redemption price to which such holder is entitled, or
the value of such interest, or (2) holders of interests that are junior to
the interests of such class will not receive or retain any property under
the plan on account of such junior interests.
In the event that Class 7 does not accept the Plan, and
notwithstanding that Class 8 is deemed not to have accepted the Plan, the
Debtor believes and will be prepared to demonstrate at the Confirmation
Hearing that the 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.
XIV. ALTERNATIVES TO CONFIRMATION
AND CONSUMMATION OF THE PLAN
If the 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 Debtor under Chapter 7
or Chapter 11 of the Bankruptcy Code.
A. CONTINUATION OF THE CHAPTER 11 CASE
If the Debtor remains in Chapter 11, the Debtor could continue to
operate its businesses and manage it properties as Debtor-in-possession,
but it would remain subject to the restrictions imposed by the Bankruptcy
Code. It is not clear whether the Debtor could survive as a going-concern
in a protracted Chapter 11 case. The Debtor could have difficulty
sustaining the high costs, operating financing, and the confidence of the
Debtor's and its subsidiaries' and/or customers and trade vendors, of the
Debtor remaining in Chapter 11. Ultimately, the Debtor (or other parties in
interest) could propose another plan or attempt to liquidate the Debtor
under Chapter 7 or Chapter 11. Such plans might involve either a
reorganization and continuation of the Debtor's business, or an orderly
liquidation of its assets, or a combination of both.
B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11
If the Plan is not confirmed, the Debtor'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 Debtor.
The Debtor 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
estates. 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 Debtor's operations and the failure to realize
the greater going-concern value of the Debtor's assets.
The Debtor could also be liquidated pursuant to the provisions of a
Chapter 11 plan of reorganization. In a liquidation under Chapter 11, the
Debtor'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 Debtor's liquidation analysis, prepared with their financial
advisors and included above in this Disclosure Statement, is by law
premised upon a liquidation in a Chapter 7 case. In that analysis, the
Debtor 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.
XV. VOTING AND CONFIRMATION OF THE PLAN
A. VOTING DEADLINE
IT IS IMPORTANT THAT THE HOLDERS OF CLAIMS IN CLASS 3 AND CLASS 5, AND
THE HOLDERS OF EQUITY INTERESTS IN CLASS 7, EXERCISE THEIR RIGHTS TO VOTE
TO ACCEPT OR REJECT THE PLAN. All known holders of claims and equity
interests entitled to vote on the Plan have been sent a Ballot together
with this Disclosure Statement. Such holders should read the Ballot
carefully and follow the instructions contained therein. Please use only
the Ballot that accompanies this Disclosure Statement.
The Debtor has engaged [ ] as its Voting Agent to assist in the
transmission of voting materials and in the tabulation of votes with
respect to the Plan. FOR YOUR VOTE TO COUNT, YOUR VOTE MUST BE RECEIVED AT
THE FOLLOWING ADDRESS BEFORE THE VOTING DEADLINE OF 5:00 P.M., EASTERN
TIME, ON [_________, 1999]:
SALANT CORPORATION
c/o [ ]
IF YOU HAVE BEEN INSTRUCTED TO RETURN YOUR BALLOT TO YOUR BANK, BROKER,
OR OTHER NOMINEE, OR TO THEIR AGENT, YOU MUST RETURN YOUR BALLOT TO THEM IN
SUFFICIENT TIME FOR THEM TO PROCESS IT AND RETURN IT TO THE VOTING AGENT AT
THIS ADDRESS BEFORE THE VOTING DEADLINE.
IF A BALLOT IS DAMAGED OR LOST, OR FOR ADDITIONAL COPIES OF THIS
DISCLOSURE STATEMENT, YOU MAY CONTACT THE DEBTORS' VOTING AGENT,
[ ]. ANY BALLOT WHICH IS EXECUTED AND RETURNED BUT WHICH DOES NOT
INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN WILL NOT BE COUNTED. IF YOU
HAVE ANY QUESTIONS CONCERNING VOTING PROCEDURES, YOU MAY CONTACT THE VOTING
AGENT AT THE ADDRESS SPECIFIED ABOVE OR BY TELEPHONING: [ ].
B. HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE
The Claims and equity Interests in the following Classes are Impaired
under the Plan and entitled to receive a distribution; consequently, each
Holder of such Claim or equity Interest, as of the Record Date established
by the Debtor for purposes of this Solicitation, may vote to accept or
reject the Plan:
Class 3 -- Senior Note Claims
(Holders of the Senior Notes)
Class 5 -- PBGC Claims
(Holders of the PBGC Claims)
Class 7 -- Old Common Stock Interests
(Holders of Old Common Stock Interests)
C. VOTE REQUIRED FOR ACCEPTANCE BY A CLASS
The Bankruptcy Code defines acceptance of a plan by a class of claims
as acceptance by holders of at least two-thirds in dollar amount and more
than one-half in number of the claims of that class which cast ballots for
acceptance or rejection of the plan. Thus, acceptance by a class of claims
occurs only if holders of at least two-thirds in dollar amount and a
majority in number of the claims in such class which actually vote cast
their Ballots in favor of acceptance. HOLDERS OF CLAIMS IN CLASS 3 SHOULD
VOTE THE AGGREGATE FACE AMOUNT OF THEIR SENIOR NOTES.
The Bankruptcy Code defines acceptance of a plan by a class of equity
interests as acceptance by holders of at least two-thirds in amount of
interests of that class which cast ballots for acceptance or rejection of
the plan. Thus, acceptance by a class of equity interests occurs only if
the holders of at least two-thirds in amount of equity interests voting
cast their Ballots in favor of acceptance.
A vote may be disregarded if the Bankruptcy Court determines, after
notice and a hearing, that such acceptance or rejection was not solicited
or procured in good faith or in accordance with the provisions of the
Bankruptcy Code.
D. VOTING PROCEDURES
The Debtor is providing copies of this Disclosure Statement, Ballots,
and where appropriate, Master Ballots, to all registered holders (as of the
Record Date) of Senior Notes in Class 3, PBGC Claims in Class 5 and Old
Common Stock Interests in Class 7. Registered holders may include brokers,
banks, and other nominees. If such registered holders do not hold for their
own accounts, they or their agents (collectively with such registered
holders, "Nominees") should provide copies of this Disclosure Statement and
appropriate Ballots to their customers and to beneficial owners. Any
beneficial owner who has not received a Ballot should contact his, her, or
its Nominee, or the Voting Agent.
Holders of Class 3 Senior Note Claims and Class 7 Old Common
Stock Interests
------------------------------------------------------------
Beneficial Owners. Any beneficial owner, as of the Record Date,
of Senior Notes or Old Common Stock in his, her, or 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 postage-paid envelope)
so as to be RECEIVED by the Voting Agent before the Voting Deadline. If no
envelope was enclosed, contact the Voting Agent for instructions.
Any beneficial owner holding, as of the Record Date, Senior Notes or
Old Common Stock in "street name" through a Nominee can vote by completing
and signing the Ballot (unless the Ballot has already been signed, or
"prevalidated," by the Nominee), and returning it to the Nominee in
sufficient time for the Nominee to then forward the vote so as to be
RECEIVED by the Voting Agent before the Voting Deadline of 5:00 p.m.
(Eastern Time) on [________ __, 1999]. Any Ballot submitted to a Nominee
will not be counted until such Nominee properly completes and timely
delivers a corresponding Master Ballot to the Voting Agent. IF YOUR BALLOT
HAS ALREADY BEEN SIGNED (OR "PREVALIDATED") BY YOUR NOMINEE, YOU MUST
COMPLETE THE BALLOT AND RETURN IT DIRECTLY TO THE VOTING AGENT SO THAT IT
IS RECEIVED BY THE VOTING AGENT BEFORE THE VOTING DEADLINE.
NOMINEES. A Nominee which is the registered holder for a beneficial
owner, as of the Record Date, of Senior Notes or of Old Common Stock, can
obtain the votes of the beneficial owners of such securities, consistent
with customary practices for obtaining the votes of securities held in
"street name," in one of the following two ways:
The Nominee may "prevalidate" a Ballot by (i) signing the
Ballot, (ii) indicating on the Ballot the name of the registered
holder, the amount of securities held by the Nominee for the
beneficial owner, and the account numbers for the accounts in
which such securities are held by the Nominee, and (iii)
forwarding such Ballot, together with the Disclosure Statement,
return envelope, and other materials requested to be forwarded,
to the beneficial owner for voting. The beneficial owner must
then indicate his, her or its vote on the Plan, review the
certifications contained in the Ballot, and return the Ballot
directly to the Voting Agent in the pre-addressed, postage-paid
envelope so that it is received by the Voting Agent before the
Voting Deadline. A list of the beneficial owners to whom
"prevalidated" Ballots were delivered should be maintained by
Nominees for inspection for at least one year from the Voting
Deadline.
OR
If the Nominee elects not to "prevalidate" Ballots, the
Nominee may obtain the votes of beneficial owners by forwarding
to the beneficial owners the unsigned Ballots, together with the
Disclosure Statement, a return envelope provided by, and
addressed to, the Nominee, and other materials requested to be
forwarded. Each such beneficial owner must then indicate his, her
or its vote on the Plan, review the certifications contained in
the Ballot, execute the Ballot, and return the Ballot to the
Nominee. After collecting the Ballots, the Nominee should, in
turn, complete a Master Ballot compiling the votes and other
information from the Ballots, execute the Master Ballot, and
deliver the Master Ballot to the Voting Agent so that it is
received by the Voting Agent before the Voting Deadline. All
Ballots returned by beneficial owners should be retained by
Nominees for inspection for at least one year from the Voting
Deadline. Please note: The Nominee should advise the beneficial
owners to return their Ballots to the Nominee by a date
calculated by the Nominee to allow it to prepare and return the
Master Ballot to the Voting Agent so that the Master Ballot is
received by the Voting Agent before the Voting Deadline.
Securities Clearing Agencies. The Debtor expects that each
of The Depository Trust Company and The Philadelphia Depository Trust
Company, as the nominee holder of the Senior Notes and the Old Common Stock
will arrange for its respective participants to vote by executing an
omnibus proxy in favor of such participants. As a result of the omnibus
proxy, each participant will be authorized to vote its position as of the
Record Date held in the name of such securities clearing agencies.
Other. If a Ballot is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations, or
others acting in a fiduciary or representative capacity, such persons
should indicate such capacity when signing, and unless otherwise determined
by the Debtor, must submit proper evidence satisfactory to the Debtor of
their authority to so act.
For purposes of voting to accept or reject the Plan, the beneficial
owners of such securities will be deemed to be the "holders" of such claims
or equity interests, as the case may be, represented by such securities.
All claims in a Class that are voted by a beneficial owner must be
voted either to accept or to reject the Plan and may not be split by the
beneficial owner within such Class. Unless otherwise ordered by the
Bankruptcy Court, Ballots or Master Ballots which are signed, dated, and
timely received, but on which a vote to accept or reject the Plan has not
been indicated, will not be counted. The Debtor, in its discretion, may
request that the Voting Agent attempt to contact such voters to cure any
such defects in the Ballots or Master Ballots.
Except as provided below, unless the Ballot or Master Ballot is timely
submitted to the Voting Agent before the Voting Deadline together with any
other documents required by such Ballot or Master Ballot, the Debtor may,
in its sole discretion, reject such Ballot or Master Ballot as invalid, and
therefore, decline to utilize it in connection with seeking confirmation of
the Plan by the Bankruptcy Court.
In the event of a dispute with respect to a claim or equity interest,
any vote to accept or reject the Plan cast with respect to such claim or
equity interest will not be counted for purposes of determining whether the
Plan has been accepted or rejected, unless the Bankruptcy Court orders
otherwise.
The Debtor is not at this time requesting the delivery of, and neither
the Debtor nor the Voting Agent will accept, certificates representing any
notes or equity securities. Prior to the Effective Date, the Debtor will
furnish all such holders with appropriate letters of transmittal to be used
to remit such securities in exchange for the distribution under the Plan.
Information regarding such remittance procedure (together with all
appropriate materials) will be distributed by the Debtor after confirmation
of the Plan.
XVI. CONCLUSION AND RECOMMENDATION
BASED ON ALL OF THE FACTS AND CIRCUMSTANCES, THE DEBTOR CURRENTLY
BELIEVES THAT CONFIRMATION OF THE PLAN IS IN THE BEST INTERESTS OF THE
DEBTOR, ITS CREDITORS, ITS INTEREST HOLDERS, AND ITS ESTATE. The Plan
provides for an equitable and early distribution to creditors and
stockholders, and preserves the going concern value of the Debtor. The
Debtor believes that alternatives to confirmation of the Plan could result
in significant delays, litigation, and costs, as well as a reduction in the
going concern value of the Debtor and a loss of jobs by many of the
Debtor's employees. FOR THESE REASONS, THE DEBTOR URGES YOU TO RETURN YOUR
BALLOT AND VOTE TO ACCEPT THE PLAN.
DATED: New York, New York
December 29, 1998
SALANT CORPORATION
Debtor and Debtor-in-Possession
By: /s/ Todd Kahn
----------------------------
Name: Todd Kahn
Title: Executive Vice
President and General
Counsel
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:/s/ Brad Eric Scheler
-----------------------
Brad Eric Scheler, Esq.
EXHIBIT 10.50
[EXECUTION COPY]
RATIFICATION AND AMENDMENT AGREEMENT
------------------------------------
RATIFICATION AND AMENDMENT AGREEMENT (this "Agreement") dated as of
December 29, 1998, made by and among SALANT CORPORATION ("Borrower" and
sometimes hereinafter referred to as "Debtor") as Debtor and
Debtor-in-Possession, CLANTEXPORT, INC., DENTON MILLS, INC., VERA
LICENSING, INC., J.J. FARMER CLOTHING, INC., FROST BROS. ENTERPRISES, INC.,
SLT SOURCING, INC. and SALANT CANADA INC. (individually, "Guarantor",
collectively "Guarantors" and together with Borrower sometimes hereinafter
referred to individually as "Obligor" and collectively as "Obligors") and
THE CIT GROUP/COMMERCIAL SERVICES, INC. ("Lender").
