Exhibit 99.1
THIS IS NOT A SOLICITATION OF ACCEPTANCE OR REJECTION OF THE PLAN. ACCEPTANCES
OR REJECTIONS MAY NOT BE SOLICITED UNTIL A DISCLOSURE STATEMENT HAS BEEN
APPROVED BY THE BANKRUPTCY COURT. THIS DISCLOSURE STATEMENT IS BEING SUBMITTED
FOR APPROVAL BUT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ------------------------------------ X
:
IN RE : CHAPTER 11 CASE NO.
:
SUNBEAM CORPORATION, : 01-40291 (AJG)
:
DEBTOR. :
:
- ------------------------------------ X
DEBTOR'S SECOND AMENDED DISCLOSURE STATEMENT
PURSUANT TO SECTION 1125 OF THE BANKRUPTCY CODE
WEIL, GOTSHAL & MANGES LLP
ATTORNEYS FOR THE DEBTOR
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
(212) 310-8000
DATED: NEW YORK, NEW YORK
SEPTEMBER 6, 2002
TABLE OF CONTENTS
PAGE
----
I. INTRODUCTION...................................................................................................1
A. HOLDERS OF CLAIMS ENTITLED TO VOTE...................................................................2
B. VOTING PROCEDURES....................................................................................3
C. CONFIRMATION HEARING.................................................................................4
II. OVERVIEW OF THE PLAN...........................................................................................5
III. GENERAL INFORMATION............................................................................................7
A. OVERVIEW OF CHAPTER 11...............................................................................7
B. DESCRIPTION AND HISTORY OF BUSINESS..................................................................8
C. MARKET INFORMATION...................................................................................9
IV. EVENTS PRECEDING THE COMMENCEMENT OF THE CHAPTER 11 CASE.......................................................9
A. COLEMAN, SIGNATURE BRANDS AND FIRST ALERT ACQUISITIONS..............................................10
B. DEBT FINANCING......................................................................................11
C. SUBORDINATED NOTES EXCHANGE OFFER...................................................................11
D. AMENDMENTS TO BANK CREDIT AGREEMENT.................................................................11
E. RESTATEMENT OF FINANCIAL RESULTS; CHANGE OF AUDITORS................................................12
F. MANAGEMENT AND BOARD CHANGES........................................................................13
G. SETTLEMENT OF COLEMAN RELATED CLAIMS................................................................14
H. SECURITIES LITIGATION AND RELATED CLAIMS............................................................14
1. Shareholder Litigation....................................................................15
a. Florida District Court Consolidated Shareholder Litigation.....................15
b. Alabama State Court Shareholder Litigation.....................................16
2. Noteholder Litigation.....................................................................16
a. Florida District Court Consolidated Noteholder Litigation......................16
b. Texas State Court Noteholder Litigation........................................16
c. Wisconsin State Court Noteholder Litigation....................................17
3. Derivative Actions........................................................................17
a. Florida State Court Derivative Litigation......................................17
b. Delaware Chancery Court Warrant Litigation.....................................19
c. Florida District Court Derivative Action.......................................19
i
4. Other Actions.............................................................................21
a. Former Officer and Director Indemnification Litigation.........................21
b. Former Officer and Director Employment Contract Arbitration....................21
5. SEC Investigation.........................................................................22
6. United States Attorney Investigation......................................................22
7. Inquiry by House Committee on Energy and Commerce.........................................22
I. PRICEWATERHOUSECOOPERS LITIGATION...................................................................22
J. THE SMOKE ALARM CLASS ACTION LITIGATION.............................................................23
K. CONSUMER PRODUCT SAFETY COMMISSION ACTION...........................................................24
L. ENVIRONMENTAL INSURANCE LITIGATION..................................................................25
M. INTERCOMPANY RECEIVABLES............................................................................27
N. 2000 FINANCIAL PERFORMANCE..........................................................................27
O. PREPETITION NEGOTIATIONS............................................................................28
V. THE REORGANIZATION CASE.......................................................................................28
A. COMMENCEMENT OF THE CHAPTER 11 CASE.................................................................28
B. ADMINISTRATION OF THE CHAPTER 11 CASE...............................................................28
1. Operational Matters.......................................................................28
2. Cash Management...........................................................................28
3. Debtor in Possession and Receivables Financing............................................29
4. Assets Sales During Chapter 11 Case.......................................................29
5. Sunbeam Group Business Realignment........................................................29
C. CREDITORS' COMMITTEE................................................................................30
D. 2001 FINANCIAL PERFORMANCE..........................................................................31
E. POSTPETITION NEGOTIATIONS...........................................................................32
VI. THE PLAN OF REORGANIZATION....................................................................................32
A. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS.........................................33
1. Administrative Expense Claims.............................................................33
2. Compensation and Reimbursement Claims.....................................................34
3. Priority Tax Claims.......................................................................34
4. Class 1 - Other Priority Claims...........................................................34
5. Class 2 - Other Secured Claims............................................................35
ii
6. Class 3 - Secured Bank Claims.............................................................35
7. Class 4 - General Unsecured Claims........................................................36
8. Class 5 - Subordinated Note Claims........................................................37
9. Class 6 - Subordinated Noteholder Securities Claim........................................37
10. Class 7 - Sunbeam Affiliate Claims........................................................37
11. Class 8 - Equity Interests................................................................38
12. Class 9 - Equity Holder Securities Claims.................................................38
B. SECURITIES TO BE ISSUED UNDER THE AMENDED PLAN......................................................39
1. Reorganized Sunbeam Common Stock..........................................................39
2. New Warrants..............................................................................39
3. Management Equity Plans...................................................................40
C. METHOD OF DISTRIBUTION UNDER THE PLAN...............................................................40
1. Distributions by Reorganized Sunbeam......................................................40
2. Distributions on Account of Subordinated Note Claims......................................41
D. TIMING OF DISTRIBUTIONS UNDER THE AMENDED PLAN......................................................41
E. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES...............................................42
F. PROVISIONS FOR TREATMENT OF DISPUTED CLAIMS.........................................................43
G. CONDITIONS PRECEDENT TO CONFIRMATION OF THE AMENDED PLAN............................................44
H. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THE AMENDED PLAN...........................................45
I. IMPLEMENTATION AND EFFECT OF CONFIRMATION OF THE AMENDED PLAN.......................................46
1. Incurrence of New Indebtedness............................................................46
J. DISCHARGE AND INJUNCTION............................................................................49
K. VOTING..............................................................................................50
1. Voting of Claims..........................................................................50
2. Elimination of Vacant Classes.............................................................50
3. Nonconsensual Confirmation................................................................50
L. SUMMARY OF OTHER PROVISIONS OF THE PLAN.............................................................50
1. Retiree Benefits..........................................................................50
2. Continuation of Pension Plans.............................................................50
iii
3. By-laws and Certificates of Incorporation.................................................51
4. Amendment or Modification of the Plan.....................................................51
5. Assumed Indemnification Obligations.......................................................51
6. Limited Releases..........................................................................51
7. Cancellation of Existing Securities and Agreements........................................52
8. Revocation or Withdrawal of the Plan......................................................52
9. Termination of Committee..................................................................53
10. Claims Extinguished.......................................................................53
11. Effectuating Documents and Further Transactions...........................................53
12. Corporate Action..........................................................................53
13. Exculpation...............................................................................54
14. Plan Supplement...........................................................................54
15. Retention of Derivative Securities Litigation Claims......................................54
16. Retention of Jurisdiction.................................................................55
17. Exemption from Transfer Taxes.............................................................56
18. Post-Effective Date Fees and Expenses.....................................................56
19. Payment of Statutory Fees.................................................................56
20. Severability..............................................................................56
21. Binding Effect............................................................................56
22. Governing Law.............................................................................57
23. Withholding and Reporting Requirements....................................................57
24. Sections 1125 and 1126 of the Bankruptcy Code.............................................57
25. Allocation of Plan Distributions..........................................................57
26. Hart-Scott-Rodino Compliance..............................................................57
27. Minimum Distributions.....................................................................58
28. Change of Name............................................................................58
29. Notices...................................................................................58
VII. CONFIRMATION AND CONSUMMATION PROCEDURE.......................................................................59
A. SOLICITATION OF VOTES...............................................................................59
B. THE CONFIRMATION HEARING............................................................................59
C. CONFIRMATION........................................................................................60
1. Acceptance................................................................................61
iv
2. Unfair Discrimination and Fair and Equitable Tests........................................61
3. Feasibility...............................................................................62
4. Best Interests Test.......................................................................63
D. CONSUMMATION........................................................................................64
VIII. MANAGEMENT OF REORGANIZED SUNBEAM.............................................................................64
A. BOARD OF DIRECTORS AND MANAGEMENT...................................................................64
1. Board of Directors........................................................................64
2. Officers..................................................................................64
3. Identity of the Debtor's Executive Management.............................................65
B. COMPENSATION OF THE DEBTOR'S EXECUTIVE MANAGEMENT...................................................65
C. OTHER COMPENSATION MATTERS..........................................................................65
1. Management Equity Plans...................................................................65
2. Securities Law Compliance.................................................................68
D. CONTINUATION OF EXISTING BENEFIT PLANS AND D&O INSURANCE............................................69
E. POST-EFFECTIVE DATE SECURITY OWNERSHIP OF CERTAIN OWNERS............................................69
IX. SECURITIES LAWS MATTERS.......................................................................................69
A. BANKRUPTCY CODE EXEMPTIONS FROM REGISTRATION REQUIREMENTS...........................................69
B. REGISTRATIONS RIGHTS AGREEMENT AND SECURITYHOLDERS AGREEMENT........................................74
1. Registration Rights Agreement.............................................................74
2. Securityholders Agreement.................................................................74
X. VALUATION.....................................................................................................75
XI. CERTAIN RISK FACTORS TO BE CONSIDERED.........................................................................77
A. CERTAIN BANKRUPTCY LAW CONSIDERATIONS...............................................................77
1. Risk of Non-Confirmation of the Plan......................................................77
2. Non-Consensual Confirmation...............................................................77
3. Risk of Non-Occurrence of the Effective Date..............................................77
4. Risks Related to the Subsidiaries Plan....................................................78
v
B. RISKS TO RECOVERY BY HOLDERS OF SECURED BANK CLAIMS, GENERAL UNSECURED CLAIMS AND SUBORDINATED NOTE
CLAIMS..............................................................................................78
1. Possible Economic Slowdown................................................................78
2. International Exposure....................................................................78
3. Need to Develop New Products..............................................................79
4. Competitive Conditions....................................................................79
5. Customers.................................................................................79
6. Critical Raw Materials and Components.....................................................79
7. Dependence Upon Third-Party Suppliers and Service Providers...............................79
8. Production Related Risks..................................................................80
9. Weather Conditions........................................................................80
10. Reliance on Key Personnel.................................................................80
11. Adverse Publicity.........................................................................80
12. Ability to Refinance Certain Indebtedness.................................................81
13. Foreign Working Capital Lines.............................................................81
14. Significant Holders.......................................................................81
15. Risks of Non-Reporting....................................................................81
16. Absence of Public Market..................................................................82
17. Projected Financial Information...........................................................82
18. Hart-Scott-Rodino Act Requirements........................................................82
XII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN...........................................................82
A. CONSEQUENCES TO THE DEBTOR..........................................................................83
1. Existing Tax Attributes...................................................................83
2. Cancellation of Debt......................................................................83
3. Limitation on NOL Carryforwards and Other Tax Attributes..................................84
4. Alternative Minimum Tax...................................................................85
5. Possible Transfer of Assets...............................................................86
B. CONSEQUENCES TO HOLDERS OF CERTAIN CLAIMS...........................................................86
1. Class 4 Claims................................................................................................86
2. Class 5 Claims................................................................................................87
3. Distributions in Discharge of Accrued Interest................................................................87
4. Ownership and Disposition of New Warrants.....................................................................88
vi
5. Information Reporting and Withholding.........................................................................88
XIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN.....................................................89
A. LIQUIDATION UNDER CHAPTER 7.........................................................................89
B. ALTERNATIVE PLAN OF REORGANIZATION..................................................................89
XIV. CONCLUSION AND RECOMMENDATION.................................................................................90
vii
EXHIBIT A Plan of Reorganization
EXHIBIT B Disclosure Statement Order
EXHIBIT C Sunbeam Corporation's Audited Consolidated Financial
Statements for the fiscal year ended December 31, 2001
EXHIBIT D Sunbeam Corporation's Unaudited Consolidated Financial
Information for the two fiscal quarters ended June 30, 2002
EXHIBIT E Projected Financial Information
EXHIBIT F Liquidation Analysis
viii
I. INTRODUCTION
Sunbeam Corporation ("Sunbeam Corporation" or the "Debtor")
submits this amended Disclosure Statement (the "Disclosure Statement") pursuant
to section 1125 of title 11 of the United States Code (the "Bankruptcy Code") to
holders of claims against and equity interests in the Debtor in connection with
(i) the solicitation of acceptances of the Debtor's Third Amended Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code, dated September 6, 2002
(as the same may be amended, the "Plan"), filed by the Debtor with the United
States Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court") and (ii) the hearing to consider confirmation of the Plan (the
"Confirmation Hearing") scheduled on November 4, 2002. Substantially all of the
direct and indirect domestic subsidiaries of the Debtor (the "Subsidiary
Debtors"(FN1)) are debtors-in-possession in separately administered chapter 11
cases pending in the Bankruptcy Court, and have filed with the Bankruptcy Court
a separate third amended joint plan of reorganization, dated September 6, 2002
(as the same may be amended, the "Subsidiaries Plan" and, together with the
Plan, the "Plans") and a related disclosure statement. Unless otherwise defined
herein, all capitalized terms contained herein shall have the meanings ascribed
to them in the Plan.
Attached as Exhibits to this Disclosure Statement are
copies of the following documents:
o The Plan (Exhibit A);
o Order of the Bankruptcy Court dated October __, 2002
(the "Disclosure Statement Order"), among other
things, approving this Disclosure Statement and
establishing certain procedures with respect to the
solicitation and tabulation of votes to accept or
reject the Plan (Exhibit B);
o Sunbeam Corporation's Audited Consolidated Financial
Statements for the fiscal year ended December 31,
2001 (Exhibit C);
o Sunbeam Corporation's Unaudited Consolidated
Financial Information for the two fiscal quarters
ended June 30, 2002 (Exhibit D);
o Projected Financial Information (Exhibit E); and
o Liquidation Analysis (Exhibit F).
In addition, a Ballot for the acceptance or rejection of
the Plan is enclosed with the Disclosure Statement submitted to the holders of
Claims that the Debtor believes may be entitled to vote to accept or reject the
Plan.
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1. The Subsidiary Debtors are AI Realty Marketing of New York, Inc.; Beacon
Exports, Inc.; BRK Brands, Inc.; CC Outlet, Inc.; CMO, Inc.; Coleman Argentina,
Inc.; Coleman International Holdings, LLC; Coleman Powermate, Inc.; Coleman
Puerto Rico, Inc.; Coleman Venture Capital, Inc.; Coleman Worldwide Corp.; DDG
I, Inc.; Family Gard, Inc.; First Alert, Inc.; General Archery Industries, Inc.;
GHI I, Inc.; JGK, Inc.; Kaimona, Inc.; Kansas Acquisition Corp.; L.A. Services,
Inc.; Laser Acquisition Corp.; Nippon Coleman, Inc.; Packs & Travel Corporation;
Pearson Holdings, Inc.; PH III, Inc.; River View Corporation of Barling, Inc.;
SI II, Inc.; Sierra Corporation of Fort Smith, Inc.; Sunbeam Americas Holdings,
Ltd.; Sunbeam Health & Safety Company; Sunbeam Latin America, LLC; Sunbeam
Products, Inc.; Sunbeam Services, Inc.; Survival Gear, Inc.; Thalia Products
Inc.; The Coleman Company, Inc.; THL-FA IP Corp; Vero Dunes Venturer, Inc.; and
Woodcraft Equipment Company.
On October __, 2002, after notice and a hearing, the
Bankruptcy Court signed the Disclosure Statement Order approving this Disclosure
Statement as containing adequate information of a kind and in sufficient detail
to enable hypothetical, reasonable investors typical of the Debtor's creditors
to make an informed judgment whether to accept or reject the Plan. APPROVAL OF
THIS DISCLOSURE STATEMENT DOES NOT, HOWEVER, CONSTITUTE A DETERMINATION BY THE
BANKRUPTCY COURT AS TO THE FAIRNESS OR MERITS OF THE PLAN.
The Disclosure Statement Order, a copy of which is annexed
hereto as Exhibit B, sets forth in detail the deadlines, procedures and
instructions for voting to accept or reject the Plan and for filing objections
to confirmation of the Plan, the record date for voting purposes and the
applicable standards for tabulating Ballots. In addition, detailed voting
instructions accompany each Ballot. Each holder of a Claim entitled to vote on
the Plan should read this Disclosure Statement, the Plan, the Disclosure
Statement Order and the instructions accompanying the Ballot in their entirety
before voting on the Plan. These documents contain important information
concerning the classification of Claims and Equity Interests for voting purposes
and the tabulation of votes. No solicitation of votes to accept the Plan may be
made except pursuant to section 1125 of the Bankruptcy Code.
A. HOLDERS OF CLAIMS ENTITLED TO VOTE
Pursuant to the provisions of the Bankruptcy Code, only
holders of allowed claims or equity interests in classes of claims or equity
interests that are impaired and that are not deemed to have rejected a proposed
chapter 11 plan are entitled to vote to accept or reject such plan. Classes of
claims or equity interests in which the holders of claims or equity interests
are unimpaired under a chapter 11 plan are deemed to have accepted the plan and
are not entitled to vote to accept or reject the plan. Classes of claims or
equity interests in which the holders of claims or equity interests will receive
no recovery under a chapter 11 plan are deemed to have rejected the plan and are
not entitled to vote to accept or reject the plan. For a detailed description of
the treatment of Claims and Equity Interests under the Plan, see Section VI. of
this Disclosure Statement.
Classes 3, 4, 5, 6, 7, 8 and 9 of the Plan are impaired.
Holders of Allowed Claims in Classes 3, 4 and 5 may receive distributions under
the Plan. As a result, holders of Claims in Classes 3, 4 and 5 are entitled to
vote to accept or reject the Plan. Classes 6, 7, 8 and 9 of the Plan, consisting
of Subordinated Noteholder Securities Claims, Sunbeam Affiliate Claims, Equity
Interests and Equity Holder Securities Claims, respectively, will not receive
any distributions under the Plan. As a result, holders of Claims and Equity
Interests in these Classes are conclusively presumed to have rejected the Plan.
Classes 1 and 2 of the Plan are unimpaired. As a result, holders of Claims in
those Classes are conclusively presumed to have accepted the Plan.
The Bankruptcy Code defines "acceptance" of a plan by a
class of claims as acceptance by creditors in that class that hold at least
two-thirds in dollar amount and more than one-half in number of the claims that
cast ballots for acceptance or rejection of a proposed chapter 11 plan. For a
more detailed description of the requirements for confirmation of the Plan, see
Section VII.C. of this Disclosure Statement.
If a Class of Claims entitled to vote on the Plan rejects
the Plan, the Debtor reserves the right to amend the Plan or request
confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code or
both. Section 1129(b) permits the confirmation of a plan of reorganization
notwithstanding the nonacceptance of a plan by one or more impaired classes of
2
claims or equity interests. Under that section, a plan may be confirmed by a
bankruptcy court if it does not "discriminate unfairly" and is "fair and
equitable" with respect to each nonaccepting class. For a more detailed
description of the requirements for confirmation of a nonconsensual plan, see
Section VII.C.2. of this Disclosure Statement.
With respect to those Classes of Claims and Equity
Interests that are deemed to have rejected the Plan, i.e., Class 6 (Subordinated
Noteholder Securities Claims), Class 7 (Sunbeam Affiliate Claims), Class 8
(Equity Interests) and Class 9 (Equity Holder Securities Claims), the Debtor
shall request confirmation of the Plan pursuant to section 1129(b) of the
Bankruptcy Code.
B. VOTING PROCEDURES
If you are entitled to vote to accept or reject the Plan, a
Ballot is enclosed for the purpose of voting on the Plan. Please vote and return
your Ballot(s) to:
SUNBEAM CORPORATION
c/o Bankruptcy Services, Inc.
Heron Tower
70 East 55th Street, 6th Floor
New York, New York 10022
DO NOT RETURN ANY NOTES OR SECURITIES WITH YOUR BALLOT.
TO BE COUNTED, YOUR BALLOT INDICATING ACCEPTANCE OR
REJECTION OF THE PLAN MUST BE RECEIVED BY NO LATER THAN 4:00 P.M., EASTERN TIME,
ON OCTOBER 30, 2002. ANY EXECUTED BALLOT RECEIVED THAT DOES NOT INDICATE EITHER
AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO CONSTITUTE AN
ACCEPTANCE OF THE PLAN.
Pursuant to the Disclosure Statement Order, the Bankruptcy
Court set October __, 2002 as the record date for voting on the Plan.
Accordingly, only holders of record as of October __, 2002 that otherwise are
entitled to vote under the Plan will receive a Ballot and may vote on the Plan.
Holders of Allowed Secured Bank Claims will receive under
the Plan 100% of the shares of common stock of Reorganized Sunbeam, subject to
dilution by issuance of the Management Investment Securities and issuance and
exercise of the New Warrants (if any) and/or the Employee Options and, in their
capacity as the shareholders of Reorganized Sunbeam immediately following the
Effective Date, also shall indicate on their Ballots their approval or rejection
of the Management Equity Plans. Any executed Ballots with respect to Secured
Bank Claims which are timely received but which do not indicate either approval
or rejection of the Management Equity Plans will be deemed to constitute an
approval of the Management Equity Plans. For a description of the Management
Equity Plans see Section VIII.C.2 of this Disclosure Statement.
If you are a holder of a Claim entitled to vote on the Plan
and did not receive a Ballot, received a damaged Ballot or lost your Ballot, or
if you have any questions concerning this Disclosure Statement, the Plan or the
procedures for voting on the Plan, please call Ms. Kathy Gerber of Bankruptcy
Services, Inc. at (212) 376-8494, extension 114.
3
C. CONFIRMATION HEARING
Pursuant to section 1128 of the Bankruptcy Code, the
Confirmation Hearing will be held on November 4, 2002, commencing at 10:00 a.m.
Eastern Time, before the Honorable Arthur J. Gonzalez, United States Bankruptcy
Judge, at the United States Bankruptcy Court for the Southern District of New
York, One Bowling Green, New York, New York 10004, or such other location as the
Bankruptcy Court directs. The Bankruptcy Court has directed that objections, if
any, to confirmation of the Plan be served and filed so that they are received
by no later than October 25, 2002, at 4:00 p.m. Eastern Time, in the manner
described below in Section VII.B. of this Disclosure Statement. The Confirmation
Hearing may be adjourned from time to time by the Bankruptcy Court without
further notice except for the announcement of the adjournment date made at the
Confirmation Hearing or at any subsequent adjourned Confirmation Hearing.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE
MADE AS OF THE DATE HEREOF UNLESS ANOTHER TIME IS SPECIFIED HEREIN, AND THE
DELIVERY OF THIS DISCLOSURE STATEMENT SHALL NOT CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE INFORMATION STATED SINCE THE DATE HEREOF. HOLDERS OF
CLAIMS ENTITLED TO VOTE SHOULD CAREFULLY READ THIS DISCLOSURE STATEMENT, IN ITS
ENTIRETY, INCLUDING THE PLAN, PRIOR TO VOTING ON THE PLAN.
FOR THE CONVENIENCE OF HOLDERS OF CLAIMS AND EQUITY
INTERESTS, THIS DISCLOSURE STATEMENT SUMMARIZES THE TERMS OF THE PLAN, BUT THE
PLAN ITSELF QUALIFIES ALL SUMMARIES. IF ANY INCONSISTENCY EXISTS BETWEEN THE
PLAN AND THIS DISCLOSURE STATEMENT, THE TERMS OF THE PLAN ARE CONTROLLING. THIS
DISCLOSURE STATEMENT MAY NOT BE RELIED ON FOR ANY PURPOSE, OTHER THAN TO
DETERMINE WHETHER TO VOTE TO ACCEPT OR REJECT THE PLAN, AND NOTHING STATED
HEREIN SHALL CONSTITUTE AN ADMISSION OF ANY FACT OR LIABILITY BY ANY PARTY, OR
BE ADMISSIBLE IN ANY PROCEEDING INVOLVING THE DEBTOR OR ANY OTHER PARTY, OR BE
DEEMED CONCLUSIVE EVIDENCE OF THE TAX OR OTHER LEGAL EFFECTS OF THE PLAN ON THE
DEBTOR OR HOLDERS OF CLAIMS OR EQUITY INTERESTS. CERTAIN OF THE STATEMENTS
CONTAINED IN THIS DISCLOSURE STATEMENT, BY NATURE, ARE FORWARD-LOOKING AND
CONTAIN ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH
STATEMENTS WILL BE REFLECTIVE OF ACTUAL OUTCOMES. ALL HOLDERS OF CLAIMS SHOULD
CAREFULLY READ AND CONSIDER FULLY THE RISK FACTORS SET FORTH IN ARTICLE XI. OF
THIS DISCLOSURE STATEMENT.
SUMMARIES OF CERTAIN PROVISIONS OF AGREEMENTS REFERRED TO
IN THIS DISCLOSURE STATEMENT DO NOT PURPORT TO BE COMPLETE AND ARE SUBJECT TO,
AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO, THE FULL TEXT AND TO ALL OF
THE PROVISIONS OF THE APPLICABLE AGREEMENT, INCLUDING THE DEFINITIONS OF TERMS
CONTAINED IN SUCH AGREEMENT.
THE DEBTOR BELIEVES THAT THE PLAN WILL ENABLE IT TO
SUCCESSFULLY REORGANIZE AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND THAT
ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTOR, ITS CREDITORS AND
ALL PARTIES IN INTEREST.
4
II. OVERVIEW OF THE PLAN
The following table briefly summarizes the classification
and treatment of Claims and Equity Interests under the Plan:
SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN
Type of Claim Estimated
Class or Equity Interest Treatment Recovery
----- ------------------ --------- --------
-- Administrative Expense Unimpaired; paid in full, in Cash, or in accordance with the 100%
Claims terms and conditions of transactions or agreements relating to
obligations incurred in the ordinary course of business during the
pendency of the Chapter 11 Case or assumed by the Debtor in
Possession.
-- Priority Tax Claims Unimpaired; except to the extent paid prior to Effective Date or 100%
agrees to a different treatment, at the option of Reorganized
Sunbeam either (i) paid in full, in Cash, or (ii) paid over a
six-year period from the date of assessment as provided in
section 1129(a)(9)(C) of the Bankruptcy Code with interest
payable at a rate of 8.0% per annum or as otherwise established
by the Bankruptcy Court; provided, however, that the Debtor must
obtain the consent of the Banks in order to elect option (i).
1 Other Priority Claims Unimpaired; except to the extent paid prior to Effective Date or 100%
agrees to a different treatment, paid in full, in Cash.
2 Other Secured Claims Unimpaired; except to the extent paid prior to Effective Date or 100%
agrees to a different treatment, at the option of Reorganized
Sunbeam either (i) reinstated by curing all outstanding
defaults, with all legal, equitable and contractual rights
remaining unaltered, (ii) paid in full, in Cash, plus interest
required to be paid pursuant to section 506(b) of the Bankruptcy
Code, or (iii) fully and completely satisfied by delivery or
retention of the Collateral securing the Other Secured Claims
and payment of interest required to be paid pursuant to section
506(b) of the Bankruptcy Code; provided, however, that the
Debtor must obtain the consent of the Banks in order to elect
option (ii).
5
Type of Claim Estimated
Class or Equity Interest Treatment Recovery
----- ------------------ --------- --------
3 Secured Bank Claims(FN2) Impaired; distribution of a Pro Rata Share of (i) (A) 32.9% (FN3)
$100,000,000 in principal amount of the New Secured Term Notes,
and (B) 100% of the Reorganized Sunbeam Common Stock, subject to
dilution as described in Section VI.A.6 hereof; and (ii) the
releases set forth in Section 11.4 of the Plan. In addition,
each holder of an Allowed Secured Bank Claim shall be entitled
to retain all amounts paid to it or on its behalf as adequate
protection or otherwise, and Reorganized Sunbeam will continue
to pay the professional fees of the holders of the Allowed
Secured Bank Claims after the Confirmation Date with respect to
matters relating to the Plan or the Chapter 11 Case in
accordance with the terms and conditions of the orders approving
the Post-Petition Bank Credit Agreement.
4 General Unsecured Claims Impaired; if holders of Allowed Claims in Class 4 vote to accept 6.0% (FN4)
the Plan by the requisite statutory majorities set forth in
section 1126(c) of the Bankruptcy Code, distribution of a Pro
Rata Share of $1,000,000. If holders of Class 4 Claims do not
vote to accept the Plan by the requisite statutory majority set
forth in section 1126(c) of the Bankruptcy Code, the holders of
Allowed General Unsecured Claims shall not receive any
distributions on account of such Claims.
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2 The Secured Bank Claims shall be deemed Allowed Claims in the aggregate amount
of $1,602,489,994.
3 The estimated recoveries for holders of Allowed Secured Bank Claims are based
upon the current estimate of the mid-point value of the Reorganized Sunbeam
Common Stock and (ii) the estimated Fair Market Value of the New Secured Term
Notes, in each case to be distributed to the Banks under the Plan. To the extent
that the actual value of the Reorganized Sunbeam Common Stock and/or New Secured
Notes varies from the amount estimated herein, the recoveries of holders of
Allowed Secured Bank Claims may be higher or lower.
4 The estimated recoveries for holders of Allowed General Unsecured Claims are
based upon the estimate of the aggregate Allowed General Unsecured Claims being
equal to $16,650,229, which is the amount set forth in the Debtor's Schedules of
Assets and Liabilities, dated April 23, 2001, and its respective supplements
filed with the Bankruptcy Court. To the extent that the amount of Allowed
General Unsecured Claims varies from the amount estimated herein, the recoveries
to holders of Allowed General Unsecured Claims may be higher or lower.
6
Type of Claim Estimated
Class or Equity Interest Treatment Recovery
----- ------------------ --------- --------
5 Subordinated Note Claims(FN5) Impaired; if holders of Allowed Claims in Class 5 vote to accept 0.3%
the Plan by the requisite statutory majorities set forth in
section 1126(c) of the Bankruptcy code, distribution of a Pro
Rata Share of New Warrants. If holders of Class 5 Claims do not
vote to accept the Plan by the requisite statutory majority set
forth in section 1126(c) of the Bankruptcy Code, the holders of
Subordinated Note Claims shall not receive any distributions on
account of such Claims.
6 Subordinated Noteholder Impaired; no distribution. 0%
Securities Claims
7 Sunbeam Affiliate Claims Impaired; no distribution. 0%
8 Equity Interests Impaired; no distribution. 0%
9 Equity Holder Securities Impaired; no distribution. 0%
Claims
III. GENERAL INFORMATION
A. OVERVIEW 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, its creditors
and its equity interest holders. In addition to permitting the rehabilitation of
a debtor, another goal of chapter 11 is to promote equality of treatment for
similarly situated creditors and similarly situated equity interest holders with
respect to the distribution of a debtor's assets.
The commencement of a chapter 11 case creates an estate
that is comprised of all of the legal and equitable interests of the debtor as
of the commencement date. The Bankruptcy Code provides that the debtor may
continue to operate its business and remain in possession of its property as a
"debtor-in-possession."
The consummation of a plan of reorganization is the
principal objective of a chapter 11 reorganization case. A plan of
reorganization sets forth the means for satisfying claims against and equity
interests in a debtor. Confirmation of a plan of reorganization by the
bankruptcy court binds the debtor, any issuer of securities under the plan, any
- -------------------------
5. The Subordinated Note Claims shall be deemed Allowed Claims solely for
purposes of the Plan in the aggregate amount of $864,261,481. Allowance of the
Subordinated Note Claims is subject to confirmation of the Plan.
7
person acquiring property under the plan and any creditor or equity interest
holder of a debtor. Subject to certain limited exceptions, the order approving
confirmation of a chapter 11 plan discharges a 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.
Certain holders of allowed claims against and interests in
a debtor are permitted to vote to accept or reject the plan. Prior to soliciting
acceptances of the proposed plan, however, section 1125 of the Bankruptcy Code
requires a debtor to prepare a disclosure statement containing adequate
information of a kind, and in sufficient detail, to enable a hypothetical
reasonable investor to make an informed judgment regarding the plan.
B. DESCRIPTION AND HISTORY OF BUSINESS
Sunbeam Corporation is the ultimate parent corporation of
the Subsidiary Debtors and certain non-debtor subsidiaries (the "Non-Debtor
Affiliates").(FN6) Sunbeam Corporation, the Subsidiary Debtors and the
Non-Debtor Affiliates, are referred to herein as the "Sunbeam Group." The
Sunbeam Group manufactures, markets and distributes durable household and
outdoor leisure consumer products through mass market and other consumer
channels in the United States and internationally. The Sunbeam Group also sells
its products to professionals and commercial end users such as small businesses.
The Sunbeam Group's principal products include household kitchen appliances;
scales and health monitoring and care products for home use; electric blankets
and throws; clippers and trimmers for professional and animal uses; smoke and
carbon monoxide detectors; outdoor barbecue grills; camping equipment, including
tents, lanterns, sleeping bags and stoves; coolers; backpacks; and portable
generators and compressors. The Sunbeam Group also operates 18 retail stores in
the United States and Canada, which sell primarily Coleman brand products for
retail sale to consumers.
For the fiscal year ended December 31, 2001, the Sunbeam
Group, on a consolidated basis, reported net sales of approximately
$2,004,215,000 and operating losses of approximately $65,345,000. As of December
31, 2001, the Sunbeam Group's consolidated books and records reflected assets
- ----------------------------
6. The principal non-debtor subsidiaries are: Application Des Gaz, S.A.S.
(France); Australian Coleman, Inc.; Bafiges S.A.S. (France); BRK Brands Europe
Limited (England and Wales); Camping Gaz CS Spol S.R.O. (Czech Republic);
Camping Gaz GmbH (Austria); Camping Gaz Great Britain, L.T.D. (Great Britain);
Camping do Brasil (Brazil); Camping Gaz International Deutschland GmbH
(Germany); Camping Gaz Hellas (Greece); Camping Gaz International Portugal,
L.T.D. (Portugal); Camping Gaz Italie S.r.L. (Italy); Camping Gaz Poland
(Poland); Camping Gaz Senegal (Senegal); Camping Gaz Suisse A.G. (Switzerland);
CC Gaz Hungary (C. Gax Kft.); Coleman Argentina S.A. (Argentina); Coleman Asset
Diversification, Inc.; Coleman Asia Limited (Hong Kong); Coleman Benelux B.V.
