UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re: :
: Chapter 11
SALANT CORPORATION : Case No. 98-10107 (CB)
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:
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Debtor. :
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FIRST AMENDED DISCLOSURE STATEMENT FOR CHAPTER 11
PLAN OF REORGANIZATION FOR SALANT CORPORATION
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Dated: New York, New York
February 3, 1999
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
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...................................27
5. The CIT Exit Facility..................................28
6. Sale of Non-Perry Ellis Divisions......................29
III. EFFECT OF CONSUMMATION OF THE PLAN...............................32
A. DILUTION OF EQUITY INTERESTS...............................32
B. PROVISIONS FOR EMPLOYEES...................................33
IV. THE CHAPTER 11 CASE..............................................34
A. TIMETABLE FOR THE CHAPTER 11 CASE..........................34
B. COMMITTEES.................................................35
C. ACTIONS TAKEN UPON COMMENCEMENT OF CASE....................36
1. Applications to Retain Professionals...................36
2. Motion to Extend Time to File Schedules and
Statement of Financial Affairs.........................36
3. Motion to Maintain Prepetition Bank
Accounts, Use Existing Business Forms,
Stationary and Checks..................................37
4. Motion for Authority to Pay Prepetition
Employee Wages Commissions, Salaries,
Reimbursable Employee Expenses, Worker's
Compensation and Associated Benefits...................37
5. Chapter 11 Financing...................................38
6. Motion Restraining and Enjoining Utilities
from Discontinuing Service.............................38
7. Motion to Pay Custom Duties, Broker Charges,
Shipping Charges and Related Possessory Liens..........38
8. Motion for Authority to Pay Sales and Use Taxes........39
9. Deadline for Filing Proofs of Claim....................39
V. SUMMARY OF THE PLAN...............................................39
A. BRIEF EXPLANATION OF CHAPTER 11............................39
B. GENERAL INFORMATION CONCERNING TREATMENT OF
CLAIMS AND INTERESTS.......................................40
C. CLASSIFICATION AND TREATMENT OF CLAIMS AND
INTERESTS..................................................42
1. Unclassified Claims....................................43
2. Classified Claims And Interests........................46
3. Employee Claims........................................50
4. Potential Claims of Plaintiffs in the
Rodriguez-Olvera Action................................51
D. SECURITIES TO BE ISSUED AND TRANSFERRED
UNDER THE PLAN.............................................53
1. The New Common Stock...................................53
2. Market And Trading Information.........................55
3. The New PIK Senior Notes...............................55
E. SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS.................55
F. EXECUTORY CONTRACTS AND UNEXPIRED LEASES...................55
1. Generally..............................................55
2. Assumption and Rejection...............................56
3. Deadline for Filing Rejection Damage Claims............56
G. IMPLEMENTATION OF THIS PLAN................................56
1. Vesting of Property....................................56
2. Transactions on Business Days..........................57
3. Restated Certificate of Incorporation;
Restated By-Laws.......................................57
4. Implementation.........................................57
5. Issuance of New Securities.............................57
6. Cancellation of Existing Securities and Agreements.....58
7. Board of Directors of Reorganized Salant...............58
8. Employee Benefit Plans.................................58
9. The Stock Award and Incentive Plan.....................58
10. The Restricted Stock Plan..............................59
11. Survival of Indemnification and Contribution
Obligations............................................59
12. Listing of New Common Stock; Registration
of Securities..........................................59
13. The Management Employment Agreements...................60
14. Retention and Enforcement of Causes of Action..........60
H. PROVISIONS COVERING DISTRIBUTIONS..........................61
1. Timing of Distributions Under the Plan.................61
2. Allocation of Consideration............................61
3. Cash Payments..........................................61
4. Payment of Statutory Fees..............................61
5. Payment of Interest....................................62
6. Fractional Securities..................................62
7. Withholding of Taxes...................................62
8. Distribution Record Date...............................62
9. Persons Deemed Holders of Registered Securities........63
10. Surrender of Existing Securities.......................63
11. Special Procedures for Lost, Stolen, Mutilated
or Destroyed Instruments...............................64
12. Undeliverable or Unclaimed Distributions...............64
I. PROCEDURES FOR RESOLVING DISPUTED CLAIMS...................65
1. Objections to Claims...................................65
2. Procedure..............................................65
3. Payments and Distributions With Respect to
Disputed Claims........................................65
4. Timing of Payments and Distributions With
Respect to Disputed Claims.............................66
5. Individual Holder Proofs of Interest...................66
J. DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS
OF CLAIMS..................................................66
1. Discharge of All Claims and Interests and Releases.....66
2. Injunction.............................................67
3. Exculpation............................................68
4. Guaranties and Claims of Subordination.................68
K. CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND
EFFECTIVE DATE.............................................69
1. Conditions Precedent to Entry of the
Confirmation Order.....................................69
2. Conditions Precedent to the Effective Date.............69
3. Waiver of Conditions...................................70
4. Effect of Failure of Conditions........................70
L. MISCELLANEOUS PROVISIONS...................................71
1. Bankruptcy Court to Retain Jurisdiction................71
2. Binding Effect of this Plan............................71
3. Nonvoting Stock........................................72
4. Authorization of Corporate Action......................72
5. Retiree Benefits.......................................72
6. Withdrawal of the Plan.................................72
7. Dissolution of Committees..............................73
8. Discharge of Indenture Trustee.........................73
9. Amendments and Modifications to the Plan...............73
10. Section 1125(e) of the Bankruptcy Code.................73
VI. DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT.....................74
VII. DESCRIPTION OF STOCK AWARD AND INCENTIVE PLAN....................74
A. PURPOSE OF THE STOCK AWARD AND INCENTIVE PLAN..............75
B. ELIGIBILITY................................................75
C. PLAN ADMINISTRATION AND SHARES SUBJECT TO THE
STOCK AWARD AND INCENTIVE PLAN.............................75
D. AWARDS.....................................................76
E. CHANGE IN CONTROL..........................................78
F. TRANSFERABILITY............................................78
G. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS..................78
H. TREATMENT OF OLD OPTIONS...................................80
VIII. CHANGES IN BOARD OF DIRECTORS AND MANAGEMENT.....................81
A. BOARD OF DIRECTORS OF REORGANIZED SALANT...................81
B. EMPLOYMENT OF MICHAEL SETOLA...............................83
C. EMPLOYMENT OF TODD KAHN....................................83
D. EXISTING EMPLOYMENT AGREEMENTS WITH JERALD
POLITZER AND PHILIP FRANZEL................................84
IX. RISK FACTORS.....................................................88
A. DISRUPTION OF OPERATIONS RELATING TO BANKRUPTCY
FILING.....................................................89
B. CERTAIN RISKS OF NON-CONFIRMATION..........................89
C. CERTAIN BANKRUPTCY CONSIDERATIONS..........................91
1. Failure To Consummate Plan.............................91
2. Effect On Operations...................................91
3. Nonconsensual Confirmation.............................92
D. BUSINESS RISK FACTORS......................................92
1. Results of Operations Subject to Variable
Influences; Intense Competition........................92
2. Dilution...............................................93
3. Limitation on Use of Net Operating Losses..............93
4. Volatility; Lack of Trading Market and
Potential De-Listing of the New Common Stock...........93
5. Possible Volatility of Stock Price.....................94
6. Concentrated Ownership of New Common Stock.............94
7. Absence of and/or Restrictions on Dividends............95
8. History of Losses; Effect of Transaction...............95
9. Cash Flow From Operations..............................95
10. Declines in Net Sales and Gross Profits................96
11. Retail Environment.....................................97
12. Apparel Industry Cycles and Other Economic Factors.....97
13. Seasonality and Fashion Risk...........................98
14. Dependence on Certain Customers and Licensees;
Effect of Plan on Licenses.............................98
15. Foreign Operations and Sourcing; Import
Restrictions..........................................100
16. Dependence on Contract Manufacturing..................101
17. Information Systems and Control Procedures............101
18. Leverage and Debt Service.............................102
19. Need for Sustained Trade Support......................102
X. APPLICATION OF SECURITIES ACT....................................102
A. ISSUANCE AND RESALE OF NEW SECURITIES UNDER THE PLAN.......102
XI. FINANCIAL PROJECTIONS AND ASSUMPTIONS USED.......................104
A. GENERAL...................................................104
B. PRINCIPAL ASSUMPTIONS.....................................105
C. SALES.....................................................107
D. GROSS MARGIN..............................................107
E. OPERATING EXPENSES........................................107
F. WORKING CAPITAL...........................................107
G. CAPITAL EXPENDITURES......................................108
H. INTEREST EXPENSE..........................................108
I. INCOME TAXES..............................................108
PLAN ALTERNATIVE #1...........................................109
PROJECTED CONDENSED STATEMENTS OF CONSOLIDATED
OPERATIONS..................................................109
PLAN ALTERNATIVE #1...........................................110
PROJECTED CONDENSED CONSOLIDATED BALANCE SHEETS...............110
PLAN ALTERNATIVE #1 PROJECTED STATEMENTS OF
CONSOLIDATED CASH FLOWS.....................................111
PLAN ALTERNATIVE #2...........................................112
PROJECTED CONDENSED STATEMENTS OF CONSOLIDATED
OPERATIONS..................................................112
PLAN ALTERNATIVE #2...........................................113
PROJECTED CONDENSED CONSOLIDATED BALANCE SHEETS...............113
PLAN ALTERNATIVE #2...........................................114
PROJECTED STATEMENTS OF CONSOLIDATED CASH FLOWS...............114
XII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.............115
A. FEDERAL INCOME TAX CONSEQUENCES TO REORGANIZED
SALANT....................................................115
1. Cancellation Of Indebtedness Income...................115
2. Limitation On Net Operating Loss Carryovers...........116
3. Limitation on Interest Deductions.....................117
B. FEDERAL INCOME TAX CONSEQUENCES TO NOTEHOLDERS............118
1. General...............................................118
2. Market Discount.......................................119
3. Application of Original Issue Discount Rules
to New PIK Senior Notes...............................119
4. Disposition of New Common Stock and New PIK
Senior Notes..........................................122
C. FEDERAL INCOME TAX CONSEQUENCES TO STOCKHOLDERS...........123
1. General...............................................123
2. Disposition...........................................123
XIII. REQUIREMENTS FOR CONFIRMATION OF PLAN...........................123
A. CONFIRMATION HEARING......................................123
B. FEASIBILITY OF THE PLAN...................................126
C. BEST INTERESTS TEST.......................................127
D. LIQUIDATION ANALYSIS......................................129
E. NONCONSENSUAL CONFIRMATION................................138
1. No Unfair Discrimination..............................138
2. Fair and Equitable Test...............................138
PLAN ALTERNATIVE #1 SALANT CORPORATION NOTES TO UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS...................145
PLAN ALTERNATIVE #2 SALANT CORPORATION NOTES TO UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS...................151
XIV. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN......152
A. CONTINUATION OF THE CHAPTER 11 CASE.......................152
B. LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11.................152
XV. VOTING AND CONFIRMATION OF THE PLAN.............................153
A. VOTING DEADLINE...........................................153
B. HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE...154
C. VOTE REQUIRED FOR ACCEPTANCE BY A CLASS...................155
D. VOTING PROCEDURES.........................................155
Holders of Class 3 Senior Note Claims and
Class 7 Old Common Stock Interests.....................155
XVI. CONCLUSION AND RECOMMENDATION...................................159
APPENDIX I - PLAN
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
First Amended Disclosure Statement (the "Disclosure Statement") for the
Chapter 11 Plan of Reorganization for Salant Corporation, dated February 3,
1999 (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.
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 February 3, 1999, 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 MARCH 25, 1999 BEFORE THE HONORABLE CORNELIUS BLACKSHEAR,
UNITED STATES BANKRUPTCY JUDGE FOR THE SOUTHERN DISTRICT OF NEW YORK,
ALEXANDER HAMILTON CUSTOMS HOUSE, ONE BOWLING GREEN, NEW YORK, NEW YORK
10004, AT 2:00 P.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 MARCH 15, 1999 AT 4:30 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.