W I T N E S S E T H:
--------------------
WHEREAS, Borrower has commenced a case under Chapter 11 of Title 11 of
the United States Code in the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court"), and Borrower has
retained possession of its assets and is authorized under the Bankruptcy
Code to continue the operation of its business as debtor-in-possession; and
WHEREAS, prior to the commencement of the Chapter 11 Case (as
hereinafter defined) by Borrower, Lender made loans and advances and caused
to be issued letters of credit to the Borrower secured by substantially all
of the personal and real property of the Borrower and the guaranties by the
Guarantors of the present and future obligations of the Borrower, which
guaranties are secured by substantially all of the personal property of the
Guarantors, all as set forth in the Financing Agreements (as hereinafter
defined); and
WHEREAS, the Bankruptcy Court has entered an Order Authorizing Interim
Financing, Granting Senior Liens and Priority Administrative Expense,
Modifying Automatic Stay and Authorizing Debtor to Enter into Agreements
with The CIT Group/Commercial Services, Inc. and Authorizing the Assumption
of Existing Financing Agreements with Debtor (the "Interim Financing
Order") pursuant to which Lender will, upon the terms and subject to the
conditions thereof, make post-petition loans and advances and cause to be
issued letters of credit to the Borrower secured by all assets and
properties of the Obligors; and
WHEREAS, the Interim Financing Order provides that as a condition to
the making of such post-petition loans and advances and such other
financial accommodations, Borrower shall execute and deliver and cause the
Guarantors to execute and deliver this Agreement; and
WHEREAS, the Obligors desire to reaffirm their respective obligations
pursuant to the Financing Agreements, and acknowledge their continuing
liabilities to Lender thereunder in order to induce Lender to make such
post-petition loans and advances and such other financial accommodations to
Borrower; and
WHEREAS, the Borrower has also requested that Lender make amendments
to the Credit Agreement (as hereinafter defined) and Lender is willing to
do so subject to the terms and conditions contained herein.
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Lender and
Obligors mutually covenant, warrant and agree as follows:
1. DEFINITIONS
-----------
1.1 Additional Definitions. As used herein, the following terms shall
have the respective meanings given to them below and the Financing
Agreements shall be deemed and are hereby amended to include, in addition
and not in limitation, each of the following definitions:
(a) "Budget" shall mean the operating forecast dated November 19,
1998 setting forth Borrower's projected sales, expenditures and cash flow
for the periods covered thereby or any other projections or forecasts
prepared by or on behalf of Borrower and delivered by Borrower to Lender,
which are acceptable to Lender at the time of delivery thereof.
(b) "Chapter 11 Case" shall mean the Chapter 11 case of the
Debtor under the Bankruptcy Code referred to as In re Salant Corporation,
Chapter 11 Case No. ________________, currently pending in the Bankruptcy
Court.
(c) "Credit Agreement" shall mean the Revolving Credit, Factoring
and Security Agreement, dated September 20, 1993, by and between Lender and
Borrower, and any and all amendments thereto, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
(d) "Existing Valid Liens" shall have the meaning set forth in
Section 2.2 of this Agreement.
(e) "Financing Agreements" shall mean, collectively, the Credit
Agreement, together with all amendments thereto, including, without
limitation, this Agreement, supplements, agreements, documents,
instruments, guarantees, security agreements and mortgages at any time
executed and/or delivered by any of the Obligors in connection therewith or
related thereto, including, but not limited to, the documents comprising
Exhibits "A" and "B" to the Debtor's Motion for the Interim Financing
Order, as all of the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(f) "Financing Order" shall mean and include the Interim
Financing Order and such other orders relating thereto or authorizing the
granting of credit by Lender to the Borrower on an emergency, interim or
permanent basis (the "Final Financing Order") pursuant to Section 364 of
the Bankruptcy Code as may be entered by the Bankruptcy Court, each in form
and substance satisfactory to Lender.
(g) "Petition Date" shall mean the date of the commencement of
the Chapter 11 Case.
(h) "Pre-Petition Collateral" shall mean, collectively, all
"Collateral" as such term may be defined in any of the Financing Agreements
and all other security for the Pre-Petition Obligations (as hereinafter
defined) as provided in the Financing Agreements immediately prior to the
Petition Date.
(i) "Pre-Petition Obligations" shall mean all loans, advances,
debts, obligations, liabilities, indebtedness, covenants and duties of
Obligors to Lender of every kind and description, however evidenced,
whether direct or indirect, absolute or contingent, joint or several,
secured or unsecured, due or not due, primary or secondary, liquidated or
unliquidated, arising before the Petition Date and whether arising under or
related to the Financing Agreements, by operation of law or otherwise and
whether incurred by any of the Obligors as principal, surety, endorser,
guarantor or otherwise and including, without limitation, all principal,
interest, letter of credit guaranty fees, forbearance fees, other fees of
Lender, factoring commissions, costs, expenses and attorneys' and
accountants' fees and expenses incurred in connection with any of the
foregoing and all indebtedness of Borrower to Lender arising from
Borrower's purchase of goods or services from any concern whose accounts
receivable are factored or financed by Lender.
(j) "Post-Petition Collateral" shall mean, collectively, all now
existing or hereafter acquired personal and real property and fixtures of
the estate of the Debtor, wherever located, of any kind or nature,
including, without limitation, all of the types or items of property
described as Collateral in the Financing Agreements, all other security for
the Pre-Petition Obligations and Post-Petition Obligations as provided in
the Financing Agreements and all property of the Debtor's estate upon which
Lender is granted a security interest or lien pursuant to a Financing Order
or by any United States Bankruptcy or District Court Judge.
(k) "Post-Petition Obligations" shall mean all now existing and
hereafter arising loans, advances, debts, obligations, liabilities,
covenants and duties of Debtor to Lender of every kind and description,
however evidenced, whether direct or indirect, absolute or contingent,
joint or several, secured or unsecured, due or not due, primary or
secondary, liquidated or unliquidated, arising on and after the Petition
Date and whether arising on or after the conversion or dismissal of the
Chapter 11 Case, or before, during and after the confirmation of any plan
of reorganization in the Chapter 11 Case, and whether arising under or
related to this Agreement, the other Financing Agreements, a Financing
Order, by operation of law or otherwise, and whether incurred by the Debtor
as principal, surety, endorser, guarantor or otherwise and including,
without limitation, all principal, interest, facility continuation fees,
early termination fees, letter of credit guaranty fees, collateral
management fees, other fees of Lender, factoring commissions, costs,
expenses and attorneys' and accountants' fees and expenses incurred in
connection with any of the foregoing and all indebtedness of Debtor to
Lender arising from the purchase by Debtor of goods or services from any
concern whose accounts receivable are factored or financed by Lender.
1.2 Amendments to Definitions in Financing Agreement.
------------------------------------------------
(a) All references to the term "Collateral" in any of the
Financing Agreements or any other similar term referring to the security
for the Pre-Petition Obligations in any of the Financing Agreements are
hereby amended to mean, collectively, the Pre-Petition Collateral and the
Post-Petition Collateral.
(b) All references to the Debtor, including, without limitation,
to the terms "Borrower", "Debtor", "us", "we" or "our" in any of the
Financing Agreements shall be deemed and each such reference is hereby
amended to mean the Debtor as defined herein, and its successors and
assigns (including any trustee or other fiduciary hereafter appointed as
its legal representatives or with respect to the property of the estate of
Debtor whether under Chapter 11 of the Bankruptcy Code or any subsequent
Chapter 7 case and its successors upon conclusion of the Chapter 11 Case).
(c) All references to the term "Financing Agreements" in any of
the Financing Agreements shall be deemed and each such reference is hereby
amended to include, in addition and not in limitation, this Agreement, all
of the Financing Agreements as ratified, assumed and adopted by the Debtors
pursuant to the terms hereof, as amended and supplemented hereby, and the
Financing Order, as each of the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
(d) All references to the term "Credit Agreement" in any of the
Financing Agreements shall be deemed and each such reference is hereby
amended to mean the Credit Agreement, as defined herein and amended hereby
and ratified, assumed and adopted by Borrower pursuant to the terms hereof
and the Financing Order, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
(e) All references to the term "Obligations" in this Agreement
and in any of the Financing Agreements shall be deemed to mean and each
such reference in the Financing Agreements is hereby amended to mean, both
the Pre-Petition Obligations and the Post-Petition Obligations.
1.3 Interpretation.
--------------
(a) All references to the terms "Lender", the "Debtor" the
"Obligors" or any other person pursuant to the definitions in the recitals
hereto or otherwise shall include their respective successors and assigns
(and including as to the Debtor, any trustee or other fiduciary hereafter
appointed as its legal representatives or with respect to the property of
the estate of Debtor whether under Chapter 11 of the Bankruptcy Code or any
subsequent Chapter 7 case and its successor upon conclusion of the Chapter
11 Case).
(b) All references to any term in the singular shall include the
plural and all references to any term in the plural shall include the
singular.
(c) All terms not specifically defined herein which are defined
in the Uniform Commercial Code ("UCC") shall have the meaning set forth
therein, except that the term "Lien" or "lien" shall have the meaning set
forth in ss.E101(37) of the Bankruptcy Code.
2. ACKNOWLEDGMENT
--------------
2.1 Pre-Petition Obligations. Each Obligor hereby acknowledges,
confirms and agrees that it is indebted to Lender for the Pre-Petition
Obligations, both absolute and contingent, as of December 28, 1998, in
respect of the loans and advances made to Borrower and letters of credit
caused to be issued for the account of Borrower pursuant to the Financing
Agreements and for the indebtedness of Borrower to Lender arising from the
purchase by Borrower of goods or services from any concern whose accounts
receivables are factored or financed by Lender in the aggregate principal
amount of approximately $70,547,401, together with interest accrued and
accruing thereon, letter of credit guaranty fees, and costs, expenses, fees
(including attorneys' fees) and other charges now or hereafter owed by
Obligors to Lender, all of which is unconditionally owing by Obligors to
Lender, without offset, defense or counterclaim of any kind, nature and
description whatsoever.
2.2 Acknowledgment of Security Interests. Each Obligor hereby
acknowledges, confirms and agrees that, subject only to the prior liens on
its property existing on the Petition Date, but only to the extent that
such liens are valid, perfected and non-voidable in accordance with
applicable law ("Existing Valid Liens"), Lender has and shall continue to
have valid, enforceable and perfected first priority and senior liens upon
and security interests in all Pre-Petition Collateral heretofore granted to
Lender pursuant to the Financing Agreements as in effect prior to the date
hereof to secure all of the Obligations, as well as valid and enforceable
first priority and senior liens upon and in all Post-Petition Collateral
granted to Lender under the Financing Order or hereunder or under any other
Financing Agreements or otherwise granted to or held by Lender.
2.3 Binding Effect of Documents. Each Obligor hereby acknowledges,
confirms and agrees that: (a) the Financing Agreements to which it is a
party have been duly executed and delivered to Lender by it and are in full
force and effect as of the date hereof, (b) the agreements and obligations
of each Obligor contained in the Financing Agreements to which it is a
party constitute the legal, valid and binding obligation of such Obligor
enforceable against it in accordance with their respective terms and such
Obligor has no valid defense, offset or counterclaim to the enforcement of
such obligations, and (c) Lender is and shall be entitled to all of the
rights, remedies and benefits provided for in the Financing Agreements.
2.4 No Release. Nothing contained herein shall be deemed to terminate,
modify or release any obligations of any Obligor or any non-debtor
guarantor or any other obligor to Lender with respect to the Pre-Petition
Obligations, the Post-Petition Obligations or otherwise.
3. ADOPTION AND RATIFICATION
-------------------------
Each of the Obligors hereby (a) ratifies, assumes, adopts and agrees
to be bound by the Financing Agreements and (b) agrees to pay all of the
Pre-Petition Obligations. All of the Financing Agreements are hereby
incorporated herein by reference and hereby are and shall be deemed adopted
and assumed in full by each of the Obligors party thereto, and considered
as agreements between the respective Obligors and Lender. Each of the
Obligors hereby ratifies, affirms and confirms all of the terms and
conditions of the Financing Agreements to which it is a party, as amended
and supplemented pursuant hereto and the Financing Order, and each of the
Obligors agrees to be fully bound by the terms of the Financing Agreements
to which it is a party.