(Netherlands); Coleman Brands Pty Limited (Australia); Coleman Brands Pty Ltd.;
Coleman do Brasil Ltda. (Brazil); Coleman Country Ltd.; Coleman Deutschland GmbH
(Germany); Coleman Europe BVBA (Belgium); Coleman International SARL (LLC)
(Switzerland); Coleman Japan Co., Ltd. (Japan); Coleman Latin America, LLC;
Coleman Life Styles KK (Japan); Coleman Mexico S.A. de C.V. (Mexico); Coleman
Powermate International, Inc.; Coleman SVB S.r.L (Italy); Coleman Taymar Limited
(England and Wales); Coleman UK Holdings Limited (England and Wales); Coleman UK
PLC (England and Wales); Electronica BRK de Mexico S.A. de C.V. (Mexico); Epigas
International Limited; Oster de Venezuela, S.A. (Venezuela); Productos Coleman,
S.A. (Spain); RRR Funding LLC; Servicios Sunbeam-Coleman De Mexico, S.S. de
C.V.; SI China Ventures, Ltd. (Hong Kong); Sunbeam Asset Diversification, Inc.;
Sunbeam Corporation (Canada) Limited (Ontario); Sunbeam Corporation Europe SARL
(France); Sunbeam Europe S.A.S.; Sunbeam Holdings S.A. de C.V. (Mexico); Sunbeam
International (Asia), Ltd.; Sunbeam Mexicana S.A. de C.V. (Mexico); Sunbeam
Oster de Acuna S.A. de C.V. (Mexico); Sunbeam Oster de Matarmoros S.A. de C.V.
(Mexico); Sunbeam Oster International (FSC), Inc. (Barbados); and Taymar Gas
Limited.
8
totaling approximately $1,560,743,000 and liabilities totaling approximately
$3,168,835,000 resulting in a net deficit of $1,608,092,000 and after deducting
intangible assets, an adjusted deficit of $2,173,591,000. As of June 30, 2002,
the Sunbeam Group had approximately 8,700 full-time and part-time employees of
which approximately 4,900 are employed in the United States. The Sunbeam Group
is party to collective bargaining agreement with its hourly employees located at
its manufacturing plant in Aurora, Illinois. In addition, the Sunbeam Group's
production employees in France and Italy and its employees in Mexico and
Venezuela are represented by unions.
C. MARKET INFORMATION
Prior to the Commencement Date, Sunbeam Corporation's
common stock was publicly traded under the symbol "SOC" on the New York Stock
Exchange (the "NYSE").(FN7) The NYSE delisted Sunbeam Corporation's stock as of
the Commencement Date. As of July 3, 2002, Sunbeam Corporation's common stock
was trading under the symbol "SOCNQ" on the over-the-counter securities markets.
All Equity Interests in Sunbeam Corporation, including all shares of Sunbeam
Corporation's common stock, will be cancelled on the Effective Date pursuant to
the Plan.
IV. EVENTS PRECEDING THE
COMMENCEMENT OF THE CHAPTER 11 CASE
Sunbeam Corporation has been operating with significant
debt since March 1998, when prior management caused Sunbeam Corporation to
borrow approximately $2,000,000,000 under the Bank Credit Agreement, and through
the issuance of zero coupon debentures due 2018 pursuant to the Subordinated
Notes Indenture. See IV.B. below. The approximately $2,000,000,000 was used to
fund the acquisition of The Coleman Company, Inc. ("Coleman"), Signature Brands,
Inc. ("Signature Brands") and First Alert, Inc. ("First Alert"), and to repay or
defease (and pay associated penalties and premiums) debt at such companies and
certain indebtedness of Sunbeam Corporation. Immediately prior to the
Commencement Date, Sunbeam Corporation's principal liquidated institutional debt
obligations were as follows: (i) approximately $1,725,000,000 under the Bank
Credit Agreement (inclusive of $72,000,000 of letters of credit later rolled
into the Post-Petition Bank Credit Agreement (the "DIP Credit Facility") and
$50,300,000 of supplemental revolving loans subsequently repaid with borrowings
under the DIP Credit Facility) and (ii) approximately $864,000,000 in accreted
amount of the Subordinated Notes.
Furthermore, since approximately the second quarter of 2000
and through the Commencement Date, and for some period thereafter, the Sunbeam
Group's sales had been adversely affected by a reduction in retailer purchases
generally, as retailers sought to reduce their inventories in many of the
categories in which the Sunbeam Group participates, and slowing retail sales of
consumer durables generally since the first quarter of 2000 and through the
Commencement Date, and for some period thereafter. The Sunbeam Group's sales
also were adversely affected by reduced sales of certain outdoor products,
including portable generators, that had unusually high sales during 1999 due to
Year 2000 concerns ("Year 2000 Products") and the absence of severe storm
activity during 2000 which also adversely affected sales of Year 2000 Products.
The foregoing significantly reduced the Sunbeam Group's sales and earnings, and
- -------------------------
7. As of November 14, 2000, there were approximately 107,303,692 shares of
Sunbeam Corporation's common stock issued and outstanding held by approximately
4,400 holders of record.
9
the reduction in sales coupled with the extreme size of Sunbeam Corporation's
debt resulted in Sunbeam Corporation being unable to support its debt service
requirements.
A. COLEMAN, SIGNATURE BRANDS AND FIRST ALERT ACQUISITIONS
On March 2, 1998, Sunbeam Corporation announced that it had
entered into separate agreements to acquire three businesses: Coleman, Signature
Brands and First Alert.
On March 30, 1998, pursuant to a merger agreement dated as
of February 27, 1998, Sunbeam Corporation, through a wholly owned subsidiary,
acquired approximately 81% of the then outstanding shares of Coleman common
stock from an affiliate of MacAndrews & Forbes Holdings Inc. ("M&F"), in
exchange for 14,099,749 shares of Sunbeam Corporation's common stock and
approximately $160,000,000 in cash. In addition, Sunbeam Corporation assumed or
repaid approximately $1,016,000,000 in debt of Coleman and its parent
corporations. Immediately after the acquisition, as a result of the exercise of
Coleman employee stock options, Sunbeam Corporation's ownership of Coleman
decreased to about 79% of the outstanding shares of Coleman common stock.
On April 3, 1998, Sunbeam Corporation acquired more than
90% of the stock of each of Signature Brands and First Alert in cash tender
offers. On April 6, 1998, Sunbeam Corporation acquired the remaining shares of
each of Signature Brands and First Alert in merger transactions. Sunbeam
Corporation paid approximately $255,000,000 in cash, including the satisfaction
of antecedent debt obligations, to acquire Signature Brands. Sunbeam Corporation
paid approximately $133,000,000 in cash and assumed approximately $49,000,000 in
debt, a total consideration of approximately $182,000,000, to acquire First
Alert. Signature Brands was a leading manufacturer of a comprehensive line of
consumer and professional products, including coffee makers marketed under the
Mr. Coffee(R) brand name and consumer and professional scales marketed under the
Health o Meter(R) and Pelouze(R) brand names. Subsequent to the acquisition,
Signature Brands was merged with and into Sunbeam Products, Inc. ("Sunbeam
Products"). First Alert is the worldwide leader in residential safety equipment,
including smoke and carbon monoxide detectors marketed under the First Alert(R)
brand name.
In January 2000, pursuant to a second merger agreement
dated February 27, 1998 (the "Coleman Merger Agreement"), Sunbeam Corporation
acquired the remaining publicly held Coleman shares pursuant to a merger
transaction (the "Coleman Minority Close-Out"). In connection with the Coleman
Minority-Close-Out, the remaining Coleman stockholders (other than stockholders
seeking appraisal rights under Delaware law) received 0.5677 of a share of
Sunbeam Corporation's common stock and $6.44 in cash for each share of Coleman
common stock they owned, aggregating approximately 6,700,000 shares of Sunbeam
Corporation's common stock and $87,000,000 in cash. The approximate $87,000,000
aggregate cash payment included $4,800,000 related to the cash out of the
remaining Coleman employee options, in accordance with the Coleman Merger
Agreement, which occurred in December 1999.
In the fourth quarter of 1998, Sunbeam Group recorded a
$62.5 million charge for the write-off of the carrying value of First Alert's
goodwill. As a result of the significant losses incurred by First Alert, as well
as its future prospects, Sunbeam Corporation determined that the goodwill
relating to the First Alert acquisition was impaired and, based on the
determination of fair value, wrote off the net carrying value of the goodwill.
This charge is reflected in SG&A expense in the 1998 Consolidated Statement of
Operations.
During the fourth quarter of 2000, as a result of the
general weakening in the business from the prior year, combined with significant
10
acquisition related debt, as well as the future prospects of the businesses,
Sunbeam Corporation determined that the goodwill resulting from the acquisitions
of Coleman and Signature Brands was impaired. As a result, based upon estimates
of the fair value of Coleman and Signature Brands, Sunbeam Group recorded a
$1.052 billion charge that is reflected in the operating loss in the
Consolidated Statements of Operations. The goodwill impairment charge recorded
is comprised of all of the remaining carrying value of the goodwill associated
with Sunbeam Corporation's acquisition of Coleman (approximately $916 million)
and Signature Brands (approximately $136 million).
B. DEBT FINANCING
In March 1998, in order to finance the acquisitions of
Coleman, Signature Brands and First Alert, and to effectuate the repayment of
substantially all of the outstanding indebtedness of Sunbeam Corporation and the
three acquired companies (Coleman, Signature Brands and First Alert), Sunbeam
Corporation (i) completed an offering of the Subordinated Notes pursuant to the
Subordinated Notes Indenture, at a yield to maturity of 5% (or approximately
$2,014,000,000 principal amount at maturity), which resulted in approximately
$730,000,000 of net proceeds to Sunbeam Corporation, and (ii) borrowed
approximately $1,325,000,000 under the Bank Credit Agreement.
The Subordinated Notes are obligations of Sunbeam
Corporation only and are unsecured. Pursuant to Article 10 of the Subordinated
Notes Indenture, the Subordinated Notes and the claims of the Subordinated
Noteholders are contractually subordinate in right of payment to the payment in
full of the claims of the Banks. Obligations to the Banks under the Bank Credit
Agreement are secured by liens on and security interests in substantially all of
the assets of Sunbeam Corporation and substantially all of the Subsidiary
Debtors, as well as by a pledge of substantially all of the stock of the
Subsidiary Debtors.
C. SUBORDINATED NOTES EXCHANGE OFFER
In July 2000, in an effort to address its leveraged capital
structure, Sunbeam Corporation announced an offer to acquire all of the
currently outstanding Subordinated Notes in exchange for secured notes and
shares of Sunbeam Corporation common stock (the "Exchange Offer"). The holders
of the Subordinated Notes were, apparently, unwilling to participate in the
Exchange Offer under the proposed terms. On September 12, 2000, Sunbeam
Corporation withdrew and terminated the Exchange Offer without accepting and
paying for any tendered Subordinated Notes.
D. AMENDMENTS TO BANK CREDIT AGREEMENT
As a result of, among other things, operating losses
incurred during the first half of 1998, Sunbeam Corporation did not achieve the
specified financial ratios required under the Bank Credit Agreement for June 30,
1998 and it appeared unlikely that Sunbeam Corporation would achieve the
specified financial ratios for September 30, 1998. Consequently, in June 1998,
Sunbeam Corporation and the Banks entered into an amendment, dated as of June
30, 1998, that waived through December 31, 1998 all defaults arising from the
failure of Sunbeam Corporation to satisfy the specified financial ratios for
June 30, 1998 and September 30, 1998. Pursuant to an amendment with Sunbeam
Corporation dated as of October 19, 1998, the Banks extended such waivers
through April 10, 1999 and also waived through such date all defaults arising
from any failure by Sunbeam Corporation to satisfy the specified financial
ratios for December 31, 1998. In April 1999, such waivers were extended and the
11
Banks agreed to defer scheduled amortization payments through April 10, 2000. On
April 10, 2000, such waivers were extended and the Banks agreed to defer
scheduled amortization payments through April 14, 2000.
On April 14, 2000, Sunbeam Corporation and the Banks
entered into a further amendment to the Bank Credit Agreement that, among other
things, waived until April 10, 2001 all defaults arising from any failure by
Sunbeam Corporation to satisfy certain financial ratios for any fiscal quarter
end occurring and deferred scheduled amortization payments through March 31,
2001. As part of such amendment, Sunbeam Corporation agreed to a minimum
cumulative earnings before interest, taxes, depreciation and amortization
("EBITDA") covenant to be tested at the end of each month occurring on or prior
to March 31, 2001. On August 10, 2000, Sunbeam Corporation and the Banks entered
into an amendment to the Bank Credit Agreement in order to (i) adjust downwards
the cumulative EBITDA test for July 31, 2000 and each remaining month-end
through March 31, 2001 and (ii) provide Sunbeam Corporation with additional
needed liquidity under a supplemental $50,000,000 reducing revolving credit
facility under the Bank Credit Agreement (the "Bank Credit Supplemental
Revolver") with a final maturity date of December 31, 2000. Prior to the
November 10, 2000 amendment described below the Bank Credit Supplemental
Revolver was required to be reduced by $10,000,000 on the last day of each month
commencing with August 31, 2000 and the loans thereunder could not exceed a
borrowing base calculated based on domestic inventory of certain of the Sunbeam
Group's business units.
As a result of continuing sales declines and operating
losses during the third quarter of 2000, Sunbeam Corporation did not achieve for
September 30, 2000 the reduced cumulative EBITDA test agreed to pursuant to the
August 10, 2000 amendment, and it appeared unlikely that Sunbeam Corporation
would satisfy the test going forward. Consequently, in November 2000, Sunbeam
Corporation and the Banks entered into an amendment to the Bank Credit Agreement
dated as of November 10, 2000 that (i) waived all defaults arising from the
failure of Sunbeam Corporation to satisfy the cumulative EBITDA test for any
period ending on or prior to December 31, 2000; (ii) provided that, on or before
December 31, 2000, Sunbeam Corporation and the Banks would amend the cumulative
EBITDA test to establish monthly EBITDA levels for the 2001 calendar year which
were reasonably satisfactory to the Banks and which would be based on Sunbeam
Corporation's 2001 business plan; (iii) increased availability under the Bank
Credit Supplemental Revolver to $50,000,000 and eliminated the previously
required $10,000,000 monthly principal reduction or any limitation based on the
borrowing base; and (iv) extended the maturity date for the Bank Credit
Supplemental Revolver to April 10, 2001. The November 10, 2000 amendment also
provided that the $19,100,000 term loan payment and the $8,500,000 amendment fee
for the previously agreed to April 15, 1999 amendment, both of which originally
were scheduled to be paid on November 30, 2000, would be deferred until April
10, 2001. The November 10, 2000 amendment included certain other terms and
conditions relating to payments due and borrowings under the Bank Credit
Agreement in 2001.
On January 26, 2001 and January 30, 2001, respectively,
Sunbeam Corporation and the Banks entered into amendments pursuant to which the
Banks agreed to defer in excess of $40,000,000 in interest payments due and
owing as of such dates.
E. RESTATEMENT OF FINANCIAL RESULTS; CHANGE OF AUDITORS
On June 25, 1998, approximately three and one-half months
after the acquisitions of Coleman, Signature Brands and First Alert, Sunbeam
Corporation announced that its then independent auditors, Arthur Andersen LLP
("Arthur Andersen") would not consent to the inclusion of their opinion on
12
Sunbeam Corporation's 1997 financial statements in a registration statement that
Sunbeam Corporation was planning to file with the Securities and Exchange
Commission. On June 30, 1998, Sunbeam Corporation announced that the audit
committee of its board of directors would conduct a review of the accuracy of
Sunbeam Corporation's 1997 financial statements and that, pending completion of
such review, those financial statements and the report of Arthur Andersen should
not be relied upon. Sunbeam Corporation retained Deloitte & Touche LLP
("Deloitte & Touche") to assist the audit committee in such review, along with
Arthur Andersen. On August 6, 1998, Sunbeam Corporation announced that the audit
committee had determined that Sunbeam Corporation would be required to restate
its financial statements for 1997, the first quarter of 1998 and possibly 1996,
and that the adjustments, while not then quantified, would be material.
On October 20, 1998, Sunbeam Corporation announced the
restatement of its financial results for a six-quarter period from the fourth
quarter of 1996 through the first quarter of 1998. In general, such restatements
were required because the previously issued financial statements overstated
losses for 1996, overstated profits for 1997 and understated losses for the
first quarter of 1998. Sunbeam Corporation concluded, among other things, that
(i) for certain periods revenue was incorrectly recognized (principally "bill
and hold" and guaranteed sales transactions), (ii) certain costs and allowances
were not accrued or were incorrectly recorded (principally allowances for sales
returns, co-op advertising, customer deductions and reserves for product
liability and warranty expense) and (iii) certain costs were incorrectly
included in and charged to restructuring, asset impairment and other costs.
On November 20, 1998, Sunbeam Corporation announced that
its audit committee had recommended, and its board of directors had approved,
the appointment of Deloitte & Touche to replace Arthur Andersen as Sunbeam
Corporation's independent auditors for fiscal year 1998.
F. MANAGEMENT AND BOARD CHANGES
On June 13, 1998, Sunbeam Corporation's board of directors
removed "for cause" Albert J. Dunlap as Sunbeam Corporation's Chairman and Chief
Executive Officer. On June 16, 1998, Russell A. Kersh was terminated "for cause"
as Sunbeam Corporation's Vice Chairman and Chief Financial Officer. Both
Dunlap's and Kersh's employment agreements provided for their termination "for
cause" for the "willful failure of the executive to substantially perform his
duties." The Debtor believes that Dunlap's and Kersh's conduct demonstrated a
willful failure to substantially perform their job responsibilities, including
(i) concealing relevant and material facts from Sunbeam Corporation's Board of
Directors relating to certain sales and accounting practices utilized and/or
authorized by them, (ii) misrepresenting the Sunbeam Group's results and
operations, (iii) breaching their fiduciary duties of loyalty and candor to the
Board of Directors, and (iv) abdicating their responsibilities as Chief
Executive Officer and Chief Financial Officer, respectively.
On June 13, 1998 Peter A. Langerman was elected as Sunbeam
Corporation's non-executive Chairman of the Board. Mr. Langerman, an outside
director of Sunbeam Corporation from 1990 to 1999, was President and Chief
Executive Officer of Franklin Mutual Advisors, Inc., the investment advisor to
Franklin Mutual Series Fund, Inc. Jerry W. Levin was elected a director and
Chief Executive Officer of Sunbeam Corporation on June 16, 1998, and was elected
President on August 12, 1998. Mr. Levin was Chairman and Chief Executive Officer
of Coleman at the time Sunbeam Corporation acquired its controlling interest in
Coleman, and previously was the Chairman and Chief Executive Officer of Revlon,
Inc., an affiliate of M&F.
13
In June 1998, Mr. Levin, Howard Gittis (of M&F) and
Lawrence Sondike (of Franklin Mutual Advisers, Inc.) were elected to Sunbeam
Corporation's board of directors. William T. Rutter resigned from the board
effective July 8, 1998, and Faith Whittlesey was elected to fill the vacancy on
the audit committee resulting from Mr. Rutter's resignation. Messrs. Dunlap and
Kersh resigned from the board effective August 5, 1998. In January 1999, Mr.
Sondike resigned from the board and, in February 1999, John H. Klein of
Bi-Logix, Inc. was elected as a director. In March 1999, Mr. Levin became
Chairman of the board of directors, succeeding Mr. Langerman.
Mr. Langerman and Howard Kristol determined not to run for
reelection at Sunbeam Corporation's annual meeting held on June 27, 2000.
Messrs. Langerman and Kristol were replaced on the board of directors by David
Pecker and James Robinson. On April 17, 2002, Mr. Robinson resigned from Sunbeam
Corporation's board of directors.
G. SETTLEMENT OF COLEMAN RELATED CLAIMS
On August 12, 1998, Sunbeam Corporation announced that,
following an investigation and negotiations conducted by a special committee of
Sunbeam Corporation's board, consisting of four outside directors not affiliated
with M&F, Sunbeam Corporation had entered into a settlement agreement with M&F
in connection with M&F's potential claims against Sunbeam Corporation arising in
connection with M&F's sale of its interest in Coleman to Sunbeam Corporation
(the "M&F Settlement Agreement"). Pursuant to the M&F Settlement Agreement, (i)
Sunbeam Corporation was released from certain threatened claims of M&F and its
subsidiaries arising from the acquisition of M&F's interest in Coleman, (ii) M&F
agreed to provide certain management personnel and assistance to Sunbeam
Corporation and (iii) Sunbeam Corporation agreed to issue to a subsidiary of M&F
(the "M&F Subsidiary") a warrant, expiring August 24, 2003, to purchase up to
23,000,000 shares of Sunbeam Corporation's common stock at an exercise price of
$7.00 per share, subject to anti-dilution provisions.
On October 21, 1998, Sunbeam Corporation announced that it
had entered into a Memorandum of Understanding to settle, subject to court
approval, certain class actions brought by public stockholders of Coleman
challenging the Coleman Minority Close-Out pursuant to the Coleman Merger
Agreement (the "Coleman Settlement"). In July 1999, the Coleman Settlement was
signed and was approved by the Court of Chancery of the State of Delaware in
November 1999. Under the terms of the Coleman Settlement, Sunbeam Corporation
issued to Coleman's public stockholders, in connection with and at the time of
the Coleman Minority Close-Out, warrants, expiring August 24, 2003, to purchase
4,980,000 shares of Sunbeam Corporation's common stock at $7.00 per share, less
approximately 498,000 warrants issued to plaintiffs' attorneys for their fees
and expenses. These warrants generally have the same terms as the warrants
issued to the M&F Subsidiary.
H. SECURITIES LITIGATION AND RELATED CLAIMS
Sunbeam Corporation is currently a defendant in various
securities and related litigations initiated by both stockholders and
Subordinated Noteholders involving the alleged harm resulting from or otherwise
relating, among other things, to the events which led to the accounting
restatement described in Section IV.E above and earnings projections made by
Sunbeam Corporation under the tenure of former management. All securities
litigation claims against Sunbeam Corporation, whether asserted by purchasers of
Sunbeam Corporation common stock or holders of Subordinated Notes, as well as
certain other claims relating to the securities litigation claims and the
accounting restatement, including indemnification, reimbursement and
14
contribution claims against Sunbeam Corporation, are subordinated pursuant to
section 510(b) of the Bankruptcy Code and will receive no distributions under
the Plan. Such claims are classified in Class 5 (Subordinated Noteholder
Securities Claims) and Class 9 (Equity Holder Securities Claims) of the Plan. In
addition, certain of the securities litigation claims are derivative claims
which, as of the Commencement Date, pursuant to section 541 of the Bankruptcy
Code, became property of the estate of Sunbeam Corporation. Such derivative
claims, defined as "Derivative Securities Litigation Claims" in the Plan, shall
be preserved for the benefit of and retained by Reorganized Sunbeam pursuant to
Section 7.2 of the Plan. The following is a summary of the principal securities
litigation claims pending against Sunbeam Corporation, all of which are stayed
pursuant to section 362 of the Bankruptcy Code:
1. SHAREHOLDER LITIGATION
A. FLORIDA DISTRICT COURT CONSOLIDATED SHAREHOLDER LITIGATION
On April 23, 1998, two class action lawsuits were filed on
behalf of purchasers of Sunbeam's common stock in the U.S. District Court for
the Southern District of Florida (the "Florida District Court") against Sunbeam
Corporation and certain of its present and former directors and former officers
alleging violations of the federal securities laws as discussed below. After
that date, approximately fifteen similar class actions were filed in the same
court. One of the lawsuits also named as a defendant Arthur Andersen, Sunbeam
Corporation's independent accountants for the period covered by the lawsuit.
On June 16, 1998, the Florida District Court entered an
order consolidating all these suits and all similar actions subsequently filed
into the action captioned In re Sunbeam Corp. Securities Litigation, Case No.
98-CV-8258 (the "Consolidated Federal Actions"). The consolidated amended class
action complaint alleges, among other things, that defendants, which consisted
of Sunbeam Corporation, Messrs. Dunlap, Kersh, Uzzi, Gluck and Fannin (all
former officers and in the case of Mr. Dunlap, also a former director), and
Arthur Andersen, made material misrepresentations and omissions regarding
Sunbeam Corporation's business operations and future prospects in an effort to
artificially inflate the price of Sunbeam Corporation's common stock and call
options, and that, in violation of section 20(a) of the Exchange Act, the
individual defendants exercised influence and control over Sunbeam Corporation,
causing Sunbeam Corporation to make material misrepresentations and omissions.
The consolidated amended complaint seeks an unspecified award of money damages.
The class consists of all persons and entities who purchased Sunbeam
Corporation's common stock or who purchased call options or sold put options
with respect to Sunbeam Corporation's common stock during the period April 23,
1997 through June 30, 1998, excluding the defendants, their affiliates and
employees of Sunbeam Corporation. Arthur Andersen has filed cross-claims against
Sunbeam Corporation and a third-party complaint against a former director of
Sunbeam Corporation and against unnamed third party corporations. In May 2001,
the case was settled as to Arthur Andersen and in connection with such
settlement Arthur Andersen agreed to pay $110 million. On August 9, 2002, the
Court issued an order approving a settlement between the class plaintiffs and
defendants Dunlap, Kersh, Gluck, Uzzi and Fannin. Under the settlement
agreements, judgments totaling $220 million were entered against these
individuals. However, only defendants Dunlap and Kersh will be required to fund
the judgments, in the amount of $15 million and $250,000, respectively, while an
additional $15.5 million is to be paid from a portion of the proceeds of
settlements among the individual defendants and insurance carriers.
In September 1998, an action was filed in the 56th Judicial
District Court of Galveston County, Texas, captioned U.S. National Bank of
Galveston, et al. v. Sunbeam Corp., Case No. 98-CV-0828. alleging various claims
15
in violation of the Texas Securities Act and Texas Business & Commercial Code as
well as common law fraud as a result of Sunbeam Corporation's alleged
misstatements and omissions regarding Sunbeam Corporation's financial condition
and prospects during a period beginning May 1, 1998 and ending June 16, 1998, in
which the U.S. National Bank of Galveston, Kempner Capital Management, Inc. and
Legacy Trust Company engaged in transactions in Sunbeam Corporation's common
stock on their own behalf and on behalf of their respective clients. The
complaint requests recovery of compensatory damages, punitive damages and
expenses in an unspecified amount. This action was subsequently transferred to
the Florida District Court and consolidated with the Consolidated Federal
Actions.
B. ALABAMA STATE COURT SHAREHOLDER LITIGATION
On September 13, 1999, an action naming Sunbeam Corporation
and Arthur Andersen as defendants was filed in the Circuit Court for Montgomery
County, Alabama, captioned Clay v. Sunbeam Corp. et al., Case No. CV-99-2799.
The plaintiffs in this action are purchasers of Sunbeam Corporation's common
stock during the period March 19, 1998 through May 6, 1998. The plaintiffs
allege, among other things, that the defendants violated the Alabama Securities
Laws. The plaintiffs seek compensatory and punitive damages in an unspecified
amount. Arthur Andersen has filed a cross claim against Sunbeam Corporation for
contribution and indemnity. Sunbeam Corporation has filed a motion to dismiss.
In May 2000, the plaintiffs in this action filed an amended complaint, which
added allegations of violations of the federal securities laws. This action was
transferred to the Florida District Court and consolidated with the Consolidated
Federal Actions.
2. NOTEHOLDER LITIGATION
A. FLORIDA DISTRICT COURT CONSOLIDATED NOTEHOLDER LITIGATION
In October 1998, a class action lawsuit was filed in the
Florida District Court, captioned Camden Asset Management v. Sunbeam Corp., et
al., Case No. 98-8773, on behalf of certain purchasers in the initial offering
of Subordinated Notes against Sunbeam Corporation and Messrs. Dunlap and Kersh.
In April 1999, a class action lawsuit was filed in the Florida District Court,
captioned Hamilton Partners Ltd. v. Sunbeam Corp. et al., Case No. 99-8275, on
behalf of the persons who purchased Subordinated Notes during the period from
March 20, 1998 through June 30, 1998, inclusive, but after the initial offering
of such Subordinated Notes, against Sunbeam Corporation, Arthur Andersen and
certain former officers and directors. The Florida District Court consolidated
the two cases and the plaintiffs have filed a consolidated class action on
behalf of the persons who purchased Subordinated Notes in the initial offering
and in the market during the period March 20, 1998 through June 30, 1998. The
amended complaint alleges, among other things, violations of the federal and
state securities laws and common law fraud. The plaintiffs seek, among other
things, either unspecified monetary damages or rescission of their purchase of
the Subordinated Notes. This action is coordinated with the Consolidated Federal
Actions. The court denied class action status for these cases. The Company is
informed that, in February and March 2002, the named plaintiffs settled with all
defendants (other than the Company) in non-public proceedings.
B. TEXAS STATE COURT NOTEHOLDER LITIGATION
Sunbeam Corporation was named as a defendant in an action
filed on November 20, 1998 in the District Court of Tarrant County, Texas, 48th
Judicial District, on November 20, 1998, captioned HBK Investments L.P. v.
Sunbeam Corp., Case No. 48-176227-98. The plaintiffs in this action are
16
purchasers of the Subordinated Notes, The plaintiffs alleged that Sunbeam
Corporation violated the Texas Securities Act and the Texas Business &
Commercial Code and committed state common law fraud by materially misstating
the financial position of Sunbeam Corporation in connection with the offering
and sale of the Subordinated Notes. The complaint seeks rescission, as well as
compensatory and exemplary damages in an unspecified amount. Sunbeam Corporation
specially appeared to assert an objection to the Texas court's exercise of
personal jurisdiction over Sunbeam Corporation, and the court dismissed the case
without prejudice. The plaintiffs appealed, which appeal was denied. The
plaintiffs appealed to the Texas Supreme Court, which denied the plaintiffs'
petition. In October 2000, the plaintiffs also filed a complaint against Sunbeam
Corporation's subsidiary Sunbeam Products, Inc., in the District Court for
Dallas County alleging substantially the same allegations as the complaint filed
against Sunbeam Corporation in Tarrant County.
C. WISCONSIN STATE COURT NOTEHOLDER LITIGATION
In September 2000, an action naming Sunbeam Corporation as
a defendant was filed in the Circuit Court for Ozaukee County, Wisconsin,
captioned Stark Investments L.P. v. Sunbeam Corp., Case No. 00-CV-246. The
plaintiffs allege that Sunbeam Corporation violated the federal securities laws
in connection with the offering and sale of Subordinated Notes. The plaintiffs
seek rescission and damages. Sunbeam Corporation has removed the action to
federal court. This action has been transferred for pre-trial purposes by the
Judicial Panel on Multi-District Litigation to the Florida District Court and
has been consolidated with the Florida District Court Consolidated Noteholder
Litigation. See Section IV.H.2.a for a description of the Florida District Court
Consolidated Noteholder Litigation.
3. DERIVATIVE ACTIONS
A. FLORIDA STATE COURT DERIVATIVE LITIGATION
In April 1998, an action was commenced in the Circuit Court
of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida,
captioned Krim v. Dunlap et al., Case No. 98-3168, as a shareholders' derivative
action. The action was brought by a purported Sunbeam Corporation shareholder
and names as defendants Sunbeam Corporation's former Chief Executive Officer,
Albert J. Dunlap, former Executive Vice President, Finance and Administration,
Russell A. Kersh, former Executive Vice President, Consumer Products Worldwide,
Donald R. Uzzi, Sunbeam Corporation's directors Charles M. Elson and Faith
Whittlesey, former directors Howard G. Kristol, Peter A. Langerman and William
T. Rutter, and Sunbeam Corporation's former auditors, Arthur Andersen LLP. The
action also names Sunbeam Corporation as a nominal defendant.
The second amended complaint alleges that the individual
defendants permitted Sunbeam Corporation to engage in or failed to detect that
Sunbeam Corporation was engaging in improper accounting methods and inaccurate
financial disclosures during 1996, 1997 and the first quarter of 1998. It
further alleges that Arthur Andersen failed to conduct its 1996 and 1997 audits
of Sunbeam Corporation in accordance with generally accepted auditing standards
and was aware, or recklessly or negligently failed to detect, that Sunbeam
Corporation's financial statements were not fairly presented in accordance with
generally accepted accounting principles. The second amended complaint asserts
claims for breach of fiduciary duty against all defendants, a claim for a
declaratory judgment that Dunlap and Kersh were not entitled to any compensation
or benefits arising from their employment at Sunbeam Corporation, and claims for
negligence, negligent misrepresentation and breach of contract against Arthur
Andersen. The second amended complaint alleges that Sunbeam Corporation suffered
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several types of damages as a result of the defendants' actions, including (i)
being exposed to liability in federal lawsuits alleging securities fraud, (ii)
being subjected to an investigation by the United States Securities and Exchange
Commission, (iii) suffering a reduction in its credit rating with a resulting
impairment of Sunbeam Corporation's liquidity, and (iv) suffering injury to its
reputation and goodwill. The second amended complaint further alleges that
Arthur Andersen is additionally liable for all fees it received from Sunbeam
Corporation for auditing and accounting services performed in connection with
the 1996 and 1997 audits.
Each of the defendants has filed motions to dismiss the
Krim action on the grounds that the derivative plaintiff failed to serve a
pre-suit demand on Sunbeam Corporation's board of directors requesting that it
take action on behalf of Sunbeam Corporation. In addition, Arthur Andersen LLP
moved to dismiss the action on the grounds that the claims for breach of
fiduciary duty, negligence and negligent misrepresentation are barred by the
economic loss doctrine and that the breach of contract claim is barred by the
plaintiff's failure to attach a copy of the contract to the complaint. None of
the motions to dismiss has been decided by the Court.
Sunbeam Corporation believes the claims against Arthur
Andersen are potentially meritorious and that Sunbeam Corporation suffered
substantial injury as a result of Arthur Andersen's conduct. If Sunbeam
Corporation were to pursue claims against Arthur Andersen, it can be expected
that Arthur Andersen would defend itself vigorously and would assert several
defenses and offsets in addition to the defenses raised on its motion to
dismiss. As a result of the complexity of the case, and the potential defenses
and offsets Arthur Andersen may assert, it is not possible to estimate with any
certainty the likelihood of success of any action against Arthur Andersen or the
amount of any judgment Sunbeam Corporation could obtain in connection with such
an action. Sunbeam Corporation has not undertaken a detailed assessment of the
value of its potential claim against Arthur Andersen and the law relating to the
claim is uncertain and not fully developed. Assuming Sunbeam Corporation is
successful, and Arthur Andersen's defenses and claims for offsets are defeated,
damages against Arthur Andersen could range from all or a portion of the
approximately $1,000,000 in fees it was paid for its audits of Sunbeam
Corporation's 1996 and 1997 financial statements to potentially substantial
additional damages if Sunbeam Corporation could show such damages were
proximately caused by Arthur Andersen's failure to perform adequate audits of
Sunbeam's financial statements. A substantial amount of discovery has already
been completed as a result of the discovery already conducted in the many
investigations and lawsuits and it may be possible for Sunbeam Corporation to
utilize such discovery in a suit against Arthur Andersen. Sunbeam Corporation
anticipates that an action would involve complicated pretrial proceedings and a
lengthy trial. While difficult to estimate, such an action would likely take at
least one to three years to prosecute (exclusive of appeals) and could cost
Sunbeam Corporation (inclusive of the claims against Dunlap and Kersh described
below) at least $2,000,000 to $10,000,000 in legal and consulting fees and other
expenses.