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 AT THE ELECTION OF THE DEBTOR PRIOR
(UNIMPAIRED) 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
(IMPAIRED) TO 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
CLAIMS (UNIMPAIRED) TO THE EFFECTIVE DATE, ON THE
EFFECTIVE DATE OR AS SOON AS
PRACTICABLE THEREAFTER, EACH HOLDER
OF AN ALLOWED MISCELLANEOUS SECURED
CLAIM WILL BE ENTITLED TO RECEIVE ON
ACCOUNT OF SUCH HOLDER'S ALLOWED
MISCELLANEOUS SECURED CLAIM ONE OF
THE FOLLOWING TREATMENTS: (I) THE
LEGAL, EQUITABLE AND CONTRACTUAL
RIGHTS TO WHICH SUCH ALLOWED
MISCELLANEOUS SECURED CLAIM ENTITLES
SUCH HOLDER SHALL REMAIN UNALTERED,
(II) SUCH HOLDER'S ALLOWED
MISCELLANEOUS SECURED CLAIM SHALL BE
REINSTATED AND RENDERED UNIMPAIRED
IN ACCORDANCE WITH SECTION 1124 OF
THE BANKRUPTCY CODE, OR (III) SUCH
OTHER TREATMENT AS MUTUALLY AGREED
TO BY THE DEBTOR AND SUCH HOLDER.
5 PBGC CLAIMS ON THE EFFECTIVE DATE, THE HOLDER OF
(IMPAIRED) 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 AT THE ELECTION OF THE DEBTOR PRIOR
CLAIMS (UNIMPAIRED) TO THE EFFECTIVE DATE, ON THE
EFFECTIVE DATE OR AS SOON AS
PRACTICABLE THEREAFTER, EACH HOLDER
OF AN ALLOWED GENERAL UNSECURED
CLAIM THAT HAS NOT BEEN FULLY PAID
OR SATISFIED PRIOR TO THE EFFECTIVE
DATE WILL BE ENTITLED TO RECEIVE ON
ACCOUNT OF SUCH HOLDER'S ALLOWED
GENERAL UNSECURED CLAIM ONE OF THE
FOLLOWING TREATMENTS: (I) THE LEGAL,
EQUITABLE AND CONTRACTUAL RIGHTS TO
WHICH SUCH ALLOWED GENERAL UNSECURED
CLAIM ENTITLES SUCH HOLDER SHALL
REMAIN UNALTERED, (II) SUCH HOLDER'S
ALLOWED GENERAL UNSECURED CLAIM WILL
BE REINSTATED AND RENDERED
UNIMPAIRED UNDER SECTION 1124 OF THE
BANKRUPTCY CODE, OR (III) SUCH OTHER
TREATMENT AS MUTUALLY AGREED TO BY
THE DEBTOR AND SUCH HOLDER.
7 OLD COMMON STOCK IF THE PEI EVENT OCCURS ON OR PRIOR
INTERESTS (IMPAIRED) 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 ON THE EFFECTIVE DATE, OTHER
(IMPAIRED) 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 March
15, 1999 (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 is in
the process of selling or otherwise disposing 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 is in the process of selling or otherwise disposing 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 described herein.
On January 29, 1999, Supreme International Corporation and PEI issued
a press release, which stated in part that:
Supreme Internal Corporation and [PEI] today announced
that they have reached a definitive agreement under
which Supreme International will acquire in cash all of
the stock of [PEI] in a transaction valued at
approximately $75 million. The transaction is expected
to close within 60 days and is subject to various
conditions including regulatory approvals such as the
Hart-Scott-Rodino Anti-Trust Act.
The Debtor's management is reviewing with its various constituencies,
including Magten and CIT, the impact, if any, that the announced Supreme
International Corporation and PEI transaction will have on the
restructuring efforts of the Debtor.
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 29,
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 29, 1998, the Bankruptcy Court approved
the CIT DIP Facility on an interim basis. After a hearing before the
Bankruptcy Court held on January 19, 1999 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 is in
the process of selling or otherwise disposing 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, as described in more detail below, the
Bankruptcy Court has established bidding procedures with respect to the
Debtor's sales of its non Perry Ellis businesses. The Debtor expects that
such sales will be approved pursuant to section 363 of the Bankruptcy Code.
As a result, during the Chapter 11 Case, the Debtor is in the process of
selling of or otherwise disposing 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 28,
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 Debtor'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 (the Debtor estimates
that the Net Book Value of the inventory as of December 31, 1998 is $17.855
million) and (iii) $17 million, less the $1 million good faith deposit for
all transferred assets other than the inventory. Thus, the Debtor estimates
the aggregate purchase price for the assets to be $34.855 million. On
January 6, 1999, the Debtor filed a motion seeking (i) approval of the
Salant Dress Shirt Sale Agreement and (ii) establishing bidding procedures
for solicitation of higher and better bids. The Bankruptcy Court approved
the proposed bidding procedures on February 3, 1999. Pursuant to the
approved bidding procedures, all bids for Salant's Non-Perry Ellis Dress
Shirt Business must be submitted by February 18, 1999. The hearing on
approval of the Salant Dress Shirt Sale Agreement is February 24, 1999.
(b) Sale of Children's Group
Pursuant to a Purchase and Sale Agreement, dated as of January 14,
1999, (the "Salant Children's Sale Agreement"), Salant, Denton Mills, Inc.,
a Delaware corporation and wholly-owned subsidiary of Salant, Carrizo
Manufacturing Co., S.A. de C.V., a Mexican Corporation and wholly-owned
subsidiary of Salant, agreed to sell to Wormser Company ("Wormser"), all of
Salant's right to, title and interest in, certain assets of Salant's
Children's Group. These assets consist of (i) the Dr. Denton name, (ii)
Salant's rights under various licenses, (iii) certain equipment related to
the Children's Group and (iv) inventory related to the Dr. Denton name and
the licenses. As consideration for the purchase of these assets, pursuant
to the Salant Children's Sale Agreement, Wormser has agreed, among other
things, to pay the following amounts: (i) the Net Realizable Value (as
defined in the Salant Children's Sale Agreement) for the purchased
inventory (the Debtor anticipates the Net Realizable Value of the inventory
as of the first week of March, 1999 (which is when the Debtor anticipates
the closing on the sale to have occurred by) to be $3,283,000), (ii) the
liquidation value for the equipment purchased (the liquidation value of the
equipment currently being purchased is $1,181,900; the Debtor and Wormser
may, however, agree upon the sale of additional equipment prior to the
closing of the sale), (iii) $1,750,000 for all transferred assets other
than the inventory and the equipment. Thus, the Debtor estimates that the
aggregate purchase price for the assets to be $5,214,000. On January 15,
1999, the Debtor filed a motion seeking (i) approval of the Salant
Children's Sale Agreement and (ii) establishing bidding procedures for
solicitation of higher and better bids. The Bankruptcy Court approved the
proposed bidding procedures on January 27, 1999. Pursuant to the approved
bidding procedures, all bids for Salant's Children's Group must be
submitted by February 11, 1999. The hearing on approval of the Salant
Children's Sale Agreement is scheduled for February 17, 1999.
As set forth above, the Children's Group among other things, markets
sleepwear and underwear under the Joe Boxer trademark. The Debtor's rights
under its licensed agreement with Joe Boxer Corporation ("Joe Boxer") is
not being sold to Wormser under the Salant Children's Sale Agreement. On
February 4, 1999, the Debtor filed a motion seeking approval of a
settlement agreement with Joe Boxer that provides for the termination of
the Debtor's license agreement with Joe Boxer. The hearing on approval of
the Settlement Agreement with Joe Boxer is scheduled for February 19, 1999.
(b) Sale of Salant's Other Non-Perry Ellis Businesses
Salant has begun the process of marketing for sale the Bottoms
Division of its Menswear Group. In addition, Salant intends to begin
marketing for sale the Accessories division of its Menswear Group. In
addition, the Menswear Group also markets products under the Gant and Sally
Dog trademarks pursuant to license agreement with Philip-Van Heusen
Corporation ("Van Heusen"). The Debtor's rights under its license
agreements with Van Heusen are not being sold to Supreme under the Salant
Menswear Sale Agreement. The Debtor and Van Heusen are currently in
negotiations regarding the termination of the license agreements. Once the
parties reach an agreement, the Debtor will seek approval of any such
agreement by the Bankruptcy Court.
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 December 29, 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 scheduled the Disclosure Statement
hearing for February 3, 1999 at 10:00 a.m. The deadline to object to
approval of the Disclosure Statement was January 27, 1999 at 4:30. At the
Disclosure Statement hearing, the Bankruptcy Court approved the adequacy of
the information contained therein. The Bankruptcy Court has scheduled a
hearing on confirmation of the Plan for March 25, 1999 at 2:00 p.m.
Objections to the Plan must be filed by 4:30 p.m. New York City time on
March 15, 1999.
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
December 29, 1998.
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 January 28, 1999 pursuant to an order of
the Court dated December 29, 1998. On January 28, 1999, the Bankruptcy
Court further extended the time within which the Debtor must file its
Schedules and Statement for an additional 30 days. Accordingly, the Debtor
will file its Schedules and the Statement with the Bankruptcy Court on or
before February 28, 1999.
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 December 29, 1998.
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 December 29, 1998, 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 December 29, 1998. A final order approving the terms
and conditions of the CIT DIP Facility was entered on January 20, 1999.
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 interim order requiring the utilities to continue service
on December 29, 1998. On January 14, 1999, the Bankruptcy Court entered a
final order restraining and enjoining the utilities from altering, refusing
or discontinuing Service and declaring that the utilities provide continued
and uninterrupted utility services to the Debtor.
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 approved the requested relief pursuant to separate orders
dated December 29, 1998.
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
December 29, 1998, 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, pursuant to an order dated December 29, 1998,
required all creditors to file proofs of claim in the Bankruptcy Court by
March 12, 1999 (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 $85.6 (of which approximately $2.4 is estimated for the fees
and expenses of 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 $35,000.
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 orders dated December 29, 1998. 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
December 29, 1998. 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.
4. Potential Claims of Plaintiffs in the Rodriguez-Olvera
Action
------------------------------------------------------
The Debtor is a defendant in a lawsuit captioned Maria Delores
Rodriguez-Olvera, et al. vs. Salant Corp., et al., Case No. 97-07-14605-CV,
in the 365th Judicial District Court of Maverick County, Texas (the
"Rodriguez-Olvera Action"). The plaintiffs in the Rodriguez-Olvera Action
assert personal injury, wrongful death, and survival claims arising out of
a bus accident that occurred on June 23, 1997. A bus registered in Mexico,
owned by the Debtor's subsidiary Maquiladora Sur, S.A. de C.V.
("Maquiladora"), a Mexican corporation (and driven by a Mexican citizen and
resident employed by Maquiladora, carrying Mexican workers from their homes
in Mexico to their jobs at Maquiladora), overturned and caught fire in
Mexico. Fourteen persons were killed in the accident, and twelve others
claim injuries as a result of the accident; the Rodriguez-Olvera plaintiffs
seek compensation from the Debtor for those deaths and injuries.
The Debtor has vigorously defended against the allegations made in the
lawsuit. Its defenses include, among other things, that the claims, if any,
asserted by the Rodriguez-Olvera plaintiffs exist against Maquiladora, and
not the Debtor, and that the Rodriguez-Olvera Action should be tried in the
courts of Mexico, and not the United States, under the doctrine of forum
non conveniens. The Debtor also contends that the law of Mexico, rather
than that of the United States, governs the Rodriguez-Olvera plaintiffs'
claims. The Rodriguez-Olvera plaintiffs disagree with the Debtor's
positions.