4. GRANT OF SECURITY INTEREST
--------------------------
As collateral security for the prompt performance, observance and
payment in full of all of the Obligations (including the Pre-Petition
Obligations and the Post-Petition Obligations), Debtor, as
Debtor-in-Possession, hereby grants, pledges and assigns to Lender (subject
to Existing Valid Liens), and also confirms and reaffirms the prior grant
to Lender of, a continuing security interest in and liens upon, and rights
of setoff against, all of the Collateral (subject, as to priority only,
only to the fees of the United States Trustee and the Fee Carve-Out (as
defined in the Financing Order), wherever located, of any kind or nature,
including without limitation, the Pre-Petition Collateral, and all now
existing and hereafter acquired personal and real property of the estate of
the Debtor effective from the Petition Date, including, but not limited to,
the following:
(a)(i) all of Debtor's present and future accounts, including
without limitation, all of Debtor's rights to payment for goods sold or
leased or for services rendered, whether now existing or hereafter arising,
whether or not earned by performance, and whether invoiced under the name
of Debtor or any tradename or division of Debtor, (collectively,
"Accounts"); (ii) all right, title and interest in, to and in respect of
all goods described in invoices, documents, contracts or instruments with
respect to , or otherwise representing or evidencing, any Account or other
Collateral, including, without limitation, all returned, reclaimed or
repossessed goods, and (iii) all right, title and interest, and all
enforcement and other rights, remedies, and security and liens, in, to and
in respect of the Accounts and other Collateral, including, without
limitation, rights of stoppage in transit, replevin, repossession and
reclamation and other rights and remedies of an unpaid vendor, lienor or
secured party, guaranties or other contracts of suretyship with respect to
the Accounts, deposits or other security for the obligation of any account
debtor and credit and other insurance with respect to Accounts;
(b) all of Debtor's now owned or hereafter acquired chattel paper
instruments and documents;
(c) all of Debtor's general intangibles, rights, interests,
choses in action, causes of action (exclusive of causes of action and
recoveries under ss.ss. 510, 545, 547, 548, 549, 550 and 553 of the
Bankruptcy Code) and all other intangible personal property of every kind
and nature (other than Accounts) now owned or licensed or hereafter
acquired or licensed, including, without limitation, corporate or other
business records, loans and other obligations receivable, inventions,
designs, patents, patent applications, service marks, trademarks, trademark
applications, trade names, trade secrets, goodwill, registrations
copyrights, licenses, royalties, leasehold interests in real and personal
property, rights under any future contracts, customer lists, supplier
contracts, firm sale orders, partnerships and joint ventures, other
contracts and contract rights, tax refund claims, rights to
indemnification, reversionary interests in pension and profit sharing plans
and reversionary, beneficial, and residual interests in trusts
(collectively, "General Intangibles");
(d) all of Debtor's inventory, or every kind and description, now
or hereafter owned or acquired by or in the custody or possession, actual
or constructive, of Debtor, wherever located, including, without
limitation, all raw materials, work-in-process, and finished inventory of
any kind, nature or description, including, without limitation, men's,
women's, and children's apparel and accessories and any other personal
property held for sale, exchange or lease or furnished or to be furnished
under a contract of service or an exchange arrangement or used or consumed
in the business or in connection with the manufacturing, packing, shipping,
advertising, selling or finishing or such goods, inventory, merchandise and
other personal property, and all names or marks affixed to or to be affixed
thereto for purposes of selling the same by the seller, manufacturer,
lessor or licensor thereof and all right, title and interest therein and
thereto, wherever located, whether now owned or hereafter acquired
(collectively, "Inventory");
(e) all of Debtor's now owned and hereafter acquired equipment
and fixtures, of every kind and description, wherever located, including,
without limitation, any and all machinery used in connection with the
manufacture, sale, exchange or lease of goods or rendition of services,
machinery, tooling, tools, telephone equipment, computers, computer
hardware and related computer equipment and accessories (including software
and records), vehicles, furniture, trade fixtures and fixtures, all
attachments, components, parts, accessions and property now or hereafter
affixed thereto,installed thereon or used in connection therewith,and all
additions to and substitutions and replacements thereof and all existing
and future leasehold interests in equipment and fixtures, wherever located,
whether now owned or hereafter acquired and all licenses and other rights
of Debtor relating thereto, whether in the possession and control of Debtor
or in the possession and control of a third person for the account of
Debtor and all claims to the proceeds of insurance thereon and all
maintenance and warranty records relating thereto (collectively,
"Equipment");
(f) all of Debtor's now owned and hereafter acquired real
property, wherever located, of every kind and description, including, but
not limited to, all fee interests and leasehold interests, together with
all buildings, structures and other improvements located thereon and all
licenses, easements and appurtenances relating thereto (collectively, "Real
Estate");
(g) all present and future books and records relating to any of
the above, including, without limitation, all ledgers, books of account,
records, tapes, cards, computer programs, computer disks or tape files,
computer printouts, computer runs, computer data and other computer
prepared information in the possession or control of Debtor, any computer
service bureau or other third Person (collectively, "Books and Records");
and
(h) all products and proceeds of the foregoing, in any form,
including, without limitation, any insurance proceeds ("Insurance
Proceeds") and any claims against third persons for loss or damage to or
destruction of any or all of the foregoing.
5. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
----------------------------------------------------
In addition to the continuing representations, warranties and
covenants heretofore and hereafter made by Borrower to Lender, whether
pursuant to the Financing Agreements or otherwise, and not in limitation
thereof, Borrower hereby represents, warrants and covenants to Lender the
following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which, or compliance with, being a
continuing condition of the making of loans by Lender:
5.1 Financing Order. The Interim Financing Order has been duly
entered, is valid, subsisting and continuing and has not been vacated,
modified, reversed on appeal, or vacated or modified by any Bankruptcy
Judge or District Court Judge and is not subject to any pending appeal or
stay.
5.2 Use of Proceeds. Except as otherwise provided by order of a court
of competent jurisdiction or in this Section 5.2, all loans and advances
and letters of credit provided by Lender to Borrower pursuant to a
Financing Order, the Financing Agreements or otherwise, shall be used
exclusively for general operating and working capital purposes of Borrower
in the ordinary course of its business and as set forth in the Budget. No
portion of any administrative expense claim or other claim relating to the
Chapter 11 Case shall be paid with the proceeds of such loans provided by
Lender to Borrower, other than those administrative expense claims and
other claims relating to the Chapter 11 Case directly attributable to the
operation of the business of the Borrower. Upon entry of the Final
Financing Order, in form and substance satisfactory to Lender, Borrower
shall pay the Pre-Petition Obligations in full or to the extent available
from the proceeds of the first loan thereafter made by Lender to Borrower,
it being understood that the amount of such loan may not exceed limitations
contained in the Financing Agreement or the Final Financing Order.
5.3 Budget. The Budget has been prepared by Borrower and presented to
Lender. The Budget has been thoroughly reviewed by Borrower and its
management and sets forth the working capital requirements of Borrower for
the period covered thereby. The Borrower will act in accordance with the
Budget and Lender has relied upon the Budget in determining to enter into
the post-petition financing arrangements provided for herein. The Borrower
shall provide Lender with a new Budget and projections not less than thirty
(30) business days prior to the end of the period covered by any prior
Budget or at Lender's request.
6. AMENDMENTS
----------
6.1 Amendments to Section 1. Section 1 of the Credit Agreement is
amended as follows:
(a) Section 1.5A of the Credit Agreement is amended and restated
in its entirety as follows:
"1.5A. 'Applicable Margin' shall mean (a) for the
initial 150 day term of this Agreement, 1.00%, (b)
for the next 90 day term of this Agreement, 1.25%,
and (c) thereafter, 1.75%."
(b) The following is added to Section 1 of this Credit Agreement
as Section 1.7A thereof:
"1.7A 'Availability Reserve' shall mean, at any
time of determination, Bankruptcy Court fees and
expenses incurred by professionals retained by
Borrower and by the Committee, as defined in the
Interim Financing Order, equal to the maximum
amount of the Fee Carve-Out, as defined in the
Financing Order, but in no event less than
$2,000,000."
(c) Section 1.18 of the Credit Agreement is amended and restated
in its entirety to read as follows:
"1.18 'Collateral' shall mean, collectively, the
Pre-Petition Collateral and the Post-Petition
Collateral."
(d) Sections 1.28(a) through (e) are amended and restated in
their entirety to read as follows:
"1.28 'Eligible Inventory' shall mean that
Inventory consisting of first quality finished
goods held for sale in the ordinary course of
business of Borrower and domestic raw materials
for Perry Ellis Inventory and belts held for sale
by Borrower's Accessories Division that, at any
time when eligibility is to be determined, meets
all of the following requirements:
(a) Inventory that complies in all material respects with
all representations, warranties, covenants and other
applicable provisions of this Agreement and the other
Financing Agreements;
(b) Inventory that is subject to the first perfected
security interest of Lender and no other liens or
security interests except as permitted by this
Agreement;
(c) Inventory that is merchantable and fit for sale;
(d) Inventory that is not consigned to Borrower;
(e) Inventory consisting of finished goods that meets the
following criteria (and all other requirements for
Eligible Inventory):
Made for Sale
In Season Indicated Eligibility
------------------- -----------
Prior to Fall 1998 No eligibility.
Fall 1998 Eligible through 3/31/99 and
ineligible thereafter with the
exception that such Inventory
related to the Childrenswear
Division of Borrower will be
eligible through 2/28/99.
Holiday 1998 Eligible through 3/31/99 and
ineligible thereafter with the
exception that such Inventory
related to the Childrenswear
Division will be eligible through
2/28/99.
Spring 1999 Eligible through 9/30/99 and
ineligible thereafter.
Transition/Summer 1999 Eligible through 9/30/99 and
ineligible thereafter.
Fall 1999 Eligible through 12/31/99 and
ineligible thereafter.
Holiday 1999/
Spring 2000 Eligible through 12/31/99 and
ineligible thereafter.
Notwithstanding the foregoing, all Childrenswear Division
Inventory will be ineligible after 2/28/99. In addition, all
Inventory of Non-Perry Ellis Business Units will be
ineligible after 7/31/99;"
(e) Section 1.62A of the Credit Agreement is amended and restated
in its entirety to read as follows:
"1.62A 'Non-Notification Accounts' shall mean
Accounts of Borrower arising from sales made by
Borrower's Non-Perry Ellis Business Units from
January 1, 1999 through May 31, 1999."
(f) The following is added to Section 1 as Section 1.62A-1
thereof:
"1.62A-1 'Non-Perry Ellis Business Unit' shall
mean a division, subsidiary or other business unit
of Borrower which does not sell Perry Ellis
Inventory."
(g) The following is added to Section 1 of the Credit Agreement
as Section 1.62A-2 thereof:
"1.62A-2 'Non-Perry Ellis Eligible Inventory'
shall mean all Eligible Inventory other than Perry
Ellis Eligible Inventory."
(h) Section 1.62B of the Credit Agreement is amended and restated
in its entirety to read as follows:
"1.62B 'Notification Accounts' shall mean Accounts
of Borrower arising from sales made by Borrower's
Non-Perry Ellis Business Units after June 1,
1999."
(i) The following is added to Section 1 of the Credit Agreement
as Section 1.65A thereof:
"1.65A 'Perry Ellis Business Unit' shall mean a
division, subsidiary or other business unit of
Borrower which sells Perry Ellis Inventory."
(j) The following is added to Section 1 of the Credit Agreement
as Section 1.65B thereof:
"1.65B 'Perry Ellis Eligible Inventory' shall mean
Eligible Inventory subject to any license
agreement between Perry Ellis International Inc.
and Borrower, including, without limitation,
Eligible Inventory bearing any trademark licensed
to Borrower by Perry Ellis International Inc. and
held for sale by a Perry Ellis Business Unit of
Borrower and Eligible Inventory consisting of
belts held for sale by Borrower's Accessories
Division and domestic raw materials for such
belts."
(k) The following is added to Section 1 of the Credit Agreement
as Section 1.65C thereof:
"1.65C 'Perry Ellis Inventory' shall mean
Inventory subject to any license agreement between
Perry Ellis International Inc. and Borrower,
including, without limitation, Inventory bearing
any trademark licensed to Borrower by Perry Ellis
International Inc."
6.2 Amendment of Section 3.1(a)(iii). Section 3.1(a)(iii) of the
Credit Agreement is amended and restated in its entirety to read as
follows:
(iii) Sixty percent (60%) of Perry Ellis Eligible Inventory,
plus
(iv) (x) for the first 120 days of the initial term of this
Agreement, fifty-five percent (55%) of Non-Perry Ellis
Eligible Inventory and (y) after such 120 day period,
fifty percent (50%) of Non-Perry Ellis Eligible
Inventory,
provided, however, at no time shall sum of (x) the outstanding amount of
all Obligations plus (y) the Availability Reserve exceed the lesser of (A)
the aggregate amount of Revolving Loans and Letter of Credit Accommodations
available to Borrower under the Advance Formulas and (B) the Maximum
Credit.
6.3 Amendment of Section 3.1(c). Section 3.1(c) of the Credit
Agreement is amended and restated in its entirety to read as follows:
"(c) Notwithstanding anything to the contrary
contained herein or in any of the other Financing
Agreements, except in Lender's discretion, the
aggregate unpaid principal amount of Revolving
Loans outstanding at any time based on the value
of all Eligible Inventory shall not exceed (i)
$40,000,000 for the first 120 days of the initial
term of this Agreement and (ii) $25,000,000 at all
times after such 120 period (the 'Inventory
Sublimit')."
6.4 Amendment of Section 3.1(e). Section 3.1(e) of the Credit
Agreement is amended and restated in its entirety to read as follows:
"(e) Notwithstanding anything to the contrary
contained in this Agreement or in any of the other
Financing Agreements, at the request of Borrower,
Lender may, in its sole discretion, subject to the
Maximum Credit, make Revolving Loans and Letter of
Credit Accommodations to Borrower in excess of the
aggregate amount available under the Advance
Formulas, which excess shall be repayable in full
upon demand."
6.5 Addition of Section 3.1B. The Credit Agreement is hereby amended
by adding thereto the following Section 3.1B thereto:
"3.1B. No New Eurodollar Loans; Conversion of
Eurodollar Loans to Prime Rate Loans.
Notwithstanding anything to the contrary contained
in this Agreement, as of the Petition Date all
Eurodollar Loans shall be converted to Prime Rate
Loans, and from and after the Petition Date
Borrower shall not have the right to request, and
Lender shall have no obligation to make,
Eurodollar Loans."
6.6 Amendment of Section 3.2(f). Section 3.2(f) of the Credit
Agreement is amended and restated in its entirety to read as follows:
"(f) Notwithstanding anything to the contrary
contained herein or in any of the other Financing
Agreements, except in Lender's discretion, the
aggregate amount of all Letter of Credit
Accommodations pursuant hereto and all other
commitments and obligations made or incurred by
lender pursuant hereto for the account or benefit
of Borrower in connection therewith outstanding at
any time shall not exceed $30,000,000 (the 'Letter
of Credit Sublimit'."