However, Sunbeam Corporation believes that there is
substantial doubt as to Sunbeam Corporation's ability to collect on any judgment
entered against Arthur Andersen. On June 15, 2002, a jury convicted Arthur
Andersen of obstruction of justice as a result of, among other things,
destruction of documents related to its audit of Enron Corporation. In December
2001, Enron Corporation filed a petition for relief under chapter 11 of the
Bankruptcy Code. Subsequent to Arthur Andersen's conviction, Arthur Andersen
ceased auditing companies on August 31, 2002. In light of the potential exposure
to creditors of Enron Corporation, among other constituencies, it is not known
whether there will be any insurance proceeds, and if so, how much, available to
satisfy any judgment Sunbeam Corporation may obtain against Arthur Andersen.
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As to the claims against Dunlap and Kersh, Sunbeam
Corporation believes that viable breach of fiduciary duty claims could be
asserted against them for their actions as Chief Executive Officer and Chief
Financial Officer. In addition to the claims already asserted, Sunbeam
Corporation believes that additional claims relating to their failure to
disclose to the Board of Directors certain sales and accounting practices
utilized and/or authorized by them violated their fiduciary duties to Sunbeam
Corporation. Both are expected to put up vigorous defenses and the outcome is
uncertain. Sunbeam Corporation believes that viable claims exist and that it has
a reasonable probability of obtaining a substantial judgment against both for
the very significant and obvious diminution in the value of Sunbeam Corporation
which occurred as a result of their breach of fiduciary duties. If Sunbeam
Corporation is successful, the amount of damages could be several hundred
million dollars, although it is difficult to estimate with certainty the amount
of damages that could be proven at trial. Sunbeam Corporation has concerns as to
whether any judgment could be collected against either Dunlap or Kersh and
believes it may not be likely that insurance coverage (exclusive of those that
have settled with Sunbeam Corporation) would be available. All of the insurance
carriers have vigorously contested coverage and certain of the carriers have
already settled with Dunlap and Kersh in connection with other litigation. A
substantial amount of discovery has already been completed as a result of the
discovery already conducted in the many investigations and lawsuits. If the
claims against Dunlap and Kersh are pursued in the same litigation against
Arthur Andersen as described above, the costs for pursuit of such claims would
be included in the costs described above. If the claims are pursued separate
from the litigation with Arthur Andersen, the costs through trial would be
approximately $750,000 to $1,000,000. Sunbeam Corporation does not believe that
meritorious claims exist against any of the other former or the current outside
directors of Sunbeam Corporation named in this action.
B. DELAWARE CHANCERY COURT WARRANT LITIGATION
During 1998, purported class actions and derivative
lawsuits were filed in the Court of Chancery of the State of Delaware in New
Castle County by stockholders of Sunbeam Corporation against Sunbeam
Corporation, M&F and certain of Sunbeam Corporation's present and former
directors. These complaints allege, among other things, that the defendants
breached their fiduciary duties when Sunbeam Corporation entered into the M&F
Settlement Agreement. The derivative actions were consolidated. The plaintiffs
voluntarily dismissed this action.
C. FLORIDA DISTRICT COURT DERIVATIVE ACTION
In October 1998, an action was commenced in the United
States District Court for the Southern District of Florida, captioned Shallal v.
Elson, Case No. 00-CV-8297, as a shareholders' derivative suit. The case was
dismissed without prejudice in April 1999 in favor of similar lawsuits filed in
the Court of Chancery of the State of Delaware described in Section IV.H.3.b.
After the Delaware cases were voluntarily dismissed, the Shallal case was
refiled in April 2000. The renewed Shallal case was brought by purported Sunbeam
shareholders and names as defendants Sunbeam Corporation's former Chief
Executive Officer, Albert J. Dunlap, its former Executive Vice President,
Finance and Administration, Russell A. Kersh, its directors Charles M. Elson,
Faith Whittlesey and Howard Gittis, its Chief Executive Officer and Chairman of
the Board of Directors, Jerry Levin, and its former directors Howard G. Kristol,
Peter A. Langerman and William T. Rutter. The Complaint also names M&F as a
defendant and names Sunbeam Corporation as a nominal defendant.
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The Shallal complaint alleges, among other things, that the
defendants breached their fiduciary duties when Sunbeam Corporation entered into
a settlement agreement with the M&F Subsidiary that sold Sunbeam Corporation a
controlling interest in Coleman. In the settlement agreement, the M&F Subsidiary
released Sunbeam Corporation from threatened claims arising out of Sunbeam
Corporation's acquisition of its interest in Coleman, and M&F agreed to provide
management support to Sunbeam Corporation. Under the settlement agreement, the
M&F Subsidiary was granted a warrant expiring August 24, 2003 to purchase up to
an additional 23 million shares of Sunbeam Corporation's common stock at an
exercise price of $7 per share, subject to anti-dilution provisions.
In addition to the claims relating to the M&F settlement,
the complaint alleges that the individual defendants breached their fiduciary
duties by, among other things, permitting Sunbeam Corporation to issue
materially false and misleading statements regarding Sunbeam Corporation's
financial condition. The plaintiff seeks, among other things, rescission of the
warrants issued to the M&F Subsidiary, an injunction preventing the issuance of
warrants, and damages.
On January 3, 2001, the Court dismissed the Shallal
complaint without prejudice, concluding that the plaintiffs had failed to a make
a pre-suit demand on Sunbeam Corporation's board of directors requesting that it
take action on behalf of Sunbeam Corporation and had failed to adequately allege
that such a demand would have been futile. On February 14, 2001, the plaintiffs
sent a letter to Sunbeam Corporation's board of directors demanding that Sunbeam
Corporation take appropriate legal action against defendants Dunlap, Kersh,
Kristol, Rutter, Elson, Langerman and Whittlesey for participating in or failing
to detect improper accounting practices at Sunbeam Corporation during 1997
through the first quarter of 1998. Thereafter, the Shallal plaintiffs filed a
motion with the Bankruptcy Court requesting authority to bring claims against
such individuals on Sunbeam Corporation's behalf, which motion was denied
without prejudice by the Bankruptcy Court at a hearing held on April 19, 2001.
The claims the Shallal plaintiffs have demanded in their
February 14, 2001 letter, that Sunbeam Corporation bring against Messrs. Dunlap,
Kersh, Kristol, Rutter, Elson, Langerman and Mrs. Whittlesey, appear to be
substantially the same claims asserted against these individuals in Krim v.
Dunlap. Sunbeam Corporation's assessment of these claims is discussed above.
The Shallal plaintiffs' claims relating to Sunbeam
Corporation's settlement with the M&F Subsidiary, although alleged in their
complaint, were not included in their February 14, 2001 demand letter.
Nevertheless, because any holder of the warrant issued to the M&F Subsidiary or
similar warrants issued to former Coleman Company shareholders will not receive
any distributions under the Plan, Sunbeam Corporation believes there is no value
to any claim that such warrants were issued improperly.
The Shallal plaintiffs filed a motion with the Bankruptcy
Court seeking an order lifting the automatic stay in the Sunbeam Corporation
Chapter 11 Case in order to permit them to pursue the allegations raised in the
February 14, 2001 letter. On April 19, 2001 the Bankruptcy Court denied this
motion.
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4. OTHER ACTIONS
A. FORMER OFFICER AND DIRECTOR INDEMNIFICATION LITIGATION
Messrs. Dunlap and Kersh have commenced an action against
Sunbeam Corporation in the Chancery Court for the State of Delaware, captioned
Dunlap and Kersh v. Sunbeam Corp., Case No. 17048, seeking advancement from
Sunbeam Corporation of their alleged expenses incurred in connection with
defending themselves in the various actions described above in which they are
defendants and the investigation by the SEC described in Section IV.G. below.
Sunbeam Corporation has defended against these claims, contending, among other
things, that the expenses for which advancement is sought are unreasonable.
B. FORMER OFFICER AND DIRECTOR EMPLOYMENT CONTRACT ARBITRATION
On February 9, 1999, Messrs. Dunlap and Kersh filed a
Statement of Claim with the American Arbitration Association ("AAA") in Miami,
Florida seeking payment of the remaining portions of their respective employment
agreements. Sunbeam Corporation defended against the claims of Dunlap and Kersh
by asserting both that their conduct was sufficient to permit Sunbeam
Corporation to terminate them "for cause" under their respective employment
agreements (thus relieving Sunbeam Corporation of any obligations to either of
them) and that they fraudulently induced Sunbeam Corporation into giving them
new contracts in the first quarter of 1998, replacing contracts originally
entered into with Messrs. Dunlap and Kersh in 1996. Sunbeam Corporation also
asserted a counterclaim against Dunlap and Kersh claiming fraud in the
inducement of their 1998 employment contracts seeking to recover all amounts
paid by Sunbeam Corporation as a result of the new agreements. Dunlap and Kersh
have defended against the counterclaim by asserting that Sunbeam Corporation
offered them new contracts without any representations on their part.
Alternatively, they argue that any information they provided to the Board of
Directors was based on information received from others which they believed to
be true. Further they argue that the restricted stock they received had little
to no value because of the time restrictions on the sale of the stock coupled
with the drop in the value of the stock after new management was hired.
As of the date Sunbeam Corporation filed its Chapter 11
Case on February 6, 2001, the parties had completed six weeks of testimony in
the arbitration proceeding, with five additional weeks scheduled. Sunbeam
Corporation had just begun introducing evidence as to its counterclaim when the
arbitration was stayed under the automatic stay provisions of the Bankruptcy
Code. If Sunbeam Corporation chooses to pursue its counterclaims against Dunlap
and Kersh, it will seek to recover all of the monies paid to Dunlap and Kersh
under their 1998 contracts. Sunbeam Corporation believes that it will take
another four weeks of arbitration and approximately $500,000 to $750,000 in
legal fees to complete this case. Sunbeam Corporation also anticipates
approximately $100,000 in arbitrators fees. Sunbeam Corporation believes that
there is a reasonable likelihood of success on its counterclaim.
If Sunbeam Corporation were to prevail on its fraudulent
inducement counterclaim, the amount of damages including interest to date would
be at least $22,000,000. Dunlap and Kersh might still be entitled to recover the
remaining portions of their 1996 employment contracts as a set off if Sunbeam
Corporation cannot prove that it met the definition of a "for cause" termination
as defined in their 1996 employment contracts, or if the arbitration panel
believes that Sunbeam Corporation's alleged failure to strictly comply with the
procedural mechanisms set forth in their contracts for a "for cause termination"
estops Sunbeam Corporation from asserting that the terminations were "for
cause." Sunbeam Corporation estimates the amount of this set off would be
21
approximately $1,300,000. In the event that Dunlap and Kersh prevail on this
claim, they might also be entitled to a claim for attorneys' fees if their
position in the arbitration is determined to be "substantially upheld." Sunbeam
Corporation believes there to be an issue as to whether it will be able to
collect a judgment from Dunlap and Kersh should such a judgment be entered
against them.
5. SEC INVESTIGATION
By letter dated June 17, 1998, the staff of the Division of
Enforcement of the SEC advised Sunbeam Corporation that it was conducting an
informal inquiry into Sunbeam Corporation's accounting policies and procedures
and requested that Sunbeam Corporation produce certain documents. In July 1998,
the SEC issued a Formal Order of Private Investigation, pursuant to which
subpoenas were served on Sunbeam Corporation requiring the production of certain
documents. Sunbeam Corporation has provided numerous documents to the SEC staff
and continues to cooperate with the SEC staff. Sunbeam Corporation has, however,
declined to provide the SEC with material that Sunbeam Corporation believes is
subject to the attorney-client privilege and the work product immunity. Sunbeam
Corporation has entered into a consent order which provides that Sunbeam
Corporation will cease and desist from future violations of the antifraud and
certain other provisions of the federal securities laws, but does not provide
for the imposition of monetary penalties.
6. UNITED STATES ATTORNEY INVESTIGATION
Sunbeam Corporation has been informed that the office of
the U.S. Attorney for the Southern District of New York (the "U.S. Attorney") is
conducting an investigation into events that occurred at Sunbeam Corporation
during the tenure of Messrs. Dunlap and Kersh. The U.S. Attorney has not
informed Sunbeam Corporation of the particular matters under investigation.
Based on Sunbeam Corporation's settlement with the SEC, Sunbeam Corporation has
no reason to believe that it is the target of such investigation, although it
has not received any assurances from the U.S. Attorney's office in that regard.
7. INQUIRY BY HOUSE COMMITTEE ON ENERGY AND COMMERCE
By letters dated July 5, 2002, the Committee on Energy and
Commerce of the United States House of Representatives (the "House Committee")
requested information from thirteen companies, including Sunbeam Corporation,
relating to corporate governance matters and its relationship to accounting
oversight. As discussed in Section IV.E above, Sunbeam Corporation restated its
financial results for the years 1996, 1997 and the first quarter of 1998 during
former management's tenure. Sunbeam Corporation is cooperating fully with the
House Committee's inquiry.
I. PRICEWATERHOUSECOOPERS LITIGATION
On June 6, 2000, and September 1, 2000, Sunbeam Corporation
filed its initial complaint and amended complaint, respectively in the Circuit
Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida,
captioned Sunbeam Corporation v. PricewaterhouseCoopers LLP, Case No. CL-003444
AN, against PricewaterhouseCoopers LLP ("PWC"). Sunbeam Corporation alleges that
it hired PWC to devise and implement a restructuring or "turnaround" plan for
the company and that PWC failed to complete its duties as agreed and in the
manner of care consistent with professional business consulting. Specifically,
Sunbeam Corporation alleges: (1) negligence, (2) professional malpractice, (3)
breach of contract, and (4) breach of fiduciary duty as a result of PWC's 1996
22
retention as restructuring consultant. On October 2, 2000, PWC moved to dismiss
Sunbeam Corporation's amended complaint. The Court entered an order denying the
motion to dismiss as to all of the claims except the claim for breach of
fiduciary duty. In its answer, PWC asserted several defenses, including that the
claims contained in the amended complaint: (1) fail to state a cause of action,
(2) are not stated with the requisite specificity, (3) are barred by the statute
of limitation, (4) are barred by the doctrine enunciated in Cenco, Inc. v.
Seidman & Seidman, 686 F.2d 449 (7th Cir. 1982), (5) are barred by the doctrine
of judgmental immunity, (6) are barred by the business judgment rule, and other
miscellaneous defenses. This litigation is currently in the discovery phase
which is expected to last for the next 12 to 18 months. While difficult to
estimate, Sunbeam Corporation's legal fees for this would be approximately
$1,500,000 to $2,500,000. If successful in this action, Sunbeam Corporation
believes recoverable damages in the case could be anywhere from the payments
made to PWC in connection with the engagement (approximately $8,000,000) to a
more significant number representing losses proximately caused by PWC's
negligence.
J. THE SMOKE ALARM CLASS ACTION LITIGATION
Two putative nationwide class action lawsuits were filed in
May 1998. One action, captioned Linda Schmulbach and Arnold Brown v. Pittway
Corporation, BRK Brands, Inc., and First Alert, Inc. ("Schmulbach"), was filed
in Illinois state court and the other action, captioned, Natasha Claybrook, et
al. v. BRK Brands, Inc., f/k/a First Alert, Sunbeam Corporation a/k/a Sunbeam
Products, Inc. and First Alert, Inc. ("Claybrook"), was filed in federal
district court in Alabama. The plaintiffs in the Schmulbach and Claybrook
actions alleged, among other things, that the defendants failed to adequately
inform consumers of the varying performance characteristics of ionization and
photoelectric smoke alarms.
Defendants reached a settlement with the plaintiffs in the
Claybrook litigation to resolve all similar claims nationwide. Linda Schmulbach
and Arnold Brown chose not to opt out of the settlement and filed an objection
to the settlement with the district court.
There are five components to the financial obligations of
BRK Brands and First Alert under the settlement: (1) the costs associated with
the funding of a public information campaign; (2) the costs associated with the
development and distribution of fire safety informational kits for retailers;
(3) the costs associated with a rebate program; (4) reimbursement of litigation
expenses incurred by plaintiffs' counsel in pursuing the class action
litigation; and (5) the costs of providing "incentive awards" to named
plaintiffs in the class action. It is anticipated that the financial obligations
arising under the settlement will total approximately $4,700,000, excluding the
potential cost of the rebate program and separate and apart from the attorneys'
fees that were placed into a segregated account in connection with the
settlement of the Claybrook Action. These costs will be incurred over the two
year period following BRK Brands and First Alert's emergence from chapter 11.
The district court approved the settlement and held, in its
November 20, 2000 memorandum opinion, that each of Ms. Schmulbach's and Mr.
Brown's objections were without merit and/or had no basis in fact. The district
court, in its November 20, 2000 final order, also permanently enjoined the
prosecution of other actions, including the Schmulbach action, relating to the
claims resolved in the Claybrook action. Ms. Schmulbach and Mr. Brown filed a
notice of appeal with the Eleventh Circuit Court of Appeals on December 15,
2000. On March 20, 2001, the Eleventh Circuit stayed the action pending further
orders of the Bankruptcy Court. With the Debtor's consent, on April 11, 2001,
the Bankruptcy Court modified the automatic stay solely to the extent necessary
to permit the appeal to proceed.
23
In approving the settlement, the district court held: (i)
the settlement agreement provides a comprehensive program that includes both
injunctive and monetary relief designed to promote fire safety for class
members; (ii) the objection as to the inadequacy of notice was without merit;
and (iii) it had the power to enjoin parallel state suits under the All Writs
Act, 28 U.S.C. ss. 1651(a), and the "necessary in aid of" exception to the
Anti-Injunction Act, 28 U.S.C. ss. 2283.
The Schmulbach objectors asserted on appeal that: (i) the
settlement approved by the district court provided illusory benefits to the
class; (ii) the nationwide notice of class certification and settlement failed
to include a description of the Schmulbach action; and (iii) the district court
lacked jurisdiction to enjoin the Schmulbach action from proceeding.
On May 9, 2002, the Eleventh Circuit Court of Appeals
rejected each of the Schmulbach objectors' arguments and affirmed the district
court's approval of the settlement in its entirety. The settlement has become
final.
K. CONSUMER PRODUCT SAFETY COMMISSION ACTION
On October 9, 2001, the Consumer Product Safety Commission
(the "CPSC") filed an administrative complaint against Sunbeam Corporation,
certain non debtor subsidiaries of Sunbeam Corporation and certain third
parties, including Chemetron Corporation ("Chemetron"), Chemetron Investments,
Inc. ("Chemetron Investments"), Sprinkler Corporation of Milwaukee, Inc. (f/k/a
Star Sprinkler, Inc., f/k/a Grunau Sprinkler ("Grunau")), Manufacturing Company,
Inc., and Grucon Corporation seeking an order requiring the parties to recall
and replace approximately 700,000 Star ME-1 dry sprinklers manufactured from
1977 to 1996 (the "CPSC Action"). With respect to Sunbeam Corporation,
Chemetron, and Chemetron Investments, the CPSC alleged that Chemetron and/or
Chemetron Investments manufactured Star ME-1 dry sprinklers from 1977 to 1983,
and that Sunbeam Corporation is legally responsible for this recall.
The CPSC estimates that approximately 50,000 - 60,000 Star
ME-1 dry sprinkler heads were manufactured between 1977-1983, the period of time
for which the CPSC alleges Sunbeam Corporation, Chemetron, and Chemetron
Investments are responsible.
The "Star" sprinkler business of Chemetron and/or Chemetron
Investments was sold to Grunau in 1983, and the remainder of the fire
suppression business of Chemetron and/or Chemetron Investments was purchased by
Figgie International ("Figgie") when Figgie acquired the stock of Chemetron Fire
Systems in 1985. Sunbeam Corporation acquired the stock of Chemetron and
Chemetron Investments in September 1990 when it acquired certain assets of
Allegheny International.
Sunbeam Corporation is challenging this action on several
grounds, including: (i) Star ME-1 sprinklers are not within the jurisdiction of
the CPSC because they are not "consumer products" as defined by the Consumer
Product Safety Act (the "CPSA"); and (ii) the Star ME-1 sprinklers do not
present a "substantial product hazard" as defined in the CPSA.
Sunbeam Corporation's position is that the CPSA allows
Sunbeam Corporation to elect the remedy. One of the remedies under that statute
is reimbursement of the purchase price, minus a reasonable allowance for use. As
a result, Sunbeam Corporation's position is that any claims for reimbursement
are subject to the limited recovery provided for unsecured creditors in the
Plan.
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The CPSC has taken the position that, under the applicable
statutes, the CPSC is given the authority to approve the responsible parties'
election of remedies; and that in this case, it would require the responsible
parties to repair and replace the sprinkler heads, which would require the
responsible party to pay for a replacement head and the costs of repair and
installation. The cost of repair and replacement, including installation, could
be approximately $100/-$150 per sprinkler head.
Discovery in the CPSC Action is currently scheduled to
close on September 27, 2002. In light of the early stage of the CPSC Action and
the substantial legal and factual issues that remain unresolved, Sunbeam
Corporation is unable to assess the potential range of loss.
L. ENVIRONMENTAL INSURANCE LITIGATION
Sunbeam Corporation and certain of its subsidiaries have
claims against a number of insurance carriers for coverage under comprehensive
general liability ("CGL") insurance policies issued from the 1950s through 1986
for environmental matters. In 1986, CGL polices began to cease coverage
completely for environmental matters.
In 1993, Sunbeam Corporation filed a complaint in the
Milwaukee, Wisconsin County Circuit Court (Sunbeam-Oster Company, Inc., et al. v
Aetna Casualty & Surety Company, et al., Case No. 93-CV-007941) (the "Wisconsin
Suit") for recovery under CGL polices related to seven sites. The defendants
asserted in their answers defenses such as late notice. In 1994, the Wisconsin
Supreme Court ruled in a different case that costs incurred to comply with
government-ordered cleanup actions were not "damages" under CGL policies. Given
a large percentage of Sunbeam Corporation's environmental "damages" fall into
this category, Sunbeam Corporation decided to file a similar but separate
lawsuit in Pennsylvania (as described below).
Although some discovery was taken in the Wisconsin
litigation, it was limited due to numerous disputes between the parties. At
present, there is no schedule in place for the completion of discovery or trial
in this case. Numerous defendants have requested the Court and the special
master assigned to this case to hold a status conference in order to develop a
discovery schedule. No such scheduling conference has been scheduled as of this
date.
The potential past and future costs for cleanup at the
sites subject to the Wisconsin Suit are over $10 million, and while Sunbeam
Corporation believes it has meritorious claims, no assurance can be given that
it will be successful at trial, or if successful, what damages will be awarded.
As a result, the potential range of recovery could be $0, if Sunbeam Corporation
is unsuccessful at trial, to all of Sunbeam Corporation's damages asserted in
the Wisconsin Suit. In light of the early state of the Wisconsin Suit, the 1994
ruling by the Wisconsin Supreme Court as described above, and the defenses
asserted by the defendants, it is not possible to predict the amount of
recovery, if any, in the Wisconsin Suit. However, in order to take advantage of
more favorable governing law in Pennsylvania as described below, all of the
sites subject to the Wisconsin Suit have become subject to the Pennsylvania Suit
described below, and the Wisconsin Suit has become inactive.
In 1995, Sunbeam Corporation brought an action in the
Allegheny County, Pennsylvania Court of Common Pleas (Sunbeam Corporation, et
al. v. Liberty Mutual Insurance Company, et al., Case Nos. 95-13947 and 95-9861
(the "Pennsylvania Suit") against CGL insurance carriers relating to certain
sites not subject to the Wisconsin Suit, although some of the defendants in the
Pennsylvania Suit are also defendants in the Wisconsin Suit. The defendants
25
filed a motion to dismiss which asserted that the phrase "sudden and accidental"
contained in the CGL policies issued in 1970 and thereafter through 1986 (when
coverage under CGL policies for environmental matters, for the most part, ceased
completely) limited coverage to exclude gradual pollution, which would
substantially reduce most coverage under these post 1970 policies. Sunbeam
Corporation asserted that "sudden and accidental" should be interpreted based on
the insurance industry's past custom and usage of this language and coverage and
that this interpretation would then cover gradual pollution events. Sunbeam
Corporation also asserted that the defendants were estopped from claiming that
the phrase "sudden and accidental" had the meaning asserted by the defendants
since such interpretation by the defendants was inconsistent with
representations made by the insurance industry to the Pennsylvania Insurance
Commissioner in 1970 when the industry proposed the "sudden and accidental"
phrase. At such time, the insurance industry represented that the phrase was
intended to clarify the existing policy but not to provide a new limitation on
coverage in these polices. The trial court dismissed the case in April 1997.
Sunbeam Corporation appealed the dismissal to the Superior Court, which denied
Sunbeam Corporation's appeal, and Sunbeam Corporation then appealed to the
Superior Court en banc, which also denied Sunbeam Corporation's appeal. Sunbeam
Corporation then appealed to the Pennsylvania Supreme Court, which granted
Sunbeam Corporation's appeal in June 2000. The Supreme Court heard oral
arguments on March 5, 2001 and then on October 19, 2001, the Pennsylvania
Supreme Court ruled in Sunbeam Corporation's favor on interpreting the phrase
"sudden and accidental" on two basis: (1) the courts should look to custom and
usage to interpret the phrase; and (2) the insurance industry is "estopped" from
claiming that the phrase has a meaning different from that put forth by the
insurance industry to the Pennsylvania Insurance Commissioner in 1970. In order
to secure Pennsylvania as the forum for determining coverage under its CGL
policies, Sunbeam Corporation filed a new writ and complaints against all the
remaining carriers not subject to the Pennsylvania Suit (Sunbeam Corporation, et
al. v. Equitas Limited, et al., Case No. GD 02-167). Currently, there are over
70 defendants and over 300 separate polices subject to the Pennsylvania Suit,
including the defendants and sites subject to the Wisconsin Suit. The defendants
filed their answers and responsive pleadings in early August 2002. After the
preliminary objections are briefed and resolved, substantial discovery is
expected to begin in earnest.
At trial, it is expected that the defendants will assert
numerous defenses, including choice of law that favors the insureds, methodology
of allocation of liability among various carriers and policies issued over a
number of years, the "sudden and accidental" pollution exclusion, the claims are
barred because of the "known loss" doctrine, lack of notice, property damage
claims are excluded because they involve property owned by the insureds, etc.
The potential exposure to the defendants for past costs totals about $45,000,000
and future costs, are estimated to be over $20,000,000. Sunbeam Corporation
believes it has meritorious claims, however, no assurance can be given that it
will be successful at trial, or if successful, what the damages awarded will be.
As a result, the potential range of recovery could be $0, if Sunbeam Corporation
is unsuccessful at trial, to all of Sunbeam Corporation's damages asserted in
the Pennsylvania Suit. However, in light of the preliminary nature of the
Pennsylvania Suit, and the defenses asserted by the defendants, it is not
possible to predict the amount of recovery, if any, in the Pennsylvania Suit.
Sunbeam Corporation continues to evaluate whether there are
any additional claims that should be asserted under old CGL policies for
environmental matters.
26
M. INTERCOMPANY RECEIVABLES
Prior to the Commencement Date, certain of the funds
borrowed by Sunbeam Corporation under the Bank Credit Agreement and Subordinated
Notes Indenture were contributed to the Sunbeam Affiliates to (1) fund the
acquisition of Coleman, Signature Brands and First Alert, (2) replace third
party borrowings of acquired companies, and (3) provide working capital. The
contributions have been recorded in the Debtor's books and records as
intercompany receivables and, to the extent they bear interest, as intercompany
debt obligations for tax purposes. In most cases (particularly those where no
interest was charged), these contributions actually reflect equity investments
by Sunbeam Corporation to each of its operating units. Often notes were issued
to reflect such contributions. These notes have been pledged to the Bank Group.
Therefore, to the extent such receivables represent true obligations of the
Sunbeam Affiliates, they are the collateral security of the Bank Group. As of
January 1, 2001, the aggregate amount of recorded receivables due Sunbeam
Corporation from the Sunbeam Affiliates (net of amounts payable by Sunbeam
Corporation to the Sunbeam Affiliates) was approximately $2.2 billion.
N. 2000 FINANCIAL PERFORMANCE
As of December 1999, after giving effect to monies borrowed
for the Coleman Minority Close-Out, Sunbeam Corporation had approximately
$1,519,000,000 in borrowings and had availability to borrow approximately an
additional $96,000,000 under the Bank Credit Agreement. The remaining
$80,000,000 of availability under the Bank Credit Agreement was committed for
outstanding letters of credit. The limited availability under the Bank Credit
Agreement, together with required interest payments under such facility,
severely limited the cash flow available to fund the Sunbeam Group's operations.
Sunbeam Corporation's excessive leverage had significant and material
consequences. For example, Sunbeam Corporation became more vulnerable to
interest rate fluctuations because the indebtedness under its Bank Credit
Agreement, among other debt, was at variable interest rates. Sunbeam
Corporation's ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes also was
impaired. A substantial portion of the Sunbeam Group's cash flow from operations
was dedicated to the payment of principal and interest on Sunbeam Corporation's
indebtedness, and as a result, cash available for its operations, capital
expenditures and other purposes was extremely limited. Sunbeam Corporation was
substantially more leveraged than most of its competitors, placing it at a
distinct competitive disadvantage.
In addition to financing constraints, as described above,
the Sunbeam Group experienced lower than expected sales in the year 2000. The
reduction in sales was due in part to a reduction in retailer purchases
generally as retailers sought to reduce their inventories and slowing retail
sales generally since the first quarter of 2000. The Sunbeam Group's overall
sales also were adversely affected by reduced sales of Year 2000 Products.
Moreover, the absence of severe storm activity during 2000 adversely affected
sales of Year 2000 Products. These factors, among others, led to a significant
reduction in the Sunbeam Group's sales and earnings during 2000.
The Sunbeam Group's sales declines were exacerbated by
Sunbeam Corporation's highly leveraged debt structure. Sunbeam Corporation's
debt levels became significantly more difficult to support as sales and
operating performance deteriorated in 2000. Absent the commencement of the
chapter 11 cases, in April 2001, Sunbeam Corporation would have become obligated
to (i) repay outstanding borrowings of $50,000,000 under the Bank Credit
Supplemental Revolver, (ii) repay $196,100,000 under the term loan portion of
27
the Bank Credit Agreement, and (iii) pay an $8,500,000 amendment fee (relating
to an April 15, 1999 amendment to the Bank Credit Agreement). Furthermore,
absent the commencement of the Chapter 11 Case and the ability to borrow under
the $285,000,000 debtor in possession financing facility provided by the Banks
and the $200,000,000 receivables financing program provided by General Electric
Capital Corporation ("GECC"), the Sunbeam Group would not have had sufficient
liquidity to fund operating expenses and to build inventory for its outdoor
business. At the close of business on Friday, February 2, 2001, Sunbeam
Corporation and the Subsidiary Debtors had cash of approximately $15,000,000 and
nominal remaining availability under the Bank Credit Agreement.
O. PREPETITION NEGOTIATIONS
Commencing in the fourth quarter of 2000, Sunbeam
Corporation and the Subsidiary Debtors, together with their attorneys and
financial advisors, initiated discussions with the Banks as to a restructuring
of the outstanding debt obligations, which led to negotiations as to a
consensual chapter 11 plan of reorganization. To that end, Sunbeam Corporation
and the Subsidiary Debtors reached an agreement with the Banks as to the terms
and conditions of a plan of reorganization. Sunbeam Corporation's plan of
reorganization, dated February 6, 2001, was filed on the Commencement Date and
was subsequently amended on February 23, 2001 and April 26, 2001 (as amended,
the "Second Amended Plan"). The Subsidiary Debtors' plan of reorganization,
dated February 6, 2001, was filed on the Commencement Date and was also
subsequently amended on February 23, 2001 and April 26, 2001 (as amended, the
"Subsidiary Debtors Second Amended Plan" and together with the Second Amended
Plan, the "Second Amended Plans").
V. THE REORGANIZATION CASE
A. COMMENCEMENT OF THE CHAPTER 11 CASE
The Chapter 11 Case was commenced on February 6, 2001. The
Debtor continues to operate its business and manage its properties as a
debtor-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.
B. ADMINISTRATION OF THE CHAPTER 11 CASE
1. OPERATIONAL MATTERS.
On the Commencement Date, Sunbeam Corporation obtained a
series of orders from the Bankruptcy Court designed to minimize any disruption
of business operations and to facilitate their reorganization. The Bankruptcy
Court entered orders authorizing Sunbeam Corporation, among other things, to pay
prepetition wages and benefits to employees and to continue prepetition
insurance policies and plans.
2. CASH MANAGEMENT.
On the Commencement Date, Sunbeam Corporation obtained an
order from the Bankruptcy Court authorizing it to continue to operate under the
cash management system and procedures that were in place prior to the
Commencement Date.
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3. DEBTOR IN POSSESSION AND RECEIVABLES FINANCING.
On the Commencement Date, Sunbeam Corporation and the
Subsidiary Debtors obtained interim orders from the Bankruptcy Court authorizing
Sunbeam Corporation and the Subsidiary Debtors (through borrowings from Sunbeam
Corporation) to borrow up to $200,000,000 under the $285,000,000 DIP Credit
Facility provided by the Banks. In addition, the Subsidiary Debtors obtained an
interim order from the Bankruptcy Court authorizing them to access all available
liquidity under a $200,000,000 post-petition receivables financing program
provided by GECC. The Bankruptcy Court entered final orders approving the DIP
Credit Facility and post-petition receivables financing program on March 2, 2001
and February 27, 2001, respectively.
The DIP Credit Facility provided for a reduction to
$160,000,000 of the aggregate commitments thereunder on April 30, 2001. On or
about April 30, 2001 the DIP Credit Facility was amended to reduce the aggregate
commitments thereunder to $200,000,000 on such date and $160,000,000 on June 30,
2001. On February 4, 2002, the Bankruptcy Court entered a stipulation and order
approving an amendment to the DIP Credit Facility which extended the maturity
date of such facility to April 5, 2002. On or about March 13, 2002, the DIP
Credit Facility was amended to further extend the maturity date of the DIP
Credit Facility to February 2, 2003 and to initially increase the aggregate
commitments thereunder to $200,000,000 (and such increase was approved by the
Court on March 15, 2002), and such amendment provided for the reduction of the
aggregate commitments under the DIP Credit Facility to $180,000,000 on May 1,
2002 and $160,000,000 on June 1, 2002. Liquidity under the DIP Credit Facility
and the receivables financing program has been and will continue to be used by
Sunbeam Corporation and the Subsidiary Debtors to finance their seasonal
inventory build and conduct normal business operations. On or about April 15,
2002, the DIP Credit Facility was further amended to provide that in lieu of the
commitment reductions set forth in the amendment entered into as of March 13,
2002, the aggregate commitments under the DIP Credit Facility would be reduced
by $20,000,000 on each of May 1, 2002 and June 1, 2002. In addition, such
amendment provided for the application of $10,000,000 of net cash proceeds from
a receivables securitization facility in Canada to the permanent reduction of
the aggregate commitments under the DIP Credit Facility. On or about May 31,
2002, the Banks consented to the sale of certain accounts receivable, the
proceeds of which were applied to repay the loans, and reduce the aggregate
commitments under the DIP Credit Facility.