A motion on behalf of the Debtor to dismiss the Rodriguez-Olvera
Action under the doctrine of forum non conveniens was denied by the trial
court. The propriety of those rulings is the subject of an action for a
writ of mandamus, captioned In Re Salant Corporation, et al., Case No.
4-98-00929-CV (the "Mandamus Action"), in the Court of Appeals for the
Fourth District of Texas, at San Antonio (the "Texas Court of Appeals").
The Texas Court of Appeals has stayed further proceedings in the underlying
Rodriguez-Olvera action (for reasons apart from any that might result in a
stay under federal bankruptcy law) pending the outcome of the Mandamus
Action.
The Debtor is also a defendant in a related declaratory judgment
action, captioned Hartford Fire Insurance Company v. Salant Corporation,
Index No. 602033/98, in the Supreme Court of the State of New York, County
of New York (the "Hartford Action"), relating to the Debtor's insurance
coverage for the claims that are the subject of the Rodriguez-Olvera
Action. In the Hartford Action, the Debtor's insurers seek a declaratory
judgment that the claims asserted in the Rodriguez-Olvera Action are not
covered under the policies that the insurers had issued. The Debtor's
insurers have nevertheless provided a defense to the Debtor in the
Rodriguez-Olvera Action, without prejudice to their positions in the
Hartford Action.
If, as the Debtor contends in the Hartford Action, the
Rodriguez-Olvera claims are covered by insurance, the damages sought by the
Rodriguez-Olvera plaintiffs nevertheless exceed the face amount of the
debtor's liability insurance coverage. Accordingly, it is possible that the
damages that would be awarded in the Rodriguez-Olvera Action could exceed
available coverage limits. Counsel for the plaintiffs in the
Rodriguez-Olvera action has stated that they have offered to settle that
lawsuit within the Debtor's insured limits, and that the Debtor's insurance
carriers have rejected the Rodriguez-Olvera plaintiffs' settlement offers.
Counsel for the Rodriguez-Olvera plaintiffs has further stated that in such
event, in his view, Texas law should hold the Debtor's insurers liable for
failing to settle the claims within policy limits. The Debtor considers it
inappropriate to endorse or dispute that view in this Disclosure Statement,
and expresses no position on that view herein.
If the Rodriguez-Olvera plaintiffs have allowed claims against the
Debtor's estate, any such claims will be general unsecured claims, will be
Class 6 claims, and, like other Class 6 claims, will not be impaired under
the Debtor's Plan. The Debtor believes that to the extent that any claims
by the Rodriquez-Olvera plaintiffs are paid by insurance, their claims will
thereby be satisfied to that extent. The Rodriquez-Olvera plaintiffs have
not expressed agreement with this belief, and may disagree with it, in
whole or in part.
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, 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 Exhibit D to the Plan. Such directors will be
deemed elected or appointed, as the case may be, pursuant to the
Confirmation Order, but will not take office and will not be deemed to be
elected or appointed until the occurrence of the Effective Date. Those
directors not continuing in office will be deemed removed therefrom as of
the Effective Date pursuant to the Confirmation Order.
8. Employee Benefit Plans
----------------------
Pursuant to the 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, including
the amended employment agreement to be entered into by and between the
Debtor and Mr. Setola during the pendency of the Chapter 11 Case. 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. Payment of Interest
-------------------
The Plan provides, with respect to General Unsecured Claims, that
(unless the claim is reinstated in the manner required under Bankruptcy
Code section 1124(2) or the Holder of such a claim agrees to the contrary),
the legal, equitable, and contractual rights of the Holders of such claims
will not be altered in any way. In other words, the Debtor will meet its
obligations to each Holder of an Allowed General Unsecured Claim in exactly
the same way that it would do so in the absence of a bankruptcy. For
General Unsecured Claims that bear interest by contract or by other
nonbankruptcy law, the Debtor intends to pay interest at the same rate that
they would bear interest under the applicable contract or other
nonbankruptcy law. For General Unsecured Claims that do not bear interest
by contract or other nonbankruptcy law, the Debtor intends to pay interest
at the "legal rate" -- the rate applicable to federal judgments -- which,
on the Filing Date, was 4.513%. In each case the Debtor intends to pay
interest from the Filing Date to the Effective Date of the Plan.
Holders of Interests will in no event receive interest.
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. The Debtor will appoint and select an agent to effectuate
the distribution to the holders of the Class 3 Senior Note Claims. This
agent will hold the distribution on behalf of the Indenture Trustee but
will be selected and compensated by the Debtor. 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. Discharge of Indenture Trustee
------------------------------
Pursuant to the Plan, the Indenture Trustee will certify to the Debtor
on or before the Effective Date the names and addresses of all holders of
Senior Notes, and the face amount of Senior Notes held by each of them as
of the Distribution Record Date. The Indenture Trustee will not serve as a
Disbursing Agent. Subsequent to the performance of the Indenture Trustee or
agents required under the provisions of the Plan and Confirmation Order and
under the terms of the Indenture, the Indenture Trustee and agents and its
successors and assigns will be relieved of all obligations associated with
the Indenture.
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. Awards under the Stock Award
and Incentive Plan are subject to 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 (other than directors who are not employees of
Salant), 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
1,111,111 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 outstanding
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"), which shall consist of at
least two (2) directors of Salant and may consist of the entire Board of
Salant; provided, however, that (A) if the Committee consists of less than
the entire Board of Salant, each member shall be a "non-employee director"
within the meaning of Rule 16b-3 promulgated under the Exchange Act and (B)
to the extent necessary for any Award intended to qualify as
performance-based compensation under Section 162(m) of the Tax Code to so
qualify, each member of the Awards Committee, whether or not it consists of
the entire Board of Salant, shall be an "outside director" within the
meaning of Section 162(m) of the Tax Code and the regulations promulgated
thereunder. No individual may be granted Options or Awards with respect to
more than a total of 555,555 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 $2,000,000. 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 the aggregate number of shares with respect to
which Awards may be granted to any eligible participant in any calendar
year, to the purchase or exercise price to be paid or the amount to be
received in connection with the realization of any Award and the
Performance Objectives applicable to 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, in
cash or by the delivery of shares then owned by the participant or, as
determined by the Awards Committee, pursuant to cashless exercise
procedures through a registered broker-dealer. 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 or its subsidiaries, 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 (on the Effective Date or, if applicable, when
becoming a director for the first time) as well as annual Formula Options
at each subsequent annual stockholders meeting of Salant, provided that
such individual is a director on such date. 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 preceding the date on which the right was granted (or in the
case of a stock appreciation right granted in connection with an Option,
the date on which the related Option was 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 and (iii) whether
interest will be accrued on any dividends not reinvested in additional
shares of Restricted Stock.
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. Performance objectives may be
expressed in terms of 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 set forth in an
Agreement, under certain circumstances, Options may be surrendered for
cash) and, to the extent provided by the Awards Committee in an Agreement,
the restrictions on Restricted Stock will lapse, Performance Units will
vest and become payable 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 (and, in certain circumstances, the participant's guardian
or legal representative). 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. 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.
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 Sections 280G and 4999 of the Tax Code. To the
extent it is so considered, a recipient may be subject to a 20% excise tax
pursuant to Section 4999 of the Tax Code and Salant may be denied a tax
deduction pursuant to Section 280G of the Tax Code.
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 BOARD OF DIRECTORS AND MANAGEMENT
A. BOARD OF DIRECTORS OF REORGANIZED SALANT
As of the Effective Date, the directors listed below 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. The
Board of Directors of Reorganized Salant as of the Effective Date shall
consist of the following members:
Michael Setola
Talton R. Embry
Rose Peabody Lynch
G. Raymond Epson; and
Ben Evans.
Set forth below (with the exception of Michael Setola) are summary
biographies for each of the proposed directors:
TALTON R. EMBRY established Magten Asset Management Corp. in 1978 to
manage distressed securities and special situation high yield debt for
institutional and taxable clients. Mr. Embry is currently the Chairman and
Chief Investment Officer of Magten and directs Magten's research and
portfolio management functions. Prior to this association, Mr. Embry was a
vice president at Fiduciary Trust Company in New York from 1968 to 1978.
Mr. Embry graduated from Rutgers University in 1968. He is currently a
director of Anacomp, BDK Holdings and Combined Broadcasting (in
dissolution). In addition, he has previously served as a director of Capure
Holdings, Thermadyne, TSX Corporation, Varco International, West Point
Stevens and was vice chairman and director of Revco Drug Stores.
ROSE PEABODY LYNCH was the Vice President and General Merchandise
Manager of Victoria's Secret Bath and Fragrance from 1993 to 1996. Prior to
that, Ms. Lynch was President to Trowbridge Gallery, from 1989 to 1993.
From 1987 to 1989 Ms. Lynch was President of Danskin, Inc. From 1985 to
1987 Ms. Lynch was the Director of Marketing (Cosmetics) for Charles of the
Ritz Group, Inc. From 1982 to 1985 Ms. Lynch was the Director of Marketing
Development (Treatment) for Elizabeth Arden, Inc.
G. RAYMOND EMPSON is currently the President of Keep America
Beautiful, Inc., a non-profit, public education organization dedicated to
the enhancement of American communities through beautification, litter
prevention, recycling and neighborhood improvement programs. Prior to that,
from 1994 to early 1997, Mr. Empson was an independent business consultant
to institutional investors, Boards of Directors and corporate management
with respect to strategic and operational issues. From 1991 to 1994, he was
President and Chief Executive Officer of Collection Clothing Corp. Prior to
that, until 1990, Mr. Empson was President and Chief Executive Officer of
Gerber Products Company and Gerber Childrenswear, Inc. From 1976 to 1986,
he was Executive President of Buster Brown Apparel, Inc.
BEN EVANS joined S.D. Leidesdorf & Company, the predecessor firm to
Ernst & Whinney, in 1954 as a junior accountant. He became a partner at
that firm in 1968. From 1978 through 1989, Mr. Evans was a member of Ernst
& Whinney's corporate financial service group concentrating on bankruptcy
assignments generally on behalf of unsecured creditors' committees, with
special emphasis in the apparel, retailing, food, drug, and pharmaceutical
industries. Since 1989, Mr. Evans has been a consultant for the firm of
Ernst & Young (formerly known as Ernst & Whinney) in their corporate
financial services group continuing his work in the bankruptcy area.
As noted above, in connection with the Debtor's efforts to effectuate
the consummation of the Plan, the Debtor is in the process of selling or
otherwise disposing of all of its businesses, 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 provide services to 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, became Salant's Chief Operating Officer and
will continue to be General Counsel. During the Chapter 11 Case, the Debtor
expects that Mr. Kahn will continue his employment with Salant under the
same terms and conditions of his existing employment arrangements other
than the change in title and duties referred to above or as the Chapter 11
Case shall effect executives, employees and shareholders generally. During
the Chapter 11 Case, the Debtor expects that it will enter into an amended
employment contract with Mr. Setola, governing the terms of his employment
during the pendency of the Chapter 11 Case and a consulting agreement with
Mr. Politzer, governing the terms of his consultancy.
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 at least five days prior
to the Confirmation Hearing. The principal terms and conditions of the
Setola Agreement and the Kahn Agreement are described below. In addition,
on January 29, 1999 the Debtor announced that Awadhesh Sinha, the current
Executive Vice President of Salant's Perry Ellis Division, had been named
the Chief Financial Officer of the Debtor replacing Mr. Philip Franzel.
B. EMPLOYMENT OF MICHAEL SETOLA
As described above, on the Filing Date, Mr. Setola became the Chairman
and Chief Executive Officer of Salant and will continue to be employed in
such capacity by Reorganized Salant.
It is contemplated that on the Effective Date, Reorganized Salant and
Mr. Setola will enter into the Setola Agreement, which will supercede any
existing employment agreement between Mr. Setola and the Debtor. As set
forth above, the Setola Agreement will be filed with the Bankruptcy Court
at least five days prior to the Confirmation Hearing.