6.7 Amendment of Section 3.3. Section 3.3 of the Credit Agreement is
amended and restate in its entirety to read as follows:
"3.3 Maximum Credit
--------------
The aggregate principal amount of Revolving Loans
and Letter of Credit Accommodations at any time
outstanding shall not exceed $85,000,000 (the
"Maximum Credit")."
6.8 Addition of Section 3.4A. Section 3.4A is added to the Credit
Agreement as follows:
"3.4A Collateral Management Fee
-------------------------
Borrower shall pay to Lender on the first day of
each month a collateral management fee in the
amount of $4,167 per month. The collateral
management fee provided for herein shall be in
addition to all other amounts payable by Borrower
under this Agreement and shall constitute part of
the Obligations. Such fee may, at Lender's option,
be charged directly to any account of Borrower
maintained with Lender."
6.9 Addition of Section 3.4B. Section 3.4B is added to the Credit
Agreement as follows:
"3.4B Field Examination Fee
---------------------
Borrower shall pay to Lender a per diem charge in
the amount of $750 per day for each of Lender's
field examiners, in the field and at any office of
Borrower, plus all out-of-pocket expenses and
costs incurred by Lender during the course of
Lender's field examinations. The field examination
fee provided herein shall be in addition to all
other amounts payable by Borrower under this
Agreement and the other Financing Agreements and
shall constitute part of the Obligations. Such fee
may, at Lender's option, be charged directly to
any account of Borrower maintained with Lender."
6.10 Amendment of Section 3.6(h). Section 3.6(h) of the Credit
Agreement is amended and restated in its entirety to read as follows:
"(h) For providing factoring services hereunder,
Borrower shall pay a factoring commission on the
Factored Accounts created in each calendar month
during the term of this Agreement in the amount
seventy-five hundredths of one percent (.75%) of
the gross face amount of such Factored Accounts,
less trade and cash discounts thereon. Factoring
commissions with respect to any calendar month
shall be due and payable by Borrower and shall be
charged to Borrower's account on such day that
sales are assigned to Lender."
6.11 Amendment of Section 3.6(k). Section 3.6(k) of the Credit
Agreement is deleted in its entirety and replaced with the following:
"(k) [Intentionally Deleted]"
6.12 Amendment of Section 3.6A. Section 3.6A of the Credit Agreement
is hereby deleted in its entirety and replaced with the following:
"3.6A [Intentionally Deleted]"
6.13 Amendment of Section 7.10. Section 7.10 is amended by adding the
following at the end thereof:
"In the event of (a) a sale of a Non-Perry Ellis Business Unit of
Borrower or any part of the Accessories Division of Borrower,
then all of the net proceeds from such sale shall, subject to
Existing Valid Liens on the assets sold, be remitted by Borrower
to Lender for application to the Obligations or (b) a sale of
Inventory of a Non-Perry Ellis Business Unit or the Accessories
Division of Borrower made other than in the ordinary course of
business, then the Person (including an employee of Borrower) who
sells such inventory for or on behalf of Borrower shall be
satisfactory to Lender. No such sale shall be made without the
prior written consent of Lender."
6.14 Addition of Section 7.17(f). Section 7.17(f) is added to the
Credit Agreement as follows:
"(f) Borrower shall deliver to Lender copies of all financial
reports, schedules and other materials and information at any
time furnished by Borrower to the Bankruptcy Court, any
creditors' committee, the U.S. Trustee or any of Borrower's
shareholders, concurrently with the delivery thereof to the
Bankruptcy Court, creditors' committee, U.S. Trustee or
shareholders, as the case may be."
6.15 Amendment of Section 8.1. Section 8.1 of the Credit Agreement is
amended and restated in its entirety to read as follows:
"8.1 Events of Default. The occurrence of any one or more of the
following event shall constitute an "Event of Default" hereunder:
(a) Borrower shall fail to pay any of the Obligations when
due; or
(b) any present or future representation, warranty or
statement of fact, other than as set forth in Section
6.11 above, when made by or on behalf of Borrower or
any Guarantor to Lender is false or misleading in any
material respect; or
(c) any present or future representation, warranty or
statement of fact made by Borrower as set forth in
Section 6.11 above when made by or on behalf of
Borrower is false or misleading in a respect or to an
extent that materially and adversely affects the
business, properties, operations or condition,
financial or otherwise, of Borrower; or
(d) Borrower or any Guarantor shall fail to observe or
perform any covenant or agreement contained in this
Agreement, the other Financing Agreements (other than a
Financing Order) or in any other document or instrument
referred to herein or therein other than as described
in Section 8.1(a) above; provided that if such failure
is capable of being remedied, such failure continues
unremedied for thirty (30) days after Lender has
notified borrower thereof; or
(e) an "event of default" (as defined in any of the other
Financing Agreements) shall occur; or
(f) there is a Change or Control; or
(g) after the commencement of the Chapter 11 Case Borrower
or any Guarantor shall default in the payment of any
amounts at any time due on any Indebtedness in excess
of $500,000 at any time owing to any one person other
than Lender or in the performance of any other term or
covenant or any evidence of same or other agreement
relating thereto or securing same or with respect to
any contract, lease, license or other obligation owed
to any person other than lender, which default
continues beyond the applicable cure period, if any,
with respect thereto; or
(h) after the commencement of the Chapter 11 Case a
judgement is rendered against Borrower or any Guarantor
in excess of $250,000 in any one case or in excess of
$500,000 in the aggregate and the same shall remain
undischarged for a period in excess of thirty (30) days
or execution shall at any time not be effectively
stayed; or
(i) Borrower shall suspend or discontinue doing business
for any reason other than by reason of the sale of
non-Perry Ellis Units or Perry Ellis Inventory of
Borrower's Accessories Division; or
(j) any Guarantee or any other guarantee of the Obligations
shall at any time cease to be in full force and effect,
or shall be declared void or invalid or the validity or
enforceability thereof shall be contested by any
Guarantor or any Guarantor shall deny it has any
further liability or obligation, or shall fail to
perform its obligations, under any Guarantee; or
(k) Conway DelGenio Gries & Co., LLC ceases to be business
consultant to Borrower and is not replaced within five
(5) days by a business consultant satisfactory to
Lender; or
(l) any event or circumstance occurs after entry of the
Interim Financing Order that materially and adversely
affects the business, properties, operations or
condition, financial or otherwise, of Borrower; or
(m) a violation of any Financing Order (other than as a
result of a modification thereof as approved by the
Bankruptcy Court, which modification, if initiated or
supported by Borrower, shall have been approved by
Lender) occurs during the pendency of the Chapter 11
Case; or
(n) the Chapter 11 Case is converted to a proceeding under
Chapter 7 of the Bankruptcy Code, or is terminated or
dismissed prior to confirmation of a plan of
reorganization; or
(o) if Borrower or any Guarantor is enjoined, restricted or
in any material way prevented by Court order from
continuing to conduct all or any material part of its
business affairs; or
(p) the occurrence of any condition or event which permits
Lender to exercise any of the remedies set forth in the
Financing Order, including, without limitation, any
'Event of Default', as defined in the Financing Order;
or
(q) conversion of the Chapter 11 Case to a Chapter 7 case
under the Bankruptcy Code; or
(r) dismissal of the Chapter 11 Case or any subsequent
Chapter 7 case either voluntarily or involuntarily; or
(s) any failure by Borrower observe or perform any of the
terms or conditions of any order or stipulation entered
by the Bankruptcy Court in its Chapter 11 Case; or
(t) the granting of a lien on or other interest in any of
any of Borrower's property, or an administrative
expense claim by any Bankruptcy or District Court Judge
which is superior to or ranks in parity with Lender's
security interest in or lien upon the Collateral or any
part thereof, the other Financing Agreements or the
Financing Order; or
(u) the Financing Order shall be modified without consent
of Lender reversed, revoked, remanded, stayed,
rescinded, vacated or amended on appeal or by any
Bankruptcy or District Court Judge; or
(v) Borrower or any Guarantor shall fail to pay when due
any post-petition rent, mortgage payment or charge of
any nature or description pursuant to any real property
lease, mortgage or contract with respect to premises at
which any Inventory is located (subject to any
applicable grace or cure period), including, but not
limited to, any warehouse utilized by any Borrower or
Guarantor and any and all other locations of the
Borrower and Guarantors; or
(w) entry of any Financing Order not consented to by Lender
or any financing order with respect to another lender
not consented to by Lender.
6.16 Amendment of Section 8.2(d). Section 8.2(d) of the Credit
Agreement is amended by adding the following after the first sentence
thereof:
"Without limiting the generality of the foregoing,
Lender may, in its discretion, apply proceeds of
Collateral, first to the Pre-Petition Obligations,
until such Pre-Petition Obligations are paid and
satisfied in full."
6.17 Amendment of Section 9.1(b). The first three sentences of Section
9.1(b) of the Credit Agreement are amended in their entirety to read as
follows:
"(b) Any checks or other forms of remittance
which may be received directly by Borrower in
respect of the Non-Notification Accounts, the
Non-Factored Accounts and other Collateral shall
not be commingled with Borrower's property, but
shall be segregated, held by Borrower in trust for
Lender as Lender's exclusive property and
immediately deposited by Borrower, in the
identical form received, with proper endorsements,
into such account or accounts as Lender may
designate from time to time. All amounts received
by Lender in respect of Non-Notification Accounts,
Non-Factored Accounts or other Collateral in
immediately available funds will be credited to
any account or accounts maintained by Lender
pursuant to this Agreement when received by
Lender, provided that solely for the purpose of
the calculation of interest, such immediately
available funds shall be deemed received two (2)
business days after receipt thereof, calculated at
a per annum rate of Prime Rate plus the Applicable
Margin. All amounts received by Lender in respect
of Non-Notification Accounts, Non-Factored
Accounts or other Collateral in remittances which
are not immediately available, will be credited to
any account or accounts maintained by Lender
pursuant to this Agreement two (2) business days
after such remittances have been collected,
calculated at a per annum interest rate of Prime
Rate plus the Applicable Margin."
6.18 Amendment of Section 10.1(a). Section 10.1(a) of the Credit
Agreement is amended and restated in its entirety to read as follows:
"Section 10.1 (a) Term; Termination. This
Agreement and the other Financing Agreements shall
become effective as of the date the initial
Financing Order is entered and shall continue in
full force and effect for a term ending one
hundred fifty (150) days after the initial
Financing Order is entered unless sooner
terminated pursuant to the terms of this Agreement
or pursuant to the terms of the Financing Order,
or unless extended upon the written consent of
Lender, at its sole option, for an additional
ninety (90) day term and thereafter, at Lender's
sole option, for an additional one hundred twenty
(120) day term. Notwithstanding the foregoing,
Lender may terminate this Agreement at any time
without notice upon the occurrence of an Event of
Default. All Obligations shall become due and
payable as of any termination of this Agreement
and, pending a final accounting, Lender may
withhold any balances in the Borrower's account
(unless supplied with an indemnity satisfactory to
Lender) to cover all of the Borrower's
Obligations, whether absolute or contingent. All
of Lender's rights, liens and security of
interests shall continue notwithstanding any such
termination until all Obligations have been paid
and satisfied in full."
6.19 Amendment of Section 10.1(b). Section 10.1(b) of the Credit
Agreement is amended and restated in its entirety to read as follows:
"(b) If an order confirming a plan of
reorganization with respect to Borrower has not
been entered by the end of the initial 150 day
term of this Agreement and Lender elects to renew
the Agreement for an additional ninety (90) term
after such initial 150 day term, then Borrower
shall pay to Lender a facility continuation fee in
the amount of $250,000 in consideration of
Lender's renewal of this Agreement for such
additional ninety (90) day term. If an order
confirming a plan of reorganization with respect
to Borrower has not been entered by the end of
such additional ninety (90) day term of this
Agreement and Lender elects to renew this
Agreement for an additional one hundred twenty
(120) day term, then Borrower shall pay to Lender
an additional facility continuation fee in the
amount of $250,000 in consideration of Lender's
renewal of this Agreement for such additional one
hundred twenty (120) day term. The facility
continuation fee and the additional facility
continuation fee provided for herein shall be in
addition to all other amounts payable by Borrower
under this Agreement and the Other Financing
Agreements and shall constitute part of the
Obligations. Such fees may, at Lender's option, be
charged directly to any account of Borrower
maintained with Lender.
6.20 Addition of Section 10.1(g). Section 10.1(g) is added to the
Credit Agreement as follows:
"(g) In the event that prior to consummation of a
plan of reorganization in the Chapter 11 Case, all
Obligations of Borrower to Lender are paid in full
from the proceeds of a loan or loans made to
Borrower by one or more other lenders, then
Borrower shall pay to Lender an early termination
fee in the amount of $250,000. Such early
termination fee shall be in addition to all other
amounts payable by Borrower under this Agreement
and constitute part of the Obligations. Such fee
may, at Lender's option, be charged directly to
any account of Borrower maintained with Lender."
6.21 Amendment of Section 10.8. Section 10.8 of the Credit Agreement
is amended and restated in its entirety to read as follows:
"10.8 This Agreement and the other Financing
Agreements and all other documents referred to
herein or therein have been executed and delivered
in New York, New York and, together with all
transactions and the obligations and rights
hereunder and thereunder, shall be governed by,
construed and interpreted in accordance with the
laws of the State of New York, except to the
extent that the provisions of the Bankruptcy Code
are applicable and specifically conflict with the
foregoing."