4. ASSETS SALES DURING CHAPTER 11 CASE.
During the Chapter 11 Case, management determined to divest
its professional scales business since such business was determined to be a
non-core business. On December 19, 2001, the Bankruptcy Court entered an order
authorizing Sunbeam Products, Inc. to sell its professional scales business to
Pelstar LLC for approximately $8,000,000. The net proceeds received from the
sale of the professional scales business were used to partially repay
outstanding loans under the DIP Credit Facility.
5. SUNBEAM GROUP BUSINESS REALIGNMENT.
After reviewing its 2001 operating results and in
recognition of the need to strengthen its foreign operations, the Sunbeam Group
undertook to implement a complete business realignment for its domestic and
foreign operations. This realignment established four worldwide businesses:
Sunbeam Products, Inc. ("Sunbeam Products"), The Coleman Company, Inc.
29
("Coleman"), Coleman Powermate, Inc. ("Powermate"), and First Alert. Sunbeam
Products' businesses include the following:
o Appliances: Including mixers, blenders, food
steamers, coffeemakers, toasters, toaster ovens,
irons and garment steamers.
o Health Products: Including vaporizers, humidifiers,
massagers, hot and cold packs, blood pressure
monitors and scales.
o Personal Care Products: Including professional
clippers and supply of small appliances to the
hospitality industry.
o Outdoor Cooking Products: Including gas grills and
grill parts and accessories under the Sunbeam(R)name.
o Blankets: Including electric blankets, heated throws
and mattress pads.
Coleman's businesses include the following:
o Outdoor Recreation Products: Including tents,
sleeping bags, coolers, camping stoves, lanterns,
frame backpacks and outdoor heaters.
o Outdoor Cooking Products: Including gas and charcoal
outdoor grills and grill parts and accessories under
the Coleman(R) name.
Powermate's businesses include:
o Generators: Including portable and small standby
generators.
o Compressor Products: Including air compressors.
First Alert's product lines include the following:
o Detection Products: Including smoke and carbon
monoxide detectors.
o Safety Products: Including fire extinguishers and
home safety equipment.
The Corporate group still provides management, accounting, legal, risk
management, treasury, human resources and tax services to the four business
lines.
As a result of the realignment, each of the businesses is
responsible for its international operations. The objective of the Sunbeam Group
realignment is to make the businesses more independent and enable them to react
quickly to changing markets and to capitalize on financial and strategic
opportunities as they arise. An additional objective of the realignment is to
enhance the Sunbeam Group's international operations, so it can establish true
global brands and increase market share and profits.
C. CREDITORS' COMMITTEE
On February 13, 2001, the United States Trustee, pursuant
to section 1102 of the Bankruptcy Code, appointed a statutory committee of
unsecured creditors (the "Committee") in Sunbeam Corporation's Chapter 11 Case.
The creditors' committee is comprised of the following members: H.B.K. Master
30
Fund, L.P.; Conseco Capital Management; St. Paul Fire & Marine/Seaboard Surety;
T. Rowe Price Recovery Fund II, L.P.; Albert Fried & Company; Moses Marx; KS
Capital Partners; Elliot International & Associated Entities; and Oaktree
Capital Management.
On July 13, 2001, the Committee commenced an adversary
proceeding (the "Adversary Proceeding") against the Banks and Morgan Stanley &
Co., Inc. (collectively, the "Adversary Proceeding Defendants"). In the
Adversary Proceeding, the Committee brought derivatively on behalf of Sunbeam
Corporation the following claims against the Adversary Proceeding Defendants:
(i) equitable subordination; (ii) avoidance and recovery of fraudulent
transfers; (iii) gross negligence and negligence; (iv) aiding and abetting
fraud; (v) aiding and abetting breach of fiduciary duty; and (vi) recoupment.
On August 15, 2001, the Adversary Proceeding Defendants
filed motions to dismiss the Adversary Proceeding. The hearing with respect to
the motions to dismiss was originally scheduled for September 15, 2001, but was
subsequently adjourned. Thereafter, the Committee filed an amended complaint.
The Adversary Proceeding Defendants filed new motions to
dismiss the amended complaint on October 1, 2001 and the Committee filed a brief
in opposition to such motions on October 26, 2001. On November 9, 2001, the
Adversary Proceeding Defendants filed their reply briefs. On November 12, 2001,
Sunbeam Corporation filed its memorandum of law in support of the Defendants'
motions to dismiss.
The Bankruptcy Court heard oral argument on the motions to
dismiss on November 15, 2001. The Adversary Proceeding remains sub judice. ---
Pursuant to Section 11.4 of the Plan and Section 10.4 of
the Subsidiaries Plan on the Effective Date of such plans the Debtor and the
Subsidiary Debtors will release the Banks and their respective Affiliates and
known loan participants from any and all Causes of Action held by, assertable on
behalf of or derivative from, the Debtor or the Debtor in Possession, the
Subsidiary Debtors or the Subsidiary Debtors as debtors in possession, including
in the case of Sunbeam Corporation, the claims asserted in the Adversary
Proceeding. See Section 11.4 of the Plan.
D. 2001 FINANCIAL PERFORMANCE
Because of the substantial economic downturn which
commenced in spring of 2000 and continued through 2001, as well as other
factors, the Sunbeam Group failed to meet its projections and fell below its
plan for fiscal year 2001. The occurrence of September 11, 2001 exacerbated the
economic decline and caused further erosion to the Sunbeam Group's businesses,
particularly those depending on air travel (e.g., luggage and hotel supplies).
Major retailers continued their program to reduce inventory levels with a
concomitant reduction in purchase orders. Other factors, such as poor point of
sale data due to the weakened economy and unfavorable weather conditions
contributed to poor earnings in fiscal year 2001.
In 2001, the Sunbeam Group's consolidated revenues were
below plan and EBITDA (Earnings Before Interest, Taxes, Depreciation and
Amortization) was also below plan.
In addition, a major factor in the development of Sunbeam
Corporation's and the Subsidiary Debtors' Second Amended Plans was the projected
sale of certain businesses, primarily the professional clippers business. It was
31
projected that the sale of the clippers business would result in a cash infusion
to the Sunbeam Group of approximately $125 million. The Sunbeam Group was not
able to obtain a satisfactory firm offer for the professional clippers business
and thus the sale has not occurred. These events led to a resulting loss of
liquidity and the need to reinvest in the professional clippers business.
In light of the events in 2001, the Second Amended Plans
needed to be revised.
E. POSTPETITION NEGOTIATIONS
In June 2002, the Sunbeam Group and the Banks commenced
negotiations with respect to an amended plan that would take into account the
financial performance of the Sunbeam Group in 2002. These negotiations
culminated in the terms and conditions of the revised restructuring plan
embodied in the Plan. The distributions to holders of Claims and Equity
Interests, other than Allowed Secured Bank Claims, Allowed General Unsecured
Claims and Allowed Subordinated Note Claims, remain the same under the Plan as
they were under the Second Amended Plan.
Since commencement of the Adversary Proceeding, the Debtor,
the Banks and the Committee have discussed and negotiated potential means of
resolving the claims asserted in the Adversary Proceeding. To date, no agreement
to resolve the Adversary Proceeding has been reached.
The Debtor believes that (i) through the Plan, holders of
Allowed Secured Bank Claims, Allowed General Unsecured Claims and Subordinated
Note Claims may obtain a greater recovery from the estate of the Debtor than the
recovery that they would receive if the assets of the Debtor were liquidated
under chapter 7 of the Bankruptcy Code and (ii) the Plan will afford the Debtor
the opportunity and ability to continue in business as a viable going concern
and preserve ongoing employment for the Debtor's employees.
VI. THE PLAN OF REORGANIZATION
Pursuant to the Plan, the holders of Secured Bank Claims,
aggregating approximately $1,602,489,994, will receive, in exchange for such
claims, (i) $100,000,000 in New Secured Term Notes and (ii) 100% of the
Reorganized Sunbeam Common Stock, subject to dilution from the issuance and
exercise of the Employee Options and/or New Warrants (if any) which may be
issued to the holders of Allowed Subordinated Note Claims and issuance of the
Management Investment Securities.
If the holders of Allowed Claims in Class 4 (General
Unsecured Claims) accept the Plan by the requisite majorities set forth in
section 1146(c) of the Bankruptcy Code, such holders will receive their Pro Rata
Share of $1,000,000. If the holders of Allowed Claims in Class 4 do not accept
the Plan by the requisite statutory majorities, such holders shall not receive a
distribution under the Plan. If the holders of Allowed Claims in Class 5
(Subordinated Note Claims) accept the Plan by the requisite majorities set forth
in section 1146(c) of the Bankruptcy Code, such holders will receive their Pro
Rata Share of New Warrants to purchase up to one percent (1%) of the Reorganized
Sunbeam Common Stock, subject to dilution by issuance and exercise of the
Employee Options. If the holders of Allowed Claims in Class 5 do not accept the
Plan by the requisite statutory majorities, such holders shall not receive a
distribution under the Plan and no New Warrants shall be issued by Reorganized
Sunbeam. All other pre-Commencement Date creditors of Sunbeam Corporation,
including, without limitation, the holders of Subordinated Noteholder Securities
32
Claims and Equity Holder Securities Claims, and all holders of Equity Interests
in Sunbeam Corporation, will receive no recovery under the Plan.
Pursuant to the Subsidiaries Plan, which is described, in
detail, in a separate disclosure statement filed with the Bankruptcy Court, the
holders of Secured Bank Claims will receive secured guarantees from each of the
Subsidiary Debtors of the New Secured Term Notes issued by Sunbeam Corporation
pursuant to the Plan. All other creditors of the Subsidiary Debtors, including,
without limitation, trade creditors, service providers and retailers, and all
equity interest holders, will be rendered unimpaired pursuant to the
Subsidiaries Plan, other than intercompany claims which are extinguished under
the Plan and Subsidiary Debtors' Plan.
The financial restructuring contemplated under the Plans
will reduce Sunbeam Corporation's outstanding debt obligations to levels more
consistent with the business operations and projected financial performance of
the Sunbeam Group. The financial restructuring contemplated under the Plans also
will enhance the Sunbeam Group's ability to effectively compete and maintain
critical relationships with its suppliers and retail vendors.
The Plan is annexed hereto as Exhibit A and forms a part of
this Disclosure Statement. The summary of the Plan set forth below is qualified
in its entirety by reference to the provisions of the Plan.
A. CLASSIFICATION AND TREATMENT OF
CLAIMS AND EQUITY INTERESTS
The Plan classifies Claims and Equity Interests separately
and provides different treatment for different Classes of Claims and Equity
Interests in accordance with the provisions of the Bankruptcy Code. As described
more fully below, the Plan provides, separately for each Class, that holders of
certain Claims will receive various amounts and types of consideration, thereby
giving effect to the different rights of holders of Claims and Equity Interests
in each Class.
1. ADMINISTRATIVE EXPENSE CLAIMS
Administrative Expense Claims are Claims constituting a
cost or expense of administration of the Chapter 11 Case allowed under sections
503(b) and 507(a)(1) of the Bankruptcy Code. Such Claims include all actual and
necessary costs and expenses of preserving the estate of the Debtor, all actual
and necessary costs and expenses of operating the business of the Debtor in
Possession, any indebtedness or obligations incurred or assumed by the Debtor in
Possession in connection with the conduct of its business, all cure amounts owed
in respect of leases and contracts assumed by the Debtor in Possession, all
compensation and reimbursement of expenses to the extent Allowed by the
Bankruptcy Court under section 330 or 503 of the Bankruptcy Code, and any fees
or charges assessed against the estate of the Debtor under section 1930 of
chapter 123 of title 28 of the United States Code.
Except to the extent that any entity entitled to payment of
any Allowed Administrative Expense Claim agrees to a less favorable treatment,
each holder of an Allowed Administrative Expense Claim shall receive Cash in an
amount equal to such Allowed Administrative Expense Claim on the later of the
Effective Date and the date such Administrative Expense Claim becomes an Allowed
Administrative Expense Claim, or as soon thereafter as is practicable; provided,
however, that Allowed Administrative Expense Claims representing liabilities
incurred in the ordinary course of business by the Debtor in Possession or
33
liabilities arising under loans or advances to or other obligations incurred by
the Debtor in Possession shall be paid in full and performed by Reorganized
Sunbeam in the ordinary course of business in accordance with the terms and
subject to the conditions of any agreements governing, instruments evidencing or
other documents relating to such transactions.
2. COMPENSATION AND REIMBURSEMENT CLAIMS
Compensation and reimbursement Claims are Administrative
Expense Claims for the compensation of professionals and reimbursement of
expenses incurred by such professionals pursuant to sections 503(b)(2),
503(b)(3), 503(b)(4) and 503(b)(5) of the Bankruptcy Code (the "Compensation and
Reimbursement Claims"). All payments to professionals for Compensation and
Reimbursement Claims will be made in accordance with the procedures established
by the Bankruptcy Code, the Bankruptcy Rules and the Bankruptcy Court relating
to the payment of interim and final compensation for services rendered and
reimbursement of expenses. The Bankruptcy Court will review and determine all
applications for compensation for services rendered and reimbursement of
expenses.
Pursuant to the Plan, each holder of a Compensation and
Reimbursement Claim shall (a) file its final application for the allowance of
compensation for services rendered and reimbursement of expenses incurred by no
later than the date that is 60 days after the Effective Date or such other date
as may be fixed by the Bankruptcy Court and (b) if granted such an award by the
Bankruptcy Court, be paid in full in such amounts as are Allowed by the
Bankruptcy Court (i) on the date such Compensation and Reimbursement Claim
becomes an Allowed Claim, or as soon thereafter as is practicable or (ii) upon
such other terms as may be mutually agreed upon between such holder of a
Compensation and Reimbursement Claim and Reorganized Sunbeam.
3. PRIORITY TAX CLAIMS
Priority Tax Claims are Claims for taxes entitled to
priority in payment under section 507(a)(8) of the Bankruptcy Code.
Pursuant to the Plan, except to the extent that a holder of
an Allowed Priority Tax Claim has been paid by the Debtor prior to the Effective
Date or agrees to a different treatment, each holder of an Allowed Priority Tax
Claim shall receive, at the sole option of Reorganized Sunbeam, (a) Cash in an
amount equal to such Allowed Priority Tax Claim on the later of the Effective
Date and the date such Priority Tax Claim becomes an Allowed Priority Tax Claim,
or as soon thereafter as is practicable or (b) equal annual Cash payments in an
aggregate amount equal to such Allowed Priority Tax Claim, together with
interest at a fixed annual rate equal to 8.0%, over a period through the sixth
anniversary of the date of assessment of such Allowed Priority Tax Claim, or
upon such other terms determined by the Bankruptcy Court to provide the holder
of such Allowed Priority Tax Claim with deferred Cash payments having a value,
as of the Effective Date, equal to such Allowed Priority Tax Claim; provided,
however, that the Debtor must obtain the consent of the Banks in order to elect
option (a).
4. CLASS 1 - OTHER PRIORITY CLAIMS
Other Priority Claims are Claims that are entitled to
priority in accordance with section 507(a) of the Bankruptcy Code (other than
Administrative Expense Claims and Priority Tax Claims). Such Claims include
unpaid Claims for (a) accrued employee compensation earned within 90 days prior
to commencement of the Chapter 11 Case to the extent of $4,300 per employee and
(b) contributions to employee benefit plans arising from services rendered
34
within 180 days prior to the commencement of the Chapter 11 Case, but only for
each such plan to the extent of (i) the number of employees covered by such plan
multiplied by $4,300, less (ii) the aggregate amount paid to such employees from
the estate for wages, salaries or commissions during the 90 days prior to the
Commencement Date. The Debtor believes that all Other Priority Claims have been
or will be paid pursuant to an order of the Bankruptcy Court. Accordingly, the
Debtor believes that there should be no Allowed Other Priority Claims.
Pursuant to the Plan, except to the extent that a holder of
an Allowed Other Priority Claim has been paid by the Debtor prior to the
Effective Date or agrees to a different treatment, each holder of Allowed Other
Priority Claims, if any exist, will be paid in full, in Cash, on the later of
the Effective Date and the date its Other Priority Claim becomes an Allowed
Claim, or as soon thereafter as is practicable.
5. CLASS 2 - OTHER SECURED CLAIMS
Other Secured Claims consist of all Secured Claims other
than Secured Bank Claims and Sunbeam Affiliate Claims that are Secured Claims.
The Debtor believes that the Other Secured Claims will include, among other
Claims, Claims relating to mechanics' and materialmen's liens and secured tax
claims.
Pursuant to the Plan, except to the extent that a holder of
an Allowed Other Secured Claim has been paid by the Debtor prior to the
Effective Date or agrees to a different treatment, at the option of Reorganized
Sunbeam, each holder of an Allowed Other Secured Claim shall be (a) reinstated
and rendered unimpaired in accordance with section 1124(2) of the Bankruptcy
Code, (b) receive Cash in an amount equal to such Allowed Other Secured Claim,
including any interest on such Allowed Other Secured Claim required to be paid
pursuant to section 506(b) of the Bankruptcy Code, on the later of the Effective
Date and the date such Allowed Other Secured Claim becomes an Allowed Other
Secured Claim, or as soon thereafter as is practicable or (c) receive the
Collateral securing its Allowed Other Secured Claim and any interest on such
Allowed Other Secured Claim required to be paid pursuant to section 506(b) of
the Bankruptcy Code, on the later of the Effective Date and the date such
Allowed Other Secured Claim becomes an Allowed Other Secured Claim, or as soon
thereafter as is practicable; provided, however, that the Debtor must obtain the
consent of the Banks in order to elect option (b).
6. CLASS 3 - SECURED BANK CLAIMS
The Secured Bank Claims consist of all Claims of the Banks
arising under the Bank Credit Agreement. Pursuant to the Plan, the Secured Bank
Claims are deemed Allowed Claims in the aggregate amount of $1,602,489,994.
Pursuant to the Plan, on the Effective Date, each holder of
an Allowed Secured Bank Claim as of the Record Date shall receive in full and
complete settlement, satisfaction, release and discharge of its Allowed Secured
Bank Claim: (i) its Pro Rata Share of (A) 100% of the Reorganized Sunbeam Common
Stock, and (B) $100,000,000 in principal amount of the New Secured Notes; and
(ii) the releases set forth in Section 11.4 of the Plan. The Reorganized Sunbeam
Common Stock distributed to the holders of Allowed Secured Bank Claims is
subject to dilution by issuance of the Management Investment Securities and
issuance and exercise of the New Warrants and/or the Employee Options. In
addition, each holder of an Allowed Secured Bank Claim shall be entitled to
retain all amounts paid to it or on its behalf as adequate protection or
otherwise, and Reorganized Sunbeam will continue to pay the professional fees of
35
the holders of the Allowed Secured Bank Claims after the Confirmation Date with
respect to matters relating to the Plan or the Chapter 11 Case in accordance
with the terms and conditions of the orders approving the Post-Petition Bank
Credit Agreement.
Terms of New Secured Notes:
Issuer: Reorganized Sunbeam.
Guarantors: All domestic subsidiaries of Sunbeam other than
Coleman International Holdings, LLC (the
"Guarantors").
Principal Amount: $100,000,000.
Trustee: An institution reasonably satisfactory to the Debtor
and the Banks.
Maturity: Seven (7) years after the Effective Date.
Interest rate: 5.00%, to accrue and compound quarterly (non-cash pay
until maturity).
Covenants: Standard covenants to be negotiated.
Collateral: Second priority liens and security interests in all
assets of Reorganized Sunbeam and the Guarantors
(other than the receivables subject to a lien
securing the securitization facility existing as of
the Effective Date and any replacement facilities),
and not more than 66% of the equity interests of
Coleman International Holdings, LLC and any first
tier foreign subsidiary.
7. CLASS 4 - GENERAL UNSECURED CLAIMS
The General Unsecured Claims consist of all Claims other
than Secured Claims, Administrative Expense Claims, Priority Tax Claims, Other
Priority Claims, Subordinated Note Claims, Derivative Securities Litigation
Claims, Sunbeam Affiliate Claims, Subordinated Noteholder Securities Claims and
Equity Holder Securities Claims. General Unsecured Claims include, without
limitation, (a) Claims arising from the rejection of leases of nonresidential
real property and executory contracts, (b) Claims relating to personal injury,
property damage, products liability, discrimination, employment or any other
similar litigation Claims asserted against the Debtor, (c) Claims relating to
other prepetition litigation against the Debtor (other than Derivative
Securities Litigation Claims, Sunbeam Affiliate Claims, Subordinated Noteholder
Securities Claims and Equity Holder Securities Claims), and (d) Claims, if any,
of the Debtor's vendors, suppliers and service providers.
Pursuant to the Plan, if Class 4 votes to accept the Plan
by the requisite majorities set forth in section 1126(c) of the Bankruptcy Code,
each holder of an Allowed General Unsecured Claim shall receive its Pro Rata
Share of $1,000,000. If Class 4 does not vote to accept the Plan by the
requisite statutory majorities, the holders of General Unsecured Claims shall
not receive any distributions on account of such Claims.
36
8. CLASS 5 - SUBORDINATED NOTE CLAIMS
The Subordinated Note Claims consist of all Claims arising
under the Subordinated Notes Indenture as of the Commencement Date. The
Subordinated Notes Indenture means the trust indenture, dated as of March 25,
1998, between Sunbeam, as issuer of the Subordinated Notes, and the Indenture
Trustee, and all of the documents and instruments relating thereto, as amended,
supplemented, modified or restated as of the Commencement Date. Pursuant to the
Plan, the Subordinated Note Claims shall be deemed Allowed Claims solely for
purposes of the Plan in the aggregate amount of $864,261,481.
Pursuant to the Plan, if Class 5 votes to accept the Plan
by the requisite majorities set forth in section 1126(c) of the Bankruptcy Code,
each holder of an Allowed Subordinated Note Claim shall receive its Pro Rata
Share of the New Warrants. If Class 5 does not vote to accept the Plan by the
requisite statutory majorities, the holders of Subordinated Note Claims shall
not receive any distributions on account of such Claims and no New Warrants
shall be issued by Reorganized Sunbeam.
9. CLASS 6 - SUBORDINATED NOTEHOLDER SECURITIES CLAIM
The Subordinated Noteholder Securities Claims consist of
any and all Claims and Causes of Action, of any kind whatsoever, known or
unknown, asserted or which might have been, or might in the future be, asserted
in a direct or other capacity against any the Debtor arising out of, relating to
or in connection with: (a) the purchase, ownership, sale or other decision or
action made or taken, or declined, or failed or refused to be made or taken, or
otherwise foregone, concerning or relating to the Subordinated Notes; (b) the
facts, transactions, events, occurrences, acts, representations, disclosures,
statements, omissions or failures to act which were alleged or could have been
alleged in the pending litigation asserted against the Debtor, whether asserted
individually or on behalf of a class of plaintiffs, which generally arise from
allegations of alleged acts or omissions of the Debtor or any other persons or
entities prior to the Commencement Date with respect to or concerning the
Subordinated Notes, or the purchase, sale or ownership thereof, including,
without limitation, the litigation or causes of action set forth in Exhibit E to
the Plan; (c) accounting irregularities or errors, if any, or alleged accounting
irregularities or errors relating to the Debtor or the Sunbeam Group; (d) the
historical or projected financial condition or results of the Sunbeam Group; (e)
any restatements of the Debtor's or any member of the Sunbeam Group's financial
statements or results of operations; (f) any other Claims and Causes of Action
arising out of, relating to, or in connection with the Subordinated Notes that
would be subject to and subordinated under section 510(b) of the Bankruptcy
Code; and (g) indemnification, reimbursement or contribution Claims against the
Debtor with respect to any of the foregoing. Notwithstanding the foregoing,
Subordinated Noteholder Securities Claims shall not include Assumed
Indemnification Claims and Derivative Securities Litigation Claims.
Pursuant to the Plan and section 510(b) of the Bankruptcy
Code, the holders of Subordinated Noteholder Securities Claims shall not receive
any distributions on account of such Claims and shall be enjoined from pursuing
any Subordinated Noteholder Securities Claims against the Debtor, the Debtor in
Possession or Reorganized Sunbeam.
10. CLASS 7 - SUNBEAM AFFILIATE CLAIMS
The Sunbeam Affiliate Claims consist of any Claim, whether
secured or unsecured, of a Sunbeam Affiliate. As of the Commencement Date, the
aggregate amount of Sunbeam Affiliate Claims was approximately $175,499,506.
37
However, after offset of the amounts due as of the Commencement Date from the
Sunbeam Affiliates to Sunbeam Corporation, there are no remaining affiliate
claims. Sunbeam Corporation's books and records reflect a net receivable balance
from the Sunbeam Affiliates.
Pursuant to the Plan, each holder of a Sunbeam Affiliate
Claim shall not receive any distributions on account of such Claims. Instead,
all Sunbeam Affiliate Claims shall be extinguished on the Effective Date by
either offset, the distribution or contribution of such Allowed Sunbeam
Affiliate Claims, or otherwise (as determined by the Debtor and the Subsidiary
Debtors).
11. CLASS 8 - EQUITY INTERESTS
Equity Interests consist of any share of common stock or
other instrument evidencing an ownership interest in the Debtor, whether or not
transferable, and any option, warrant or right, contractual or otherwise, to
acquire any such interest.
Pursuant to the Plan, holders of Equity Interests shall not
receive any distributions on account of such Equity Interests. On the Effective
Date, all Equity Interests shall be extinguished.
12. CLASS 9 - EQUITY HOLDER SECURITIES CLAIMS
The Equity Holder Securities Claims consist of any and all
Claims and Causes of Action of any kind whatsoever, known or unknown, asserted
or which might have been, or might in the future be, asserted in a direct or
other capacity against the Debtor arising out of, relating to or in connection
with: (a) the purchase, ownership, sale or other decision or action made or
taken, or declined, or failed or refused to be made or taken, or otherwise
foregone, concerning or relating to the Equity Interests; (b) the facts,
transactions, events, occurrences, acts, representations, disclosures,
statements, omissions or failures to act which were alleged or could have been
alleged in the pending litigation asserted against the Debtor, whether asserted
individually or on behalf of a class of plaintiffs, which generally arise from
allegations of alleged acts or omissions of the Debtor or any other persons or
entities prior to the Commencement Date with respect to or concerning the Equity
Interests, or the purchase, sale or ownership thereof, including, without
limitation, the litigation or causes of action set forth in Exhibit B to the
Plan; (c) accounting irregularities or errors, if any, or alleged accounting
irregularities or errors relating to the Sunbeam Group; (d) the historical or
projected financial condition or results of the Sunbeam Group; (e) state law
appraisal rights sought or requested in connection with or relating in any
manner to the Sunbeam Group; (f) any restatements of the Debtor's or any member
of the Sunbeam Group's financial statements or results of operations; (g) any
other Claims and Causes of Action arising out of, relating to, or in connection
with the Equity Interests that would be subject to and subordinated under
section 510(b) of the Bankruptcy Code; and (h) indemnification, reimbursement or
contribution Claims with respect to any of the foregoing. Notwithstanding the
foregoing, Equity Holder Securities Claims shall not include Assumed
Indemnification Claims and Derivative Securities Litigation Claims.
Pursuant to the Plan and section 510(b) of the Bankruptcy
Code, the holders of Equity Holder Securities Claims shall not receive any
distributions on account of such Claims and shall be enjoined from pursuing any
Equity Holder Securities Claims against the Debtor or Reorganized Sunbeam.
38
B. SECURITIES TO BE ISSUED UNDER THE AMENDED PLAN
1. REORGANIZED SUNBEAM COMMON STOCK
Pursuant to the Plan, on the Effective Date, all Equity
Interests will be cancelled. Pursuant to the Plan, all of the shares of
Reorganized Sunbeam Common Stock will be issued to holders of Allowed Secured
Bank Claims. Such shares shall constitute 100% of the shares of the Reorganized
Sunbeam Common Stock outstanding as of the Effective Date.
2. NEW WARRANTS
Pursuant to the Plan, New Warrants to purchase up to 1% of
Reorganized Sunbeam Common Stock may be issued. Each New Warrant shall be
exercisable to acquire one share of Reorganized Sunbeam Common Stock.
If the holders of Allowed Claims in Class 5 vote to accept
the Plan by the requisite majorities set forth in section 1126(c) of the
Bankruptcy Code, the holders of Allowed Subordinated Note Claims shall receive
their Pro Rata Share of New Warrants. If the holders of Allowed Claims in Class
5 do not vote to accept the Plan by the requisite statutory majorities, the
holders of Subordinated Note Claims shall not receive any distributions on
account of such claims and no New Warrants shall be issued by Reorganized
Sunbeam.
Terms of New Warrants:
Number of Warrants: Holders of Allowed Subordinated Note Claims
may be issued New Warrants to purchase up to
1% of Reorganized Sunbeam Common Stock on
the Effective Date, subject to dilution by
shares issued upon the exercise of options
granted under the Management Equity Plans.
Each New Warrant shall be exercisable to
acquire one share of Reorganized Sunbeam
Common Stock.
Vesting Of Warrants: The New Warrants shall vest and shall be
exercisable on the 180th day after the date
of issuance (the "Initial Exercise Date").
Term: The New Warrants shall be exercisable at any
time, or from time to time, for a term
commencing on the Initial Exercise Date and
until the tenth anniversary of the Effective
Date.
Strike Price: The New Warrants shall have a fair market
value strike price based upon an assumed
equity value of $550,000,000 for Reorganized
Sunbeam and its subsidiaries.
Antidilution Protection: Proportionate adjustments to the strike
price and the number of shares issuable upon
exercise shall be made for stock splits,
recapitalizations and similar events.
Transferability: The New Warrants will be transferable by the
holders thereof in whole and not in part. As
a result, recipients of New Warrants under
39
the Plan may not transfer, assign or
encumber less than all of their respective
holdings of New Warrants.
3. MANAGEMENT EQUITY PLANS
Pursuant to the Plan, on the Effective Date, and subject to
the separate affirmative vote of Class 3 (Secured Bank Claims), which Class will
receive, in the aggregate, 100% of the shares of Reorganized Sunbeam Common
Stock to be issued under the Plan, Reorganized Sunbeam and the Reorganized
Subsidiaries shall adopt the Management Equity Plans. See Section VIII.C for a
description of the Management Equity Plans. The Management Equity Plans are
subject to the approval of the shareholders of Reorganized Sunbeam, and the
ballots include, as a separate matter for approval by the Class 3 creditors (in
their capacity as the shareholders of Reorganized Sunbeam immediately following
the Effective Date in accordance with the Plan) the approval of the Management
Equity Plans.
C. METHOD OF DISTRIBUTION UNDER THE PLAN
1. DISTRIBUTIONS BY REORGANIZED SUNBEAM
All distributions under the Plan shall be made by
Reorganized Sunbeam as Disbursing Agent or such other entity designated by
Reorganized Sunbeam as Disbursing Agent. A Disbursing Agent shall not be
required to provide any bond, surety or other security for the performance of
its duties, unless otherwise ordered by the Bankruptcy Court; and, in the event
that a Disbursing Agent is so otherwise ordered, all costs and expenses of
procuring any such bond, surety or other security shall be borne by Reorganized
Sunbeam.
Subject to Bankruptcy Rule 9010, all distributions made by
the Disbursing Agent under the Plan shall be made to the holder of each Allowed
Claim at the address of such holder as listed on the Schedules as of the Record
Date (i.e., five Business Days from and after the Confirmation Date), unless the
Debtor or, on and after the Effective Date, Reorganized Sunbeam, has been
notified in writing of a change of address, including, without limitation, by
the filing of a proof of Claim by such holder that provides an address for such
holder different from the address reflected on the Schedules. All distributions
to holders of Allowed Secured Bank Claims shall be made to Wachovia Bank,
National Association, as agent on behalf of the holders of Secured Bank Claims.
At the close of business on the Record Date, the claims
register shall be closed, and there shall be no further changes in the record
holder of any Claim. The Debtor and Reorganized Sunbeam shall have no obligation
to recognize any transfer of any Claim occurring after the Record Date. The
Debtor and Reorganized Sunbeam shall instead be authorized and entitled to
recognize and deal for all purposes under the Plan with only those record
holders stated on the claims register as of the close of business on the Record
Date.
Any payment of Cash made by Reorganized Sunbeam pursuant to
the Plan shall, at Reorganized Sunbeam's option, be made by check drawn on a
domestic bank or wire transfer. No payment of Cash less than one-hundred dollars
shall be made by Reorganized Sunbeam to any holder of a Claim unless a request
therefor is made in writing to Reorganized Sunbeam. No fractional shares of
Reorganized Sunbeam Common Stock, or Cash in lieu thereof, shall be distributed
under the Plan. When any distribution pursuant to the Plan would otherwise
40
result in the issuance of a number of shares of Reorganized Sunbeam Common Stock
that is not a whole number, the actual distribution of shares of Reorganized
Sunbeam Common Stock shall be rounded as follows: (i) fractions of 1/2 or
greater shall be rounded to the next higher whole number; and (ii) fractions of
less than 1/2 shall be rounded to the next lower whole number. The total number
of shares of Reorganized Sunbeam Common Stock to be distributed pursuant to the
Plan shall be adjusted as necessary to account for rounding. No fractional
interests in New Warrants will be distributed. For purposes of distribution,
fractional interests in New Warrants will be rounded down to the next whole
number.
Any payment or distribution required to be made under the
Plan on a day other than a Business Day shall be made on the next succeeding
Business Day.
All distributions under the Plan that are unclaimed for a
period of one year after distribution thereof shall be deemed unclaimed property
under section 347(b) of the Bankruptcy Code and revested in Reorganized Sunbeam
and any entitlement of any holder of any Claim to such distributions shall be
extinguished and forever barred.
2. DISTRIBUTIONS ON ACCOUNT OF SUBORDINATED NOTE CLAIMS
Distributions to the holders of Subordinated Note Claims
shall be made by the Indenture Trustee. The Record Date will be the date for
determining the holders of Subordinated Note Claims entitled to receive the
distributions, if any, provided under the Plan. As of the close of business on
the Record Date, the Indenture Trustee will have no obligation to recognize any
transfer of Subordinated Notes occurring after the Record Date for purposes of
making distributions under the Plan. The Indenture Trustee will be entitled to
recognize and deal for all purposes herein with only those holders of record
stated on the transfer ledger maintained by the Indenture Trustee or its
designee for the Subordinated Note Claims as of the close of business on the
Record Date.
As a condition to receiving any distributions under the
Plan, each holder of a Subordinated Note must surrender such note to the
Indenture Trustee for subsequent surrender to Reorganized Sunbeam or its
designee. Any holder of a Subordinated Note who fails to (a) surrender such note
or (b) execute and deliver an affidavit of loss and/or indemnity reasonably
satisfactory to the Indenture Trustee and Reorganized Sunbeam and furnish a bond
in form, substance, and amount reasonably satisfactory to the Indenture Trustee
and Reorganized Sunbeam before the first anniversary of the Effective Date shall
be deemed to have forfeited all rights and Claims and may not participate in any
distribution under the Plan.