C. 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 in accordance with, and subject to, the Company's Management
Retention Bonus Plan 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, less any
aggregate base salary and bonus payments made prior to his termination.
D. EXISTING EMPLOYMENT AGREEMENTS WITH JERALD POLITZER AND
PHILIP FRANZEL
Mr. Politzer is a party to an agreement (the "Politzer Agreement"),
dated March 20, 1997, which provides for his employment as Chief Executive
Officer of the Company effective April 1, 1997 through March 31, 2000 with
successive one year renewals, unless 180 days prior notice shall have been
given. 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% but 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 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 through the date of termination, (ii) his base salary at the
annualized rate on the date his employment ends for a period (the
"Severance Period") ending on the later of (x) the Employment Period (as
defined in the Politzer Agreement) or (y) twelve months following
termination, (iii) any pro-rata bonus earned in the year his employment
ends, (iv) the right to exercise any stock options (whether or not then
vested) for six months from the date his employment ends or for the
remainder of the applicable exercise period, if shorter, (v) all amounts
and benefits earned, accrued, due or owing, but not yet paid, to Mr.
Politzer pursuant to the Debtor's benefit plans and the expense
reimbursement and perquisites provisions of the Politzer Agreement and (vi)
continued participation in all medical, dental, health and life insurance
plans until the earlier of (A) the end of the Severance Period and (B) the
date or dates on which Mr. Politzer receives equivalent coverage under
plans and programs of a subsequent employer. 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,(iv) the right to exercise any stock option (whether or not then
vested) for a one year period or for the remainder of the exercise period,
if shorter, (v) all amounts and benefits earned, accrued, due or owing, but
not yet paid, to Mr. Politzer pursuant to Debtor's benefit plans and the
expense reimbursement and perquisites provisions of the Politzer Agreement
and (vi) the right to receive all applicable benefits pursuant to the
Debtor's Long Term Disability Coverage Plan, or if Mr. Politzer shall not
be eligible for coverage, cash in lieu thereof. 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 the terms of a transition and consulting agreement
(the "Politzer Consulting Agreement") to be entered into by and between Mr.
Politzer and the Debtor. A copy of the Politzer Consulting Agreement will
be filed with the Bankruptcy Court at least five days prior to the
Confirmation Hearing. Given that the term of the Politzer Consulting
Agreement began, under the terms thereof, on the Filing Date, the Politzer
Consulting Agreement will have retroactive effect to the Filing Date. The
Politzer Consulting Agreement will provide 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 Consulting Agreement, 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 in New York City (the "Housing and Car
Reimbursements"). The Politzer Consulting Agreement will provide that Mr.
Politzer will, at the same benefit level at which he participated as of the
Filing Date, continue to be eligible to participate in all medical, dental,
health and life insurance plans and in other employee benefit plans or
programs of the Debtor until the earlier of (i) March 31, 2000 and (ii) the
date or dates on which he receives equivalent coverage and benefits under
the plans and programs of a subsequent employer; provided, however, that
Mr. Politzer will not be entitled to participate in any employee benefit
plan or program to the extent that his participation therein is precluded
as a matter of law or by the terms or conditions of such employee benefit
plan or program.
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 Consulting Agreement 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 have been
incurred by Reorganized Salant in order 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 Consulting Agreement 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 Consulting
Agreement will (i) provide 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) include 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.
On January 25, 1999 (the "Commencement Date"), Mr. Philip Franzel
resigned as Chief Financial Officer of the Debtor. The Debtor intends to
enter into a separation agreement (the "Separation Agreement") with Mr.
Franzel during the pendency of the Chapter 11 Case. Pursuant to the terms
of the Separation Agreement, Mr. Franzel, beginning on the Commencement
Date and terminating on February 15, 1999, will render advisory and
consulting services to the Debtor in connection with the business,
management and finances of the Debtor as are reasonably requested by the
Board of Directors, Mr. Setola or Mr. Sinha. From February 15, 1999 through
and including June 30, 1999, Mr. Franzel will be available, subject to
reasonable prior notice, to the Debtor to provide guidance and advice on
financial matters.
Under the Separation Agreement beginning on the Commencement Date and
terminating on June 30, 1999, Mr. Franzel will receive $25,680 per month
payable bi-weekly. On February 15, 1999, Mr. Franzel will receive, pursuant
to the terms of the Management Retention Program, a bonus in the amount of
$150,000. In addition, until March 15, 1999, the Debtor shall provide Mr.
Franzel with certain benefits including the maintenance of an office and a
secretary and will pay until June 30, 1999, medical, dental and other
similar health benefits that Mr. Franzel had received immediately prior to
the Commencement Date by paying his premium under COBRA.
The Separation Agreement is in full satisfaction and release of all
claims (including, but not limited to, any claims for severance) arising
out of Mr. Franzel's employment with Salant or the termination thereof. The
Separation Agreement (i) provides that a non-compete provision will be in
place until June 30, 1999 and (ii) includes a non-disparagement provision
which will terminate on June 30, 2000.
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, assuming that the PEI Event occurs on or prior to the Effective
Date, 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 affect 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
The projected financial information set forth below (the
"Projections") should be read in conjunction with the assumptions,
qualifications, limitations and explanations set forth herein and the
selected historical financial information and the other information set
forth in "Selected Historical Consolidated Financial Information" in Forms
10-K and 10-Q which are attached to this Disclosure Statement as Appendixes
II and III, respectively.
A. GENERAL
The Projections set forth below reflect numerous assumptions,
including various assumptions with respect to the anticipated future
performance of the Debtor after the restructuring contemplated under the
Plan is consummated, industry performance, general business and economic
conditions and other matters, some of which are beyond the control of the
Debtor. In addition, unanticipated events and circumstances may affect the
actual financial results of the Debtor in the future. THEREFORE, WHILE THE
PROJECTIONS ARE NECESSARILY PRESENTED WITH NUMERICAL SPECIFICITY, THE
ACTUAL RESULTS ACHIEVED THROUGHOUT THE YEARS 1999-2001 (the "PROJECTED
PERIOD") MAY VARY FROM THE PROJECTED RESULTS. THESE VARIATIONS MAY BE
MATERIAL. ACCORDINGLY, NO REPRESENTATION CAN BE MADE OR IS MADE WITH
RESPECT TO THE ACCURACY OF THE PROJECTIONS OR THE ABILITY OF THE DEBTOR TO
ACHIEVE THE PROJECTED RESULTS. See Section IX herein, entitled "RISK
FACTORS" for a discussion of certain factors that may affect the future
financial performance of the Debtor and/or Reorganized Salant and of the
various risks associated with the securities of Reorganized Salant to be
issued pursuant to the Plan.
The Debtor does not, as a matter of course, make public projections of
its anticipated financial position or results of operations. Accordingly,
the Debtor does not anticipate that it will, and disclaims any obligation
to, furnish updated projections in the event that actual industry
performance or the general economic or business climate differs from that
upon which the Projections have been based. Further, the Debtor does not
anticipate that it will include such information in documents required to
be filed with the Commission, or otherwise make such information public.
The Projections have been prepared by the Debtor's management, and
while it believes that the assumptions underlying the projections for the
Projected Period, when considered on an overall basis, are reasonable in
light of current circumstances, no assurance can be given or is given that
the Projections will be realized. The Projections were not prepared in
accordance with standards for projections promulgated by the American
Institute of Certified Public Accountants or with a view to compliance with
published guidelines of the Commission regarding projections or forecasts.
The Projections have not been audited, reviewed or compiled by the Debtor's
independent auditors. Although presented with numerical specificity, the
Projections are based upon a variety of assumptions, some of which have not
been achieved to date and may not be realized in the future, and are
subject to significant business, litigation, economic and competitive
uncertainties and contingencies, many of which are beyond the control of
the Debtor. Consequently, the Projections should not be regarded as a
representation or warranty by the Debtor, or any other person, that the
Projections will be realized.
Neither the Debtor's independent auditors, nor any other independent
accountants or financial advisors, have compiled, examined or performed any
procedures with respect to the projected consolidated financial information
contained herein, nor have they expressed any opinion or any other form of
assurance on such information or its achievability, and assume no
responsibility for, and disclaim any association with, the projected
financial information.
B. PRINCIPAL ASSUMPTIONS
The Projections are based upon forecasts of operating results during
the Projected Period. For fiscal year ended 1999, the Projections include
the financial results of both the Perry Ellis business and the non-Perry
Ellis divisions (which non-Perry Ellis divisions the Debtor will divest
itself of during fiscal year 1999). The following is a listing of
assumptions that were used to develop the Projections.
1) The Projections assume that the restructuring of the Debtor
contemplated under the Plan will be consummated on April 30, 1999.
2) The Projections assume that the Debtor will close, liquidate or
sell all business units other than the Perry Ellis division. Reorganized
Salant will consist of Perry Ellis dress shirts, sportswear, bottoms, ties
and accessories. Reorganized Salant also will manage the Perry Ellis outlet
stores.
2a) The Debtor completes the sale of the Children's Group on
March 5, 1999. See Section II.E.6. entitled, "SALE OF NON-PERRY ELLIS
DIVISIONS."
2b) The Debtor completes the sale of Salant Menswear Group on
March 31, 1999. See Section II.E.6. entitled, "SALE OF NON-PERRY ELLIS
DIVISIONS."
3) The Projections assume that the current economic environment
continues throughout the Projected Period
4) The Projections assume that no unforeseen national or international
events will occur during the Projected Period that would cause the retail
industry to be adversely impacted.
In addition to the aforementioned assumptions, the Projections are
based on numerous detailed operating assumptions. The table below
summarizes the projected operating statistics that management believes are
significant and upon which the financial results of the Debtor and/or
Reorganized Salant, including the liquidation and wind down of non-Perry
Ellis businesses will depend during the Projected Period.
PROJECTED
1999 2000 2001
---- ---- ----
Net Sales of Reorganized Salant
(thousands) $253,118 $228,404 $246,676
Total Gross Margin as a % of Net
Sales 22.9% 29.8% 29.9%
Total Operating Expenses as a % of
Net Sales 29.8% 23.6% 23.1%
C. SALES
During the Projected Period, sales of Debtor are assumed to decrease
from $253.1 million in fiscal 1999 to $246.7 million in fiscal year 2001.
Net sales for fiscal 1999 include sales of inventory of the non-Perry Ellis
businesses in the amount of $42.0 million. Net sales for Reorganized Salant
will increase from $211.1 million to $246.7 million in fiscal year 2001.
This increase in sales is expected to result from a combination of
additional sales to existing customers and the development of new
customers. Sales growth will be driven by the continued opening of in-store
shops for the sportswear collection business, new door expansion with
existing customers in Canada and expansion of the Perry Ellis outlet
stores.
D. GROSS MARGIN
The Gross Margin presented in the Projections includes cost of
merchandise and certain royalty and distribution costs. The overall level
of Gross Margin for Reorganized Salant as a percentage of sales is expected
to remain constant during the Projected Period. The expected changes in
sales mix will reflect a higher proportion of regular price and incentive
price sales and a lower proportion of off-price sales. This shift will
occur as a result of the minimization of off-price programs. Management
believes that improvements in gross margin are achievable based upon
anticipated process improvements and recent trends away from off-price
sales.
E. OPERATING EXPENSES
Expenses are forecasted based upon revised expense structures adjusted
for a reorganized company operating as a stand-alone company. Management
has introduced various initiatives that have streamlined its operations and
reduced overhead costs. It is assumed that expenses will decrease in total
dollar amount during the Projected Period from $75.4 million in fiscal year
1999 to $57.1 million in fiscal year 2001. Expenses as a percentage of
sales ("Operating Expenses/Net Sales") is assumed to decrease during the
Projected Period from 29.8% in fiscal year 1999 to 23.1% in fiscal year
2001.