7. CONDITIONS PRECEDENT
--------------------
The following are conditions to Lender's extending further
revolving loans and letters of credit accommodations to Borrower pursuant
to the Credit Agreement and are in addition to such conditions contained in
the Credit Agreement:
(a) Borrower shall furnish to Lender all financial
information, projections, budgets, business plans, cash flows and
such other information as Lender shall reasonably request from
time to time;
(b) no trustee or examiner with expanded powers (beyond
those set forth in Section 1106(a)(3) and (4) of the Bankruptcy
Code) shall have been appointed or designated with respect to
Borrower, as Debtor or Debtor-in-Possession, or any of the
Guarantors, as Debtors or Debtors-in-Possession, or their
respective businesses, properties and assets and no motion or
proceeding shall be pending seeking such relief;
(c) the execution and/or delivery of this Agreement and all
other Financing Agreements to be delivered in connection herewith
by Borrower and Guarantors, in form and substance satisfactory to
Lender;
(d) all Bankruptcy Court Orders shall be satisfactory to
Lender's counsel;
(e) Debtor shall comply in full with the notice and other
requirements of the Bankruptcy Code and applicable Bankruptcy
Rules with respect to any relevant Financing Order in a manner
reasonably acceptable to Lender and its counsel;
(f) no material impairment of the value or priority of
Lender's security interests in the Collateral shall have occurred
from the date of the latest field examinations of Lender to the
Petition Date; and
(g) each Financing Order shall be satisfactory to Lender.
8. MISCELLANEOUS
-------------
8.1 Amendments and Waivers. Neither this Agreement nor any other
instrument or document referred to herein or therein may be changed,
waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
8.2 Further Assurances. Each Obligor shall, at its expense, at any
time or times duly execute and deliver, or cause to be duly executed and
delivered, such further agreements, instruments and documents and do or
cause to be done such further acts as may be necessary or proper in
Lender's opinion to evidence, perfect, maintain and enforce Lender's
security interest and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement, any of
the other Financing Agreements or the Financing Order. Upon the request of
Lender, at any time and from time to time, each Obligor shall, at its cost
and expense, do, make, execute, deliver and record, register or file,
financing statements, and other instruments, acts, pledges, assignments and
transfers (or cause the same to be done) and will deliver to Lender such
instruments evidencing items of Collateral as may be requested by Lender.
8.3 Headings. The headings used herein are for convenience only and do
not constitute matters to be considered in interpreting this Agreement.
8.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which shall together constitute one and the same agreement.
8.5 Costs and Expenses. Borrower shall pay to Lender on demand all
reasonable costs and expenses that Lender pays or incurs in connection with
the negotiation, preparation, consummation, administration, enforcement,
and termination of this Agreement and the other Financing Agreements and
the Financing Order, including, without limitation: (a) attorneys' and
paralegals' fees and disbursements of counsel to Lender; (b) costs and
expenses (including attorneys' and paralegals' fees and disbursements) for
any amendment, supplement, waiver, consent, or subsequent closing in
connection with this Agreement, the other Financing Agreements, the
Financing Order and the transactions contemplated thereby; (c) costs and
expenses of lien and title searches and title insurance; (d) taxes, fees
and other charges for recording any agreements or documents with the Office
of Patents and Trademarks or any other governmental authority, and the
filing of UCC financing statements and continuations, and other actions to
perfect, protect, and continue the security interests and liens of Lender
in the Collateral; (e) sums paid or incurred to pay any amount or take any
action required of the Borrower under the Financing Agreements or the
Financing Order that the Borrower fails to pay or take; (f) costs of
appraisals, environmental audits, inspections and verifications of the
Collateral and including travel, lodging, and meals for inspections of the
Collateral and the Borrower's operations by Lender or its agent and to
attend court hearings or otherwise in connection with the Chapter 11 Case;
(g) costs and expenses of forwarding loan proceeds, collecting checks and
other items of payment, and establishing and maintaining payment accounts
and lock boxes; (h) costs and expenses of preserving and protecting the
Collateral; and (i) costs and expenses (including attorneys' and
paralegals' fees and disbursements) paid or incurred to obtain payment of
the Obligations, enforce the security interests and liens of Lender, sell
or otherwise realize upon the Collateral, and otherwise enforce the
provisions of this Agreement, the other Financing Agreements and the
Financing Order, or to defend any claims made or threatened against Lender
arising out of the transactions contemplated hereby (including, without
limitation, preparations for and consultations concerning any such
matters). The foregoing shall not be construed to limit any other
provisions of the Financing Agreements regarding costs and expenses to be
paid by the Obligors. All sums provided for in this Section 8.5 shall be
part of the Obligations, shall be payable on demand, and shall accrue
interest after demand for payment thereof at the highest rate of interest
then payable under the Financing Agreements. Lender is hereby irrevocably
authorized to charge any amounts payable hereunder directly to any of the
account(s) maintained by Lender with respect to Borrower.
8.6 Effectiveness. This Agreement shall become effective upon the
execution hereof by Lender and the entry of the Financing Order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
SALANT CORPORATION
Debtor and Debtor-in-Possession
By: /s/ Todd Kahn
--------------------------------
Title: Executive Vice President &
General Counsel
CLANTEXPORT, INC.
By: /s/ Todd Kahn
--------------------------------
Title: Executive Vice President
DENTON MILLS, INC.
By: /s/ Todd Kahn
--------------------------------
Title: Executive Vice President
VERA LICENSING, INC.
By: /s/ Todd Kahn
--------------------------------
Title: Executive Vice President
J.J. FARMER CLOTHING, INC.
By: /s/ Todd Kahn
--------------------------------
Title: Executive Vice President
FROST BROS. ENTERPRISES, INC.
By: /s/ Todd Kahn
--------------------------------
Title: Executive Vice President
SLT SOURCING, INC.
By: /s/ Todd Kahn
--------------------------------
Title: Executive Vice President
SALANT CANADA INC.
By: /s/ Todd Kahn
--------------------------------
Title: Executive Vice President
THE CIT GROUP/COMMERCIAL SERVICES, INC.
By: /s/ Anthony Lombardi
--------------------------------
Title: Senior Vice President
EXHIBIT 99.1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ----------------------------------x
In re: Chapter 11
Case No. 98-10107 CB
SALANT CORPORATION,
Debtor.
- ----------------------------------x
ORDER AUTHORIZING INTERIM FINANCING, GRANTING SENIOR LIENS
AND PRIORITY ADMINISTRATIVE EXPENSE, MODIFYING THE AUTOMATIC
STAY, AND AUTHORIZING DEBTOR TO ENTER INTO AGREEMENTS WITH
THE CIT GROUP/COMMERCIAL SERVICES, INC. AND AUTHORIZING THE
ASSUMPTION OF THE EXISTING FINANCING AGREEMENTS WITH DEBTOR
------------------------------------------------------------
Upon the Motion of Salant Corporation ("Salant" or the "Debtor"), as
Debtor and Debtor-in-Possession, dated December 29, 1998, seeking, inter
alia, (i) authority pursuant to Sections 364(c)(1), 364(c)(2) and 364(c)(3)
of the United States Bankruptcy Code, 11 U.S.C. ss.ss. 101, et seq. (the
"Code") and Bankruptcy Rules 4001 and 9014, for the Debtor to obtain from
The CIT Group/Commercial Services, Inc. ("CIT" or the "Lender")
post-petition loans, advances, letters of credit and other credit
accommodations in accordance with the advance formulas and the other terms
and conditions set forth in the Financing Agreements (as hereinafter
defined), as amended by the Ratification and Amendment Agreement (the
"Amendment") of even date herewith by and between the Debtor and the
Lender, to be secured by, in accordance with Sections 364(c)(2) and
364(c)(3) of the Code, security interests in and liens upon all of the
Debtor's now existing and hereafter acquired personal and real property and
the proceeds thereof, which such security interests and liens shall, except
for liens on the Pre-Petition Collateral (as defined below) held by parties
other than CIT as described in paragraphs 12 (a) and (b) below, be first
priority security interests and liens, (ii) authority for the Debtor to
ratify, adopt and amend the existing financing and security agreements by
and between the Debtor and CIT, (iii) approval of the terms and conditions
of the financing and security agreements by and between the Debtor and CIT
as ratified, adopted and amended, (iv) the modification of the automatic
stay, (v) the granting to CIT of super-priority administrative claim status
pursuant to Section 364(c)(1) of the Code, and (vi) the setting of a Final
Hearing on the Motion, and it further APPEARING, that at or prior to the
hearing on the Motion, each of the parties set forth below received due
notice of the Motion pursuant to Rules 4001(c)(1) and 1007(d) of the
Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"): (a) the Office
of the United States Trustee, (b) Otterbourg, Steindler, Houston & Rosen,
P.C., the attorneys for CIT, (c) Kramer, Levin, Naftalis & Frankel, the
attorneys for the Indenture Trustee for the Debtor's 10 1/2 Senior Secured
Notes, due December 31, 1998 (the "Indenture Trustee"), (d) Hebb & Gitlin,
the attorneys for Magten Asset Management Corp. ("Magten"), (e) the
Securities and Exchange Commission (the "SEC"), and (f) the twenty (20)
largest unsecured creditors of the Debtor; and it further
APPEARING, that Salant, has filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code on December 29, 1998
(the "Petition Date") and has thereafter continued in the management and
possession of its business and properties as debtor-in-possession pursuant
to Sections 1107 and 1108 of the Code; and it further
APPEARING, that prior to the commencement of the Debtor's Chapter 11
Case, CIT made loans and advances and caused letters of credit to be issued
to the Debtor secured by substantially all of the personal and real
property of Salant, and that Clantexport Inc., Denton Mills, Inc., Vera
Licensing, Inc., J.J. Farmer Clothing, Inc., Frost Bros. Enterprises, Inc.,
SLT Sourcing, Inc. and Salant Canada, Inc. (collectively, the "Non-Debtor
Guarantors") delivered to CIT their written unconditional guarantees of
payment and performance of the present and future obligations of Salant to
CIT, which guaranties are secured by substantially all of the personal
property of the Non-Debtor Guarantors (except for Salant Canada) (the
"Non-Debtor Guarantees"); and it further
APPEARING, that the loans and advances made by CIT to Salant and the
letters of credit which CIT caused to be opened for Salant prior to the
Debtor's Chapter 11 Case were made pursuant to or in reliance upon the
Revolving Credit, Factoring and Security Agreement, dated September 20,
1993, by and between CIT and Salant, and amendments thereto, (collectively,
the "Credit Agreement"), guarantees, security agreements and related
agreements in favor of CIT, including, without limitation, each of the
agreements described in paragraph 1.1(e) of the Amendment and the
agreements and the Uniform Commercial Code financing statements filed by
CIT set forth in the Exhibits accompanying the Motion (all of such
financing agreements, security agreements, financing statements and related
agreements, documents, notes and instruments creating or evidencing
indebtedness of the Debtor or granting and perfecting collateral security
of the Debtor in favor of CIT, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced,
being referred to herein collectively as the "Financing Agreements"); and
it further
APPEARING, that the aggregate principal amount of all obligations,
liabilities and indebtedness of Salant to CIT, both absolute and
contingent, existing as of the commencement of the Chapter 11 Case,
together with all interest, fees, commissions, costs and expenses accrued
and accruing with respect thereto (collectively, the "Pre-Petition Debt"),
the principal amount of which being approximately $70,547,401.91 as of
December 28, 1998, is fully secured pursuant to the Financing Agreements by
perfected, valid and, except for any liens on the pre-petition collateral
held by parties other than CIT as described in paragraphs 12 (a) and (b)
below, first priority, security interests in, and liens upon, the Debtor's
assets as set forth in the Financing Agreements, including, but not limited
to, Salant's present and future, now owned or hereafter acquired, accounts,
chattel paper, instruments, documents, general intangibles, inventory,
equipment, books and records and real property, together with all proceeds
and products of all of the foregoing (collectively, the "Pre-Petition
Collateral"); and it further
APPEARING, that each of the Non-Debtor Guarantors has guaranteed the
payment and performance of all present and future obligations, liabilities
and indebtedness of Salant to CIT, including, without limitation, the
Pre-Petition Debt, and any indebtedness authorized hereunder; and it
further
APPEARING, that Salant and each of the Non-Debtor Guarantors
acknowledges and agrees that: (a) the Financing Agreements in favor of or
for the benefit of the Lender are valid and binding agreements and
obligations of Salant, (b) the security interests in and liens granted to
or for the benefit of the Lender upon the Pre-Petition Collateral are
valid, perfected, and, except for any liens on the Pre-Petition Collateral
held by parties other than CIT as described in paragraphs 12 (a) and (b)
below, senior to all other security interests and liens upon the
Pre-Petition Collateral, (c) all of the Pre-Petition Debt constitutes
allowable claims against the Debtor and is valid, enforceable and
non-voidable in the amount of the Pre-Petition Debt, and (d) the Debtor
does not possess and will not assert any claim, counterclaim, setoff or
defense of any kind or nature, which would in any way affect the validity,
enforceability and non-avoidability of any of the Pre-Petition Debt and the
Lender's security interests in and liens upon the Pre-Petition Collateral
or which would in any way reduce or affect the absolute and unconditional
obligation of the Debtor to pay to the Lender all of the Pre-Petition Debt;
and it further
APPEARING, that without the proposed interim financing, Salant will
not have the funds necessary to pay its post-petition payroll, payroll
taxes, inventory suppliers, overhead and other expenses necessary to
conduct its business and the management and preservation of its assets and
properties; and it further
APPEARING, that Salant has requested that CIT make loans and advances
and cause letters of credit to be issued to it in order to provide funds to
be used by Salant for its general operating, working capital and other
business purposes to continue its business and remain a viable entity and
thereafter reorganize under Chapter 11 of the Code; and it further
APPEARING, that all such additional loans, advances, letters of credit
and other financial accommodations by CIT will benefit the Debtor and its
estate; and it further
APPEARING, that CIT is willing to make such loans and advances and
provide such other credit accommodations on a secured basis as more
particularly described herein and subject to the terms and conditions
contained herein and in the Amendment; and it further
APPEARING, that the ability of the Debtor to continue its business and
maximize the value of its assets under Chapter 11 of the Bankruptcy Code
depends upon obtaining such financing from CIT; and it further
APPEARING, that the relief requested in the Motion is necessary,
essential, and appropriate for the continued operation of the Debtor's
business and the management and preservation of the Debtor's assets and
properties and is in the best interests of the Debtor, its estate and
creditors; and it further
APPEARING, that this is a core matter pursuant to 28 U.S.C. ss.ss.