D. TIMING OF DISTRIBUTIONS UNDER THE AMENDED PLAN
Payments and distributions to holders of Allowed
Administrative Expense Claims, Allowed Priority Tax Claims, Allowed Other
Priority Claims, Allowed Other Secured Claims, Allowed General Unsecured Claims
(if any) and Allowed Subordinated Note Claims (if any) that are Allowed Claims
on the Effective Date shall be made on the Effective Date, or as soon thereafter
as is practicable.
Payments and distributions to holders of Allowed Secured
Bank Claims shall be made on the Effective Date.
41
E. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES
The Bankruptcy Code grants the Debtor the power, subject to
the approval of the Bankruptcy Court, to assume or reject executory contracts
and unexpired leases. If an executory contract or unexpired lease is rejected,
the counter party to the agreement may file a claim for damages incurred by
reason of the rejection. In the case of rejection of leases of real property,
such damage claims are subject to certain limitations imposed by the Bankruptcy
Code.
Pursuant to sections 365(a) and 1123(b)(2) of the
Bankruptcy Code, all executory contracts and unexpired leases that exist between
the Debtor and any person shall be deemed assumed by the Debtor, as of the
Effective Date, except for any executory contract or unexpired lease (i) that
has been rejected pursuant to an order of the Bankruptcy Court entered prior to
the Confirmation Date, (ii) as to which a motion for approval of the rejection
of such executory contract or unexpired lease has been filed and served prior to
the Confirmation Date or (iii) that is set forth in Schedule 6.1(a)(x)
(executory contracts) or Schedule 6.1(a)(y) (unexpired leases), which Schedules
shall be included in the Plan Supplement. The Debtor reserves the right, on or
prior to the Confirmation Date, to amend Schedules 6.1(a)(x) or 6.1(a)(y) to
delete any executory contract or unexpired lease therefrom or add any executory
contract or unexpired lease thereto, in which event such executory contract(s)
or unexpired lease(s) shall be deemed to be, respectively, assumed by the Debtor
or rejected. The Debtor shall provide notice of any amendments to Schedules
6.1(a)(x) or 6.1(a)(y) to the parties to the executory contracts and unexpired
leases affected thereby. The listing of a document on Schedules 6.1(a)(x) and
6.1(a)(y) shall not constitute an admission by the Debtor that such document is
an executory contract or an unexpired lease or that the Debtor has any liability
thereunder.
Pursuant to the Plan, each executory contract and unexpired
lease listed or to be listed on Schedules 6.1(a)(x) or 6.1(a)(y) that relates to
the use or occupancy of real property shall include (i) modifications,
amendments, supplements, restatements, or other agreements made directly or
indirectly by any agreement, instrument, or other document that in any manner
affects such executory contract or unexpired lease, without regard to whether
such agreement, instrument or other document is listed on Schedules 6.1(a)(x) or
6.1(a)(y) and (ii) executory contracts or unexpired leases appurtenant to the
premises listed on Schedules 6.1(a)(x) or 6.1(a)(y), including, without
limitation, all easements, licenses, permits, rights, privileges, immunities,
options, rights of first refusal, powers, uses, usufructs, reciprocal easement
agreements, vault, tunnel or bridge agreements or franchises, and any other
interests in real estate or rights in rem relating to such premises to the
extent any of the foregoing are executory contracts or unexpired leases, unless
any of the foregoing agreements previously has been assumed or assumed and
assigned by the Debtor.
Pursuant to the Plan, all of the Debtor's insurance
policies and any agreements, documents or instruments relating thereto are
treated as executory contracts under the Plan. The treatment of the Debtor's
insurance policies and any agreements, documents or instruments relating thereto
as executory contracts under the Plan shall not constitute or be deemed a waiver
of any Cause of Action that the Debtor may hold against any entity, including,
without limitation, the insurer under any of the Debtor's policies of insurance.
Pursuant to the Plan, entry of the Confirmation Order
shall, subject to and upon the occurrence of the Effective Date, constitute the
approval, pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, of
the assumption of the Assumed Indemnification Claims. The Assumed
Indemnification Claims shall, in all respects, irrespective of whether such
obligations arise under contracts or executory contracts, survive confirmation
of the Plan, remain unaffected thereby, and not be discharged irrespective of
42
whether indemnification, defense, reimbursement or limitation is owed in
connection with an event occurring before, on or after the Commencement Date.
Except as provided in Section 6.1(a) of the Plan, all
Benefit Plans, all directors and officers liability and other insurance and all
workers' compensation programs are treated as executory contracts under the Plan
and shall, on the Effective Date, be deemed assumed by the Debtor in accordance
with sections 365(a) and 1123(b)(2) of the Bankruptcy Code.
Pursuant to the Plan, subject to and upon the occurrence of
the Effective Date, entry of the Confirmation Order by the Bankruptcy Court
shall constitute (i) the approval, pursuant to sections 365(a) and 1123(b)(2) of
the Bankruptcy Code, of the assumption and assignment of the executory contracts
and unexpired leases assumed and assigned pursuant to the Plan, (ii) the
extension of time, pursuant to section 365(d)(4) of the Bankruptcy Code, within
which the Debtor may assume, assume and assign or reject the unexpired leases
pursuant to the Plan, through the date of entry of an order approving the
assumption, assumption and assignment or rejection of such unexpired leases and
(iii) the approval, pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy
Code, of the rejection of the executory contracts and unexpired leases rejected
pursuant to Section 6.1(a) of the Plan.
Except as may otherwise be agreed to by the parties, within
30 days after the Effective Date, Reorganized Sunbeam shall cure any and all
undisputed defaults under any executory contract or unexpired lease assumed by
the Debtor pursuant to the Plan, in accordance with section 365(b)(1) of the
Bankruptcy Code. All disputed defaults that are required to be cured shall be
cured either within 30 days of the entry of a Final Order determining the
amount, if any, of Reorganized Sunbeam's liability with respect thereto or as
may otherwise be agreed to by the parties.
Claims arising out of the rejection of an executory
contract or unexpired lease pursuant to the Plan must be filed with the
Bankruptcy Court and served upon the Debtor or, on and after the Effective Date,
Reorganized Sunbeam, no later than 30 days after the later of (i) notice of
entry of an order approving the rejection of such executory contract or
unexpired lease, (ii) notice of entry of the Confirmation Order and (iii) notice
of an amendment to Schedule 6.1(a)(x) or 6.1(a)(y). All such Claims not filed
within such time will be forever barred from assertion against the Debtor, its
estate, Reorganized Sunbeam and its property. Unless otherwise ordered by the
Bankruptcy Court, all claims arising from the rejection of executory contracts
or unexpired leases shall be treated as General Unsecured Claims under the Plan.
F. PROVISIONS FOR TREATMENT OF DISPUTED CLAIMS
Except as to applications for allowance of compensation and
reimbursement of expenses under sections 330 and 503 of the Bankruptcy Code,
Reorganized Sunbeam shall, on and after the Effective Date, have the exclusive
right to make and file objections to Disputed Administrative Expense Claims and
Claims. On and after the Effective Date, Reorganized Sunbeam shall have the
authority to compromise, settle, otherwise resolve or withdraw any objections to
Administrative Expense Claims and Claims and compromise, settle or otherwise
resolve Disputed Administrative Expense Claims and Disputed Claims without
approval of the Bankruptcy Court. Unless otherwise ordered by the Bankruptcy
Court, the Debtor and, on and after the Effective Date, Reorganized Sunbeam
shall file all objections to Administrative Expense Claims that are the subject
of proofs of claim or requests for payment filed with the Bankruptcy Court
(other than applications for allowances of compensation and reimbursement of
expenses) and Claims and serve such objections upon the holder of the
43
Administrative Expense Claim or Claim as to which the objection is made as soon
as is practicable, but in no event later than 90 days after the Effective Date
or such later date as may be approved by the Bankruptcy Court.
G. CONDITIONS PRECEDENT TO CONFIRMATION OF THE AMENDED PLAN
The Plan shall not be confirmed by the Bankruptcy Court
unless and until the following conditions shall have been satisfied or waived
pursuant to Section 9.4 of the Plan:
o the Class of holders of Secured Bank Claims (Class 3)
shall have voted to accept the Plan by the requisite
majorities provided in section 1126(c) of the
Bankruptcy Code;
o the class of secured Bank claims in the Subsidiaries
Plan shall have voted to accept the Subsidiaries Plan
by the requisite majorities provided in section
1126(c) of the Bankruptcy Code;
o all exhibits to the Plan and the Subsidiaries Plan,
including those contained in the Plan Supplement and
the Subsidiaries Plan Supplement, shall be in form
and substance reasonably acceptable to the Debtor and
the Banks;
o no monetary default or event of default under the
Post-Petition Bank Credit Agreement shall have
occurred and be continuing;
o no default or event of default under the postpetition
receivables program provided by GECC or the documents
related thereto shall have occurred and be
continuing, the postpetition receivables program
provided by GECC shall be in full force and effect,
and no material reduction in the availability under
the postpetition receivables program provided by GECC
shall have occurred;
o no material adverse change on the business, assets,
operations, property, condition (financial or
otherwise) of Sunbeam Corporation or any of its
subsidiaries (other than inactive subsidiaries) shall
have occurred and be continuing;
o no material unanticipated claims shall have been
filed or asserted in the Debtor's Chapter 11 Case or
the chapter 11 cases of the Subsidiary Debtors;
o one or more financial institutions acceptable to the
Debtor and the Banks shall have agreed to provide the
Working Capital Facility and Receivables
Securitization Program to Reorganized Sunbeam and the
Reorganized Subsidiaries after the effectiveness of
the Plan and the Subsidiaries Plan, on terms
acceptable to the Debtor, the Subsidiary Debtors and
the Banks; and
o the Confirmation Order shall provide for (i) the
release of all claims held by Sunbeam Corporation
against the Banks and their respective Affiliates
44
(including Morgan Stanley) and known loan
participants and (ii) the dismissal of the Adversary
Proceeding with prejudice.
H. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THE AMENDED PLAN
The Plan shall not become effective unless and until the
following conditions shall have been satisfied or waived pursuant to Section 9.4
of the Plan:
o the Confirmation Order, in form and substance
reasonably acceptable to the Debtor and the Banks
shall have become a Final Order;
o the order confirming the Subsidiaries Plan, in form
and substance reasonably acceptable to the Debtor and
the Banks shall have become a Final Order;
o the Effective Date shall have occurred on or before
December 31, 2002;
o all actions, documents and agreements necessary to
implement the Plan in form and substance reasonably
acceptable by the Debtor and the Banks shall have
been effected or executed;
o the Receivables Securitization Program and the
Working Capital Facility shall be in full force and
effect;
o the Debtor shall have received all authorizations,
consents, regulatory approvals, rulings, letters,
no-action letters, opinions or documents that are
determined by the Debtor to be necessary to implement
the Plan;
o the Chief Executive Officer of the Debtor shall have
made an investment of not less than $3,000,000 in the
equity of Reorganized Sunbeam as set forth herein;
and
o the Banks shall be reasonably satisfied with the
senior management of Reorganized Sunbeam.
The Debtor may waive, with the consent of the Banks, by a
writing signed by an authorized representative of the Debtor and subsequently
filed with the Bankruptcy Court, one or more of the conditions precedent to
effectiveness of the Plan set forth above (other than the conditions set forth
in Sections 9.1(a), 9.1(b), 9.2(a) (except as to timing and finality) and 9.2(b)
(except as to timing and finality) of the Plan).
In the event that one or more of the conditions to the
Effective Date described above and set forth in Section 9.2 of the Plan have not
occurred on or before 60 days after the Confirmation Date (unless extended for
up to 60 additional days by the Debtor and the Banks), (a) the Confirmation
Order shall be vacated, (b) no distributions under the Plan shall be made, (c)
the Debtor and all holders of Claims and Equity Interests shall be restored to
the status quo ante as of the day immediately preceding the Confirmation Date as
though the Confirmation Date never occurred and (d) the Debtor's obligations
with respect to Claims and Equity Interests shall remain unchanged and nothing
contained herein shall constitute or be deemed a waiver or release of any Claims
or Equity Interests by or against the Debtor or any other person or to prejudice
45
in any manner the rights of the Debtor or any person in any further proceedings
involving the Debtor.
I. IMPLEMENTATION AND EFFECT OF CONFIRMATION
OF THE AMENDED PLAN
On the Effective Date, except as otherwise provided in the
Plan, the property of the estate of the Debtor shall vest in Reorganized
Sunbeam. From and after the Effective Date, Reorganized Sunbeam may operate its
businesses, and may use, acquire and dispose of property free of any
restrictions imposed under the Bankruptcy Code. As of the Effective Date, all
property of Reorganized Sunbeam shall be free and clear of all liens, claims and
interests of holders of Claims and Equity Interests, except as otherwise
provided in the Plan. All injunctions and stays provided for in the Chapter 11
Case under sections 105 and 362 of the Bankruptcy Code, or otherwise, and in
existence on the Confirmation Date, shall remain in full force and effect until
the Effective Date.
1. INCURRENCE OF NEW INDEBTEDNESS
On the Effective Date, Reorganized Sunbeam will be
authorized to incur indebtedness under the Working Capital Facility, having
principal terms and conditions no less favorable to Reorganized Sunbeam than
those set forth in the Plan Supplement and summarized below. The receipt by
Sunbeam Corporation of satisfactory written commitments to provide the facility
is a condition precedent to confirmation of the Plan.
Terms of Working Capital Facility
Borrower: Reorganized Sunbeam
Guarantors: All of the Reorganized Subsidiaries
Commitments: Up to approximately $180,000,000 revolving
credit commitments (the "Commitments"), up
to $100,000,000 of which may be used for the
issuance of letters of credit.
Administrative Agent: Wachovia Bank, National Association
Lenders: One or more of the existing lenders under
the DIP Credit Facility and/or other lenders
satisfactory to the Debtor and the Banks.
Maturity: Three (3) years after the Effective Date.
Interest rate: At the election of Reorganized Sunbeam, base
rate, plus 2.50% or LIBOR, plus 3.50%,
payable monthly in arrears, subject to
market conditions. Upon the occurrence of an
event of default under the Working Capital
Facility, all loans thereunder shall accrue
interest at 2% over the applicable rate
described in the foregoing sentence.
Commitment Fee: 0.50% of undrawn portion of the Commitments.
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Facility Fee: 2.0% of the Commitments, payable on the
Effective Date.
Use of Proceeds: The proceeds of the loans under the Working
Capital Facility shall be used to finance
the working capital needs of the Sunbeam
Group in the ordinary course of business.
Mandatory Commitment Reductions/
Prepayments: The loans shall be repaid and the letters of
credit cash collateralized, with a
corresponding reduction of the Commitments,
with (a) 100% of the net cash proceeds of
sales or other dispositions (including as a
result of casualty or condemnation) of
assets of Reorganized Sunbeam or any of the
Reorganized Subsidiaries, in each case,
subject to exceptions to be agreed upon and
(b) 100% of the proceeds from equity issued
or debt incurred by Reorganized Sunbeam or
the Reorganized Subsidiaries, in each case,
subject to exceptions to be agreed upon.
Collateral: First priority security interest in all
assets of Reorganized Sunbeam and the
Reorganized Subsidiaries (other than the
receivables subject to a lien securing the
securitization facility existing as of the
Effective Date and any replacement
facilities), and not more than 66% of the
equity interests of Coleman International
Holdings, LLC and any first tier foreign
subsidiary. The Lenders shall have received
a satisfactory audit of all the collateral
by an independent third party satisfactory
to the Banks.
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Documentation Matters: The documentation for the Working Capital
Facility (the "Loan Documentation") shall
contain representations and warranties,
covenants and events of default customary
for financings of this type and other terms
deemed appropriate by the Lenders, including
without limitation:
REPRESENTATIONS AND WARRANTIES. Financial
statements (including pro forma financial
statements); absence of undisclosed
liabilities; no material adverse change;
corporate existence; compliance with law;
corporate power and authority;
enforceability of Loan Documentation; no
conflict with law or contractual
obligations; no material litigation; no
default; ownership of property; liens;
intellectual property; no burdensome
restrictions; taxes; Federal Reserve
regulations; ERISA; Investment Company Act;
subsidiaries; environmental matters;
solvency; labor matters; accuracy of
disclosure; and creation and perfection of
security interests.
AFFIRMATIVE COVENANTS. Delivery of financial
statements, financial reporting consistent
with credit facilities of this type,
reports, accountants' letters, projections,
officers' certificates and other information
requested by the Lenders; payment of other
obligations; continuation of business and
maintenance of existence and material rights
and privileges; compliance with laws and
material contractual obligations;
maintenance of property and insurance;
maintenance of books and records; right of
the Lenders to inspect property and books
and records; notices of defaults, litigation
and other material events; compliance with
environmental laws and further assurances
(including, without limitation, with respect
to security interests in after-acquired
property).
FINANCIAL COVENANTS. Financial covenants
including, without limitation, minimum
interest and fixed charge coverage, current
ratio and tangible net worth and maximum
leverage.
NEGATIVE COVENANTS. Limitations (subject to
appropriate baskets where applicable) on:
indebtedness (including guarantee
obligations); liens, mergers,
consolidations, liquidations and
dissolutions; sales of assets; leases,
dividends and other payments in respect of
capital stock; capital expenditures;
investments, loans and advances; payments
and modifications of subordinated and other
debt instruments; transactions with
affiliates; sale and leasebacks; changes in
fiscal year; negative pledge clauses and
clauses restricting subsidiary
distributions; changes in lines of business.
May include one or more covenants or other
limitations consistent with the DIP Credit
Facility.
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EVENTS OF DEFAULT. Nonpayment of principal
when due; nonpayment of interest, fees or
other amounts after a grace period to be
agreed upon; material inaccuracy of
representations and warranties; violation of
covenants (subject, in the case of certain
affirmative covenants, to a grace period to
be agreed upon); cross-default; bankruptcy
events; certain ERISA events; material
judgments; actual or asserted invalidity of
any guarantee or security document or
security interest; and a change of control
(the definition of which is to be agreed).
Other terms: Other terms and conditions customary for
financings of this type to be agreed upon.
J. DISCHARGE AND INJUNCTION
The rights afforded pursuant to the Plan and the treatment
of all Claims and Equity Interests under the Plan shall be in exchange for and
in complete satisfaction, discharge and release of Claims and Equity Interests
of any nature whatsoever, including any interest accrued on such Claims from and
after the Commencement Date, against the Debtor and the Debtor in Possession, or
any of their assets or properties. Except as otherwise provided in the Plan, (i)
on the Effective Date, all such Claims against and Equity Interests in the
Debtor shall be satisfied, discharged and released in full and (ii) all persons
shall be precluded from asserting against Reorganized Sunbeam, its successors,
or its assets or properties any other or further Claims or Equity Interests
based upon any act or omission, transaction or other activity of any kind or
nature that occurred prior to the Confirmation Date.
Except as otherwise expressly provided in the Plan, the
Confirmation Order or a separate order of the Bankruptcy Court, all entities who
have held, hold or may hold Claims against or Equity Interests in the Debtor,
are permanently enjoined, on and after the Effective Date, from (i) commencing
or continuing in any manner any action or other proceeding of any kind with
respect to any such Claim or Equity Interest, (ii) the enforcement, attachment,
collection or recovery by any manner or means of any judgment, award, decree or
order against the Debtor on account of any such Claim or Equity Interest, (iii)
creating, perfecting or enforcing any encumbrance of any kind against the Debtor
or against the property or interests in property of the Debtor on account of any
such Claim or Equity Interest, (iv) asserting any right of setoff, subrogation
or recoupment of any kind against any obligation due from the Debtor or against
the property or interests in property of the Debtor on account of any such Claim
or Equity Interest and (v) commencing or continuing in any manner any action or
other proceeding of any kind with respect to any claims and Causes of Action
which are extinguished, dismissed or released pursuant to the Plan. Such
injunction shall extend to successors of the Debtor, including, without
limitation, Reorganized Sunbeam and its respective properties and interests in
property. Section 8.5 of the Plan does not enjoin, bar or otherwise impair the
commencement or prosecution of direct personal claims against any Person other
than the Debtor.
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K. VOTING
1. VOTING OF CLAIMS
Each holder of an Allowed Claim in an impaired Class of
Claims that is entitled to vote on the Plan pursuant to Article IV of the Plan
shall be entitled to vote separately to accept or reject the Plan as provided in
such order as is entered by the Bankruptcy Court establishing procedures with
respect to the solicitation and tabulation of votes to accept or reject the
Plan, or any other order or orders of the Bankruptcy Court.
2. ELIMINATION OF VACANT CLASSES
Any Class of Claims that is not occupied as of the date of
commencement of the Confirmation Hearing by an Allowed Claim or a Claim
temporarily allowed under Bankruptcy Rule 3018 shall be deemed eliminated from
the Plan for purposes of voting to accept or reject the Plan and for purposes of
determining acceptance or rejection of the Plan by such Class pursuant to
section 1129(a)(8) of the Bankruptcy Code.
3. NONCONSENSUAL CONFIRMATION
If any impaired Class of Claims entitled to vote shall not
accept the Plan by the requisite majorities provided in section 1126(c) of the
Bankruptcy Code, the Debtor reserves the right to amend the Plan in accordance
with Section 11.10 of the Plan or undertake to have the Bankruptcy Court confirm
the Plan under section 1129(b) of the Bankruptcy Code or both. With respect to
impaired Classes of Claims that are deemed to reject the Plan, the Debtor shall
request the Bankruptcy Court to confirm the Plan under section 1129(b) of the
Bankruptcy Code.
L. SUMMARY OF OTHER PROVISIONS OF THE PLAN
The following subsections summarize certain other
significant provisions of the Plan. The Plan should be referred to for the
complete text of these and other provisions of the Plan.
1. RETIREE BENEFITS
The Plan provides that, pursuant to section 1114(a) of the
Bankruptcy Code, payments, if any, due to any person for the purpose of
providing or reimbursing payments for retired employees and their spouses and
dependents for medical, surgical, or hospital care benefits, or benefits in the
event of sickness, accident, disability, or death under any plan, fund, or
program (through the purchase of insurance or otherwise) maintained or
established in whole or in part by the Debtor prior to the Commencement Date
shall be continued for the duration of the period the Debtor has obligated
themselves to provide such benefits, subject to the Debtor's right to amend or
modify such benefit plans, funds or programs in accordance with the terms
thereof and applicable law.
2. CONTINUATION OF PENSION PLANS
The Debtor or one or more of its wholly-owned subsidiaries
sponsors and administers the Pension Plans. Pursuant to the Plan and the
Subsidiaries Plan, the Debtor and/or one or more of its wholly owned
subsidiaries will continue the Pension Plans subject to the terms of such plans
and applicable law, including ERISA.
50
3. BY-LAWS AND CERTIFICATES OF INCORPORATION
The Reorganized Sunbeam By-laws and the Reorganized Sunbeam
Certificate of Incorporation shall contain provisions necessary (a) to prohibit
the issuance of nonvoting equity securities as required by section 1123(a)(6) of
the Bankruptcy Code, subject to further amendment of such certificates of
incorporation and by-laws as permitted by applicable law and (b) to effectuate
the provisions of the Plan, in each case without any further action by the
stockholders or directors of the Debtor, the Debtor in Possession or Reorganized
Sunbeam.
The proposed forms of Reorganized Sunbeam Certificate of
Incorporation and Reorganized Sunbeam By-laws will be included in the Plan
Supplement.
4. AMENDMENT OR MODIFICATION OF THE PLAN
Alterations, amendments or modifications of or to the Plan
may be proposed in writing by the Debtor with the consent of the Banks, provided
that such consent shall not be unreasonably withheld, satisfies the conditions
of sections 1122 and 1123 of the Bankruptcy Code, and the Debtor shall have
complied with section 1125 of the Bankruptcy Code. Subject to obtaining the
approval of the Banks, the Plan may be altered, amended or modified by the
Debtor at any time after the Confirmation Date and before substantial
consummation, provided that the Plan, as altered, amended or modified, satisfies
the requirements of sections 1122 and 1123 of the Bankruptcy Code and the
Bankruptcy Court, after notice and a hearing, confirms the Plan, as altered,
amended or modified, under section 1129 of the Bankruptcy Code and the
circumstances warrant such alterations, amendments or modifications. A holder of
a Claim that has accepted the Plan shall be deemed to have accepted the Plan, as
altered, amended or modified, if the proposed alteration, amendment or
modification does not materially and adversely change the treatment of the Claim
of such holder.
5. ASSUMED INDEMNIFICATION OBLIGATIONS
Pursuant to the Plan, entry of the Confirmation Order
shall, subject to and upon the occurrence of the Effective Date, constitute the
approval, pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, of
the assumption of the Assumed Indemnification Claims. The Assumed
Indemnification Claims means all Claims, if any, as to which the claimant
asserts rights based only upon the Assumed Corporate Indemnities. The Assumed
Corporate Indemnities mean any obligation of the Debtor to defend, indemnify,
reimburse or limit the liability of its present and any former officers,
directors and/or employees who were officers, directors and/or employees,
respectively, on or after the Commencement Date, solely in their capacity as
officers, directors and/or employees, against any claims or obligations pursuant
to the Debtor's certificate of incorporation or by-laws, applicable state law or
specific agreement, or any combination of the foregoing. The Assumed
Indemnification Claims shall, in all respects, irrespective of whether such
claims arise under contracts or executory contracts, survive confirmation of the
Plan, remain unaffected thereby, and not be discharged irrespective of whether
indemnification, defense, reimbursement or limitation is owed in connection with
an event occurring before, on or after the Commencement Date.
6. LIMITED RELEASES
Pursuant to the Plan, as of the Effective Date, the Debtor
and the Debtor in Possession release all of the Releasees from any and all
Causes of Action held, assertable on behalf of or derivative from the Debtor or
the Debtor in Possession, in any way relating to the Debtor, the Debtor in
51
Possession, the Chapter 11 Case, the Plan and the ownership, management and
operation of the Debtor. Releasees means all present and former officers and
directors of the Debtor who were directors and/or officers, respectively, on or
after the Commencement Date, and any other Persons who serve or served as
members of management of the Debtor on or after the Commencement Date, all
present and former members of the Committee, all present and former Banks and
Post-Petition Banks (and their respective Affiliates and known loan
participants), Morgan Stanley, all present and former officers and directors and
other Persons who serve or served as members of the management of any present or
former member of the Committee or of any present or former Bank or Post-Petition
Bank (and their respective Affiliates and known loan participants), Morgan
Stanley, and all post-Commencement Date advisors, consultants or professionals
of or to the Debtor, the Committee, the members of the Committee, the Banks, the
Post-Petition Banks (and their respective Affiliates and known loan
participants) and Morgan Stanley. The foregoing shall not operate as a waiver of
or release from any Causes of Action arising out of any express contractual
obligation owing by any former director, officer or employee to the Debtor or
any reimbursement obligation of any former director, officer or employee with
respect to a loan or advance made by the Debtor to such former director, officer
or employee and is not a waiver of or release for any attorneys retained in
connection with this Chapter 11 Case from claims by their respective clients.
Nothing in Section 11.4 of the Plan shall effect a release in favor of any
person other than the Debtor with respect to any debt owed to the United States
Government, any state, city or municipality for any liability of such person
arising under (i) the Internal Revenue Code, or any state, city or municipal tax
code, (ii) the environmental laws of the United States, any state, city or
municipality or (iii) any criminal laws of the United States, any state, city or
municipality.
Except as otherwise provided under the Plan, as of the
Effective Date, each of the Releasees, in any capacity, generally releases the
Debtor and the Debtor in Possession, in each case in any capacity, from any and
all Causes of Action held by, assertable on behalf of or derivative from such
Releasee in any way relating to the Debtor, the Debtor in Possession, the
Chapter 11 Case, the Plan and the ownership, management and operation of the
Debtor.
7. CANCELLATION OF EXISTING SECURITIES AND AGREEMENTS
Pursuant to the Plan, on the Effective Date, the promissory
notes, share certificates, bonds and all other instruments or documents
evidencing any Claim or Equity Interest, other than an Other Secured Claim that
is reinstated and rendered unimpaired pursuant to Section 4.2 of the Plan,
respectively, shall be deemed cancelled without further act or action under any
applicable agreement, law, regulation, order or rule, and the obligations of the
Debtor under the agreements, indentures and certificates of designations
governing such Claims and Equity Interests, as the case may be, shall be
discharged.
Except as expressly provided for in the Plan, holders of
promissory notes, share certificates, bonds and any and all other instruments or
documents evidencing any Claim or Equity Interest shall not be required to
surrender such instruments pursuant to the Plan.
8. REVOCATION OR WITHDRAWAL OF THE PLAN
Subject to obtaining the approval of the Banks, the Debtor
reserves the right to revoke or withdraw the Plan prior to the Confirmation
Date. If the Debtor revokes or withdraws the Plan prior to the Confirmation
Date, then the Plan shall be deemed null and void. In such event, nothing
contained in the Plan shall constitute or be deemed a waiver or release of any
52
claims by or against the Debtor or any other person or entity or to prejudice in
any manner the rights of the Debtor or any person or entity in any further
proceedings involving the Debtor.
9. TERMINATION OF COMMITTEE
Pursuant to the Plan, the appointment of the Committee
shall terminate on the Effective Date.
10. CLAIMS EXTINGUISHED
As of the Effective Date any and all avoidance claims
accruing to the Debtor and Debtor in Possession under sections 502(d), 544, 545,
547, 548, 549, 550 and 551 of the Bankruptcy Code and not then pending, shall be
extinguished.
During the ninety day (90) period prior to the Commencement
Date, the Debtor paid $40,309,488 to or for the benefit of creditors pursuant to
arrangements with those creditors for goods provided and services performed or
to be performed. Conceivably, a portion of those payments may technically
constitute voidable preferences, if determined that the payments were not made
in the ordinary course of business. The recipients of those payments may assert
other defenses as well. The Debtor believes that the recoveries, if any, in the
context of the Chapter 11 Case after the deduction of the costs of recovery and
taking into account, among other things, the fact that such avoidance recoveries
constitute the collateral security of the Post-Petition Banks under the DIP
Credit Facility, and the subordination provisions applicable to the holders of
Subordinated Notes and other claimants, would be inconsequential. The Debtor is
unaware of any avoidance actions which, if successfully prosecuted, would result
in a greater distribution to any creditors other than the Banks.
11. EFFECTUATING DOCUMENTS AND FURTHER TRANSACTIONS
Pursuant to the Plan, each of the Debtor and Reorganized
Sunbeam is authorized to execute, deliver, file or record such contracts,
instruments, releases, indentures and other agreements or documents and take
such actions as may be necessary or appropriate to effectuate and further
evidence the terms and conditions of the Plan and any securities issued pursuant
to the Plan.
12. CORPORATE ACTION
Pursuant to the Plan, on the Effective Date, all matters
provided for under the Plan that would otherwise require approval of the
stockholders or directors of the Debtor or Reorganized Sunbeam, including,
without limitation, (a) the authorization to issue or cause to be issued
Reorganized Sunbeam Common Stock, New Secured Term Notes, New Warrants,
Management Investment Securities and Employee Options, (b) the authorization and
effectiveness of the Reorganized Sunbeam Certificate of Incorporation,
Reorganized Sunbeam By-laws, Registration Rights Agreement, Securityholders
Agreement, New Secured Term Notes Documents, Working Capital Facility Documents,
Receivables Securitization Program and Management Equity Plans, and (c) the
election or appointment, as the case may be, of directors and officers of
Reorganized Sunbeam pursuant to the Plan, shall be deemed to have occurred and
shall be in effect from and after the Effective Date pursuant to the applicable
general corporation law of Delaware, the state in which the Debtor and
Reorganized Sunbeam are incorporated, without any requirement of further action
by the stockholders or directors of the Debtor or Reorganized Sunbeam. On the
Effective Date, or as soon thereafter as is practicable, Reorganized Sunbeam
53
shall, if required, file its amended certificate of incorporation with the
Secretary of State of Delaware, in accordance with the applicable general
corporation law of Delaware.
13. EXCULPATION
Pursuant to the Plan, none of the Debtor, Reorganized
Sunbeam, the Committee, the Banks and their respective Affiliates, known loan
participants and Morgan Stanley, the Post-Petition Banks, and their respective
Affiliates, known loan participants and Morgan Stanley or GECC or any of their
respective members, officers, directors, employees, advisors, professionals or
agents shall have or incur any liability to any holder of a Claim or Equity
Interest for any act or omission in connection with, related to, or arising out
of, the Chapter 11 Case, negotiations regarding or concerning the Plan, the
pursuit of confirmation of the Plan, the consummation of the Plan or the
administration of the Plan or the property to be distributed under the Plan,
except for willful misconduct or gross negligence, and, in all respects, the
Debtor, Reorganized Sunbeam, the Committee, the Banks and their respective
Affiliates, known loan participants and Morgan Stanley, the Post-Petition Banks
and their respective Affiliates, known loan participants and Morgan Stanley and
GECC and each of their respective members, officers, directors, employees,
advisors, professionals and agents shall be entitled to rely upon the advice of
counsel with respect to their duties and responsibilities under the Plan;
provided that nothing in Section 11.6 of the Plan shall effect a release in
favor of any person other than the Debtor with respect to any debt owed to the
United States Government, any state, city or municipality for any liability of
such person arising under (i) the Internal Revenue Code, or any state, city or
municipal tax code, (ii) the environmental laws of the United States, any state,
city or municipality or (iii) any criminal laws of the United States, any state,
city or municipality; and provided further that the Debtor's reorganization
process and Plan in no way discharge, release, or relieve the Debtor,
Reorganized Sunbeam, any other members of Sunbeam's or Reorganized Sunbeam's
controlled groups (as defined in 29 U.S.C. ss. 1301(a)(14)), or the Releasees,
in any capacity, from any liability under Part 4, Subtitle B, Title I or under
Title IV of ERISA with respect to any Benefit Plans or Pension Plans. PBGC and
the Pension Plans shall not be enjoined or precluded from enforcing such
liability, if any, as a result of the Plan's provisions or confirmation.
14. PLAN SUPPLEMENT
The Reorganized Sunbeam Certificate of Incorporation, the
Reorganized Sunbeam By-laws, the New Secured Term Notes Documents, the form of
New Warrants, the New Warrants Agreement, Schedules 6.1(a)(x) and 6.1(a)(y)
referred to in Section 6.1 of the Plan, the Registration Rights Agreement, the
Securityholders Agreement and the Management Equity Plans, shall be contained in
the Plan Supplement and filed with the Clerk of the Bankruptcy Court at least 10
days prior to the last day upon which holders of Claims may vote to accept or
reject the Plan. Upon its filing with the Bankruptcy Court, the Plan Supplement
may be inspected in the office of the Clerk of the Bankruptcy Court during
normal court hours. Holders of Claims or Equity Interests may obtain a copy of
the Plan Supplement upon written request to the Debtor in accordance with
Section 11.14 of the Plan.