F. WORKING CAPITAL
Working capital has been forecast based upon the Debtor's experience
and expectations in the marketplace and are consistent with the trends that
the Debtor is currently experiencing.
G. CAPITAL EXPENDITURES
The Projections assume a significant reinvestment of capital into the
Debtor and/or Reorganized Salant over the Projected Period. The main areas
of focus are management information systems, distribution, in store shops,
and additional outlet stores. Management believes that these expenditures
will substantially enhance operating efficiency, provide a platform for
continued growth and are necessary to achieve the levels of profitability
in the Projections.
H. INTEREST EXPENSE
During the Projected Period, annual interest expense consists of
interest on the prior months' ending balances. For the Projected Period,
the assumed interest rate for the Revolver is .25 percent in excess of the
Prime Rate or 7.75% (based on the Prime Rate as of December 18, 1998). For
the Revolver, the assumed interest rate is multiplied by the prior month
end borrowings as projected by management resulting from the operating
projections in the business plan. The assumed credit facility fees are
$83,000 for 1999 and $200,000 under the new credit facility for 2000 and
2001.
I. INCOME TAXES
The Debtor believes that the transactions contemplated by the
restructuring under the Plan will cause a limitation of the use of the NOLs
pursuant to Section 382 of the Tax Code. A state income tax rate of 5% has
been assumed in calculating the income taxes to be paid for each of the
fiscal years 2000 and 2001. Federal taxable income has been reduced by the
allowable amount of NOLs for each of 2000 and 2001. The limitation is based
upon an assumed equity value in Plan Alternative #1 of $100 million and $8
million in Plan Alternative #2 and a long term Treasury Bond Rate of 4.7%
in Plan Alternative #2. The accrued interest on the New PIK Senior Notes is
assumed to be nondeductible for Federal Income Tax purposes as it will not
be paid in cash.
Projected income statement, balance sheets and cash flow statements
for the Debtor are included below for each of the fiscal years of 1999,
2000 and 2001.
See "RISK FACTORS" for a discussion of various factors that could
materially affect the Debtor's financial condition, results of operations,
business, prospects and securities.
PLAN ALTERNATIVE #1(1)
PROJECTED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(In thousands)
Fiscal Year Ending December 31
-----------------------------------------------------------
1999 2000 2001
----------------- ----------------- -----------------
Net sales $ 253,118 $ 228,404 $ 246,676
Cost of goods sold 195,114 160,340 172,920
----------------- ----------------- -----------------
Gross profit 58,004 68,064 73,756
Selling, general and administrative 75,353 53,889 57,049
Royalty income 11,057 505 560
Restructuring cost 3,200 - -
----------------- ----------------- -----------------
Income from continuing operations
before interest and income taxes (9,492) 14,680 17,267
Interest expense, net 1,947 - -
----------------- ----------------- -----------------
Net income before taxes (11,439) 14,680 17,267
Income taxes - 2,873 4,960
----------------- ----------------- -----------------
Net income $ (11,439) $ 11,807 $ 12,307
================= ================= =================
- --------------------
<FN>
1 The foregoing financial projections (statement of operations, balance
sheet and cash flow) reflect a consummation of the Plan assuming the
occurrence of a PEI Event on or prior to the Effective Date, and with
the treatment provided to Senior Note Claims under 6.3(a)(i) of the
Plan and the treatment provided to Old Common Stock Interests under
6.7(a)(i) of the Plan.
</FN>
PLAN ALTERNATIVE #1
PROJECTED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Fiscal Year Ending December 31,
----------------------------------------------------------
1999 2000 2001
----------------- ----------------- -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,698 $ 8,162 $ 14,557
Accounts receivable, net 25,176 27,121 29,238
Inventories, net 41,394 44,854 49,327
Prepaid expenses and other current assets 3,766 3,766 3,766
----------------- ----------------- -----------------
Total Current Assets 72,034 83,903 96,888
Property, plant and equipment, net 10,802 11,393 11,459
Other assets 14,304 14,645 14,545
----------------- ----------------- -----------------
TOTAL ASSETS $ 97,140 $109,941 $122,892
================= ================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable $ 1,459 $ - $ -
Accounts payable 9,091 10,987 12,159
Accrued expenses 11,069 12,123 13,323
Interest payable - - -
Other 753 832 911
----------------- ----------------- -----------------
Total Current Liabilities 22,372 23,942 26,393
Deferred Liabilities 4,301 3,725 2,917
Restructuring Reserves 3,994 3,994 2,994
Shareholders' equity:
Common stock 100 100 100
Additional paid in-in capital 231,459 231,459 231,459
Pension liability (3,508) (3,508) (3,508)
Foreign exchange translation (184) (184) (184)
Treasury stock - - -
Retained earnings (161,394) (149,587) (134,280)
----------------- ----------------- -----------------
Total shareholders' equity 66,473 78,280 90,587
----------------- ----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 97,140 $109,941 $122,892
================= ================= =================
PLAN ALTERNATIVE #1
PROJECTED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
1999 2000 2001
----------------- ----------------- -----------------
OPERATING ACTIVITIES:
Net Income $ (11,439) $ 11,807 $ 12,307
Adjustment to reconcile net income to cash used in
operating activities:
Depreciation 5,159 2,661 3,186
Amortization 3,179 2,559 3,000
Changes in operating assets and liabilities
Net account receivable 23,321 (1,945) (2,117)
Inventory 29,500 (3,460) (4,473)
Prepaids and other assets 17 - -
Accounts payable (4,705) 1,896 1,173
Accrued expenses (2,829) 1,054 1,200
Restructuring costs (2,604) 0 (1,000)
Other current liabilities (706) (497) (729)
----------------- ----------------- -----------------
Net cash (used in) provided by operating activities 38,893 14,075 12,547
INVESTING ACTIVITIES:
Purchase of fixed assets, net (7,172) (6,152) (6,152)
Sale of Licensing Agreements 9,401 - -
----------------- ----------------- -----------------
Net cash used in investing activities 2,229 (6,152) (6,152)
FINANCING ACTIVITIES:
(Repayments) increase of loan payable (41,123) (1,459) -
(Decrease) increase of equity (restructuring charge) - - -
(Repayments) increases of Long-Term debt - - -
----------------- ----------------- -----------------
Net cash provided by (used in) financing activities (41,123) (1,459) -
----------------- ----------------- -----------------
Net (decrease) increase in cash and ~ cash equivalents 0 6,464 6,395
================= ================= =================
Cash and cash equivalents, beginning of year 1,698 1,698 8,162
Cash and cash equivalents, end of year $ 1,698 $ 8,162 $ 14,557
Supplemental disclosure of non-cash transactions:
Conversion of debt to common stock $ 110,747
Reduction in Restructuring Reserves $ 16,827
Cancellation of Old Common Stock $ 15,177
Insurance of New Common Stock $ 100
PLAN ALTERNATIVE #2(2)
PROJECTED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(In thousands)
Fiscal Year Ending December 31
-----------------------------------------------------------
1999 2000 2001
----------------- ----------------- -----------------
Net sales $ 253,118 $ 228,404 $ 246,676
Cost of goods sold 195,114 160,340 172,920
----------------- ----------------- -----------------
Gross profit 58,004 68,064 73,756
Selling, general and administrative 75,353 53,889 57,049
Royalty income 11,057 505 560
Goodwill amortization 3,200 - -
----------------- ----------------- -----------------
Income from continuing operations
before interest and inco(9,492)s 14,680 17,267
Interest expense, net 11,147 15,180 17,457
----------------- ----------------- -----------------
Net income before taxes (20,638) (500) (190)
Income taxes - 5,396 6,473
----------------- ----------------- -----------------
Net income $ (20,638) $ (5,896) $ (6,663)
================= ================= =================
- --------------------
<FN>
2 The foregoing financial projections (statement of operations, balance
sheet and cash flow) reflect a consummation of the Plan assuming a PEI
Event does not occur on or prior to the Effective Date, and with the
treatment provided to Senior Note Claims under 6.3(a)(ii) of the Plan
and the treatment provided to Old Common Stock Interests under
6.7(a)(ii) of the Plan.
</FN>
PLAN ALTERNATIVE #2
PROJECTED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,698 $ 5,638 $ 10,521
Accounts receivable, net 25,176 27,121 29,238
Inventories 41,394 44,854 49,327
Prepaid expenses and other current assets 3,766 3,766 3,766
----------------- ----------------- -----------------
Total Current Assets 72,034 81,379 92,852
Property, plant and equipment, net 10,802 11,393 11,459
Other assets 14,304 14,645 14,545
----------------- ----------------- -----------------
TOTAL ASSETS $ 97,140 $107,417 $118,856
================= ================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans payable $ 1,459 $ - $ -
Accounts payable 9,091 10,985 12,159
Accrued expenses 11,069 12,123 13,323
Interest payable - - -
Other 753 832 911
----------------- ----------------- -----------------
Total Current Liabilities 22,372 23,940 26,393
Long Term Debt 101,200 116,380 133,837
Deferred Liabilities 4,301 3,725 2,917
Restructuring Reserves 3,994 3,994 2,994
Shareholders' equity:
Common stock 100 100 100
Additional paid in-in capital 139,459 139,459 139,459
Pension liability (3,508) (3,508) (3,508)
Foreign exchange translation (184) (184) (184)
Treasury stock - - -
Retained earnings (170,594) (176,490) (183,153)
----------------- ----------------- -----------------
Total shareholders' equity (34,727) (40,623) (47,286)
----------------- ----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 97,140 $107,417 $118,856
================= ================= =================
PLAN ALTERNATIVE #2
PROJECTED STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
1999 2000 2001
----------------- ----------------- -----------------
OPERATING ACTIVITIES:
Net Income, including non-cash interest $ (11,438) $ 9,284 $ 10,794
Adjustment to reconcile net income to cash used in
operating activities:
Depreciation 5,159 2,661 3,186
Amortization 3,179 2,559 3,000
Changes in operating assets and liabilities
Net account receivable 23,321 (1,945) (2,117)
Inventory 29,500 (3,460) (4,473)
Prepaids and other assets 17 - -
Accounts payable (4,705) 1,896 1,173
Accrued expenses (2,829) 1,054 1,200
Restructuring costs (2,604) - (1,000)
Other current liabilities (706) (497) (729)
----------------- ----------------- -----------------
Net cash (used in) provided by operating activities 38,894 11,552 11,034
INVESTING ACTIVITIES:
Purchase of fixed assets, net (7,172) (6,152) (6,152)
Sale of Licensing Agreements 9,401 - -
----------------- ----------------- -----------------
Net cash used in investing activities 2,229 (6,152) (6,152)
FINANCING ACTIVITIES:
(Repayments) increase of loan payable (41,123) (1,459) -
(Decrease) increase of equity (restructuring charge) - - -
(Repayments) increases of Long-Term debt - - -
----------------- ----------------- -----------------
Net cash provided by (used in) financing activities (41,123) (1,459) -
----------------- ----------------- -----------------
Net (decrease) increase in cash and ~ cash equivalents 0 3,941 4,882
================= ================= =================
Cash and cash equivalents, beginning of year 1,698 1,698 5,638
Cash and cash equivalents, end of year $ 1,698 $ 5,638 $ 10,521
Supplemental disclosure of non-cash transactions:
Conversion of debt to common stock $ 18,787
Reduction in Restructuring Reserve $ 16,827
Cancellation of Old Common Stock $ 15,177
Issuance of New Common Stock $ 100
PIK interest in New Senior PIK Notes 9,200 15,180 17,457
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
then in effect (4.71% as of February 1, 1999). 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 would be eliminated. If the PEI Event does not
occur and Reorganized Salant determines that an ownership change will 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 gives 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 occurs
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 was
4.71% as of February 1, 1999.
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.
To support their belief in the feasibility of the Plan, the Debtor has
prepared projections (the "Projections") for the years 1999 through 2001
The professionals have not performed an independent investigation of
the accuracy or completeness of the Projections. See Section XI above,
entitled "FINANCIAL PROJECTIONS AND ASSUMPTIONS USED."