157(b)(2)(A), (D), (G), (M) and (O) and that this Court has jurisdiction
over this case and this Motion pursuant to 28 U.S.C. ss. 1334;
NOW, THEREFORE, upon the Motion, the files and pleadings in this case,
the record of the proceedings heretofore held before this Court with
respect to the Motion and upon completion of such hearing and after due
deliberation and sufficient cause appearing therefor, the Court finds as
follows:
A. The Debtor is unable to obtain unsecured credit allowable under
Section 503(b)(1) of the Code, or pursuant to Sections 364(a) and (b) of
the Code, except on the terms and conditions set forth herein.
B. Under the circumstances, no other source of interim financing
exists on terms more favorable than those offered by CIT.
C. The Motion was filed on December 29, 1998 and the Debtor has
provided notice of the terms of the Motion and the interim relief requested
thereunder on or before December 29, 1998 to (i) the Office of the United
States Trustee, (ii) Otterbourg, Steindler, Houston & Rosen, P.C., the
attorneys for CIT, (iii) Kramer, Levin, Naftalis & Frankel, the attorneys
for the Indenture Trustee, (iv) Hebb & Gitlin, the attorneys for Magten,
(v) the twenty (20) largest unsecured creditors of the Debtor and (vi) the
SEC. The expedited Notice pursuant to Bankruptcy Rule 4001(c) to such
parties in interest is necessary to avoid immediate and irreparable harm to
the Debtor's estate pending a Final Hearing (as defined below) for
permanent financing. Sufficient and adequate notice of the Motion and the
interim hearing with respect thereto has been given pursuant to Bankruptcy
Rules 2002, 4001(c) and (d) and 9014 and Section 102(1) of the Code as
required by Sections 364(c) and (d) of the Code and no further notice of,
or hearing on the interim relief sought in the Motion is necessary or
required.
D. Consideration of the Motion constitutes a "core proceeding" as
defined in 28 U.S.C. ss.ss. 157(b)(2)(A), (D), (G), (M) and (O). This Order
is subject to, and CIT is entitled to the benefits of, the provisions of
Sections 363(m) and 364(e) of the Code. This Court has jurisdiction over
this proceeding and the parties and property affected hereby pursuant to 28
U.S.C. ss. 1334.
E. The terms of the Financing Agreements between Salant and CIT,
including, without limitation, the Amendment, pursuant to which
post-petition loans, advances, letters of credit and other credit
accommodations may be made or provided to Salant by CIT have been
negotiated in good faith and at arm's length as that term is used at
Section 364(e) of the Code and is in the best interests of the Debtor.
F. Good, adequate and sufficient cause has been shown to justify the
granting of the relief requested herein.
IT IS HEREBY ORDERED, ADJUDGED AND DECREED, that:
1. The Motion is granted and it is hereby approved in all respects.
(This Order may sometimes hereinafter be referred to as the "Interim
Financing Order".)
2. Good and sufficient notice of the Motion's request for the entry of
this Interim Financing Order and the hearing thereon has been provided in
accordance with Sections 102(1) and 364(c)(1), (2) and (3) of the Code,
Bankruptcy Rule 2002 and any requests for other and further notice shall be
and is hereby dispensed with and waived.
3. The relief granted by this Court pursuant to this Interim Financing
Order is necessary to avoid immediate and irreparable harm to the Debtor's
estate.
4. Salant is hereby authorized and empowered for the period commencing
on the date hereof and ending on the close of business on the date of the
Final Hearing to obtain loans and advances from CIT, on an interim basis
pursuant to the terms of this Order and the terms and conditions set forth
in the Credit Agreement, sufficient to avoid immediate and irreparable harm
to the Debtor's estate pending the Final Hearing, in such amount or amounts
as may be made available to Salant from CIT in accordance with the terms of
the Credit Agreement, which amount shall for such interim period not exceed
the lesser of (i) the aggregate principal amount of $15,000,000, inclusive
of all outstanding letters of credit CIT previously caused to be issued for
the benefit of Salant prepetition to the extent that the same are paid, in
whole or in part, during the period covered by this Interim Financing
Order, and (ii) the aggregate amount available to Salant in accordance with
the terms of the Credit Agreement.
5. The Debtor shall use the proceeds of the loans and advances made,
and other credit accommodations provided by CIT to Salant for the payment
of employee salaries, payroll, taxes, collection of accounts, and other
general operating and working capital purposes in the ordinary course of
the Debtor's business in accordance with the terms and conditions of the
Financing Agreements, including without limitation, the Amendment.
6. Upon entry of a Final Order Authorizing Financing, Granting Senior
Liens and Priority Administrative Expense, Modifying the Automatic Stay,
and Authorizing the Debtor to Enter Into Agreements With The CIT
Group/Commercial Services, Inc. and Authorizing the Assumption of the
Existing Financing Agreements with the Debtor (the "Final Order"), in form
and substance satisfactory to CIT, Salant shall be authorized and directed
to apply loans, advances, letters of credit and other credit accommodations
made by CIT to Salant under the Financing Agreements necessary to satisfy
the Pre-Petition Debt as more fully described in the Amendment.
7. The Debtor is authorized and directed to execute, deliver, perform
and comply with the terms, conditions and covenants of the Amendment,
pursuant to which the Debtor shall (a) ratify, assume, adopt and amend the
Financing Agreements and agree to be bound thereby and (b) perform and
comply with the terms and covenants of the Financing Agreements, as amended
by the Amendment. A copy of the Amendment is annexed as Exhibit "B" to the
Motion, and upon execution thereof, it shall be deemed included in the
definition herein of Financing Agreements.
8. The terms and conditions of the Financing Agreements as so
ratified, assumed, adopted and amended shall be deemed to be incorporated
into the terms and conditions of this Order and shall be sufficient and
conclusive evidence of the borrowing arrangements between the Debtor and
CIT and of the Debtor's assumption and adoption of the terms and conditions
of the Financing Agreements, for all purposes, including the payment of all
fees, interest, commissions and expenses as more fully set forth in the
Financing Agreements.
9. The Debtor has acknowledged and agreed and this Court hereby finds
for all purposes in this case, subject only to the rights as hereinafter
set forth in paragraph 10 below of the Official Committee of Unsecured
Creditors (the "Committee"), if one is formed in the Chapter 11 Case, that
as of the Petition Date: (a) the Financing Agreements are valid and binding
agreements and obligations of the Debtor, (b) the principal amount of the
Pre-Petition Debt due and payable to CIT by the Debtor is approximately
$70,547,401.91, including the aggregate face amount of letters of credit
outstanding and undrawn as of December 28, 1998 of $23,654,308.39, (c) the
security interests in and liens of CIT upon the Pre-Petition Collateral are
valid, perfected, enforceable and non-voidable, (d) CIT's pre-petition
claim against the Debtor and the Debtor's estate is allowable and is valid,
enforceable and non-voidable in the amount of the Pre-Petition Debt as set
forth in CIT's books and records, (e) the Debtor does not possess and may
not assert any claim, counterclaim, setoff or defense of any kind or nature
which would in any way affect the validity, enforceability and
non-avoidability of the Pre-Petition Debt and CIT's security interests in
and liens upon the Pre-Petition Collateral or which would reduce or affect
the obligation of the Debtor to pay the Pre-Petition Debt and (f) CIT and
its agents and employees are released and discharged from all claims and
causes of action arising out of the Financing Agreements or CIT's
relationship with the Debtor prior to the entry of this Order.
10. The extent, validity, perfection, enforceability of CIT's
pre-petition liens or any other claims whatsoever against CIT, including
claims based on the matters enumerated in paragraph 9, are for all
purposes, as found by this Court in paragraph 9, subject only to the rights
of the duly appointed Committee in the Debtor's Chapter 11 Case, for a
period of sixty (60) days from the date of its formation (unless such
period is extended by CIT in its sole and complete discretion), to file a
complaint pursuant to Bankruptcy Rule 7001 to invalidate, satisfy or
subordinate the Pre-Petition Debt and/or to object to the extent, validity
or perfection of CIT's pre-petition security interests and liens. If such
complaint is not so timely filed, the Pre-Petition Debt and CIT's security
interests and liens in the Pre-Petition Collateral shall be recognized as
valid, binding, allowed and in full force and effect with respect to all
parties in this proceeding, including, without limitation, any Trustee or
successor Trustee appointed hereafter, and as a fully secured claim
pursuant to Sections 506(a) and (b) of the Code.
11. To secure the prompt payment and performance of any and all
obligations, liabilities and indebtedness of the Debtor to CIT of whatever
kind or nature or description now existing or hereafter arising, including,
without limitation, the Pre-Petition Debt, all post-petition obligations,
liabilities and indebtedness of the Debtor arising under the Financing
Agreements (all of the foregoing collectively, the "Indebtedness"), CIT
shall have and is hereby granted, effective on and after the date of this
Order, valid and perfected first priority security interests and liens,
superior to all other creditors of the estates of the Debtor, except as set
forth in paragraph 12 (a) and (b) below, in and upon all now existing and
hereafter acquired personal and real property of the Debtor and its
bankruptcy estate, of whatever kind or nature, whether acquired prior to or
after the filing of the petition commencing the Debtor's Chapter 11 Case,
including, without limitation, and by way of general description, all
Pre-Petition Collateral, accounts, contract rights, chattel paper,
documents, instruments and books and records, including, without
limitation, all obligations for the payment of money arising out of the
sale, lease or other disposition of goods, merchandise or services which
give rise thereto; all raw materials, work in process, finished goods and
all other inventory of whatsoever kind or nature and any other personal
property held for sale, exchange or lease for use in the Debtor's business;
furniture, machinery, fixtures and equipment; other personal property
acquired for use in the Debtor's business; cash, cash equivalents,
depository accounts, personal property leases, all causes of action whether
arising in contract, tort, or otherwise and whether having accrued as of
the date hereof or hereafter (exclusive, however, of causes of action and
recoveries under Sections 545, 547, 548, 549, and 553 of the Code); general
intangibles (including, without limitation, registered and unregistered
patents, tradenames, trademarks, and the goodwill of the businesses
symbolized thereby, copyrights, service marks, trade secrets, customer
lists, open purchase orders, licenses and other rights and agreements,
royalties arising from the licensing of any intellectual property, Federal,
State and local tax refunds, franchise rights and annuity contracts); and
all other claims and property recovered by or on behalf of the Debtor, or
any Trustee of the Debtor, whether in the Debtor's Chapter 11 Case or any
subsequent Chapter 7 case to which the Debtor's case is converted (except
for any property recovered as a result of any avoidance action maintained
under Sections 545, 547, 548, 549 and 553 of the Code as to which no such
lien or security interest is granted); all real property and real property
leasehold interests and leases, all property set forth in paragraph 4 of
the Amendment, and all proceeds (including without limitation, insurance
proceeds), products, rents and profits of all of the foregoing, whether
cash or non-cash, and all property described as Collateral in the Financing
Agreements (collectively, the "Collateral"). Notwithstanding anything to
the contrary, Collateral does not include the rights under any license
agreement covering personal property in respect of which a security
interest requires the consent of the other party to such agreement and such
consent has not been or is not obtained.
12. Notwithstanding anything to the contrary set forth in paragraph 11
hereof, the security interests in and liens of CIT (a) upon the
pre-petition assets of the Debtor shall be subject to the terms and
conditions of the Intercreditor Agreement, dated September 20, 1993,
between CIT and the Indenture Trustee for the benefit of the holders of the
10 1/2% Senior Secured Notes due December 31, 1998 (the "Intercreditor
Agreement"), and (b) otherwise shall not have priority over prior and
senior liens, if any, on the Debtor's property held by parties other than
CIT, provided, that (i) such liens are valid, perfected and non-voidable in
accordance with applicable law and (ii) the foregoing is without prejudice
to the rights of the Debtor or any party in interest, including without
limitation CIT, to object to the allowance of such liens or institute any
actions or adversary proceedings with respect thereto, and (c) shall be
subject to the Court allowed fees, compensation and disbursements payable
by the Debtor to the Office of the United States Trustee and to all
attorneys, accountants and other professionals retained in the Debtor's
Chapter 11 Case pursuant to Sections 327 or 1103 of the Code, as approved
by the Court, in an amount not to exceed $2,000,000 in the aggregate (the
"Fee Carve-Out"), the foregoing without prejudice to the rights of CIT to
be heard with respect to the allowances or amount of such fees,
compensation and disbursements.
13. Pursuant to Sections 363(b)(1) and 364(c)(2) of the Code, any
provisions in any of leasehold interests of the Debtor that require the
consent or approval of one or more of the Debtor's landlords in order for
the Debtor to pledge or mortgage such leasehold interest, are and shall be
deemed to be inconsistent with the provisions of the Code and are and shall
have no force and effect with respect to the transactions granting the
liens, security interests and mortgages by the Debtor in favor of the
Lender in accordance with the terms of the Amendment.
14. CIT shall have all rights and remedies with respect to the Debtor,
the Indebtedness and the Collateral as are set forth in the Financing
Agreements and this Order.