15. RETENTION OF DERIVATIVE SECURITIES LITIGATION CLAIMS
The Derivative Securities Litigation Claims are property of
the estate of the Debtor pursuant to section 541 of the Bankruptcy Code. On or
after the Effective Date, all Derivative Securities Litigation Claims, whether
or not pending as of the Commencement Date, shall be retained by, vest in and/or
and become the property of Reorganized Sunbeam. The Confirmation Order shall
54
provide that all named plaintiffs, including certified and uncertified classes
of plaintiffs, in the actions currently pending relating to the Derivative
Securities Litigation Claims and their respective servants, agents, attorneys
and representatives shall, on and after the Effective Date, be permanently
enjoined, stayed and restrained from pursuing or prosecuting any of the
Derivative Securities Litigation Claims.
16. RETENTION OF JURISDICTION
Pursuant to the Plan, the Bankruptcy Court shall have
exclusive jurisdiction of all matters arising out of, and related to, the
Chapter 11 Case and the Plan pursuant to, and for the purposes of, sections
105(a) and 1142 of the Bankruptcy Code and for, among other things, the
following purposes:
(a) To hear and determine pending applications for the
assumption or rejection of executory contracts or unexpired leases, if any are
pending, and the allowance of cure amounts and Claims resulting therefrom;
(b) To hear and determine any and all adversary
proceedings, applications and contested matters;
(c) To hear and determine any objection to Administrative
Expense Claims or Claims;
(d) To enter and implement such orders as may be
appropriate in the event the Confirmation Order is for any reason stayed,
revoked, modified or vacated;
(e) To issue such orders in aid of execution and
consummation of the Plan, to the extent authorized by section 1142 of the
Bankruptcy Code;
(f) To consider any amendments to or modifications of the
Plan, to cure any defect or omission, or reconcile any inconsistency in any
order of the Bankruptcy Court, including, without limitation, the Confirmation
Order;
(g) To hear and determine all applications for compensation
and reimbursement of expenses of professionals under sections 330, 331 and
503(b) of the Bankruptcy Code;
(h) To hear and determine disputes arising in connection
with the interpretation, implementation or enforcement of the Plan;
(i) To recover all assets of the Debtor and property of the
Debtor's estate, wherever located;
(j) To hear and determine matters concerning state, local
and federal taxes in accordance with sections 346, 505 and 1146 of the
Bankruptcy Code;
(k) To hear any other matter not inconsistent with the
Bankruptcy Code; and
(l) To enter a final decree closing the Chapter 11 Case.
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17. EXEMPTION FROM TRANSFER TAXES
Pursuant to section 1146(c) of the Bankruptcy Code, the
issuance, transfer or exchange of notes or issuance of debt or equity securities
under the Plan, the creation of any mortgage, deed of trust or other security
interest, the making or assignment of any lease or sublease, or the making or
delivery of any deed or other instrument of transfer under, in furtherance of,
or in connection with the Plan, including, without limitation, any merger
agreements or agreements of consolidation, deeds, bills of sale or assignments
executed in connection with any of the transactions contemplated under the Plan,
shall not be subject to any stamp, real estate transfer, mortgage recording,
sales or other similar tax. All sale transactions consummated by the Debtor and
approved by the Bankruptcy Court on and after the Commencement Date through and
including the Effective Date, including, without limitation, the sales, if any,
by the Debtor of owned property or assets pursuant to section 363(b) of the
Bankruptcy Code and the assumptions, assignments and sales, if any, by the
Debtor of unexpired leases of non-residential real property pursuant to section
365(a) of the Bankruptcy Code, shall be deemed to have been made under, in
furtherance of, or in connection with the Plan and, therefore, shall not be
subject to any stamp, real estate transfer, mortgage recording, sales or other
similar tax.
18. POST-EFFECTIVE DATE FEES AND EXPENSES
From and after the Effective Date, Reorganized Sunbeam
shall, in the ordinary course of business and without the necessity for any
approval by the Bankruptcy Court, pay the reasonable fees and expenses of
professional persons thereafter incurred by Reorganized Sunbeam, including,
without limitation, those fees and expenses incurred in connection with the
implementation and consummation of the Plan.
19. PAYMENT OF STATUTORY FEES
All fees payable pursuant to section 1930 of title 28 of
the United States Code, as determined by the Bankruptcy Court at the
Confirmation Hearing, shall be paid on the Effective Date.
20. SEVERABILITY
In the event that the Bankruptcy Court determines that any
provision in the Plan is invalid, void or unenforceable, such provision shall be
invalid, void or unenforceable with respect to the holder or holders of such
Claims or Equity Interests as to which the provision is determined to be
invalid, void or unenforceable. The invalidity, voidness or unenforceability of
any such provision shall in no way limit or affect the enforceability and
operative effect of any other provision of the Plan.
21. BINDING EFFECT
The Plan shall be binding upon and inure to the benefit of
the Debtor, the holders of Claims and Equity Interests and their respective
successors and assigns, including, without limitation, Reorganized Sunbeam.
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22. GOVERNING LAW
Except to the extent the Bankruptcy Code, Bankruptcy Rules
or other federal law is applicable, or to the extent an exhibit to the Plan
provides otherwise, or contract, instrument or other agreement or document
entered into in connection with the Plan provides otherwise, the rights and
obligations arising under this Plan shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York.
23. WITHHOLDING AND REPORTING REQUIREMENTS
In connection with the consummation of the Plan, the Debtor
or Reorganized Sunbeam, as the case may be, shall comply with all withholding
and reporting requirements imposed by any federal, state, local or foreign
taxing authority and all distributions hereunder shall be subject to any such
withholding and reporting requirements.
24. SECTIONS 1125 AND 1126 OF THE BANKRUPTCY CODE
As of and subject to the occurrence of the Confirmation
Date, (i) the Debtor shall be deemed to have solicited acceptances of the Plan
in good faith and in compliance with the applicable provisions of the Bankruptcy
Code, including, without limitation section 1125(a) of the Bankruptcy Code, and
any applicable nonbankruptcy law, rule or regulation governing the adequacy of
disclosure in connection with such solicitation and (ii) the Debtor, the Banks
and each of their respective affiliates, agents, directors, officers, employees,
advisors and attorneys) shall be deemed to have participated in good faith and
in compliance with the applicable provisions of the Bankruptcy Code in the offer
and issuance of any securities under the Plan, and therefore are not, and on
account of such offer, issuance and solicitation will not be, liable at any time
for any violation of any applicable law, rule or regulation governing the
solicitation of acceptances or rejections of the Plan or the offer and issuance
of any securities under the Plan.
25. ALLOCATION OF PLAN DISTRIBUTIONS
All distributions in respect of Allowed Claims other than
Claims in Class 4 or Class 5 will be allocated first to the portion of such
Claims representing interest (as determined for federal income tax purposes),
second to the original principal amount of such Claims (as determined for
federal income tax purposes), and any excess to the remaining portion of such
Claims. All distributions in respect of Allowed Class 4 and Class 5 Claims will
be allocated first to the original principal amount of such Claims (as
determined for federal income tax purposes), second to the portion of such
Claims representing interest (as determined for federal income tax purposes),
and any excess to the remaining portion of such Claims.
26. HART-SCOTT-RODINO COMPLIANCE
Any shares of Reorganized Sunbeam Common Stock to be
distributed under the Plan to any entity required to file a Premerger
Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, shall not be distributed until the notification and
waiting periods applicable under such Act to such entity shall have expired or
been terminated.
57
27. MINIMUM DISTRIBUTIONS
No payment of Cash less than one hundred dollars shall be
made by Reorganized Sunbeam to any holder of a Claim unless a request therefor
is made in writing to Reorganized Sunbeam.
28. CHANGE OF NAME
On the Effective Date, Sunbeam Corporation will be renamed
in a manner that eliminates the word "Sunbeam" from its corporate name.
29. NOTICES
All notices, requests and demands to or upon the Debtor or,
on and after the Effective Date, Reorganized Sunbeam, to be effective shall be
in writing and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when actually delivered or, in the case of notice
by facsimile transmission, when received and telephonically confirmed, addressed
as follows:
If to the Debtor or Reorganized Sunbeam:
Sunbeam Corporation
2381 Executive Center Road
Boca Raton, Florida 33431
Attn: General Counsel
Telephone: (561) 912-4438
Facsimile: (561) 912-4612
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Lori R. Fife, Esq.
George A. Davis, Esq.
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
If to the Banks:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn: Peter V. Pantaleo, Esq.
Telephone: (212) 455-2000
Facsimile: (212) 455 2502
If to the Committee:
Kasowitz Benson Torres & Friedman LLP
1633 Broadway
New York, New York 10019
Attn: David Friedman, Esq.
Telephone: (212) 506-1700
Facsimile: (212) 506-1800
58
VII. CONFIRMATION AND CONSUMMATION PROCEDURE
Under the Bankruptcy Code, the following steps must be
taken to confirm the Plan:
A. SOLICITATION OF VOTES
In accordance with sections 1126 and 1129 of the Bankruptcy
Code, the Claims in Classes 3, 4 and 5 - Secured Bank Claims, General Unsecured
Claims, and Subordinated Note Claims - are impaired, and the holders of Allowed
Claims in such Classes are entitled to vote to accept or reject the Plan.
Classes 6, 7, 8 and 9 - Subordinated Noteholder Securities Claims, Sunbeam
Affiliate Claims, Equity Interests and Equity Holder Securities Claims,
respectively -- are impaired and shall not receive any distributions under the
Plan. Accordingly, the holders of Claims or Equity Interests in such Classes are
conclusively presumed to have rejected the Plan, and the solicitation of
acceptances with respect to such Classes is not required under section 1126(f)
of the Bankruptcy Code. Claims in Classes 1 and 2 are unimpaired. Accordingly,
the holders of Allowed Claims in each of such Classes are conclusively presumed
to have accepted the Plan, and the solicitation of acceptances with respect to
such Classes is not required under section 1126(f) of the Bankruptcy Code.
As to the classes of claims entitled to vote on a plan, the
Bankruptcy Code defines acceptance of a plan by a class of creditors 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 that have timely voted to accept
or reject a plan.
A vote may be disregarded if the Bankruptcy Court
determines, after notice and a hearing, that acceptance or rejection was not
solicited or procured in good faith or in accordance with the provisions of the
Bankruptcy Code.
IN ADDITION TO VOTING TO ACCEPT OR REJECT THE PLAN, HOLDERS
OF ALLOWED SECURED BANK CLAIMS (CLASS 3) SHALL SEPARATELY INDICATE ON THEIR
BALLOT THEIR APPROVAL OR REJECTION OF THE MANAGEMENT EQUITY PLANS.
THE MANAGEMENT EQUITY PLANS WILL ONLY BE EFFECTIVE ON THE
EFFECTIVE DATE UPON APPROVAL BY THE SEPARATE AFFIRMATIVE VOTE OF CLASS 3
(ALLOWED SECURED BANK CLAIMS), WHICH CLASS WILL RECEIVE, IN THE AGGREGATE, 100%
OF THE SHARES OF REORGANIZED SUNBEAM COMMON STOCK TO BE ISSUED UNDER THE PLAN.
ANY EXECUTED BALLOTS WHICH ARE TIMELY RECEIVED BUT WHICH DO NOT INDICATE EITHER
APPROVAL OR REJECTION OF THE MANAGEMENT EQUITY PLANS WILL BE DEEMED TO
CONSTITUTE AN APPROVAL OF THE MANAGEMENT EQUITY PLANS. SEE SECTION VIII.C. FOR A
DESCRIPTION OF THE MANAGEMENT EQUITY PLANS.
B. THE CONFIRMATION HEARING
The Bankruptcy Code requires the Bankruptcy Court, after
notice, to hold a confirmation hearing. The Confirmation Hearing in respect of
the Plan has been scheduled for November 4, 2002 commencing at 10:00 a.m.
Eastern Time, before the Honorable Arthur J. Gonzalez, United States Bankruptcy
59
Judge, at the United States Bankruptcy Court for the Southern District of New
York, One Bowling Green, New York, New York 10004, or such other location as the
Bankruptcy Court directs. The Confirmation Hearing may be adjourned from time to
time by the Bankruptcy Court without further notice except for the announcement
of the adjournment date made at the Confirmation Hearing or at any subsequent
adjourned Confirmation Hearing. Any objection to confirmation must be made in
writing and specify in detail the name and address of the objector, all grounds
for the objection and the amount of the Claim or the number of shares of common
stock of the Debtor held by the objector. Any such objection shall be filed with
the Bankruptcy Court, together with proof of service thereof, in accordance with
General Order of the United States Bankruptcy Court for the Southern District of
New York M-242, which order may be found at www.nysb.uscourts.gov, and served
upon the following parties on or before October 25, 2002 at 4:00 p.m. Eastern
Time:
Sunbeam Corporation
2381 Executive Center Road
Boca Raton, Florida 33431
Attn: General Counsel
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Lori R. Fife, Esq.
George A. Davis, Esq.
Simpson Thacher & Bartlett
Attorneys for the Banks
425 Lexington Avenue
New York, New York 10017
Attn: Peter V. Pantaleo, Esq.
The Office of the United States Trustee
33 Whitehall Street, 21st Floor
New York, New York 10004
Attn: Paul K. Schwartzberg, Esq.
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.
C. CONFIRMATION
At the Confirmation Hearing, the Bankruptcy Court will
confirm the Plan only if all of the requirements of section 1129 of the
Bankruptcy Code are met. Among the requirements for confirmation of a plan are
that the plan is (i) accepted by all impaired classes of claims and equity
interests or, if rejected by an impaired class, that the plan "does not
discriminate unfairly" and is "fair and equitable" as to such class, (ii)
feasible and (iii) in the "best interests" of creditors and stockholders that
are impaired under the plan.
60
1. ACCEPTANCE
Class 3 (Secured Bank Claims), Class 4 (General Unsecured
Claims) and Class 5 (Subordinated Note Claims) are impaired under the Plan and
holders of Allowed Claims in such Classes are entitled to vote to accept or
reject the Plan. Classes 6, 7, 8 and 9 of the Plan - Subordinated Noteholder
Securities Claims, Sunbeam Affiliate Claims, Equity Interests and Equity Holder
Securities Claims - are impaired under the Plan and shall not receive any
distributions under the Plan, and, therefore, are conclusively presumed to have
voted to reject the Plan. Classes 1 and 2 of the Plan are unimpaired and,
therefore, are conclusively presumed to have voted to accept the Plan.
With respect to those Classes of Claims and Equity
Interests that are deemed to have rejected the Plan, i.e., Class 6 (Subordinated
Noteholder Securities Claims), Class 7 (Sunbeam Affiliate Claims), Class 8
(Equity Interests) and Class 9 (Equity Holder Securities Claims), the Debtor
shall request confirmation of the Plan pursuant to section 1129(b) of the
Bankruptcy Code. The Debtor reserves the right to amend the Plan in accordance
with Section 11.10 of the Plan or seek nonconsensual confirmation of the Plan
under section 1129(b) of the Bankruptcy Code or both with respect to any Class
of Claims that is entitled to vote to accept or reject the Plan, if such Class
rejects the Plan.
2. UNFAIR DISCRIMINATION AND FAIR AND EQUITABLE TESTS
To obtain nonconsensual confirmation of the Plan, it must
be demonstrated to the Bankruptcy Court that the Plan "does not discriminate
unfairly" and is "fair and equitable" with respect to each impaired,
nonaccepting class. The Bankruptcy Code provides a non-exclusive definition of
the phrase "fair and equitable." The Bankruptcy Code establishes "cram down"
tests for secured creditors, unsecured creditors and equity holders, as follows:
o Secured Creditors. Either (i) each impaired secured
creditor retains its liens securing its secured claim
and receives on account of its secured claim deferred
cash payments having a present value equal to the
amount of its allowed secured claim, (ii) each
impaired secured creditor realizes the "indubitable
equivalent" of its allowed secured claim or (iii) the
property securing the claim is sold free and clear of
liens with such liens to attach to the proceeds of
the sale and the treatment of such liens on proceeds
to be as provided in clause (i) or (ii) above.
o Unsecured Creditors. Either (i) each impaired
unsecured creditor receives or retains under the plan
property of a value equal to the amount of its
allowed claim or (ii) the holders of claims and
interests that are junior to the claims of the
dissenting class will not receive any property under
the plan.
o Equity Interests. Either (i) each holder of an equity
interest will receive or retain under the plan
property of a value equal to the greatest of the
fixed liquidation preference to which such holder is
entitled, the fixed redemption price to which such
holder is entitled or the value of the interest or
(ii) the holder of an interest that is junior to the
nonaccepting class will not receive or retain any
property under the plan.
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 to, or otherwise fair when
compared to, the value of the distributions to other classes whose legal rights
are the same as those of the nonaccepting class.
61
The Debtor believes and will demonstrate at the
Confirmation Hearing that the Plan "does not discriminate unfairly" and is "fair
and equitable" with respect to each impaired, nonaccepting Class.
3. FEASIBILITY
The Bankruptcy Code permits a plan to be confirmed if it is
not likely to be followed by liquidation or the need for further financial
reorganization. For purposes of determining whether the Plan meets this
requirement, the Debtor has analyzed its ability to meet its obligations under
the Plan. As part of this analysis, the Sunbeam Group has prepared projections
of its financial performance for each of the four fiscal years in the period
ending December 31, 2005 (the "Projection Period"). These projections, and the
assumptions on which they are based, are included in the Projected Financial
Information, annexed hereto as Exhibit E. Based upon such projections, the
Debtor believes that it will be able to make all payments and distributions
required pursuant to the Plan and, therefore, that confirmation of the Plan is
not likely to be followed by liquidation or the need for further reorganization.
The financial information and projections appended to the
Disclosure Statement include for the four fiscal years in the Projection Period:
o Projected Consolidated Balance Sheet of Reorganized
Sunbeam as of December 31, 2002, December 31, 2003,
December 31, 2004 and December 31, 2005;
o Projected Consolidated Statements of Operation of
Reorganized Sunbeam as of December 31, 2002, December
31, 2003, December 31, 2004 and December 31, 2005;
and
o Projected Consolidated Statements of Cash Flow of
Reorganized Sunbeam as of December 31, 2002, December
31, 2003, December 31, 2004 and December 31, 2005.
The pro forma financial information and the projections are
based on the assumption that the Plan will be confirmed by the Bankruptcy Court
and, for projection purposes, that the Effective Date of the Plan will occur in
2002.
The Sunbeam Group has prepared these financial projections
based upon certain assumptions that it believes to be reasonable under the
circumstances. Those assumptions considered to be significant are described in
the financial projections, which are annexed hereto as Exhibit E. The financial
projections have not been examined or compiled by independent accountants. The
Debtor makes no representation as to the accuracy of the projections or the
Sunbeam Group's ability to achieve the projected results. Many of the
assumptions on which the projections are based are subject to significant
uncertainties. Inevitably, some assumptions will not materialize and
unanticipated events and circumstances may affect the actual financial results.
Therefore, the actual results achieved throughout the Projection Period may vary
from the projected results and the variations may be material. All holders of
Claims that are entitled to vote to accept or reject the Plan are urged to
examine carefully all of the assumptions on which the financial projections are
based in connection with their evaluation of the Plan.
62
4. BEST INTERESTS TEST
With respect to each impaired Class of Claims and Equity
Interests, confirmation of the Plan requires that each holder of a Claim or
Equity Interest either (i) accept the Plan or (ii) receive or retain under the
Plan property of a value, as of the Effective Date, that is not less than the
value such holder would receive if the Debtor were liquidated under chapter 7 of
the Bankruptcy Code. To determine the recovery that holders of Claims and Equity
Interests in each impaired Class would receive if the Debtor was liquidated
under chapter 7, the Bankruptcy Court must 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 Cash amount that would be
available for satisfaction of Claims and Equity Interests would consist of the
proceeds resulting from the disposition of the unencumbered assets and
properties of the Debtor, augmented by the unencumbered Cash held by the Debtor
at the time of the commencement of the liquidation case. Such Cash amount would
be reduced by the costs and expenses of liquidation and by such additional
administrative and priority claims that might result from the termination of the
Debtor's business and the use of chapter 7 for the purposes of liquidation.
The Debtor's costs of liquidation under chapter 7 would
include the fees payable to a trustee in bankruptcy, as well as those fees that
might be payable to attorneys and other professionals that such a trustee might
engage. In addition, claims would arise by reason of the breach or rejection of
obligations incurred and leases and executory contracts assumed or entered into
by the Debtor during the pendency of the Chapter 11 Case. The foregoing types of
claims and other claims that might arise in a liquidation case or result from
the pending Chapter 11 Case, including any unpaid expenses incurred by the
Debtor during the Chapter 11 Case, such as compensation for attorneys, financial
advisors and accountants, would be paid in full from the liquidation proceeds
before the balance of those proceeds would be made available to pay prepetition
Claims.
To determine if the Plan is in the best interests of each
impaired Class, the value of the distributions from the proceeds of a
liquidation of the Debtor's unencumbered assets and properties, after
subtracting the amounts attributable to the foregoing claims, must be compared
with the value of the property offered to such Classes of Claims under the Plan.
After considering the effects that a chapter 7 liquidation
would have on the ultimate proceeds available for distribution to creditors in
the 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 and (iii) the
substantial increases in claims that would be satisfied on a priority basis or
on parity with creditors in the Chapter 11 Case, the Debtor has determined that
confirmation of the Plan will provide each holder of an Allowed Claim with a
recovery that is not less than such holder would receive pursuant to the
liquidation of the Debtor under chapter 7.
The Debtor also believes that the value of any
distributions to each Class of Allowed Claims in a chapter 7 case, including all
Secured Claims, would be less than the value of distributions under the Plan
because such distributions in a chapter 7 case would not occur for a substantial
period of time. It is likely that distribution of the proceeds of the
liquidation could be delayed for two years after the completion of such
liquidation in order to resolve claims and prepare for distributions. In the
likely event litigation was necessary to resolve claims asserted in the chapter
7 case, the delay could be prolonged.
63
The Debtor's Liquidation Analysis is annexed hereto as
Exhibit F. The information set forth in Exhibit F provides a summary of the
liquidation values of the Debtor's assets, assuming a chapter 7 liquidation in
which a trustee appointed by the Bankruptcy Court would liquidate the assets of
the Debtor's estate. Reference should be made to the Liquidation Analysis for a
complete discussion and presentation of the Liquidation Analysis. The
Liquidation Analysis was prepared by the Debtor with the assistance of Zolfo
Cooper LLC.
Underlying the Liquidation Analysis are a number of
estimates and assumptions that, although developed and considered reasonable by
the Debtor's management, are inherently subject to significant economic and
competitive uncertainties and contingencies beyond the control of the Debtor and
its management. The Liquidation Analysis also is based on assumptions with
regard to liquidation decisions that are subject to change. Accordingly, the
values reflected might not be realized if the Debtor was, in fact, to undergo
such a liquidation.
D. CONSUMMATION
The Plan will be consummated on the Effective Date. The
Effective Date of the Plan will occur on the first Business Day on which the
conditions precedent to the effectiveness of the Plan, as set forth in Section
9.2 of the Plan, have been satisfied or waived pursuant to Section 9.4 of the
Plan. For a more detailed discussion of the conditions precedent to the
Effective Date of the Plan and the consequences of the failure to meet such
conditions, see Section VI.H. NOTABLY, A MATERIAL CONDITION PRECEDENT TO THE
EFFECTIVE DATE OF THE PLAN IS THE CONFIRMATION AND EFFECTIVENESS OF THE
SUBSIDIARIES PLAN.
The Plan is to be implemented pursuant to its terms,
consistent with the provisions of the Bankruptcy Code.
VIII. MANAGEMENT OF REORGANIZED SUNBEAM
A. BOARD OF DIRECTORS AND MANAGEMENT
1. BOARD OF DIRECTORS
Subject to the terms of the Securityholders Agreement, the
initial Board of Directors of Reorganized Sunbeam shall consist of five
individuals, four of whom are to be selected by the Banks (one member selected
by each of the Banks and one member selected by all of the Banks) and one of
whom shall be the Chief Executive Officer and Chairman of the Board of Directors
of Reorganized Sunbeam. Each of the directors shall have reasonable
manufacturing industry or financial expertise. The names of the members of the
initial Board of Directors of Reorganized Sunbeam shall be disclosed at or prior
to the Confirmation Hearing. Each of the members of such initial Board of
Directors shall serve in accordance with the Reorganized Sunbeam Certificate of
Incorporation, Reorganized Sunbeam By-laws and the Securityholders Agreement, as
the same may be amended from time to time.
2. OFFICERS
The officers of the Debtor immediately prior to the
Effective Date shall serve as the initial officers of Reorganized Sunbeam on and
after the Effective Date. Such officers shall serve in accordance with any
employment agreement (that was not rejected pursuant to section 365 of the
Bankruptcy Code) with Reorganized Sunbeam and applicable law.
64
3. IDENTITY OF THE DEBTOR'S EXECUTIVE MANAGEMENT
Set forth below is the name, age and position of the
executive management of the Debtor during the Chapter 11 Case:
NAME AGE TITLE
---- --- -----
Jerry W. Levin 58 Chairman of the Board of Directors since
March 1999, Chief Executive Officer and
Director since June 1998 and President since
August 1998
Bobby G. Jenkins 40 Executive Vice President and Chief Financial
Officer since June 1998
Ronald H. Dunbar 65 Senior Vice President - Human Resources
since August 1998
Steven R. Isko 38 Senior Vice President and General Counsel
since June 1999 and Corporate Secretary
since June 2002
B. COMPENSATION OF THE DEBTOR'S EXECUTIVE MANAGEMENT
The following table sets forth all cash compensation paid
by the Debtor to executive management of the Debtor, for services rendered in
their respective capacities for the year ended December 31, 2001:
COMPENSATION
----------------------------------------------
NAME CAPACITY IN WHICH SERVED SALARY BONUS* OTHER
---- ------------------------ ------ ------ -----
Jerry W. Levin Chairman of the Board and Chief Executive
Officer and President $1,375,000 $1,295,300 $180,997
Bobby G. Jenkins Executive Vice President and Chief
Financial Officer $500,000 $138,800 $45,582
Ronald H. Dunbar Senior Vice President, Human Resources $470,000 $108,700 $41,253
Steven R. Isko Senior Vice President, General Counsel and
Corporate Secretary $356,250 $241,100 $68,557
C. OTHER COMPENSATION MATTERS
1. MANAGEMENT EQUITY PLANS.
The Debtor and the Banks have negotiated the principal
terms and conditions of compensation and benefits for executive management of
Reorganized Sunbeam and certain of the Reorganized Subsidiaries. These terms and
conditions are subject to finalization. A summary of certain of the principal
terms is listed below.
- -----------------------------
* Bonus earned in 2001 includes a retention bonus of $500,000 for Mr. Levin and
a retention bonus of $150,000 for Mr. Isko.
65
Terms of Management Equity Plans
Equity Reserved For Management: Up to 11% of the equity of Reorganized
Sunbeam on a fully-diluted basis as of the
Effective Date:(FN8) 6.75% for employees of
Reorganized Sunbeam, and 4.25% for certain
employees of the primary operating
Reorganized Subsidiaries (the "Designated
Reorganized Subsidiaries") (including a
portion of which will be allocated to new
hires) to be allocated as described below as
"Regular Management Options" and "Premium
Price Options."
Option Term: 10 years from Effective Date.
Assumed Equity Value: As of the Effective Date, equity value is
assumed to be $400 million (the "Assumed
Equity Value").
Regular Management
Options ("RMO's"): Options equal to 8% of the equity of
Reorganized Sunbeam will be granted to
employees (3.75% to employees of Reorganized
Sunbeam in the form of options to purchase
equity of Reorganized Sunbeam (the
allocation of which shall reflect the
additional grant of PPO's to the Chief
Executive Officer and his direct corporate
reports) and 4.25% to employees of the
Designated Reorganized Subsidiaries in the
form of options to purchase equity of their
respective employers), subject to vesting
provisions, with a strike price equating to
the Assumed Equity Value (or equivalent
thereof for each Reorganized Subsidiary).
Such options shall be granted on the
Effective Date.
Premium Price Options ("PPO's"): o Options equal to 3% of the equity of
Reorganized Sunbeam will be granted to the
Chief Executive Officer and his direct
corporate reports in two equal tranches,
based upon thresholds of $75 million
increases above the Assumed Equity Value.
Such options shall be granted on the
Effective Date to the extent allocations
have been determined prior to the Effective
Date in accordance with "Allocation to
Management" below and otherwise as
determined by the Board of Directors in
accordance with "Allocation to Management"
below.
Options Reserved For New Hires
and Promotions: A portion of the aggregate 11% of the equity
reserved for management shall be reserved
for issuance to new hires or promotions. The
issuance of such options shall be at the
discretion of the Board of Directors.
Disposition of Options Granted
to Management in the Event of
Termination Without Cause,
Voluntary Separation, Death or
Disability: The Management Equity Plans will provide for
modified vesting of certain unvested options
and limited exercise periods in the event of
an employee's termination without cause,
voluntary separation, death or disability.
- ------------------------------
8 For the purposes herein, "fully-diluted" will be calculated taking into
account (i) the aggregate number of outstanding shares, (ii) the aggregate
number of shares available for issuance under the Management Equity Plan, and
(iii) the exercise of the New Warrants, in each case, as in effect on the
Effective Date. The Management Equity Plans will contain such adjustment
provisions (e.g., for stock splits), if any, as may be agreed to among the Banks
and Debtor in the definitive documents.
66
Disposition of Options Granted to
Management in the Event of
Termination With Cause: Upon an employee's termination with cause,
all options (whether or not then-vested)
shall be immediately canceled.
Change of Control: Upon a change of control (to be defined) of
one of the companies, all options
then-granted and outstanding to employees of
the affected company shall fully vest.
Dividend Distribution with
Respect to Management Options: The Management Equity Plans will provide for
certain adjustments to the exercise price or
number of shares subject of outstanding
options in the event of certain
extraordinary dividends.
Allocation to Management: Prior to the Effective Date, the allocation
of options shall be determined with respect
to the Chief Executive Officer and, to the
extent practicable, to all other individual
participants and within 60 days after the
Effective Date shall be ratified by the
Board of Directors. Within 60 days after the
Effective Date, the Board of Directors will
determine, based on recommendations of the
Chief Executive Officer, the allocation of
the options among the individual
participants not previously allocated prior
to the Effective Date. Allocations for new
hires or promotions shall be determined from
time to time by the Board of Directors.
LTIP: Employees shall be entitled to participate
in the LTIP, on terms consistent with
existing presentation materials provided on
July 17, 2002. The Chief Executive Officer
and named executive officers will
participate in the LTIP beginning on the
later of January 1, 2003 and the Effective
Date.
Senior Executive Employment
Agreements: The provisions of the existing employment
agreement for Chief Executive Officer of
Reorganized Sunbeam to be applicable after
the Effective Date (including the provisions
with respect to vesting of options upon
termination, but excluding (x) any
re-signing bonus amounts and (y) the
postpetition amendment to the contract
providing for reduction in cash severance as
a result of options exercise) conditioned
upon investment by Chief Executive Officer
of Reorganized Sunbeam as described below.
In the event of any conflict between the
management equity plan as described herein
and such existing employment agreement, the
terms of such existing employment agreement
shall govern.
Investment: On the Effective Date there shall be an
investment of up to $5 million in the equity
of Reorganized Sunbeam (the "Purchased
Equity") as follows: (i) the Chief Executive
Officer of Reorganized Sunbeam shall,
subject to the conditions described below,
invest $3 million at an assumed equity value
of $325 million, and (ii) employees may
invest up to $2 million in the aggregate at
67
a 0-10% discount to be determined by the
Banks (together with the Chief Executive
Officer of Reorganized Sunbeam, each, a
"Management Investor"). The investment by
the Chief Executive Officer in the Purchased
Equity shall be conditioned upon: (a) the
Chief Executive Officer's reasonable
satisfaction of the options granted to the
Chief Executive Officer which shall consist
of options to purchase 3.22% of the equity
of Reorganized Sunbeam (1.42% of which shall
consist of RMO's and 1.8% of which shall
consist of PPO's, (b) the Chief Executive
Officer's and the Banks' reasonable
satisfaction with the composition of
management, (c) the Chief Executive
Officer's reasonable satisfaction with
allocations and option grants to management,
(d) the capital and governance structure of
the Sunbeam Group remaining as described
herein and (e) no Material Adverse Change
shall have occurred and be continuing. If
the Chief Executive Officer of Reorganized
Sunbeam is terminated for any reason other
than cause or voluntary separation at any
time prior to the date that is the six-month
anniversary of the Effective Date, the Chief
Executive Officer shall have a put right
with respect to all Purchased Equity in
which the Chief Executive Officer invested.
The put must be exercised no later than 30
days following the date of termination. The
put price shall be the price at which the
CEO initially purchased such Purchased
Equity and shall be paid in cash within 5
business days following exercise of the put
in accordance with the immediately preceding
sentence.
Restricted Stock: On the Effective Date the Chief Executive
Officer will be granted an award of
restricted equity equal in value to $2
million, based on an Assumed Equity Value of
$400 million. Such award shall vest as
follows:
o 1/3 vesting on the first anniversary of
grant;
o 1/3 vesting on the second anniversary of
grant;
o 1/3 vesting on the third anniversary of
grant;
subject to his continued employment through
the relevant vest date; provided, however,
that, (x) upon the Chief Executive Officer's
termination of employment for death or
disability, 60% of the then unvested shares
of restricted stock shall vest, (y) upon the
Chief Executive Officer's termination of
employment without cause or for constructive
termination without cause, all unvested
shares of restricted stock shall vest, and
(z) upon the Chief Executive Officer's
termination for any other reason, all then
unvested shares of restricted stock shall be
immediately forfeited.
2. SECURITIES LAW COMPLIANCE.
Reorganized Sunbeam is relying on the exemption from the
registration requirements of the federal securities laws set forth in section
1145 of the Bankruptcy Code for the offering and issuance of Reorganized Sunbeam
Management Shares pursuant to the Management Equity Plans. As a result, the
68
offering and issuance of Reorganized Sunbeam Management Shares pursuant to the
Management Equity Plan will be made by Reorganized Sunbeam in compliance with
federal securities laws.
D. CONTINUATION OF EXISTING BENEFIT PLANS AND D&O INSURANCE
Except as provided in Section 6.1(a) of the Plan, all
Benefit Plans, all directors and officers liability and other insurance and all
workers' compensation programs are treated as executory contracts under the Plan
and shall, on the Effective Date, be deemed assumed by the Debtor, in accordance
with sections 365(a) and 1123(b)(2) of the Bankruptcy Code.