The Projections indicate that Reorganized Salant should have
sufficient cash flow to make the payments required under the Plan on the
Effective Date and to repay and service its debt obligations and to
maintain its operations. Accordingly, the Debtor believes that the Plan
complies with the standard of section 1129(a)(11) of the Bankruptcy Code.
As noted in the Projections, however, the Debtor cautions that no
representations can be made as to the accuracy of the Projections or as to
Reorganized Salant's ability to achieve the projected results. Many of the
assumptions upon which the Projections are based are subject to
uncertainties outside the control of the Debtor. Some assumptions may not
materialize, and events and circumstances occurring after the date on which
the Projections were prepared may be different from those assumed or may be
unanticipated, and may adversely affect the Debtor's financial results. As
discussed elsewhere in this Disclosure Statement, there are numerous
circumstances that may cause actual results to vary from the projected
results, and the variations may be material and adverse. See Section IX
above, entitled "RISK FACTORS" for a discussion of certain risk factors
that may affect financial feasibility of the Plan.
In the event that the New PIK Senior Notes are issued pursuant to the
Plan, the Debtor believes that, as a result of an anticipated improvement
in the income stream of Reorganized Salant following the Effective Date and
the fact that Reorganized Salant is expected to be a more economically
viable business, upon maturity of the New PIK Senior Notes, Reorganized
Salant will be able to pay the principal balance thereof and any accrued
and unpaid interest thereon by means of a refinancing or other similar
transaction. See "CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS" in
Section V.C. above.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE WITH
THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS OR THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE
COMMISSION REGARDING PROJECTIONS. FURTHERMORE, THE PROJECTIONS HAVE NOT
BEEN AUDITED BY THE DEBTOR'S INDEPENDENT CERTIFIED ACCOUNTANTS. ALTHOUGH
PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE BASED UPON A
VARIETY OF ASSUMPTIONS, SOME OF WHICH HAVE NOT BEEN ACHIEVED TO DATE AND
MAY NOT BE REALIZED IN THE FUTURE, AND ARE SUBJECT TO SIGNIFICANT BUSINESS,
LITIGATION, ECONOMIC, AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY
OF WHICH ARE BEYOND THE CONTROL OF THE DEBTOR. CONSEQUENTLY, THE
PROJECTIONS SHOULD NOT BE REGARDED AS A REPRESENTATION OR WARRANTY BY THE
DEBTOR, OR ANY OTHER PERSON, THAT THE PROJECTIONS WILL BE REALIZED. ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN THE PROJECTIONS.
C. BEST INTERESTS TEST
As described above, the Bankruptcy Code requires that each holder of
an impaired claim or equity interest either (a) accepts the plan or (b)
receives or retains under the plan property of a value, as of the effective
date of the plan, that is not less than the value such holder would receive
or retain if 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
The Debtor has prepared the following liquidation analysis with the
assistance of its financial advisor, Conway, Del Genio, Gries & Co., L.L.C.
The liquidation analysis estimates the gross value available for
distribution in the liquidation under Chapter 7 of the Bankruptcy Code to
be between $111,346,000 and $136,710,000 less (i) all indebtedness
outstanding under the Credit Agreement with CIT estimated to be
$42,582,000, and (ii) administrative expenses including trustee and
professional fees estimated to be between $56,069,000 and $47,102,000.
Accordingly, under such analysis the net proceeds available to Noteholders
would be between $12,695,000 and $47,027,000. Based on the Noteholders'
claim of $104,879,000 plus accrued and unpaid interest to the date of
liquidation (which amounts are estimated to aggregate $119,734,000), the
liquidation would net the Noteholders' between a 10.6% and a 39.3% recovery
on their claims and leave existing holders of General Unsecured Claims and
Stockholders with no consideration, assuming a strict priority
distribution.
THE FOLLOWING LIQUIDATION ANALYSIS IS AN ESTIMATE OF THE PROCEEDS THAT
MAY BE GENERATED AS A RESULT OF A HYPOTHETICAL CHAPTER 7 LIQUIDATION OF THE
ASSETS OF THE DEBTOR. THE LIQUIDATION ANALYSIS MAKES NUMEROUS ASSUMPTIONS
WITH RESPECT TO ASSET VALUATION, INDUSTRY PERFORMANCE, BUSINESS AND
ECONOMIC CONDITIONS, AND OTHER MATTERS, MANY OF WHICH ARE BEYOND THE
DEBTOR'S CONTROL. MOREOVER, THE METHODS AND ASSUMPTIONS USED IN PREPARING
THE LIQUIDATION ANALYSIS INVOLVE SIGNIFICANT ELEMENTS OF SUBJECTIVE
JUDGMENT ON THE PART OF THE DEBTOR AND MAY OR MAY NOT PROVE TO BE CORRECT.
THE LIQUIDATION ANALYSIS DOES NOT PURPORT TO BE A VALUATION OF THE DEBTOR'S
ASSETS AND IS NOT NECESSARILY INDICATIVE OF THE VALUES THAT MAY BE REALIZED
IN AN ACTUAL LIQUIDATION WHICH MAY BE SIGNIFICANTLY MORE OR LESS FAVORABLE
THAN THE ESTIMATES CONTAINED IN THE LIQUIDATION ANALYSIS.
SALANT CORPORATION
HYPOTHETICAL LIQUIDATION ANALYSIS
($ IN THOUSANDS)
ESTIMATED ESTIMATED
ASSETS RECOVERY % LIQUIDATION VALUE
AVAILABLE FOR --------------------------- --------------------------------
LIQUIDATION LOW HIGH LOW HIGH NOTE
---------------------- ----------- -------------- ---------------- -------------- -------
ASSETS TO BE LIQUIDATED (unaudited) (unaudited) (unaudited)
Cash & Cash Equivalents $ 1,698 100.0% 100.0% $ 1,698 $ 1,698
Accounts Receivable 60,733 70.0% 80.0% 42,513 48,586 1
Inventory 84,096 56.0% 64.1% 47,115 53,941 2
Prepaid Expenses 3,823 45.0% 65.0% 1,720 2,485 3
Net Property & Equipment 28,263 15.9% 24.8% 4,500 7,000 4
Other Assets 24,237 56.9% 94.9% 13,800 23,000 5
--------- ----------- ------------
Total Assets $ 202,850 111,346 136,710
=========
LESS: ADMINISTRATIVE AND PRIORITY CLAIMS
Merchandise Receipts During Liquidation Period (21,500) (21,500) 2
Wind-down Expenses (13,802) (10,802) 6
Trustee Fees (3,340) (2,051) 7
Professional Fees (Estimate) (4,000) (2,400)
Employee Severance and Related Costs (11,426) (9,349) 8
Prepetition Priority Tax Claim - -
Other (2,000) (1,000)
----------- ------------
Subtotal (56,069) (47,102)
NET LIQUIDATION PROCEEDS AVAILABLE FOR DISTRIBUTION 55,277 89,609
LESS: SECURED CLAIMS
Pre-petition Lenders (42,582) (42,582) 9
----------- ------------
PROCEEDS AVAILABLE FOR DISTRIBUTION TO
SENIOR SECURED NOTEHOLDERS 12,695 47,027
SENIOR SECURED NOTEHOLDERS 119,734) (119,734) 10
RECOVERY % SENIOR SECURED NOTEHOLDERS 10.6% 39.3%
PROCEEDS AVAILABLE FOR DISTRIBUTION TO
GENERAL UNSECURED CREDITORS - -
GENERAL UNSECURED CREDITORS:
Accounts Payable, Trade (27,694) (27,694) 11
Lease Rejection Claims (10,013) (7,510) 12
Purchase Order Cancellation Claims (8,500) (6,375) 2
Pension Termination Claims (15,434) (15,434) 13
Contingency for Unsecured Claims (2,000) (1,000)
----------- -------------
TOTAL UNSECURED CLAIMS $ (63,641) $ (58,013)
=========== =============
RECOVERY % GENERAL UNSECURED CREDITORS 0.0% 0.0%
RECOVERY TO EQUITY HOLDERS $ - $ -
=========== =============
GENERAL ASSUMPTIONS
a) The Liquidation Analysis reflects the Debtor's estimates of the
proceeds that would be realized if the Debtor were to be liquidated in
accordance with Chapter 7 of the Bankruptcy Code and is based on the
Debtor's projected assets and liabilities as of January 3, 1999 (which
for purposes of this Liquidation Analysis is assumed to be the date
that a hypothetical Chapter 7 case would be commenced). Underlying the
Liquidation Analysis are a number of estimates and assumptions that,
although developed and considered reasonable by management, are
inherently subject to uncertainties beyond the control of the Debtor
and its management.
b) The Liquidation Analysis assumes that the wind-down of the Debtor's
estate would be completed within twelve months (the "Liquidation
Period") and the sale of the assets would be completed during the
first five months of the Liquidation Period. The Liquidation Period
would allow the Debtor to sell its inventories, wind down operational
activities, complete the claims reconciliation process and make
distributions to parties-in-interest.
c) The wind-down costs in the liquidation analysis include operating
expenses and other costs considered likely to be incurred during the
Liquidation Period. Significant liquidation activities would include
the liquidation of inventories, collection of accounts receivable,
negotiation for the sale of real estate and/or real estate leases,
equipment located in the Debtor's manufacturing facilities and
distribution centers, owned trademarks and other remaining assets.
d) During the first three months of the Liquidation Period, staff
reductions would take place for Information Systems ("IS")
programmers, buying, selling, manufacturing and administrative staff,
and certain management positions. During that period, certain IS,
financial, legal and administration personal would be retained to
manage the wind down and plan the inventory liquidation.
e) All assets are assumed to be sold for cash or cash equivalents, and
all distributions are assumed to be completed on or about October 3,
1999.
f) The claim amounts reflected in the liquidation analysis are based on
the Debtor's estimate of claims which are expected to be incurred as a
result of the liquidation and the Debtor's estimate of claims which
would exist as of January 3, 1999.
NOTES TO LIQUIDATION ANALYSIS
The following notes describe the significant assumptions that are
reflected in the Liquidation Analysis.
Note 1 - Accounts Receivable
Accounts receivable balances primarily include amounts due from
customers. The recovery of receivables is based on an estimate by the
Debtor's management of collection, given such factors as the aging of the
receivables and the time and effort to make inquires. For purposes of this
Liquidation Analysis, the high recovery estimate assumes 80% recovery on
the accounts receivable balance and the low recovery estimate assumes 70%
recovery on the accounts receivable balance which includes a provision for
chargebacks.
Note 2 - Inventory
It is assumed that, upon conversion of the case to a Chapter 7
liquidation, the Debtor would stop entering into new purchase commitments
and would mitigate purchase order cancellation claims by receiving as many
orders as is practical during the Liquidation Period.
The cost of on order merchandise for which delivery was accepted by
the Debtor during the Liquidation Period represents an administrative
expense of the estate. It is assumed that claims arising from the
cancellation of purchase orders would approximate 100% of the cost of the
orders in the low recovery scenario and 75% in the high recovery scenario.
It is assumed that the inventory would be liquidated in the Debtor's
current channels of distribution over a five month period.
The liquidation analysis reflects recoveries on inventory after
adjustments for defective merchandise, shrink, markdowns and other
allowances incurred during the Liquidation Period.
Note 3 - Prepaid Expenses
Prepaid expenses consist mostly of prepaid rent and other expenses.
The low recovery estimate assumes a possible recovery of 45% of the prepaid
expenses balance in a liquidation. The high recovery estimate assumes a
possible recovery of 65% of the prepaid expense balance.
Note 4 - Property and Equipment
Recoveries for owned real estate is based upon an estimate by the
Debtor's management of the current market for such properties assuming a
forced liquidation sale. Machinery and equipment and lease hold
improvements are assumed to have minimal value in liquidation.