15. The Financing Agreements shall be subject to termination in CIT's
sole and complete discretion as to any future loans, advances, letters of
credit and other credit accommodations to be made or provided by CIT to the
Debtor immediately upon the occurrence of any Event of Default (as
hereinafter defined) or the expiration or termination of the Debtor's
authorization to borrow from CIT pursuant to this Order or any other order
authorizing the granting of credit by CIT to the Debtor pursuant to Section
364 of the Code as may hereafter be entered by this Court.
16. CIT may, in its discretion, apply the proceeds of the Collateral
or any other amounts received by CIT in respect of the Indebtedness, in
such order or manner as CIT may deem appropriate, including, first to the
Pre-Petition Debt, until such Pre-Petition Debt is paid and satisfied in
full.
17. In accordance with Sections 552(b) and 361 of the Code, the value,
if any, in any of the Collateral, in excess of the amount of the
Indebtedness secured by such Collateral after satisfaction of the
post-petition obligations, liabilities and indebtedness of the Debtor to
CIT, shall constitute additional security for the repayment of the
Pre-Petition Debt and adequate protection for the use by the Debtor of the
Collateral.
18. This Order shall be sufficient and conclusive evidence of the
priority, perfection and validity of all of the security interests in and
liens upon the property of the Debtor's estate granted to CIT as set forth
herein, without the necessity of filing, recording or serving any financing
statements, mortgages or other documents which may otherwise be required
under federal or state law in any jurisdiction or the taking of any other
action to validate or perfect the security interests and liens granted to
CIT in this Order and the Financing Agreements. Such security interests and
liens granted to CIT shall be prior and senior to all security interests,
liens, claims, and encumbrances of all other creditors in and to such
property, except as otherwise set forth in paragraph 12 (a) or (b) of this
Order. If CIT shall, in its discretion, elect for any reason to file any
such financing statements or other documents with respect to such security
interests and liens, the Debtor is authorized and directed to execute, or
cause to be executed, all such financing statements or other documents upon
CIT's reasonable request and the filing, recording or service thereof (as
the case may be) of such financing statements or similar documents shall be
deemed to have been made at the time of and on the Petition Date. CIT may,
in its discretion, file a certified copy of this Order in any filing or
recording office in any County or other jurisdiction in which the Debtor
has real or personal property and, in such event, the subject filing or
recording officer is authorized and directed to file or record such
certified copy of this Order.
19. The Debtor is hereby authorized and directed to perform all acts,
and execute and comply with the terms of such other documents, instruments,
and agreements in addition to the above Financing Agreements, as CIT may
reasonably require as evidence of and for the protection of the
Indebtedness and the Collateral or which may be otherwise deemed necessary
by CIT to effectuate the terms and conditions of this Order and the
Financing Agreements, each of such documents, instruments, and agreements
being included in the definition of "Financing Agreements" contained
herein.
20. The Debtor is authorized and directed, at CIT's request to: (a)
continue any existing Lock Box arrangements in favor of CIT and upon CIT's
request, to enter into similar arrangements, satisfactory to CIT, with such
other banks as may be designated for such purposes (the "Lock Boxes"); (b)
deposit or cause to be deposited all proceeds of Collateral received by the
Debtor into the Lock Boxes established for the benefit of CIT; (c) instruct
all account debtors and other parties now or hereafter obligated to pay for
goods and services provided by the Debtor to them or for inventory or other
property of the Debtor's estate in which CIT has a security interest or
lien to remit such payments to the Lock Boxes, or, after any Event of
Default, at CIT's election, directly to CIT; and (d) enter into such
agreements as may be necessary to effectuate the foregoing.
21. The Debtor is authorized and directed to deposit or cause to be
deposited into the Lock Boxes, or to remit, in kind, immediately to CIT,
all monies, checks and any other payments received from the Debtor's
account debtors and other parties, now or hereafter obligated to pay the
Debtor for inventory or other property of the Debtor's estate. CIT is
authorized to apply such payments and proceeds received by CIT to the
Indebtedness as set forth in this Order and the Amendment.
22. The Debtor is authorized and directed, without further order of
this Court, promptly to pay or reimburse CIT for all present and future
reasonable costs and expenses paid or incurred by CIT to effectuate the
financing transactions as provided in this Order and the Financing
Agreements, all of which unpaid fees, commissions, costs and expenses shall
be and are included as part of the principal amount of the Indebtedness.
23. In making decisions to permit advances under the Financing
Agreements or the collection of the Indebtedness of the Debtor, CIT shall
not be deemed to be in control of the operations of the Debtor by virtue of
the interests, rights and remedies granted to or conferred upon CIT under
the Financing Agreements or this Order, including, without limitation, such
rights and remedies as may be exercisable by CIT in the making (or causing
to be made), administration or collection of the loans, advances, letters
of credit and other financial accommodations to be provided thereunder.
24. Without in any way limiting the provisions of Paragraph 29 of this
Order in connection with an Event of Default, the automatic stay provisions
of Section 362 of the Code shall be, and hereby are, modified in all
respects to the extent necessary to permit CIT implement the terms and
conditions of the Financing Agreements and of this Order including, without
limitation, to permit (i) collection of and realization by CIT upon all
Pre-Petition Collateral that secures the Pre-Petition Debt, and CIT shall
be allowed, as adequate protection of its Pre-Petition Collateral, to
collect the Pre-Petition Collateral and apply the same to the Pre-Petition
Debt and (ii) collection by CIT of the proceeds of the Collateral pursuant
to the Financing Agreements and the creation, perfection and implementation
of CIT's post-petition liens and security interests in the Collateral.
25. The Debtor is authorized and directed to provide to CIT, unless
there is a written waiver by CIT in each instance, all of the
documentation, reports, schedules, assignments, financial statements,
insurance policies and endorsements, access, inspection, audits,
information and other rights which the Debtor is required to provide to CIT
under the Financing Agreements.
26. For all of the Debtor's Indebtedness now existing or hereafter
arising pursuant to the Financing Agreements or otherwise, and in addition
to the foregoing, CIT is granted an allowed super-priority administrative
claim pursuant to Section 364(c)(1) of the Code, having priority in right
of payment over any and all other obligations, liabilities and indebtedness
of the Debtor, now in existence or hereafter incurred by the Debtor and
over any and all administrative expenses or priority claims of the kind
specified in, or ordered pursuant to, Sections 326, 330, 331, 503(b),
506(c) or 507(b) of the Code, provided, however, that CIT's super-priority
administrative claim as provided herein shall be subordinate to the Fee
Carve-out (not to exceed $2,000,000 in the aggregate). Except as provided
in this paragraph, no other claim having priority superior or pari passu to
that granted by this Order to CIT shall be allowed while any Indebtedness
remains outstanding.
27. No costs or expenses of administration which have or may be
incurred (a) in the Debtor's Chapter 11 Case or in any Chapter 7 case
arising from the conversion of the Debtor's Chapter 11 Case pursuant to
Section 1112 of the Code, or (b) pursuant to Section 506(c) of the Code, or
(c) in any future proceedings or cases related hereto, shall be charged
against CIT, its claims, or the Collateral, without the prior written
consent of CIT, and no such consent shall be implied from any other action,
inaction or acquiescence by CIT and, subject to the rights of the Committee
set forth in paragraph 10 of this Order, no obligations incurred or
payments or other transfers made by or on behalf of the Debtor on account
of the financing arrangements with CIT shall be avoidable or recoverable
from CIT under Sections 544, 547, 548, 550, 553 or any other provision of
the Code.
28. Except for sales of inventory in the ordinary course of its
business, the Debtor shall not sell, transfer, lease, encumber or otherwise
dispose of any material portion of the property of its estate without the
prior written consent of CIT, and no such consent shall be implied from any
other action, inaction or acquiescence by CIT, or by Order of the
Bankruptcy Court on prior notice to CIT.
29. In the event of the occurrence of any of the following: (a) the
failure of the Debtor to perform in any material respect any of its
obligations pursuant to this Order, (b) the occurrence of any "Event of
Default" under the Financing Agreements as amended by the Amendment, (c)
the termination of the Credit Agreement, (d) conversion of the Debtor's
Chapter 11 Case to a case under Chapter 7 of the Code, (e) the appointment
in the Debtor's Chapter 11 Case of a Trustee appointed pursuant to Sections
1104(a)(1) or 1104(a)(2) of the Code, or the appointment of an Examiner or
other disinterested person with expanded powers (i.e., beyond those powers
set forth in Sections 1106(a)(3) and (4) of the Code), (f) dismissal of the
Debtor's Chapter 11 Case, (g) the entry of any order modifying, reversing,
revoking, staying, rescinding, vacating or amending this Order without the
express prior written consent of CIT (and no such consent shall be implied
from any other action, inaction or acquiescence by CIT), or (h) the filing
of a plan of reorganization which does not provide for the payment in full
of the Indebtedness on or before the effective date of said plan (the
foregoing being referred to in this Order, individually, as an "Event of
Default" and collectively, "Events of Default"); then (unless such Event of
Default is specifically waived in writing by CIT, which waiver shall not be
implied from any other action, inaction or acquiescence by CIT) (a) all of
the Indebtedness shall become immediately due and payable and (b) CIT shall
be entitled to take custodial possession of the Collateral, to protect and
preserve such assets, the costs of which shall be borne by the Debtor and
become part of the Indebtedness, and upon or after the occurrence of any of
the foregoing, CIT shall be entitled to a hearing on shortened notice on a
motion (the "Stay Relief") seeking an order: (1) vacating and modifying the
automatic stay provided for pursuant to Section 362 of the Code and any
other restriction on the enforcement of CIT's liens and security interests
or any other rights under the Financing Agreements granted to CIT or
pursuant to this Order, and (2) permitting CIT without further notice,
hearing or approval of the Court, in its discretion, to take any and all
actions and remedies which CIT may deem appropriate to proceed against and
realize upon the Collateral and any other property of the Debtor's estate
upon which CIT has been or may hereafter be granted liens and security
interests to obtain repayment of the Indebtedness and to exercise the
rights and remedies granted to CIT under this Order. Unless the Court in
connection with the Stay Relief Motion orders for good cause shown
establishing the need therefor that a shorter or longer notice period is
appropriate, the hearing on such Stay Relief Motion (the "Stay Relief
Motion Hearing") shall be on four (4) business days notice to the Debtor,
the Committee, if any, a Trustee, if appointed, the Office of the United
States Trustee, the Indenture Trustee and Magten and such other parties in
interest as the Court shall determine are appropriate. Nothing herein shall
in any way limit any other rights CIT may have under the Code or the
Bankruptcy Rules to enforce its rights and remedies, including without
limitation, to obtain temporary or preliminary injunctive relief pending
the Stay Relief Motion Hearing to protect against irreparable harm or for
any other reason the Court deems appropriate. Under no circumstances shall
CIT have any obligation to lend or advance any additional funds to the
Debtor or provide other financial accommodations to the Debtor upon or
after the occurrence of an Event of Default.
30. Upon the expiration of the term of the Credit Agreement as set
forth in Section 6.18 of the Amendment (except by reason of an Event of
Default in which case the provisions of Paragraph 29 of this Order shall
apply), all of the Indebtedness shall immediately become due and payable
and, after five (5) days notice by CIT to the Debtor (whether such notice
is provided prior to or after such expiration) of CIT's intention to act in
accordance with the terms of this Paragraph, CIT shall be automatically and
completely relieved from the effect of any stay, including, without
limitation, any stay under Section 362 of the Code or any other restriction
on the enforcement of the liens and security interests or any other rights
granted to CIT pursuant to the terms and conditions of the Financing
Agreements or this Order, and CIT shall be and is hereby authorized, in its
discretion, to take any and all actions and remedies which CIT may deem
appropriate and to proceed against and realize upon the Collateral and any
other property of the Debtor's estate upon which it has been or may
hereafter be granted liens and security interests to obtain repayment of
the Indebtedness including, without limitation, all such actions and
remedies set forth in the Financing Agreements (except if the authority of
the Debtor to borrow from CIT shall be extended with the prior written
consent of CIT, which consent shall not be implied from any other action,
inaction or acquiescence by CIT). Nothing herein shall in any way limit any
rights CIT may have under the Code or the Bankruptcy Rules to enforce its
rights and remedies, including without limitation, to obtain temporary or
preliminary injunctive relief to protect against irreparable harm or for
any other reason the Court deems appropriate.
31. Until all of the Indebtedness shall have been indefeasibly paid
and satisfied in full and without further order of the Court: (a) no other
party shall foreclose or otherwise seek to enforce any lien or other right
such other party may have in and to any property of the Debtor's estate
upon which CIT holds or asserts a lien or security interest and (b) subject
to the terms of Paragraph 29 of this Order, upon and after the occurrence
of an Event of Default, CIT, in its discretion, in connection with a
liquidation of any of the Collateral (i) may, except as may otherwise be
set forth in any agreement between CIT and any third party, use any real
property, equipment, leases, trademarks, tradenames, copyrights, licenses,
patents or any other assets of the Debtor which are owned by or subject to
a lien of any third party and which are used by Debtor in its business,
and, except as otherwise set forth in the Intercreditor Agreement or in any
other agreement between CIT and any third party, the Lender shall be
responsible for the payment of fees, charges or expenses incurred by the
Debtor during the course of such usage by the Lender, without regard to
prior unpaid fees, charges or expense and (ii) the Lender, in its
discretion, shall be authorized to enter into each location where the
Debtor conducts business, and use the same, all without interference from
the Debtor's lessors or mortgagors, for the purpose of liquidating and/or
securing its Collateral, and the Lender shall be responsible at each
location to the Debtor's lessors or mortgagors, as the case may be, for the
payment of the rent, mortgage payments and/or other charges (e.g. taxes,
insurance, common area charges and utilities), on a pro-rated basis,
incurred solely during the course of such liquidation by the Lender,
without regard to prior unpaid rent, mortgage payments and other charges.