E. POST-EFFECTIVE DATE SECURITY OWNERSHIP OF CERTAIN OWNERS
The following table sets forth those holders of Secured
Bank Claims which, based upon the ownership of Secured Bank Claims as of the
Commencement Date, will own beneficially more than 5.0% of the Reorganized
Sunbeam Common Stock and the Reorganized Sunbeam Common Stock as of the
Effective Date:
Name and Address of Estimated % of
Beneficial Holder Beneficial Ownership
----------------- --------------------
Morgan Stanley Senior Funding, Inc. 40%
1221 Avenue of the Americas
New York, New York 10020
Bank of America, N.A. 30% (FN9)
335 Madison Avenue
New York, New York 10017
Wachovia Bank, National Association 30%
One First Union Center
301 South College Street DC-5
Charlotte, North Carolina 28288-0737
IX. SECURITIES LAWS MATTERS
A. BANKRUPTCY CODE EXEMPTIONS FROM
REGISTRATION REQUIREMENTS
In reliance upon an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and equivalent state securities laws afforded by section 1145 of the Bankruptcy
Code, Reorganized Sunbeam Common Stock and New Warrants to be issued on the
Effective Date as provided in the Plan will be exempt from the registration
requirements of the Securities Act and equivalent state securities laws. Except
with respect to "underwriters," section 1145(a) of the Bankruptcy Code generally
exempts from such registration the issuance of securities if the following
conditions are satisfied: (i) the securities are issued by a debtor (or its
successor) under a plan of reorganization; (ii) the recipients of the securities
hold a claim against, an interest in, or a claim for an administrative expense
against the debtor; and (iii) the securities are issued entirely in exchange for
- --------------------------------
9. The beneficial ownership of Bank of America, N.A. includes a 9.0%
participation interest by Oaktree Capital Management, LLC.
69
the recipient's claim against or interest in the debtor, or are issued
principally in such exchange and partly for cash or property. The Debtor
believes that the exchange of Reorganized Sunbeam Common Stock and New Warrants
for Claims against the Debtor under the circumstances provided in the Plan will
satisfy the requirements of section 1145(a) of the Bankruptcy Code.
The shares of Reorganized Sunbeam Common Stock and New
Warrants to be issued pursuant to the Plan on the Effective Date would be deemed
to have been issued in a public offering under the Securities Act and,
therefore, may be resold by any holder thereof (subject to the restrictions on
the transferability thereof described herein or in the Plan Supplement) without
registration under the Securities Act, unless the holder is an "underwriter"
with respect to such securities, as that term is defined in section 1145(b)(1)
of the Bankruptcy Code (a "statutory underwriter"). In addition, such securities
generally may be resold by the recipients thereof without registration under
state securities or "blue sky" laws pursuant to various exemptions provided by
the respective laws of the individual 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 federal securities
laws and any relevant state securities laws in any given instance and as to any
applicable requirements or conditions to the availability thereof.
Section 1145(b)(1) of the Bankruptcy Code defines
"underwriter" for purposes of the Securities Act as one who, except with respect
to "ordinary trading transactions" of an entity that is not an "issuer," (A)
purchases a claim against, interest in, or claim for an administrative expense,
with a view to distribution of any security to be received in exchange for the
claim or interest, or (B) offers to sell securities issued under a plan for the
holders of such securities, or (C) offers to buy securities issued under a plan
from the holders of such securities, if the offer to buy is made with a view to
distribution of such securities and under an agreement made in connection with
the plan, the consummation of the plan, or the offer or sale of securities under
the plan, or (D) is an issuer of the securities within the meaning of section
2(11) of the Securities Act.
The term "issuer" is defined in section 2(4) of the
Securities Act; however, the reference contained in section 1145(b)(1)(D) of the
Bankruptcy Code to section 2(11) of the Securities Act purports to include as
statutory underwriters all persons who, directly or indirectly, through one or
more intermediaries, control, are controlled by, or are under common control
with, an issuer of securities. "Control" (as defined in Rule 405 under the
Securities Act) means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract, or otherwise.
Accordingly, an officer or director of a reorganized debtor or its successor
under a plan of reorganization may be deemed to be a "control person" of such
debtor or successor, particularly if the management position or directorship is
coupled with ownership of a significant percentage of the reorganized debtor's
or its successor's voting securities. Moreover, the legislative history of
section 1145 of the Bankruptcy Code suggests that a creditor who owns ten
percent (10%) or more of the securities of a reorganized debtor may be presumed
to be a "control person."
To the extent that persons deemed to be "underwriters"
receive Reorganized Sunbeam Common Stock or New Warrants pursuant to the Plan,
resales by such persons would not be exempted by section 1145 of the Bankruptcy
Code from registration under the Securities Act or other applicable law.
Entities deemed to be statutory underwriters for purposes of section 1145 of the
Bankruptcy Code may, however, be able, at a future time and under certain
conditions described below, to sell securities without registration pursuant to
the resale provisions of Rule 144 and Rule 144A under the Securities Act.
70
Under certain circumstances, holders of Reorganized Sunbeam
Common Stock or New Warrants deemed to be "underwriters" may be entitled to
resell their securities pursuant to the limited safe harbor resale provisions of
Rule 144. Generally, Rule 144 provides that if certain conditions are met (e.g.,
the availability of current public information with respect to the issuer,
volume limitations and notice and manner of sale requirements), specified
persons who resell "restricted securities" or who resell securities which are
not restricted but who are "affiliates" of the issuer of the securities sought
to be resold, will not be deemed to be "underwriters" as defined in section
2(11) of the Securities Act. Because it is anticipated that Reorganized Sunbeam
will not, in the near term, be subject to the periodic reporting and
informational requirements of sections 13 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")(FN10), and because Reorganized
Sunbeam does not presently intend to provide the information required by
paragraph (c)(2) of Rule 144, it is not contemplated that an exemption under
Rule 144 would be available, except as set forth in the following sentence.
Nevertheless, under paragraph (k) of Rule 144, the aforementioned condition will
not limit the resale of restricted securities that are sold for the account of a
holder who is not an affiliate of the company at the time of such resale and was
not an affiliate of the company during the three (3) month period preceding such
sale, so long as a period of at least two years has elapsed since the later of
the date the securities were acquired from the issuer or an affiliate of the
issuer.
Rule 144A provides a non-exclusive safe harbor exemption
from the registration requirements of the Securities Act for resales to certain
"qualified institutional buyers" of securities which are "restricted securities"
within the meaning of the Securities Act, irrespective of whether the seller of
such securities purchased its securities with a view towards reselling such
securities, if certain other conditions are met (e.g., the availability of
information required by paragraph (d)(4) of Rule 144A and certain notice
provisions). Under Rule 144A, a "qualified institutional buyer" is defined to
include, among other persons, "dealers" registered as such pursuant to section
15 of the Exchange Act, and "banks" and "savings and loan associations" within
the meaning of the Securities Act which purchase securities for their own
account or for the account of another qualified institutional buyer and which
(in the aggregate) own and invest on a discretionary basis at least $100,000,000
in the securities of unaffiliated issuers and have an audited net worth of at
least $25,000,000. Subject to certain qualifications, Rule 144A does not exempt
the offer or sale of securities which, at the time of their issuance, were
securities of the same class of securities then listed on a national securities
exchange (registered as such pursuant to section 6 of the Exchange Act) or
quoted in a U.S. automated inter-dealer quotation system. Reorganized Sunbeam
Common Stock will not, at the time of issuance under the Plan, be securities
then so listed or quoted. However, as noted above, it is anticipated that
Reorganized Sunbeam will not be subject to the periodic reporting requirements
of sections 13 or 15(d) of the Exchange Act, and Reorganized Sunbeam does not
currently contemplate providing holders of such securities with the information
required by paragraph (d)(4) of Rule 144A. Thus, unless and until such time as
Reorganized Sunbeam should elect to provide the information required by
paragraph (c)(2) of Rule 144 or the information required by paragraph (d)(4) of
Rule 144A, the only resale exemption available to holders of securities who are
deemed to be statutory underwriters under the Bankruptcy Code would be under
paragraph (k) of Rule 144, as discussed above.
- ---------------------------
10. Based upon the number of existing holders of Allowed Bank Claims, the number
of existing holders of Allowed Subordinated Note Claims and the number of
employee options anticipated by Reorganized Sunbeam to be issued pursuant to the
Reorganized Sunbeam Option Plan, Reorganized Sunbeam believes that as of the
Effective Date, Reorganized Sunbeam will have fewer than 300 stockholders of
record, fewer than 300 warrant holders of record and fewer than 300 option
holders of record. As a result, Reorganized Sunbeam will not be required to be a
reporting company under the Exchange Act.
71
Pursuant to the Plan, certificates evidencing shares of
Reorganized Sunbeam Common Stock, including shares received by holders of ten
percent (10%) or more of the outstanding Reorganized Sunbeam Common Stock or New
Warrants or by holders that do not certify that they are not underwriters within
the meaning of section 1145 of the Bankruptcy Code, will bear a legend
substantially in the form below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW AND ARE SUBJECT TO A
SECURITYHOLDERS' AGREEMENT AMONG SUNBEAM CORPORATION,
MORGAN STANLEY SENIOR FUNDING, INC. BANK OF AMERICA, N.A.,
WACHOVIA BANK, NATIONAL ASSOCIATION AND THE OTHER
SECURITYHOLDERS PARTIES THERETO, A COPY OF WHICH IS ON FILE
WITH THE SECRETARY OF THE COMPANY. NO DIRECT OR INDIRECT
TRANSFER, SALE, OFFER, ASSIGNMENT, EXCHANGE, DISPOSITION,
MORTGAGE, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE
EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
SECURITYHOLDERS AGREEMENT AND (A) PURSUANT TO A
REGISTRATION STATEMENT EFFECTIVE UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (B) IF THE COMPANY HAS BEEN
FURNISHED WITH AN OPINION REASONABLY SATISFACTORY IN FORM
AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER, SALE,
OFFER, ASSIGNMENT, EXCHANGE, DISTRIBUTION, MORTGAGE,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER. THE
HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF
SUCH SECURITYHOLDERS' AGREEMENT, INCLUDING RESTRICTIONS
RELATING TO THE EXERCISE OF ANY VOTING RIGHTS GRANTED BY
THE SECURITIES.
Pursuant to the Plan, certificates evidencing New Warrants,
including New Warrants received by holders of ten percent (10%) or more of the
outstanding Reorganized Sunbeam Common Stock or New Warrants or by holders that
do not certify that they are not underwriters within the meaning of section 1145
of the Bankruptcy Code, will bear a legend substantially in the form below:
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND ANY
SECURITIES ACQUIRED UPON THE EXERCISE OF THE WARRANTS HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW AND ARE SUBJECT TO (1)
A SECURITYHOLDERS' AGREEMENT AMONG SUNBEAM CORPORATION (THE
"COMPANY"), MORGAN STANLEY SENIOR FUNDING, INC., BANK OF
72
AMERICA, N.A., WACHOVIA BANK, NATIONAL ASSOCIATION, OAKTREE
CAPITAL MANAGEMENT, LLC AND OTHER SECURITY HOLDERS PARTIES
THERETO AND (2) THE AGREEMENT BETWEEN THE COMPANY AND A
WARRANT AGENT TO BE IDENTIFIED, COPIES OF WHICH ARE ON FILE
WITH THE SECRETARY OF THE COMPANY. NO DIRECT OR INDIRECT
TRANSFER, SALE, OFFER, ASSIGNMENT, EXCHANGE, DISTRIBUTION,
MORTGAGE, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
WARRANTS REPRESENTED BY THIS CERTIFICATE AND ANY SECURITIES
ACQUIRED UPON THE EXERCISE OF THE WARRANTS MAY BE MADE
EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH
SECURITYHOLDERS' AGREEMENT AND WARRANT AGREEMENT AND (A)
PURSUANT TO A REGISTRATION STATEMENT EFFECTIVE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (B) IF THE COMPANY
HAS BEEN FURNISHED WITH AN OPTION REASONABLY SATISFACTORY
IN FORM AND SUBSTANCE TO THE COMPANY OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER, SALE,
OFFER, ASSIGNMENT, EXCHANGE, DISTRIBUTION, MORTGAGE,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM
THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE RULES AND REGULATION THEREUNDER. THE
HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF
SUCH SECURITYHOLDERS' AGREEMENT AND WARRANT AGREEMENT,
INCLUDING RESTRICTIONS RELATING TO THE EXERCISE OF ANY
VOTING RIGHTS GRANTED BY THE SECURITIES.
Any holder of a certificate evidencing shares of
Reorganized Sunbeam Common Stock or New Warrants, as applicable, bearing such
legend may present such certificate or New Warrant to the transfer agent for the
shares of Reorganized Sunbeam Common Stock or the New Warrants, as applicable,
for exchange for one or more new certificates not bearing such legend or for
transfer to a new holder without such legend at such time as such shares or
warrrants are not subject to the Securityholders Agreement (a) such shares are
sold pursuant to an effective registration statement under the Securities Act or
(b) such holder delivers to Reorganized Sunbeam an opinion of counsel reasonably
satisfactory to Reorganized Sunbeam to the effect that such shares or warrants
are no longer subject to the restrictions applicable to "underwriters" under
section 1145 of the Bankruptcy Code and may be sold without registration under
the Securities Act or to the effect that such transfer is exempt from
registration under the Securities Act, in which event the certificate or
warrant, as applicable, issued to the transferee shall not bear such legend,
unless otherwise specified in such opinion.
Whether or not any particular person would be deemed to be
an "underwriter" of Reorganized Sunbeam Common Stock or New Warrants to be
issued pursuant to the Plan, or an "affiliate" of Reorganized Sunbeam, would
depend upon various facts and circumstances applicable to that person.
73
Accordingly, the Debtor expresses no view as to whether any such person would be
such an "underwriter' or an "affiliate".
IN VIEW OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION
OF WHETHER A PARTICULAR PERSON MAY BE AN UNDERWRITER OR AN AFFILIATE OF
REORGANIZED SUNBEAM, THE DEBTOR MAKES NO REPRESENTATIONS CONCERNING THE RIGHT OF
ANY PERSON TO TRADE IN REORGANIZED SUNBEAM COMMON STOCK OR NEW WARRANTS TO BE
DISTRIBUTED PURSUANT TO THE PLAN. ACCORDINGLY, THE DEBTOR RECOMMENDS THAT
POTENTIAL RECIPIENTS OF SECURITIES CONSULT THEIR OWN COUNSEL CONCERNING WHETHER
THEY MAY FREELY TRADE SUCH SECURITIES.
B. REGISTRATIONS RIGHTS AGREEMENT
AND SECURITYHOLDERS AGREEMENT
1. REGISTRATION RIGHTS AGREEMENT
All shares of Reorganized Sunbeam Common Stock, that are
Registrable Common Stock within the meaning of the Registration Rights
Agreement, including shares of Registrable Common Stock issued upon exercise of
the New Warrants and/or the Employee Options and Management Investment
Securities, shall be issued subject to, and all holders thereof shall
automatically become parties to, the Registration Rights Agreement and,
accordingly, will be afforded the rights provided thereby and will be subject to
the obligations provided therein, including the requirement that Reorganized
Sunbeam shall not issue any Registrable Common Stock, either pursuant to the
exercise of New Warrants or options issued pursuant to the Management Equity
Plans, unless the designated recipient of the Registrable Common Stock first
delivers to Reorganized Sunbeam a writing, in form and substance satisfactory to
Reorganized Sunbeam, acknowledging that such party is bound by the terms of the
Registration Rights Agreement. The form of Registration Rights Agreement will be
included in the Plan Supplement. Shares of Reorganized Sunbeam Common Stock
issued to the holders of Allowed Secured Bank Claims and officers of Reorganized
Sunbeam will be Registrable Common Stock and will bear a legend reflecting the
fact that such shares are subject to the terms of the Registration Rights
Agreement.
2. SECURITYHOLDERS AGREEMENT
All shares of Reorganized Sunbeam Common Stock, including
shares issued upon exercise of the New Warrants and/or the Employee Options and
Management Investment Securities, the New Warrants and other equity securities
shall be issued subject to, and all holders thereof shall automatically become
parties to, the Securityholders Agreement and, accordingly, will be afforded the
rights provided thereby and will be subject to the obligations provided therein,
including the requirement that Reorganized Sunbeam shall not issue any
Reorganized Sunbeam Common Stock, either pursuant to the exercise of New
Warrants or options issued pursuant to the Management Equity Plans, the New
Warrants and other equity securities unless the designated recipient of the
equity security first delivers to Reorganized Sunbeam a writing, in form and
substance satisfactory to Reorganized Sunbeam, acknowledging that such party is
bound by the terms of the Securityholders Agreement. The form of Securityholders
Agreement will be included in the Plan Supplement. The certificates representing
equity securities of Reorganized Sunbeam will bear a legend reflecting the fact
that such shares are subject to the terms of the Securityholders Agreement.
74
X. VALUATION
The Debtor has been advised by Miller Buckfire Lewis & Co.,
LLC ("MBLCo") (as assignee of that certain engagement letter dated February 20,
2001, between the Debtor and Dresdner Kleinwort Wasserstein (f/k/a Wasserstein
Perella & Co., Inc.)) with respect to the estimated enterprise value of the
Sunbeam Group. The Debtor has utilized MBLCo's valuation analysis for the
purpose of determining value available for distribution to creditors pursuant to
the Plan and the relative recoveries to creditors thereunder. A copy of the
entire MBLCo valuation report is available for review upon execution of an
appropriate confidentiality agreement at the offices of the Debtor's attorneys,
Weil, Gotshal & Manges LLP, at the address listed on the cover page. You may
arrange to view or receive a copy of the full valuation report during regular
business hours by contacting Mr. Savino Ignomirello at (212) 833-3614.
The valuation of the Sunbeam Group for purposes of the Plan
is as of an assumed Effective Date of December 31, 2002 and is based on an
enterprise valuation analysis (premised on publicly available information and
information provided by the Debtor) undertaken by MBLCo in August 2002. The
Debtor and MBLCo are not aware of any changes as of the date hereof that would
materially alter or affect their analysis. MBLCo's enterprise valuation
comprises the going concern value of the Sunbeam Group. Based upon the foregoing
assumptions, the enterprise value of the Sunbeam Group was assumed for purposes
of the Plan by the Debtor, based upon advice from MBLCo, to be within in a range
of $660,000,000 to $860,000,000 with a mid-point value of $760,000,000. This
value does not include excess Cash, if any, remaining in the Sunbeam Group after
the projected Cash distributions to be made under the Plan and the Subsidiaries
Plan. The Debtor is of the view that such excess Cash, if any, is necessary to
run the business and, therefore, should not be included as excess Cash for
valuation purposes.
Based upon the estimated value set forth above, the
estimated fair value of the New Secured Term Notes to be issued pursuant to the
Plan and the approximately $195,000,000 in embedded debt of Sunbeam Corporation
and the Subsidiary Debtors projected to be outstanding as of the Effective Date,
the Debtor's equity value is assumed to be within a range of $394,000,000 to
$594,000,000.
The foregoing valuation is based on a number of
assumptions, including a successful reorganization of Debtor's business in a
timely manner, the achievement of the forecasts reflected in the financial
projections, the continuation of current market conditions through the Effective
Date, and the Plan becoming effective in accordance with its terms.
The estimated value does not purport to be an appraisal or
necessarily reflect the value which may be realized if assets are sold. The
estimated value represents a hypothetical enterprise value of the Sunbeam Group.
Such estimate reflects the application of various valuation techniques and does
not purport to reflect or constitute an appraisal, a liquidation value or an
estimate of the actual market value that may be realized through the sale of any
securities to be issued pursuant to the Plan, which may be significantly
different than the amounts set forth herein. The value of operating businesses
such as those operated by the Sunbeam Group is subject to uncertainties and
contingencies that are difficult to predict and will fluctuate with changes in
factors affecting the financial conditions and prospects of such a business. AS
A RESULT, THE ESTIMATE OF VALUE SET FORTH HEREIN IS NOT NECESSARILY INDICATIVE
OF ANY ACTUAL OUTCOME, WHICH MAY BE MORE OR LESS FAVORABLE THAN THAT SET FORTH
HEREIN. BECAUSE SUCH ESTIMATE IS INHERENTLY SUBJECT TO UNCERTAINTIES, NONE OF
75
THE SUNBEAM GROUP, THE DEBTOR, THE SUBSIDIARY DEBTORS, MBLCO OR ANY OTHER PERSON
ASSUMES RESPONSIBILITY FOR ITS ACCURACY. IN ADDITION, THE VALUE OF NEWLY-ISSUED
SECURITIES SUCH AS THE REORGANIZED SUNBEAM COMMON STOCK IS SUBJECT TO ADDITIONAL
UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT. Actual
market prices of such securities at issuance will depend upon, among other
things, prevailing interest rates, conditions in the financial markets, the
anticipated initial securities holdings of prepetition creditors, some of which
may prefer to liquidate their investment rather than hold it on a long-term
basis, and other factors that generally influence the prices of securities. It
should be noted that there presently is no trading market for the Reorganized
Sunbeam Common Stock and there can be no assurance that such a trading market
will develop.
MBLCo has undertaken its enterprise valuation analysis for
purposes of assisting the Debtor to determine the value available to distribute
to creditors pursuant to the Plan and the relative recoveries to creditors
thereunder. The analysis is based on the financial projections annexed hereto as
Exhibit E, as well as current market conditions and statistics. MBLCo used the
comparable public company and discounted cash flow methodologies to arrive at
the enterprise value of the Sunbeam Group.
In preparing an estimate of enterprise value, MBLCo (i)
reviewed certain historical financial information of the Sunbeam Group for
recent years and interim periods, (ii) reviewed certain internal financial and
operating data of the Sunbeam Group, including financial projections provided by
management relating to the Sunbeam Group's businesses and prospects, (iii) met
with certain members of senior management of the Debtor to discuss operations
and future prospects, (iv) reviewed publicly available financial data and
considered the market values of public companies deemed generally comparable to
the Debtor, (v) considered certain economic and industry information relevant to
the Sunbeam Group's operating businesses, and conducted such other analyses as
MBLCo deemed appropriate. Although MBLCo conducted a review and analysis of the
Sunbeam Group's businesses, operating assets and units, liabilities and business
plans, MBLCo assumed and relied on the accuracy and completeness of all (i)
financial and other information furnished to it by the Debtor and (ii) publicly
available information. MBLCo did not independently verify management's
projections in connection with such valuation and no independent evaluations or
appraisals of the Sunbeam Group's assets were sought or were obtained in
connection therewith.
METHODOLOGY
In preparing its valuation, MBLCo performed a variety of
analyses and considered a variety of factors. The summary of the analyses and
factors contained herein does not purport to be a complete description of the
analyses and factors considered.
In determining estimated enterprise value, MBLCo made
judgments as to the weight to be afforded to and the significance and relevance
of each analysis and factor. MBLCo did not consider any one analysis or factor
to the exclusion of any other analysis or factor. Accordingly, MBLCo believes
that its valuation must be considered as a whole and that selecting portions of
its analysis, without considering all such analysis, could create a misleading
or incomplete view of the processes underlying the preparation of its findings
and conclusions. In its analyses, MBLCo made numerous assumptions with respect
to the Debtor's industry performance, general business, regulatory, economic,
market and financial conditions and other matters, many of which are beyond the
Debtor's control. In addition, analyses relating to the value of the Debtor's
76
businesses do not purport to be appraisals or to reflect the prices at which
such business or the securities to be issued under the Plan will trade.
THE PLAN VALUATION REPRESENTS THE ESTIMATED ENTERPRISE
VALUE OF THE SUNBEAM GROUP, AND DOES NOT NECESSARILY REFLECT THE VALUE THAT
COULD BE ATTAINABLE IN PUBLIC OR PRIVATE MARKETS. THE EQUITY VALUE ASCRIBED IN
THIS ANALYSIS DOES NOT PURPORT TO BE AN ESTIMATE OF POST-REORGANIZATION MARKET
TRADING VALUE. SUCH TRADING VALUE, IF ANY, MAY BE MATERIALLY DIFFERENT FROM THE
EQUITY VALUE SET FORTH IN THIS VALUATION ANALYSIS.
XI. CERTAIN RISK FACTORS TO BE CONSIDERED
HOLDERS OF CLAIMS AGAINST THE DEBTOR SHOULD READ AND
CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION
SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER
HEREWITH AND/OR INCORPORATED BY REFERENCE HEREIN), PRIOR TO VOTING TO ACCEPT OR
REJECT THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS
CONSTITUTING THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS
IMPLEMENTATION.
A. CERTAIN BANKRUPTCY LAW CONSIDERATIONS
1. RISK OF NON-CONFIRMATION OF THE PLAN
Although the Debtor believes that the Plan will satisfy all
requirements necessary for confirmation by the Bankruptcy Court, there can be no
assurance that the Bankruptcy Court will reach the same conclusion. Moreover,
there can be no assurance that modifications to the Plan will not be required
for confirmation or that such modifications would not necessitate the
resolicitation of votes. If the conditions precedent to the Confirmation Date
set forth in Section 9.1 of the Plan have not occurred or been waived, the Plan
shall not be confirmed by the Bankruptcy Court.
2. NON-CONSENSUAL CONFIRMATION
In the event any impaired Class of Claims or Equity
Interests does not accept the Plan, the Bankruptcy Court may nevertheless
confirm the Plan at the Debtor's request if at least one impaired Class has
accepted the Plan (such acceptance being determined without including the vote
of any "insider" in such Class), and as to each impaired Class that has not
accepted the Plan, if the Bankruptcy Court determines that the Plan "does not
discriminate unfairly" and is "fair and equitable" with respect to the
dissenting impaired classes. See Section VI.C.2. Because the Plan deems Class 6
(Subordinated Noteholder Securities Claims), Class 7 (Sunbeam Affiliate Claims),
Class 8 (Equity Interests) and Class 9 (Equity Holder Securities Claim) to have
rejected the Plan, these requirements must be satisfied with respect to such
Classes. The Debtor believes that the Plan satisfies these requirements.
3. RISK OF NON-OCCURRENCE OF THE EFFECTIVE DATE
Although the Debtor believes that the Effective Date will
occur soon after the Confirmation Date, there can be no assurance as to the
timing of the Effective Date. If the conditions precedent to the Effective Date
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set forth in Section 9.2 of the Plan have not occurred or been waived within 60
days after the Confirmation Date (unless extended for up to 60 additional days
by the Debtor and the Banks), the Confirmation Order shall be vacated, in which
event no distributions under the Plan would be made, the Debtor and all holders
of Claims and Equity Interests would be restored to the status quo ante as of
the day immediately preceding the Confirmation Date and the Debtor's obligations
with respect to Claims and Equity Interests would remain unchanged.
4. RISKS RELATED TO THE SUBSIDIARIES PLAN
Although the Debtor believes that the Subsidiaries Plan
will satisfy all requirements necessary for confirmation by the Bankruptcy
Court, there can be no assurance that the Bankruptcy Court will reach the same
conclusion. Moreover, although the Debtor believes that the Effective Date of
the Subsidiaries Plan will occur soon after the Confirmation Date for the
Subsidiaries Plan, there can be no assurance as to the timing of the Effective
Date for the Subsidiaries Plan. As set forth above and in Section 9.2 of the
Plan, the occurrence of the Effective Date of the Subsidiaries Plan is a
condition precedent to the Effective Date under the Plan.
B. RISKS TO RECOVERY BY HOLDERS OF SECURED BANK CLAIMS,
GENERAL UNSECURED CLAIMS AND SUBORDINATED NOTE CLAIMS
The ultimate recoveries under the Plan to holders of
Allowed Secured Bank Claims, Allowed General Unsecured Claims and Allowed
Subordinated Note Claims depend upon the realizable value of the Reorganized
Sunbeam Common Stock, New Secured Term Notes and New Warrants. The financial
results of Reorganized Sunbeam and the value of or return on shares of
Reorganized Sunbeam Common Stock and the New Secured Term Notes to be issued
pursuant to the Plan, are subject to a number of material risks, including, but
not limited to, those specified below.
1. POSSIBLE ECONOMIC SLOWDOWN
The possibility of a slowdown in economic growth or retail
sales of the United Sates and/or other countries or a recession in the United
States or other countries could result in a decrease in consumer demands for the
Sunbeam Group's products.
2. INTERNATIONAL EXPOSURE
The Sunbeam Group currently has sales in countries where
economic growth has slowed or where economies have been unstable or
hyperinflationary in recent years. The economies of other foreign countries
important to the Sunbeam Group's operations could also suffer slower economic
growth or instability in the future. Economic uncertainty exists in Japan, Korea
and other Asian countries, as well as in Mexico, Venezuela and other Latin
American countries. The following are among the risks that could negatively
affect the Sunbeam Group's operations and sales in foreign markets: new
restrictions on access to markets; currency fluctuations; new tariffs; adverse
changes in monetary and/or tax policies; inflation; governmental instability;
and changes in foreign laws and regulations including tax laws, accounting
standards, environmental laws and occupational health and safety laws. Should
any of these risks occur, they could impair the Sunbeam Group's ability to
export its products and result in a loss of sales and profits from the Sunbeam
Group's international operations.
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3. NEED TO DEVELOP NEW PRODUCTS
The Sunbeam Group must develop innovative new products to
increase sales and regain profitability. The Sunbeam Group may not be able to
meet its schedules for future product development. Failure to develop and
manufacture successful new products could have a material adverse effect on the
Sunbeam Group's future financial performance.
4. COMPETITIVE CONDITIONS
The Sunbeam Group's businesses are highly competitive. The
Sunbeam Group competes with numerous domestic and foreign competitors, many of
whom are financially strong and capable of competing effectively with the
Sunbeam Group. Competitors may take actions to match new product introductions
and other initiatives. Certain competitors may be willing to reduce prices and
accept lower profit margins to compete with the Sunbeam Group. As a result of
this competition, the Sunbeam Group could lose market share and sales and suffer
losses, which could have a material adverse effect on the Sunbeam Group's future
performance.
5. CUSTOMERS
Due to the consolidation of the retail industry in the
United States, the Sunbeam Group's customer base has become relatively
concentrated. The Sunbeam Group's five largest customers combined accounted for
31% of 2001 net sales.
The Sunbeam Group has no long-term supply contracts with
any of its customers. As a result, the Sunbeam Group must receive a continuous
flow of new orders from its large, high-volume retailing customers. New orders
may become increasingly difficult to secure due to the trend by retailers of
increasing the scope of private label or retailer-specific brands, particularly
in appliances. The Sunbeam Group has responded to the challenges of its markets
by pursuing strategic relationships with large, high-volume merchandisers.
However, the Sunbeam Group cannot make assurances that the strategic
relationships will result in increased sales or earnings. Furthermore, on-time
delivery and satisfactory customer service is becoming increasingly important to
Sunbeam Group's customers. There can be no assurance that the Sunbeam Group can
continue to successfully meet the needs of its customers.
6. CRITICAL RAW MATERIALS AND COMPONENTS
Raw materials and components constitute a significant
portion of the cost of the Sunbeam Group's goods. Factors which are largely
beyond the Sunbeam Group's control, such as movements in commodity prices for
the specific material the Sunbeam Group requires, may affect the future cost of
such raw materials and components. In addition, any inability of the Sunbeam
Group's suppliers to timely deliver raw materials and components or any
unanticipated change in the Sunbeam Group's suppliers could be disruptive and
costly.
A significant failure by the Sunbeam Group to contain raw
material or component costs could have a material adverse effect on the Sunbeam
Group's future financial performance. In addition, delays or cancellations by
suppliers could adversely affect results.
7. DEPENDENCE UPON THIRD-PARTY SUPPLIERS AND SERVICE
PROVIDERS
The Sunbeam Group currently manufactures many of its
products, but it sources many of its parts and products from third parties,
including international vendors. The Sunbeam Group's ability to select reliable
79
vendors who provide timely deliveries of quality parts and products will impact
our success in meeting customer demand for timely delivery of quality products.
Any inability of the Sunbeam Group's suppliers to timely deliver quality parts
and products or any unanticipated change in suppliers or pricing of products
could be disruptive and costly.
The Sunbeam Group has entered into various arrangements
with third parties for the provision of back-office administrative services that
the Sunbeam Group used to perform internally. The Sunbeam Group now outsources
some customer service functions and some necessary computer systems servicing,
among other things. If any of these third-party service providers failed to
perform adequately, the Sunbeam Group's normal business operations could be
disrupted. Among other things, this could hurt the Sunbeam Group's sales,
collections, customer service, cash flow and profitability.
8. PRODUCTION RELATED RISKS
To realize sales and operating profits at anticipated
levels, the Sunbeam Group must manufacture, source and deliver in a timely
manner products of high quality. Among others, the following factors may have a
negative effect on the Sunbeam Group's ability to do these things: labor
difficulties; scheduling and transportation difficulties; management
dislocation; substandard product quality, which can result in higher warranty,
product liability and product recall costs; delays in development of quality new
products; changes in laws and regulations (domestic and international),
including changes in tax rates, accounting standards, environmental laws and
occupational health and safety laws; and changes in the availability and cost of
labor. Possible resulting product liability expenses may consist of insurance,
litigation fees and damages and/or settlement costs, as well as other costs
including legal fees and penalties (if any) and lost business and/or good will
of product recalls.
9. WEATHER CONDITIONS
Weather conditions, including the absence of severe storms,
may negatively impact sales of many of the Sunbeam Group's products. The Sunbeam
Group may not sell as many portable generators and certain outdoor recreation
products as anticipated if there are fewer natural disasters such as hurricanes
and ice storms; mild winter weather may negatively impact sales of electric
blankets, some health products and smoke detectors; and the late arrival of
summer weather may negatively impact sales of outdoor camping equipment and
grills.
10. RELIANCE ON KEY PERSONNEL
The Sunbeam Group's operations and prospects depend in
large part on the performance of its senior management team. There can be no
assurance that the Sunbeam Group would be able to find qualified replacements
for any of these individuals if their services were no longer available. The
loss of the services of one or more members of the Sunbeam Group's senior
management team could have a material adverse effect on the Sunbeam Group's
business, financial condition and results of operations.
11. ADVERSE PUBLICITY
Adverse publicity or news coverage relating to Reorganized
Sunbeam may negatively impact Reorganized Sunbeam's efforts to establish and
promote name recognition and a positive image.
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12. ABILITY TO REFINANCE CERTAIN INDEBTEDNESS
Following the Effective Date, Reorganized Sunbeam's and the
Reorganized Subsidiaries' seasonal working capital borrowings and letter of
credit requirements are anticipated to be funded under an exit working capital
facility. This facility is expected to contain customary covenants, including
financial covenants. If Reorganized Sunbeam and the Reorganized Subsidiaries
cannot meet these covenants, it would be an event of default. Furthermore,
following the Effective Date, the Reorganized Subsidiaries are expected to
obtain financing pursuant to an accounts receivables program similar to the
program provided to the Subsidiary Debtors by GECC during the chapter 11 cases.
The Reorganized Subsidiaries' liquidity could be adversely affected by the
prices at which the Reorganized Subsidiaries can sell trade accounts receivables
under this program or by the termination of this program for any reason,
including termination due to an inability to comply with the terms of this
program. Furthermore, there can be no assurance that Reorganized Sunbeam and the
Reorganized Subsidiaries, upon expiration of the exit working capital facility
and/or the receivables financing program, will be able to obtain replacement
financing to fund future seasonal borrowings and letters of credit, or that such
replacement financing, if obtained, will be on terms equally favorable to
Reorganized Sunbeam and the Reorganized Subsidiaries.