Note 5 - Other Assets
Primarily relates to the value of owned trademarks and tradenames,
which have been valued based upon a multiple of net royalty income.
Note 6 - Wind-Down Costs
The estimate for wind-down costs was based on expense levels of the
Debtor in December 1998. The liquidation process was assumed to commence
immediately upon the filing of these cases. Such expenses were forecast by
department assuming the wind down of each department, as appropriate,
during the Liquidation Period.
In preparing the liquidation analysis management estimated that under
the low recovery scenario, wind-down costs would be 110% of the estimated
total expenses to allow for contingencies. The high recovery is assumed to
be 90% of the estimated wind down expenses.
Note 7 - Trustee Fees
Section 326 of the U.S. Bankruptcy Code limits U.S. Trustee fees to
3.0% of gross liquidation proceeds. The low recovery estimate assumes 3.0%
of the low value of the liquidation proceeds. The high recovery estimate
assumes 1.5% of the high liquidation proceeds.
Note 8 - Employee Severance and Related Costs
Estimate includes the cost of severance in accordance with company
policy and includes an estimate for retention bonuses necessary in order to
ensure an orderly liquidation. Estimate is based upon one month's salary at
current headcount levels. High scenario assumes aggregate severance and
retention bonuses at 90% of this amount and high scenario assumes 110%.
Note 9 - Prepetition Bank Lenders
Represents amounts due to CIT under the Credit Agreement. Such amounts
are deemed to be fully secured for the purpose of this analysis.
Note 10 - Senior Secured Notes
The Senior Secured Notes are secured by a second lien on all of the
assets of the Debtor (other than certain assets, including, without
limitation, general intangibles of the Debtor, with respect to which the
Senior Notes are secured by a first lien thereon, subject to the right of
CIT to receive, under certain circumstances, the first $15 million of
proceeds from the sale of the Debtor's general intangibles). Accordingly
this analysis assumes that all proceeds available for distribution would be
used to satisfy the claims of the holders of the Senior Secured Notes
before any distribution could be made to the general unsecured creditors.
Claim amounts include accrued but unpaid interest through December 29,
1998.
Note 11 - Accounts Payable and Accrued Expenses
Postpetition accounts payable and accrued expenses reflects estimated
vendor and expense payables outstanding estimated at January 3, 1999.
Note 12 - Lease Rejection Claims
The lease rejection claim is calculated under the guidelines as
stipulated by the section 502(b) of the Bankruptcy Code which limits lease
damages to the greater of one year's lease obligation, or 15% of the
remaining lease terms, not to exceed 3 years. The high recovery scenario
contemplates 25% mitigation of the claims relating to leases with below
market rents.
Note 13 - Pension Termination Costs
Represents the cost actuarially determined to terminate the Debtor's
various pension and retirement plans, as of December 31, 1998.
DISTRIBUTION OF NET PROCEEDS
($ IN THOUSANDS)
The following table sets forth an estimated distribution of the
between $55,277 and $89,609 in net proceeds distributable to holders of
secured claims, nonpriority unsecured claims and equity interests in a
hypothetical Chapter 7 liquidation of Salant on the Effective Date and a
comparison to estimated recoveries under the proposed Plan. The
distribution in such liquidation gives effect to strict enforcement of all
contractual subordination provisions.
CHAPTER 7 PLAN
---------------------------------------------- -----------------------------------------------
CLAIM OR CLAIM OR
EQUITY RECOVERY RECOVERY EQUITY RECOVERY RECOVERY
CLASS INTEREST ($) (%) INTEREST ($) (%)
- ----------------------- -------------- --------------- --------------- -- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
2 $42,582 $42,582 100% $42,582 $42,582 100%
(CIT Claim)
3 $119,734 $12,695 to 10.6% to 39.3% $119,734 $ 95,000/ 79.3%
(Senior Note Claims) $47,027 95,200(3)
4 $0 $0 -- $0 $0 --
(Misc. Secured Claims)
5 $15,834 $0 $0 $0 N/A
(PBGC Claims)
6 $56,107 to $0 -- $56,107 to $56,107 to 100%
(General Unsecured $50,479 $50,479 $50,479
Claims)
7 Old Common $0 -- Old $5,000/ --
Stock Common Stock 4,800(4)
Interests
8 Other $0 -- Other $0 --
Interests Interests
- ---------------------------
<FN>
3 Aggregate estimated value attributable to shares of New Common Stock
to be issued to Holders of Senior Note Claims in the case that a PEI
Event does occur on or prior to the Effective Date is $95 million.
Aggregate estimated value attributable to shares of New Common Stock
and the New PIK Senior Notes to be issued to Holders of Senior Note
claims in the case that a PEI Event does not occur on or prior to the
Effective Date is $95.2 million.
4 Aggregate estimated value attributable to shares of New Common Stock
to be issued to Holders of Old Common Stock Interests in the case that
a PEI Event does occur on or prior to the Effective Date is $5.0
million. Aggregate estimated value attributable to shares of New
Common Stock to be issued to Holders of Old Common Stock Interests in
the case that a PEI Event does not occur on or prior to the Effective
Date is $4.8 million.
</FN>
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.
E. 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.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Balance Sheet as of
October 3, 1998 and the Unaudited Pro Forma Consolidated Statements of
Operations for the nine-month period ended October 3, 1998 and for the year
ended January 3, 1998 are based upon the historical financial position and
results of operations as of and for the periods then ended. The following
pro forma adjustments (based on the assumptions set forth below) give
affect to the restructuring transactions. In the event that a PEI Event
occurs on or before the Confirmation Date, the pro forma adjustments give
effect to the following restructuring transactions, among others: (i) the
issuance of 9,500,000 shares of New Common Stock to Noteholders, (ii) the
issuance of 500,000 shares of New Common Stock to Stockholders, which
includes 489,791 shares of New Common Stock to be issued upon consummation
of the restructuring and 10,209 shares of New Common Stock reserved for
issuance in order to settle claims asserted in the 1990 Chapter 11 Case. In
the event that PEI Event does not occur on or before the Confirmation Date,
the pro forma adjustments give affect to the following restructuring
transactions, among others: (i) the issuance of 4,000,000 shares of New
Common Stock and the issuance of $92 million of 15% New Senior PIK Notes to
Noteholders, (ii) the issuance of 6,000,000 shares of New Common Stock to
Stockholders, which includes 5,989,791 shares of New Common Stock to be
issued upon consummation of the restructuring and 10,209 shares of New
Common Stock reserved for issuance in order to settle claims asserted in
the 1990 Chapter 11 Case. The following Unaudited Pro Forma Consolidated
Balance Sheet as of October 3, 1998 includes pro forma adjustments as if
the restructurings had been completed on that date. The following Unaudited
Pro Forma Consolidated Statements of Operations for the nine-month period
ended October 3, 1998 and the year ended January 3, 1998 includes pro forma
adjustments as if the restructuring had been completed on December 29,
1996.
The pro forma adjustments are based on available information and upon
certain assumptions that the Debtor believes are reasonable under the
circumstances. The unaudited pro forma consolidated financial statements
and accompanying notes should be read in conjunction with the historical
consolidated financial statements of the Debtor, including the notes
thereto, and the other information pertaining to the Debtor appearing in
the Form 10-K and 10-Q attached to this Disclosure Statement as Appendices
II and III, respectively.
THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS ARE PROVIDED
FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE CONSTRUED TO BE
INDICATIVE OF THE FINANCIAL CONDITIONS OR RESULTS OF OPERATIONS OF THE
DEBTOR HAD THE TRANSACTIONS DESCRIBED THEREIN BEEN CONSUMMATED ON THE
RESPECTIVE DATES INDICATED AND ARE NOT INTENDED TO BE PREDICTIVE OF THE
FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF THE DEBTOR AT ANY FUTURE
DATE OR FOR ANY FUTURE PERIOD.
PLAN ALTERNATIVE #1(5)
SALANT CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS)
Historical Pro Forma Pro Forma
October 3, 1998 Adjustments October 3, 1998
- ----------------------------------------------- ------------------------------ -------------------- ------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,953 $ - $ 1,953
Accounts receivable, net 71,633 - 71,633
Inventories 101,394 (56,549)(h) 44,845
Prepaid expenses and other current assets
10,021 (7,419)(c) 2,602
Assets held for sale
- 109,493 (h) 75,554
(33,939)(h)
Total Current Assets ------------------------------ -------------------- ------------------------
185,001 11,586 196,587
Property, plant and equipment, net
28,996 (12,650)(h) 16,346
Other assets 55,185 (40,294)(h) 14,891
TOTAL ASSETS ------------------------------ -------------------- ------------------------
$ 269,182 $ (41,358) $ 227,824
============================== ==================== ========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Loans payable $ 76,277 $ - $ 76,277
Accounts payable 20,821 - 20,821
Reserve for business restructuring
1,495 1,495
Accrued salaries, wages and other liabilities
23,096 (12,071)(b) 14,459
3,434(c)
Current portion of long-term debt
104,879 (104,879)(b) -
------------------------------ -------------------- ------------------------
Total Current Liabilities 226,568 (113,516) 113,052
Deferred Liabilities 5,351 - 5,351
Shareholders' equity:
Common stock 15,405 (234)(d) 100
(15,171)(e)
5 (e)
95 (b)
Additional paid-in-capital 107,249 15,171 (e) 217,320
(5)(e)
94,905 (b)
(1,380)(d))(d)
Deficit (80,013) 21,950 (b) (104,235)
(10,853)(c)
(33,939)(h)
Accumulated other comprehensive income
(3,764) (3,764)
Treasury stock (1,614) 1,614(d)
------------------------------ -------------------- ------------------------
Total shareholders' equity 37,263 72,158 109,421
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------ -------------------- ------------------------
$ 269,182 $ (41,358) $ 227,824
============================== ==================== ========================
See notes to the Unaudited Pro Forma Financial Statements.
- -------------------------
<FN>
5 The foregoing pro formas (balance sheet, statement of operations for
the nine months ended October 3, 1998 and statement of operations for
the year ended January 3, 1998) reflect a consummation of the Plan
assuming the occurrence of a PEI Event on or prior to the Effective
Date, and with the treatment provided to Senior Note Claims under
6.3(a)(i) of the Plan and the treatment provided to Old Common Stock
Interests under 6.7(a)(i) of the Plan.
</FN>
PLAN ALTERNATIVE #1
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 3, 1998
(IN THOUSANDS)
Historical Pro Forma
(9 months ended Pro Forma (9 months ended
October 3, 1998) Adjustments October 3, 1998)
(unaudited)
- ----------------------------------------- ---------------------- ---------------- --------------------
Net Sales $ 259,058 $ - $ 259,058
Cost of goods sold 201,371 - 201,371
---------------------- ---------------- --------------------
Gross profit 57,687 - 57,687
Selling, general and administrative
(52,802) - (52,802)
Royalty income 3,774 - 3,774
Goodwill amortization (1,411) - (1,411)
Reversal of provision for restructuring
158 - 158
Other income 175 - 175
---------------------- ---------------- --------------------
Income from continuing operations before
interest, income taxes and
extraordinary gain 7,581 - 7,581
Interest expense, net (12,337) 8,259(f) (4,078)
---------------------- ---------------- --------------------
Income before income taxes (4,756) 8,259 3,503
Income taxes 20 - (g) 20
---------------------- ---------------- --------------------
Income/(loss) from continuing operations
$ (4,776) $ 8,259 $ 3,483(i)
---------------------- ---------------- --------------------
Base earnings/(loss) per share from $ (0.31) $ $ 0.35
continuing operations ====================== ================ ====================
Weighted average common stock outstanding 15,170 10,000(j)
====================== ================ ====================
See notes to the Unaudited Pro Forma Financial Statements.