32. Upon the payment in full of all Indebtedness to CIT, or upon the
termination or expiration of the Financing Agreements or of this Order, CIT
shall be released from any and all obligations pursuant to the terms of
this Order and/or the Financing Agreements.
33. CIT shall be entitled to the full protection of Section 364(e) of
the Code with respect to debts, obligations, liens, security interests and
other rights created or authorized in this Order in the event that this
Order or any authorization contained herein is vacated, reversed or
modified on appeal or otherwise by any court of competent jurisdiction.
34. All post-petition advances under the Financing Agreements are made
in reliance on this Order and there shall not at any time be entered in the
Debtor's Chapter 11 Case any order which (a) authorizes the use of cash
collateral of the Debtor in which CIT has an interest, or the sale, lease,
or other disposition of property of the Debtor's estate in which CIT has a
lien or security interest or (b) under Section 364 of the Code authorizes
the obtaining of credit or the incurring of indebtedness secured by a lien
or security interest which is equal or senior to a lien or security
interest in property in which CIT holds a lien or security interest, or
which is entitled to priority administrative claim status which is equal or
superior to that granted to CIT herein; unless, in each instance (x) CIT
shall have given its express prior written consent thereto, no such consent
being implied from any other action, inaction or acquiescence by CIT, or
(y) such other order requires that the CIT Indebtedness shall first be
indefeasibly paid in full, including all debts and obligations of the
Debtor to CIT which arise or result from the obligations, loans, security
interests and liens authorized herein. The security interests and liens
granted to CIT hereunder and the rights of CIT pursuant to this Order with
respect to the Indebtedness and the Collateral (x) shall not be altered,
modified, extended, impaired, or affected by any plan of reorganization of
the Debtor and, if (y) CIT shall expressly consent in writing that the
Indebtedness shall not be repaid in full upon confirmation thereof, shall
continue after confirmation and consummation of any such plan.
35. The provisions of this Order and any actions taken pursuant hereto
shall survive entry of any order which may be entered converting the
Debtor's Chapter 11 Case to a Chapter 7 case or any order which may be
entered confirming or consummating any plan of reorganization of the
Debtor, and the terms and provisions of this Order as well as the
priorities in payment, liens, and security interests granted pursuant to
this Order and the Financing Agreements shall continue in this or any
superseding case under the Code, and such priorities in payment, liens and
security interests shall maintain their priority as provided by this Order
until all Indebtedness is indefeasibly satisfied and discharged; provided,
that, all obligations and duties of CIT hereunder, under the Financing
Agreements or otherwise with respect to any future loans and advances or
otherwise shall terminate immediately upon the earlier of the date of any
Event of Default or the date that a plan of reorganization of the Debtor
becomes effective unless CIT has given its express prior written consent
thereto, no such consent being implied from any other action, inaction or
acquiescence by CIT.
36. The provisions of this Order shall inure to the benefit of the
Debtor and CIT and shall be binding upon the Debtor and its successors and
assigns, including any Trustee or other fiduciary hereafter appointed as a
legal representative of the Debtor or with respect to property of the
estate of the Debtor, whether under Chapter 11 or Chapter 7 of the Code,
and shall also be binding upon all creditors of the Debtor and other
parties in interest.
37. No order under Sections 305 or 1112 of the Code or otherwise (i)
dismissing the Debtor's Chapter 11 Case shall be entered unless prior to
the entry thereof, all obligations and indebtedness owing to CIT shall have
been indefeasibly paid in full (including reimbursement to CIT for all
outstanding letters of credit) in accordance with the provisions of the
Financing Agreements, and CIT's obligation to make loans has been
terminated or (ii) converting the Debtor's Chapter 11 Case shall be entered
unless such Order expressly provides that the priority of the claims of CIT
granted herein shall be senior in right of payment to any claim allowed
under Section 503(b) of the Code which is incurred or arises on or after
the date of such Order. If any or all of the provisions of this Order are
hereafter modified, vacated or stayed, such modification, vacation or stay
shall not affect (a) the validity of any obligation, indebtedness or
liability incurred by the Debtor to CIT prior to the effective date of such
modification, vacation or stay, or (b) the validity or enforceability of
any security interest, lien, or priority authorized or created hereby or
pursuant to the Financing Agreements. Notwithstanding any such
modification, vacation or stay, any indebtedness, obligations or
liabilities incurred by the Debtor to CIT prior to the effective date of
such modification, vacation or stay shall be governed in all respects by
the original provisions of this Order, and CIT shall be entitled to all the
rights, remedies, privileges and benefits granted herein and pursuant to
the Financing Agreements with respect to all such indebtedness, obligations
or liabilities. The obligations and indebtedness of the Debtor to CIT under
the Financing Agreements shall not be discharged by the entry of an order
confirming a plan or reorganization in the Debtor's Chapter 11 Case and,
pursuant to Section 1141(d)(4) of the Code, unless and until CIT is paid in
full prior to or concurrently with the entry of such order, the Debtor has
waived such discharge.
38. The Debtor irrevocably waives any right to seek any modifications
or extensions of this Order without the prior written consent of CIT.
39. To the extent the terms and conditions of the Financing Agreements
are in conflict with the terms and conditions of this Order, the terms and
conditions of this Order shall control.
40. The terms of the interim financing arrangements between the Debtor
and CIT were negotiated in good faith and at arm's length between the
Debtor and CIT and any loans, advances, letters of credit or other
financial accommodations which are caused to be made, continued or issued
to the Debtor by CIT pursuant to the Financing Agreements are deemed to
have been extended in good faith, as the term is used in Section 364(e) of
the Code, and shall be entitled to the full protection of Section 364(e) of
the Code in the event that this Order or any provision hereof is vacated,
reversed or modified, on appeal or otherwise.
41. Nothing contained in this Order or the Amendment shall be deemed
to terminate, modify or release any obligations of the Debtor to CIT with
respect to the Pre-Petition Debt, the Indebtedness or otherwise.
42. Notice of the entry of this Order must be served upon (a) the
Office of the United States Trustee, (b) Otterbourg, Steindler, Houston &
Rosen, P.C., the attorneys for CIT, (c) Hebb & Gitlin, the attorneys for
Magten, (d) Kramer, Levin, Naftalis & Frankel, the attorneys for the
Indenture Trustee, (e) the attorneys for the Committee, if any, (f) all
creditors known to the Debtor who may have liens against the Debtor's
assets, (g) the twenty (20) largest unsecured creditors of the Debtor, (h)
all landlords, owners, operators and mortgagees, if any, known to the
Debtor, of the premises at which any Collateral is located, and licensors
of any trademark or tradename used by the Debtor, (i) all other interested
third parties in possession of any of the inventory of Salant, including,
without limitation, sales agents or representatives and consignees, (j) the
Office of the United States Attorney for this judicial district, (k) all
parties in interest who have filed a Notice of Appearance, (l) the SEC, and
(m) the Pension Benefit Guaranty Corporation.
43. This matter is set for a final hearing at 2:00 p.m. on January 19,
1999 ("Final Hearing"), in the Courtroom usually occupied by this Court,
the United States Bankruptcy Court for the Southern District of New York
("Bankruptcy Court"), New York, New York, at which time any
party-in-interest may appear and state its objections, if any, to the
borrowings by the Debtor. All parties identified in Paragraph 42 shall
immediately, and in no event later than December 30, 1998, be mailed copies
of the Motion and of this Order or such written summary of this Order as
the Court may approve. Objections shall be in writing and shall be filed
with the Clerk of the Bankruptcy Court in Room 534 with a copy served upon
the attorneys for the Debtor, Fried, Frank, Harris, Shriver & Jacobson, One
New York Plaza, New York, New York 10004, Attention: Brad E. Scheler, Esq.,
and the attorneys for CIT, Otterbourg, Steindler, Houston & Rosen, P.C.,
230 Park Avenue, New York, New York 10169, Attention: William M. Silverman,
Esq. so as to be received on or before the close of business on January 15,
1999; any objections by creditors or other parties in interest to any of
the provisions of this Order shall be deemed waived unless filed and served
in accordance with the notice on or before the close of business on such
date. Except as otherwise provided in this paragraph, the terms of this
Order shall be valid and binding upon the Debtor, all creditors of the
Debtor and all other parties in interest from and after the date of this
Order by this Court. In the event this Court modifies any of the provisions
of this Order and the Financing Agreements following such further hearing,
such modifications shall not affect the rights and priorities of CIT
pursuant to this Order with respect to the Collateral and any portion of
the Indebtedness which arises, or is incurred or is advanced prior to such
modifications (or otherwise arising prior to such modifications), and this
Order shall remain in full force and effect except as specifically amended
or modified at the Final Hearing.
Dated: New York, New York
December 29, 1998
/s/ Cornelius Blackshear
- ------------------------------
UNITED STATES BANKRUPTCY JUDGE
EXHIBIT 99.2
[SALANT CORPORATION LOGO]
FOR IMMEDIATE RELEASE
---------------------
CONTACT: Kekst & Company
James Fingeroth
Molly Marse
(212) 521-4800
SALANT CORPORATION FILES PRE-NEGOTIATED CHAPTER 11 PLAN TO
IMPLEMENT RESTRUCTURING OF ITS SENIOR NOTES AND AGREES
TO SELL ITS JOHN HENRY AND MANHATTAN BUSINESS TO FOCUS
ON ITS PERRY ELLIS MEN'S BUSINESS
New York, NY, December 29, 1998 -- Salant Corporation (NYSE: SLT)
today announced that it has filed a petition under chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of New York in order to implement a restructuring of its 10-1/2%
Senior Secured Notes due December 31, 1998. Salant also filed its plan of
reorganization with the Bankruptcy Court today in order to implement its
restructuring. The Plan is supported by Salant's major note and equity
holders. In addition, Salant has obtained an $85 million
debtor-in-possession facility from its existing working capital lender, The
CIT Group/Commercial Services, Inc., during the chapter 11 case.
Salant also announced that post-restructuring, it intends to focus
solely on its Perry Ellis men's apparel business and, as a result, intends
to exit its other businesses, including its children's and menswear
divisions. To that end, Salant has entered into an agreement with Supreme
International Corporation to sell its John Henry and Manhattan businesses.
These businesses include the John Henry, Manhattan and Lady Manhattan trade
names, the John Henry and Manhattan dress shirt inventory, the leasehold
interest in the dress shirt facility located in Valle Hermosa, Mexico, and
the equipment located at the Valle Hermosa facility and at Salant's
facility located in Andalusia, Alabama.
To lead the new Salant, Michael Setola, the former President of
Salant's Perry Ellis Menswear Group, has been appointed Chairman and Chief
Executive Officer of Salant effective immediately. Jerald S. Politzer,
Salant's former Chairman and Chief Executive Officer, will continue to
serve on Salant's Board of Directors and be employed as a consultant during
Salant's restructuring in order to assist in the transition of the
Company's business. In addition, Salant has appointed Todd Kahn, its EVP of
Corporate Affairs and General Counsel, as its new Chief Operating Officer.
Salant intends to ask the Bankruptcy Court to schedule a hearing on
its disclosure statement with respect to the Plan at the earliest possible
time. Salant expects that its Plan, which leaves unimpaired Salant's
general unsecured creditors (including trade creditors) and is designed to
provide for the restructuring of its Senior Notes, will have the support of
its debt and equity constituencies and trading partners. With such support,
the Plan provides that (i) all of the outstanding principal amount of
Senior Notes, plus all accrued and unpaid interest thereon, will be
converted into 95% of Salant's new common stock, subject to dilution, and
(ii) all of Salant's existing common stock will be converted into 5% of
Salant's new common stock, subject to dilution. If such support is not
forthcoming, then pursuant to the Plan (i) all of the outstanding principal
amount of the Senior Notes, plus all accrued and unpaid interest thereon,
will be converted into 40% of Salant's new common stock, subject to
dilution, plus pay-in-kind notes to be issued by the reorganized company in
the aggregate principal amount of $92 million, bearing interest at 15% per
annum and with a maturity date on the eighth anniversary of issuance, and
(ii) all of Salant's existing common stock will be converted into 60% of
Salant's new common stock, subject to dilution.
Magten Asset Management Corp., the representative of the beneficial
owners of, approximately 70% of the aggregate principal amount of the
Senior Notes, and Apollo Apparel Partners, L.P., the beneficial owner of
approximately 40.1% of Salant's issued and outstanding common stock,
support the Plan. Immediately prior to the filing of Salant's chapter 11
case, Robert Falk, Robert Katz, principals of Apollo Apparel Partners,
L.P., and Edward Yorke, a former principal of Apollo Apparel Partners,
L.P., resigned from Salant's board of directors.
As previously announced, Salant has received and accepted an $85
million financing commitment from CIT that would be available upon
completion of Salant's restructuring. Salant currently anticipates that it
will be able to consummate its Plan and exit chapter 11 within 90 days.
Mr. Politzer stated, "When I first joined the Company in April 1997,
Salant was a multi-divisional apparel company pursuing numerous business
opportunities. Given that during the last year the capital markets have not
looked favorably upon investing in highly leveraged companies, especially
apparel companies. Salant was unable to refinance its bond debt. As a
result, Salant recognized that its designer brand business provided the
greatest potential for long term growth and profitability, and has
determined to focus solely on its Perry Ellis business. Mike Setola, who
has been President of our Perry Ellis division for over four years, clearly
has demonstrated the leadership skills and business acumen to lead the new
Salant."
Mr. Setola said: "On behalf of the Board of Directors and myself, I
would like to express our sincere gratitude for Jerry Politzer's tireless
efforts to improve Salant's business and lay the foundation for Salant's
restructuring effort. I look forward to quickly transitioning our business
through the restructuring processes to a Perry Ellis only businesses and to
the emergence of a new and successful Salant."