PLAN ALTERNATIVE #1
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
(IN THOUSANDS)
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(unaudited)
Net Sales .............................................................. $ 396,832 $ -- $ 396,832
Cost of goods sold ..................................................... 312,358 -- 312,358
--------- --------- ---------
Gross profit ........................................................... 84,474 -- 84,474
Selling, general and administrative
(80,593) -- (80,593)
Royalty income ......................................................... 5,596 -- 5,596
Goodwill amortization .................................................. (1,881) -- (1,881)
Restructuring charge ................................................... (575) -- (575)
Other income ........................................................... (2,066) -- (2,066)
--------- --------- ---------
Income from continuing operations before interest and
income taxes ......................................................... 6,105 -- 6,105
Interest expense, net .................................................. (16,660) 11,226(f) (5,434)
--------- --------- ---------
Income/(loss) from continuing operations before income
taxes and extraordinary gain
(10,555) 11,226 671
Income taxes ........................................................... 167 -(g) 167
--------- --------- ---------
Income/(loss) from continuing operations ............................... $ (10,722) $ 11,226 $ 504(i)
========= ========= =========
Basic earnings/(loss) per share from continuing operations ............. (0.71) $ .05
========= ========= =========
Weighed average common stock outstanding ............................... 15,139 10,000(j)
========= ========= =========
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
PLAN ALTERNATIVE #1
SALANT CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(a) Presentation:
The Unaudited Pro Forma Consolidated Financial Statements assume
that the transactions contemplated by the Plan occurred on October
3, 1998 for purposes of the Unaudited Pro Forma Balance Sheet and
December 29, 1996 for purposes of the Unaudited Pro Forma
Statements of Operations.
(b) Represents the Noteholders exchange of $104.9 million principal
amount of Senior Notes and $12.1 million of accrued interest
thereon for 9,500,000 shares of New Common Stock, resulting in a
gain of approximately $22.0 million.
(c) Represents expenses of $10.9 million (of which $7.4 million have
been paid as of October 3, 1998) attributable to the restructuring
activities and estimated bankruptcy related expenses of the Debtor.
(d) Represents the retirement of the Debtor's outstanding Treasury
Stock at original cost.
(e) Represents the retirement of 15,171,000 shares of Old Common Stock,
which includes 14,964,608 issued and outstanding shares and 206,392
shares of Old Common Stock that have been reserved for issuance in
order to settle claims asserted in the 1990 Chapter 11 Case, and
the issuance of 500,000 shares of New Common Stock to Stockholders,
which includes 489,791 shares of New Common Stock to be issued upon
consummation of the Restructuring and 10,209 shares of New Common
Stock to be reserved for issuance in order to settle claims
asserted in the 1990 Chapter 11 Case.
(f) Represents the elimination of interest expense relating to the
Debtor's existing Senior Notes.
(g) No federal tax provision was reflected for the year ended January
3, 1998 and the nine months ended October 3, 1998 due to the
availability of net operating loss carryforwards sufficient to
offset pro forma net income.
(h) Represents the reclassification of assets held for sale relating to
the sale of various divisions of the Debtor. Assets held for sale
which include inventory, property, plant and equipment, goodwill
and other intangible assets were reduced by approximately $33.9
million, to reflect their estimated net realizable value.
(i) The Unaudited Pro Forma Consolidated Statements of Operations do
not include (i) an extraordinary gain on extinguishment of debt of
approximately $13.6 million and $22.0 million at January 3, 1998
and October 3, 1998, respectively, (ii) a $33.9 million impairment
loss to reduce assets held for sale to their net realizable value,
(iii) and $10.9 million of Restructuring and estimated bankruptcy
related expenses.
(j) The pro forma weighted average shares outstanding assumes the New
Common Stock is outstanding for all periods presented.
PLAN ALTERNATIVE #26
SALANT CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS)
Historical Pro Forma Pro Forma
October 3, 1998 Adjustments October 3, 1998
- --------------------------------------------------------------------- --------------- ----------- ---------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,953 $ -- $ 1,953
--------- --------- ---------
Accounts receivable, net 71,633 -- 71,633
Inventories 101,394 (56,549)(h) 44,845
Prepaid expenses and other current assets 10,021 (7,419)(c) 2,602
Assets held for sale -- 109,493 (h) 75,554
(33,939)(h)
Total Current Assets -- -- --
185,001 11,586 196,587
Property, plant and equipment, net
28,996 (12,650)(h) 16,346
Other assets 55,185 (40,294)(h) 14,891
--------- --------- ---------
TOTAL ASSETS $ 269,182 $ (41,358) $ 227,824
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Loans payable $ 76,277 $ -- $ 76,277
Accounts payable 20,821 -- 20,821
Reserve for business restructuring 1,495 1,495
Accrued salaries, wages and other liabilities 23,095 (12,071 (b) 14,459
3,434 (c)
Current portion of long-term debt 104,879 (104,879)(b) --
--------- --------- ---------
Total Current Liabilities 226,568 (113,516) 113,052
Deferred Liabilities 5,351 -- 5,351
15% Senior PIK Notes 92,000 (b) 92,000
Shareholders' equity:
Common stock 15,405 (234)(d) 100
(15,171)(e)
60 (e)
40 (b)
Additional paid-in-capital 107,249 15,171 (e) 125,520
(60)(e)
3,160 (b)
Deficit (80,013) 21,750 (b) (104,435)
(10,853)(c)
(1,380)(d)
(33,939)(h)
Accumulated other comprehensive income (3,764) -- (3,764)
Treasury stock (1,614) 1,614 (d) --
--------- --------- ---------
Total shareholders' equity 37,263 (19,842) 17,421
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 269,182 $ (41,358) $ 227,824
========= ========= =========
See notes to the Unaudited Pro Forma Financial Statements.
PLAN ALTERNATIVE #2
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 3, 1998
(IN THOUSANDS)
Pro Forma
Historical Adjustments Pro Forma
- --------------------------------------------------------------------- --------------- ----------- ---------------
(unaudited)
Net Sales $ 259,058 $ -- $ 259,058
Cost of goods sold 201,371 -- 201,371
--------- --------- ---------
Gross profit 57,687 -- 57,687
Selling, general and administrative
(52,802) -- (52,802)
Royalty income 3,774 -- 3,774
Goodwill amortization (1,411) -- (1,411)
Reversal of provision for restructuring
158 -- 158
Other income 175 -- 175
--------- --------- ---------
Income from continuing operations before interest and
income taxes 7,581 -- 7,581
Interest expense, net (12,337) 8,259 (f) (14,505)
(10,427)(f)
--------- --------- ---------
Income/(loss) from continuing operations before income
taxes (4,756) (2,168) (6,924)
Income taxes 20 -(g) 20
--------- --------- ---------
Income/(loss) from continuing operations $ (4,776) $ (2,168) $ (6,944)(i)
========= ========= =========
Basic earnings/(loss) per share from continuing operations $ (0.31) $ $ (0.69)
========= ========= =========
Weighted average common stock outstanding 15,170 10,000(j)
========= ========= =========
See notes to the Unaudited Pro Forma Financial Statements.
PLAN ALTERNATIVE #2
SALANT CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
(IN THOUSANDS)
Pro Forma
Historical Adjustments Pro Forma
- --------------------------------------------------------------------- --------------- ----------- ---------------
(unaudited)
Net Sales $ 396,832 $ -- $ 396,832
Cost of goods sold 312,358 -- 312,358
--------- --------- ---------
Gross profit 84,474 -- 84,474
Selling, general and administrative
(80,593) -- (80,593)
Royalty income 5,596 -- 5,596
Goodwill amortization (1,881) -- (1,881)
Restructuring charge (2,066) -- (2,066)
Other income 575 -- 575
--------- --------- ---------
Income from continuing operations before interest and
income taxes 6,105 -- 6,105
Interest expense, net (16,660) 11,226(f) (19,617)
(14,183)(f)
--------- --------- ---------
Net(loss)before income taxes (10,555) (2,957) (13,512)
Income taxes 167 -(g) 167
--------- --------- ---------
Net loss $ (10,722) $ (2,957) $ (13,679)(i)
========= ========= =========
Basic earnings/(loss) per share from continuing operations (0.71) $ (1.37)
========= ========= =========
Weighed average common stock outstanding 15,139 10,000(j)
========= ========= =========
See notes to the Unaudited Pro Forma Consolidated Financial Statements.
PLAN ALTERNATIVE #2
SALANT CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(a) Presentation:
The Unaudited Pro Forma Consolidated Financial Statements assume
that the transactions contemplated by the Plan occurred on October
3, 1998 for purposes of the Unaudited Pro Forma Balance Sheet and
December 29, 1996 for purposes of the Unaudited Pro Forma
Statements of Operations.
(b) Represents the Noteholders exchange of (i) $104.9 million principal
amount of Senior Notes and $12.1 million of accrued interest
thereon for 4,000,000 shares of New Common Stock and (ii) $92
million of 15% New PIK Senior Notes resulting in a gain of
approximately $21.8 million.
(c) Represents expenses of $10.9 (of which $7.4 million have been paid
as of October 3, 1998) attributable to the restructuring activities
and estimated bankruptcy related expenses of the Debtor.
(d) Represents the retirement of the Debtor's outstanding Treasury
Stock at original cost.
(e) Represents the retirement of 15,171,000 shares of Old Common Stock,
which includes 14,964,608 issued and outstanding shares and 206,392
shares of Old Common Stock that have been reserved for issuance in
order to settle claims asserted in the 1990 Chapter 11 Case, and
the issuance of 6,000,000 shares of New Common Stock to
Stockholders, which includes 5,989,791 shares of New Common Stock
to be issued upon consummation of the Restructuring and 10,209
shares of New Common stock to be reserved for issuance in order to
settle claims asserted in the 1990 Chapter 11 Case.
(f) Represents the elimination of interest expense relating to the
Debtor's existing 10 1/2% Senior Notes and the inclusion of
interest expense related to the 15% New PIK Senior Notes.
(g) No federal tax benefit was reflected for the year ended January 3,
1998 and the nine months ended October 3, 1998.
(h) Represents the reclassification of assets held for sale relating to
the sale of various divisions of the Debtor. Assets held for sale
include inventory, property, plant and equipment, goodwill and
other intangible assets were reduced by approximately $33.9
million, to reflect their estimated net realizable value.
(i) The Unaudited Pro Forma Consolidated Statements of Operations do
not include (i) an extraordinary gain on extinguishment of debt of
approximately $13.4 million and $21.8 million at January 3, 1998
and October 3, 1998, respectively, (ii) a $33.9 million impairment
loss to reduce assets held for sale to their net realizable value,
(iii)and $10.9 million of Restructuring and estimated bankruptcy
related expenses.
(j) The pro forma weighted average shares outstanding assumes the New
Common Stock is outstanding for all periods presented.
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 Donlin, Recano & Company, Inc. 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 MARCH 15, 1999:
SALANT CORPORATION
c/o DONLIN, RECANO & COMPANY, INC.
P.O. Box 2034
Murray Hill Station
New York, New York 10156-0701
Or if sent by hand delivery or overnight courier to:
Salant Corporation
C/O donlin, recano & Company, Inc.
419 Park Avenue South
Suite 1206
New York, New York 10016
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, DONLIN,
RECANO & COMPANY, INC. 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.
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 March 15, 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
February 3, 1999
SALANT CORPORATION
Debtor and Debtor-in-Possession
By: /s/ Todd Kahn
------------------------------
Name: Todd Kahn
Title: Chief Operating
Officer 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.
Appendix I - Plan
The foregoing pro formas (balance sheet, statement of operationsfor
the nine months ended October 3, 1998 and statement of
operations for the year ended January 3, 1998) reflect a
consummation of the Plan assuming a PEI Event does not occur on or
prior to the Effective Date, and with the treatment provided to
Senior Note Claims under 6.3(a)(ii) of the Plan and the treatment
provided to Old Common Stock
Interests under 6.7(a)(ii) of the
Plan.