13. FOREIGN WORKING CAPITAL LINES
Certain of the Sunbeam Group's foreign businesses fund
their working capital or other liquidity needs through foreign working capital
lines, some of which are demand lines which may be terminated at any time by the
lender. If any of such working capital lines are terminated, there can be no
assurance that the Sunbeam Group could replace such working capital lines or if
replaced, that they could be replaced on terms acceptable to the Sunbeam Group.
The termination of any such working capital lines could have an adverse effect
on the liquidity of the Sunbeam Group.
14. SIGNIFICANT HOLDERS
On the Effective Date, based upon the existing holders of
Secured Bank Claims, 100% of the shares of Reorganized Sunbeam Common Stock will
be held by four holders. Such holders, acting as a group, will be in a position
to control the outcome of actions requiring stockholder approval, including the
election of directors. Furthermore, because such holders, acting as a group, can
elect a majority of the directors, such holders will have effective control over
the management of Reorganized Sunbeam. This concentration of ownership also
could facilitate or hinder a negotiated change of control of Reorganized Sunbeam
and, consequently, have an impact upon the value of the Reorganized Sunbeam
Common Stock.
Moreover, the possibility that one or more of the holders
of significant numbers of shares of Reorganized Sunbeam Common Stock may
determine to sell all or a large portion of their shares in a short period of
time may adversely affect the value of the Reorganized Sunbeam Common Stock.
15. RISKS OF NON-REPORTING
As discussed above, on the Effective Date, the Reorganized
Sunbeam Common Stock will be held by four holders and the holders of New
Warrants, which shall total less than 300 holders. As a result, Reorganized
Sunbeam will not be subject to the reporting requirements of the federal
securities laws and certain exemptions from and safe harbors provided by the
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federal securities laws that otherwise would be available to holders of the
Reorganized Sunbeam Common Stock will not be available.
16. ABSENCE OF PUBLIC MARKET
It is anticipated that there will not be an active trading
market for Reorganized Sunbeam Common Stock or New Warrants. There is no present
intention that Reorganized Sunbeam will apply to list the Reorganized Sunbeam
Common Stock or New Warrants on any national securities exchange or The NASDAQ
Stock Market. Accordingly, there can be no assurance as to the development of
any market or as to the liquidity of any market that may develop for Reorganized
Sunbeam Common Stock.
17. PROJECTED FINANCIAL INFORMATION
The financial projections included in this Disclosure
Statement are dependent upon the successful implementation of the Sunbeam
Group's business plan and the validity of the other assumptions contained
therein. These projections reflect numerous assumptions, including confirmation
and consummation of the Plan and the Subsidiaries Plan in accordance with their
terms, continued access to the DIP Credit Facility through the Effective Date
and access to the Working Capital Facility and the Receivables Securitization
Program thereafter, the anticipated future performance of the Sunbeam Group,
retail and industry performance, certain assumptions with respect to competitors
of the Sunbeam Group, general business and economic conditions and other
matters, many of which are beyond the control of the Sunbeam Group. In addition,
the risk factors outlined herein and unanticipated events and circumstances
occurring subsequent to the preparation of the projections may affect the actual
financial results of the Sunbeam Group. Although the Debtor believes that the
projections are reasonably attainable, variations between the actual financial
results and those projected may occur and be material.
18. HART-SCOTT-RODINO ACT REQUIREMENTS
Holders of Secured Bank Claims that acquired such Secured
Bank Claims after the commencement of the Chapter 11 Case and that are to
receive Reorganized Sunbeam Common Stock under the Plan on account of such
Secured Bank Claims, if any, may have to observe the filing and waiting period
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act"). Holders of Secured Bank Claims required to make HSR Act filings
cannot receive any such distribution of Reorganized Sunbeam Common Stock until
the expiration or early termination of the waiting periods under the HSR Act.
Such holders of Secured Bank Claims should consult their own counsel regarding
their potential responsibilities under the HSR Act.
XII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following discussion summarizes certain federal income
tax consequences of the implementation of the Plan to the Debtor and certain
creditors. The following summary does not address the federal income tax
consequences to (i) holders whose Claims are entitled to reinstatement or
payment in full in cash under the Plan or are otherwise unimpaired under the
Plan or extinguished without a distribution in exchange therefor (e.g., holders
of Administrative Expense Claims, Priority Tax Claims, Other Priority Claims,
Other Secured Claims, Subordinated Noteholder Securities Claims, Sunbeam
Affiliate Claims and Equity Holder Securities Claims) or (ii) holders of Equity
Interests. The summary also does not address the federal income tax consequences
82
to holders of Secured Bank Claims, as they have engaged independent counsel to
advise them of such consequences.
The following summary is based on the Tax Code, Treasury
Regulations promulgated thereunder, judicial decisions and published
administrative rules and pronouncements of the Internal Revenue Service ("IRS")
as in effect on the date hereof. Changes in such rules or new interpretations
thereof may have retroactive effect and could significantly affect the federal
income tax consequences described below.
The federal income tax consequences of the Plan and the
Subsidiaries Plan are complex and are subject to significant uncertainties. The
Debtor has not requested a ruling from the IRS or an opinion of counsel with
respect to any of the tax aspects of the Plan or the Subsidiaries Plan. Thus, no
assurance can be given as to the interpretation that the IRS will adopt. In
addition, this summary does not address state or local tax consequences of the
Plan or the Subsidiaries Plan.
ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A
SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL
CIRCUMSTANCES PERTAINING TO A HOLDER OF A CLAIM. ALL HOLDERS OF CLAIMS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS FOR THE FEDERAL, STATE, LOCAL AND OTHER TAX
CONSEQUENCES APPLICABLE UNDER THE PLAN.
A. CONSEQUENCES TO THE DEBTOR
1. EXISTING TAX ATTRIBUTES
The Sunbeam Group (of which the Debtor is the common
parent) estimates consolidated net operating loss ("NOL"), capital loss and tax
credit carryforwards for federal income tax purposes of approximately $1.2
billion, $50 million and $7 million, respectively, for the taxable year ended
December 31, 2001. Of the group's cumulative NOL carryforwards as of December
31, 2001, it is estimated that approximately $200 million is attributable to the
Debtor alone. In addition, certain of the subsidiary members of the Sunbeam
Group have additional NOL and tax credit carryforwards pre-dating their
acquisition by the Debtor that are subject to existing limitations on use. The
Debtor and its subsidiaries also have substantial tax basis in their assets. The
amount of the Sunbeam Group's loss and tax credit carryforwards and other tax
benefits remain subject to adjustment by the IRS. Moreover, as discussed below,
such carryforwards may be substantially reduced or eliminated, and the Debtor's
tax basis in certain of its assets may be significantly diminished, or otherwise
subject to limitation upon the implementation of the Plan and the Subsidiaries
Plan.
2. CANCELLATION OF DEBT
In general, the Tax Code provides that a debtor in a
bankruptcy case must reduce certain of its tax attributes - such as NOL and
capital loss carryforwards and current year NOLs, tax credits, and tax basis in
assets - by the amount of any cancellations of debt ("COD"). COD is the amount
by which the indebtedness discharged exceeds any consideration given in exchange
therefor. As a result of the discharge of Allowed Secured Bank Claims, Allowed
Subordinated Note Claims and Allowed General Unsecured Claims pursuant to the
Plan, the Debtor will suffer COD and attribute reduction, except to the extent
that one or more statutory or judicial exceptions to COD and attribute reduction
83
apply (such as where the payment of the cancelled debt would have given rise to
a tax deduction). It is unclear whether the reduction in tax attributes occurs
on a separate company basis, even though the Debtor files a consolidated federal
income tax return. The Debtors are aware that the IRS has, in certain cases,
asserted that such reduction generally should occur on a consolidated basis.
The extent of such COD and resulting tax attribute
reduction will depend on the fair market value of the Reorganized Sunbeam Common
Stock, the New Secured Term Notes, and the amount of Cash, if any, distributed
in discharge of Allowed Claims. Based on the mid-point of the estimated value of
the Sunbeam Group (see Section X of this Disclosure Statement), it is
anticipated that the Debtor will recognize in the aggregate approximately $1.9
billion of COD. Given the magnitude of the expected COD, it is anticipated that
the resulting tax attribute reduction would eliminate all NOL carryforwards and
current year losses attributable to the Debtor as of the end of the taxable year
in which the Effective Date occurs and significantly reduce Debtor's tax basis
in its separate company assets as of such time, as well as possibly eliminate
the remaining consolidated NOL and capital loss carryforwards and tax credit
carryforwards of the Sunbeam Group.
3. LIMITATION ON NOL CARRYFORWARDS AND OTHER TAX ATTRIBUTES
Following the implementation of the Plan and the
Subsidiaries Plan, any remaining NOL, capital loss and tax credit carryforwards
(as well as certain other tax attributes) of the Sunbeam Group allocable to
periods prior to the Effective Date will be subject to the limitations imposed
by Section 382 of the Tax Code.
Under Section 382, if a corporation (or consolidated group)
undergoes an "ownership change," the amount of its pre-change losses (including
certain losses or deductions which are "built-in," i.e., economically accrued
but unrecognized, as of the date of the ownership change) that may be utilized
to offset future taxable income generally is subject to an annual limitation.
The issuance of Reorganized Sunbeam Common Stock pursuant to the Plan will
constitute an ownership change of the Sunbeam Group.
In general, the amount of the annual limitation to which a
corporation (or a consolidated group) would be subject is equal to the product
of (i) the fair market value of the stock of the corporation (or, in the case of
a consolidated group, the common parent) immediately before the ownership change
(with certain adjustments) multiplied by (ii) the "long-term tax-exempt rate" in
effect for the month in which the ownership change occurs (4.91% for ownership
changes occurring in September 2002). For a corporation (or consolidated group)
in bankruptcy that undergoes the ownership change pursuant to a confirmed plan,
the stock value generally is determined immediately after (rather than before)
the ownership change, and certain adjustments that ordinarily would apply do not
apply.
Any unused limitation may be carried forward, thereby
increasing the annual limitation in the subsequent taxable year. However, if the
corporation (or the consolidated group) does not continue its historic business
or use a significant portion of its assets in a new business for two years after
the ownership change, the annual limitation resulting from the ownership change
is zero.
As indicated above, Section 382 can operate to limit
built-in losses recognized subsequent to the date of the ownership change. If a
loss corporation (or consolidated group) has a "net unrealized built-in loss" at
the time of an ownership change (taking into account most assets and items of
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"built-in" income and deductions), then any built-in losses recognized during
the following five years (up to the amount of the original net built-in loss)
generally will be treated as pre-change losses and similarly will be subject to
the annual limitation. Conversely, if the loss corporation (or consolidated
group) has a "net unrealized built-in gain" at the time of an ownership change,
any built-in gains recognized during the following five years (up to the amount
of the original net built-in gain) generally will increase the annual limitation
in the year recognized, such that the loss corporation (or consolidated group)
would be permitted to use its pre-change losses against such built-in gain
income in addition to its regular annual allowance. Although the rule applicable
to net unrealized built-in losses generally applies to consolidated groups on a
consolidated basis, certain corporations that join the consolidated group within
the preceding five years may not be able to be taken into account in the group
computation of net unrealized built-in loss. Such corporations would
nevertheless still be taken into account in determining whether the consolidated
group has a net unrealized built-in gain. Thus, although somewhat
counterintuitive, a consolidated group can be considered to have both a net
unrealized built-in loss and a net unrealized built-in gain. In general, a loss
corporation's (or consolidated group's) net unrealized built-in gain or loss
will be deemed to be zero unless it is greater than the lesser of (i) $10
million or (ii) 15% of the fair market value of its assets (with certain
adjustments) before the ownership change. It is unclear whether the Sunbeam
Group as a whole will be in a net unrealized built-in gain position on the
Effective Date. However, the Debtor currently anticipates that the Sunbeam Group
(excluding certain less than five-year owned members) will be in a net
unrealized built-in loss position on the Effective Date.
An exception to the foregoing annual limitation (and
built-in gain and loss) rules generally applies where qualified (so-called "old
and cold") creditors of the debtor receive at least 50% of the vote and value of
the stock of the reorganized debtor pursuant to a confirmed chapter 11 plan,
unless the debtor elects otherwise. Under this exception, a debtor's pre-change
losses are not limited on an annual basis but are reduced by the amount of any
interest deductions claimed during the three years preceding the effective date
of the reorganization, and during the part of the taxable year prior to and
including the reorganization, in respect of the debt converted into stock in the
reorganization. Moreover, if this exception applies, any further ownership
change of the debtor within a two-year period will preclude the debtor's
utilization of any pre-change losses at the time of the subsequent ownership
change against future taxable income. The statute does not address whether this
exception can be applied on a consolidated basis or only on a separate company
basis.
Even if the Debtor otherwise qualifies for this exception,
it may, if it so desire, elect not to have the exception apply and instead
remain subject to the annual limitation and built-in gain and loss rules
described above. Such election would have to be made in the group's consolidated
federal income tax return for the taxable year in which the reorganization
occurs.
4. ALTERNATIVE MINIMUM TAX
In general, an alternative minimum tax ("AMT") is imposed
on a corporation's alternative minimum taxable income at a 20% rate to the
extent that such tax exceeds the corporation's regular federal income tax. For
purposes of computing taxable income for AMT purposes, certain tax deductions
and other beneficial allowances are modified or eliminated. For example, a
corporation is generally not allowed to offset more than 90% of its taxable
income for AMT purposes by available NOL carryforwards. However, recent
legislation provides for a temporary waiver of this limitation for AMT NOL
carrybacks originating in years ending in 2001 or 2002, or NOL carryforwards to
the 2001 and 2002 tax years.
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In addition, if a corporation (or consolidated group)
undergoes an "ownership change" within the meaning of section 382 of the Tax
Code and is in a net unrealized built-in loss position (as determined for AMT
purposes) on the date of the ownership change, the corporation's (or group's)
aggregate tax basis in its assets would be reduced for certain AMT purposes to
reflect the fair market value of such assets as of the change date. The
application of this provision is unaffected by whether the special bankruptcy
exception to the annual limitation (and built-in gain and loss) rules of section
382 applies.
Any AMT that a corporation pays generally will be allowed
as a nonrefundable credit against its regular federal income tax liability in
future taxable years when the corporation is no longer subject to the AMT.
5. POSSIBLE TRANSFER OF ASSETS
Pursuant to the Subsidiaries Plan, it is possible that
certain businesses of the subsidiary members of the Sunbeam Group may be
transferred to newly formed entities in taxable transactions. In such event, the
Sunbeam Group could recognize a substantial gain for income tax purposes.
Although the gain recognized would be substantially offset by and thus reduce
the NOL carryforwards of the Sunbeam Group, the Debtor estimates that such
transfer could result in combined federal, state, and local income tax
liabilities ranging up to approximately $1.8 million, depending on the extent of
the assets transferred (and assuming an Effective Date in 2002). The Debtor's
determination of the gain and resulting tax liability is also dependent upon the
valuation of the businesses being transferred, their computed tax basis at the
date of transfer, and the amount of tax attributes that are attributable to the
Sunbeam Group at the date of transfer. The Debtor's determination of gain and
resulting tax liability could be subject to adjustment on audit by the IRS or
other taxing authorities.
B. CONSEQUENCES TO HOLDERS OF CERTAIN CLAIMS
1. CLASS 4 CLAIMS
Pursuant to the Plan, if the holders of Allowed General
Unsecured Claims (Class 4 Claims) vote to accept the Plan, they will be entitled
to share in a specified amount of cash in satisfaction of their Claims. The
following discussion assumes that the holders of Class 4 Claims vote to accept
the Plan.
In general, each holder of an Allowed Claim in Class 4 will
recognize gain or loss in an amount equal to the difference between (i) the
amount of any cash received by the holder in satisfaction of its Claim (other
than any Claim for accrued but unpaid interest, and other than any portion of
such distribution required to be treated as imputed interest as a result of any
such distribution being made after the Effective Date due to the subsequent
disallowance of any Disputed Claims) and (ii) the holder's adjusted tax basis in
its Claim (other than any Claim for accrued but unpaid interest). For a
discussion of the tax consequences of Claims for accrued interest, see Section
XI. B. 3, "Certain Federal Income Tax Consequences of the Plan - Consequences to
Holders of Certain Claims - Distributions in Discharge of Accrued Interest." Due
to the possibility that a holder of an Allowed Claim in Class 4 may receive a
distribution of cash subsequent to the Effective Date in the event any Disputed
Claims are subsequently disallowed, any loss, and a portion of any gain,
realized by the holder with respect to its Allowed Claim may be deferred until
all Disputed Claims have been resolved.
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Where gain or loss is recognized by a holder, the character
of such gain or loss as long-term or short-term capital gain or loss or as
ordinary income or loss will be determined by a number of factors, including the
tax status of the holder, whether the Claim constitutes a capital asset in the
hands of the holder and how long it has been held, whether the Claim was
acquired at a market discount and whether and to what extent the holder had
previously claimed a bad debt deduction. A holder which purchased its Claim from
a prior holder at a market discount may be subject to the market discount rules
of the Code. Under those rules, assuming that the holder has made no election to
amortize the market discount into income on a current basis with respect to any
market discount instrument, any gain recognized on the exchange of such Claim
(subject to a de minimis rule) generally would be characterized as ordinary
income to the extent of the accrued market discount on such Claim as of the date
of the exchange.
2. CLASS 5 CLAIMS
Pursuant to the Plan, if the holders of Allowed
Subordinated Note Claims (Class 5 Claims) vote to accept the Plan, they will be
entitled to receive New Warrants in satisfaction of their Claims. The following
discussion assumes that the holders of Class 5 Claims vote to accept the Plan.
The federal income tax consequences of the Plan to holders
of Allowed Claims in Classes 5 depend, in part, on whether such Claims
constitute "securities" of the Debtor for federal income tax purposes. The term
"security" is not defined in the Code or in the regulations issued thereunder
and has not been clearly defined by judicial decisions. The determination of
whether a particular debt constitutes a "security" depends on an overall
evaluation of the nature of the debt. One of the most significant factors
considered in determining whether a particular debt is a security is its
original term. In general, debt obligations issued with a weighted average
maturity at issuance of five years or less (e.g., trade debt and revolving
credit obligations) do not constitute securities, whereas debt obligations with
a weighted average maturity at issuance of ten years or more constitute
securities. The following discussion assumes that Class 5 Claims constitute
securities of the Debtor for federal income tax purposes. Each holder of a Claim
in Class 5 is urged to consult its tax advisor regarding the status of such
Claim.
The receipt of New Warrants by a holder in satisfaction of
an Allowed Claim in Class 5 will constitute a "recapitalization" for federal
income tax purposes. Accordingly, in general, the holders of such Claims will
not recognize gain or loss upon such exchange. For a discussion of the tax
consequences of Claims for accrued interest, see Section XI. B. 3, "Certain
Federal Income Tax Consequences of the Plan - Consequences to Holders of Certain
Claims - Distributions in Discharge of Accrued Interest." A portion of any New
Warrants received after the Effective Date due to securities law restrictions
may be required to be treated as imputed interest.
A holder's aggregate tax basis in the New Warrant received
in satisfaction of its Claim will equal the holder's aggregate adjusted tax
basis in its Claim (including any Claim for accrued but unpaid interest),
increased by any interest income recognized in respect of its Claim and any
imputed interest and decreased by any deductions claimed in respect of any
previously accrued interest. In general, the holder's holding period for the New
Warrants received will include the holder's holding period for the Claim, except
to the extent that the New Warrants were issued in respect of a Claim for
accrued but unpaid interest or treated as imputed interest.
3. DISTRIBUTIONS IN DISCHARGE OF ACCRUED INTEREST
87
Pursuant to the Plan, all distributions in respect of Class
4 and Class 5 Claims will be allocated first to the principal amount of such
Claims (as determined for federal income tax purposes), with any excess
allocated to unpaid accrued interest. However, there is no assurance that such
allocation would be respected by the IRS for federal income tax purposes.
In general, to the extent that any amount received (whether
stock, cash or other property) by a holder of a debt is received in satisfaction
of accrued interest (including accrued original issue discount or "OID") during
its holding period, such amount will be taxable to the holder as interest income
(if not previously included in the holder's gross income). Conversely, a holder
generally recognizes a deductible loss to the extent any accrued interest
claimed was previously included in its gross income and is not paid in full.
However, the IRS has privately ruled that a holder of a security, in an
otherwise tax-free exchange, could not claim a current deduction with respect to
any unpaid OID. It is also unclear whether, by analogy, a holder of a Claim with
previously included OID that is not paid in full would be required to
characterize such loss based on the character of its underlying obligation. Each
holder of a Claim in Class 4 or 5 is urged to consult its tax advisor regarding
the allocation of consideration and the deductibility of unpaid interest or
accrued OID for tax purposes.
4. OWNERSHIP AND DISPOSITION OF NEW WARRANTS
In general, a holder of a New Warrant will not recognize
gain or loss upon the exercise of such warrant; the holder's tax basis in the
New Common Stock received upon exercise of a New Warrant will be equal to the
sum of the holder's tax basis in the New Warrant and the exercise price; and the
holding period of the New Common Stock received upon exercise of a New Warrant
will commence on the day following the exercise of such warrant.
The presence of an adjustment to the exercise price of the
New Warrants under anti-dilution provisions may, under certain circumstances,
result in constructive distributions to the holder. Conversely, the absence of
an adjustment to the exercise price of the New Warrants may result in a
constructive distribution to the holders of the New Common Stock.
Upon the lapse or disposition of a New Warrant, the holder
generally should recognize gain or loss equal to the difference between the
amount received (nothing in the case of a lapse) and its tax basis in the
warrant. In general, such gain or loss should be a capital gain or loss,
long-term or short-term, depending whether the requisite holding period was
satisfied (and assuming the New Warrant is held as a capital asset).
The Treasury Department is expected to promulgate
regulations that will provide that any accrued market discount not treated as
ordinary income upon a tax-free exchange (including a "recapitalization"
exchange) of market discount bonds would carry over to the nonrecognition
property received in the exchange. If such regulations are promulgated and
applicable to the Plan (and, likely, even without the issuance of regulations),
any holder of an Allowed Subordinated Note Claim may be required to carry over
any accrued market discount incurred in respect of such Claim to the New
Warrants received for such Claim pursuant to the Plan, such that any gain
recognized by the holder upon a subsequent disposition of such New Warrant would
be treated as ordinary income to the extent of any accrued market discount that
is allocable to such warrant and not previously included in income. In general,
a Claim will have "accrued market discount" if such Claim was acquired after its
original issuance at a discount to its adjusted issue price.
5. INFORMATION REPORTING AND WITHHOLDING
88
All distributions to holders of Allowed Claims under the
Plan are subject to any applicable withholding (including employment tax
withholding). Under federal income tax law, interest, dividends, and other
reportable payments may, under certain circumstances, be subject to "backup
withholding" at the then applicable rate (currently 30%). Backup withholding
generally applies if the holder (a) fails to furnish its social security number
or other taxpayer identification number ("TIN"), (b) furnishes an incorrect TIN,
(c) fails properly to report interest or dividends, or (d) under certain
circumstances, fails to provide a certified statement, signed under penalty of
perjury, that the TIN provided is its correct number and that it is not subject
to backup withholding. Backup withholding is not an additional tax but merely an
advance payment, which may be refunded to the extent it results in an
overpayment of tax. Certain persons are exempt from backup withholding,
including, in certain circumstances, corporations and financial institutions.
THE FOREGOING SUMMARY HAS BEEN PROVIDED FOR INFORMATIONAL
PURPOSES ONLY. ALL HOLDERS OF CLAIMS ARE URGED TO CONSULT THEIR TAX ADVISORS
CONCERNING THE FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES APPLICABLE
UNDER THE PLAN.
XIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
If the Plan is not confirmed and consummated, the Debtor's
alternatives include (i) liquidation of the Debtor under chapter 7 of the
Bankruptcy Code and (ii) the preparation and presentation of an alternative plan
or plans of reorganization.
A. LIQUIDATION UNDER CHAPTER 7
If no chapter 11 plan can be confirmed, the Chapter 11 Case
may be converted to cases under chapter 7 of the Bankruptcy Code in which a
trustee would be elected or appointed to liquidate the assets of the Debtor. A
discussion of the effect that a chapter 7 liquidation would have on the
recoveries of holders of Claims is set forth in Section VII.C.4. of the
Disclosure Statement. The Debtor believes that liquidation under chapter 7 would
result in, among other things, (i) smaller distributions being made to creditors
than those provided for in the Plan because of additional administrative
expenses attendant to the appointment of a trustee and the trustee's employment
of attorneys and other professionals, (ii) additional expenses and claims, some
of which would be entitled to priority, which would be generated during the
liquidation and from the rejection of leases and other executory contracts in
connection with a cessation of the Debtor's operations and (iii) the failure to
realize the greater, going concern value of the Debtor's assets.
B. ALTERNATIVE PLAN OF REORGANIZATION
If the Plan is not confirmed, the Debtor or any other party
in interest could attempt to formulate a different plan of reorganization. Such
a plan might involve either a reorganization and continuation of the Debtor's
business or an orderly liquidation of its assets. The Debtor has concluded that
the Plan represents the best alternative to protect the interests of creditors
and other parties in interest.
The Debtor believes that the Plan enables it to
successfully and expeditiously emerge from chapter 11, preserve its business and
allows creditors to realize the highest recoveries under the circumstances. In a
liquidation under chapter 11 of the Bankruptcy Code, the assets of the Debtor
would be sold in an orderly fashion which could occur over a more extended
89
period of time than in a liquidation under chapter 7 and a trustee need not be
appointed. Accordingly, creditors would receive greater recoveries than in a
chapter 7 liquidation. Although a chapter 11 liquidation is preferable to a
chapter 7 liquidation, the Debtor believes that a liquidation under chapter 11
is a much less attractive alternative to creditors because a greater return to
creditors is provided for in the Plan.
XIV. CONCLUSION AND RECOMMENDATION
The Debtor believes that confirmation and implementation of
the Plan is preferable to any of the alternatives described above because it
will provide the greatest recoveries to holders of Claims. Other alternatives
would involve significant delay, uncertainty and substantial additional
administrative costs. The Debtor urges holders of impaired Claims entitled to
vote on the Plan to accept the Plan and to evidence such acceptance by returning
their Ballots so that they will be received no later than 4:00 p.m., Eastern
Time, on October 30, 2002.
Dated: New York, New York
September 6, 2002
SUNBEAM CORPORATION
By: /s/ Steven R. Isko
-------------------------------
Name: Steven R. Isko
Title: Senior Vice President
90
EXHIBIT A
Plan of Reorganization
Filed separately as Exhibit 99.2 to the 8-K filed by Sunbeam Corporation on
September 9, 2002.
EXHIBIT B
THE DISCLOSURE STATEMENT ORDER WILL BE ATTACHED
WHEN ENTERED BY THE BANKRUPTCY COURT
EXHIBIT C
SUNBEAM CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
INDEX TO FINANCIAL STATEMENTS
Page
----
FINANCIAL STATEMENTS:
Independent Auditors' Report........................................................................................2
Consolidated Statements of Operations for the Years Ended December 31, 2001, December 31, 2000 and
December 31, 1999................................................................................................3
Consolidated Balance Sheets as of December 31, 2001 and December 31, 2000...........................................4
Consolidated Statements of Shareholders' Equity (Deficiency) for the Years Ended December 31, 2001,
December 31, 2000 and December 31, 1999..........................................................................5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, December 31, 2000 and
December 31, 1999................................................................................................6
Notes to Consolidated Financial Statements..........................................................................7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Sunbeam Corporation and
subsidiaries:
We have audited the accompanying consolidated balance sheets of Sunbeam
Corporation and subsidiaries (the "Company") (Debtors- in-Possession) as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, shareholders' equity (deficiency), and cash flows for each of the
three years in the period ended December 31, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did not
audit the consolidated financial statements of The Coleman Company, Inc. and
subsidiaries (consolidated subsidiaries) for the year ended December 31, 1999,
which statements reflect total revenues constituting 51% of consolidated total
revenues for the year ended December 31, 1999. Those consolidated financial
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for The Coleman
Company, Inc. and subsidiaries, is based solely on the report of such other
auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of Sunbeam Corporation and subsidiaries as of December 31,
2001 and 2000, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 1, Sunbeam Corporation and substantially all of its
domestic subsidiaries (collectively, the "Debtors") have filed for
reorganization under Chapter 11 of the United States Bankruptcy Code. The
accompanying consolidated financial statements do not purport to reflect or
provide for the consequences of the bankruptcy proceedings. In particular, such
financial statements do not purport to show (a) as to assets, their realizable
value on a liquidation basis or their availability to satisfy liabilities; (b)
as to prepetition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the capitalization of
the Debtors; or (d) as to operations, the effect of any changes that may be made
in the business of the Debtors.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
events resulting in Sunbeam Corporation and substantially all of its domestic
subsidiaries filing for relief under the United States Bankruptcy Code,
including the Company's recurring losses from operations, negative working
capital, and shareholders' deficiency, raise substantial doubt about its ability
to continue as a going concern. Management's plans concerning these matters are
also discussed in Note 1. The consolidated financial statements do not include
adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
March 29, 2002
2
SUNBEAM CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
Year Ended
----------------------------------------------
December 31, December 31, December 31,
2001 2000 1999
--------- ---------- ----------
Net sales $ 2,004,215 $ 2,076,395 $ 2,397,979
Cost of goods sold 1,577,003 1,602,767 1,793,360
Selling, general and administrative expense 460,116 607,640 649,223
Goodwill and other asset impairment 32,441 1,052,278 52,000
----------- ----------- -----------
Operating loss (65,345) (1,186,290) (96,604)
Interest expense (contractual interest and Debenture discount amortization
for 2001 of $232,718, Note 5) 48,246 217,507 200,181
Other expense (income), net 7,616 3,425 (3,599)
----------- ----------- -----------
Loss before reorganization costs, income taxes and minority interest (121,207) (1,407,222) (293,186)
Reorganization costs 59,793 -- --
Income tax (benefit) expense:
Current 3,236 (592) (4,227)
Deferred (10,006) (1,607) (4,597)
----------- ----------- -----------
(6,770) (2,199) (8,824)
----------- ----------- -----------
Minority interest -- 255 15,157
----------- ----------- -----------
Net loss $ (174,230) $(1,405,278) $ (299,519)
=========== =========== ===========
Loss per share:
Net loss, basic and diluted $ (1.62) $ (13.09) $ (2.97)
=========== =========== ===========
Weighted average common shares outstanding, basic and diluted 107,304 107,331 100,744
See Notes to Consolidated Financial Statements.
3
SUNBEAM CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
December 31, December 31,
2001 2000
--------- --------
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 57,248 $ 27,225
Receivables, net .............................................. 131,375 226,202
Inventories ................................................... 377,602 399,700
Prepaid expenses and other current assets ..................... 42,160 47,007
----------- -----------
Total current assets ....................................... 608,385 700,134
Property, plant and equipment, net ............................... 361,133 438,424
Trademarks, tradenames, goodwill and other, net .................. 591,225 649,093
----------- -----------
$ 1,560,743 $ 1,787,651
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Liabilities not subject to compromise
Current liabilities:
Short-term debt and current portion of long-term debt ....... $ 32,707 $ 2,446,264
Accounts payable ............................................ 124,133 148,323
Other current liabilities ................................... 225,854 271,583
----------- -----------
Total current liabilities .................................. 382,694 2,866,170
Long-term debt, less current portion .......................... 1,143 1,159
Other long-term liabilities ................................... 194,175 241,415
Deferred income taxes ......................................... 91,425 98,146
Liabilities subject to compromise ................................ 2,499,398 --
Commitments and contingencies (Notes 4 and 16)
Shareholders' deficiency:
Preferred stock (2,000,000 shares authorized, none outstanding) -- --
Common stock (107,422,500 shares issued and outstanding) ...... 1,074 1,074
Additional paid-in capital .................................... 1,179,629 1,179,629
Accumulated deficit ........................................... (2,689,024) (2,514,794)
Accumulated other comprehensive loss .......................... (99,771) (85,148)
----------- -----------
Total shareholders' deficiency ............................. (1,608,092) (1,419,239)
----------- -----------
$ 1,560,743 $ 1,787,651
=========== ===========
See Notes to Consolidated Financial Statements.
4
SUNBEAM CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
Years Ended December 31, 2001, 2000 and 1999
(Amounts in thousands)
Accumulated
Additional other Shareholders'
Common Paid-In Accumulated Comprehensive Equity
Stock Capital Deficit Loss (Deficiency)
------------ ------------ ------------ ------------ -------------
Balance at December 31, 1998 ........... $ 1,007 $ 1,123,457 $ (809,997) $ (54,030) $ 260,437
Comprehensive loss:
Net loss ............................ -- -- (299,519) -- (299,519)
Minimum pension liability ........... -- -- -- (5,995) (5,995)
Translation adjustments ............. -- -- -- (13,261) (13,261)
-----------
Comprehensive loss ................ (318,775)
Other .................................. -- (1,002) -- -- (1,002)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 ........... 1,007 1,122,455 (1,109,516) (73,286) (59,340)
Comprehensive loss:
Net loss ............................ -- -- (1,405,278) -- (1,405,278)
Minimum pension liability ........... -- -- -- (85) (85)
Translation adjustments ............. -- -- -- (11,777) (11,777)
-----------
Comprehensive loss ................ (1,417,140)
Purchase of Coleman minority interest .. 67 43,722 -- -- 43,789
Warrants issued to minority shareholders -- 13,621 -- -- 13,621
Other .................................. -- (169) -- -- (169)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 ........... 1,074 1,179,629 (2,514,794) (85,148) (1,419,239)
Comprehensive loss:
Net loss ............................ -- -- (174,230) -- (174,230)
Minimum pension liability ........... -- -- -- (11,435) (11,435)
Translation adjustments ............. -- -- -- (3,188) (3,188)
----------- ----------- ----------- ----------- -----------
Comprehensive loss ............... (188,853)
Balance at December 31, 2001 ........... $ 1,074 $ 1,179,629 $(2,689,024) $ (99,771) $(1,608,092)
=========== =========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
5
SUNBEAM CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year Ended
-----------------------------------------------
December 31, December 31, December 31,
2001 2000 1999
---------- ----------- -----------
Operating Activities:
Net loss ............................................................ $ (174,230) $(1,405,278) $ (299,519)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization .................................. 96,335 127,223 132,006
Non-cash interest charges ...................................... 15,183 46,986 45,565
Non-cash reorganization costs .................................. 39,869 -- --
Deferred income tax benefit .................................... (10,006) (1,607) (4,597)
Minority interest .............................................. -- 255 15,157
Loss (gain) on sale of property, plant and equipment ........... 2,860 1,317 (3,673)
Provision for fixed asset impairment ........................... -- -- 8,008
Provision for excess and obsolete inventory .................... -- 7,107 3,828
Goodwill and other asset impairment ............................ 32,441 1,052,278 52,000
Restructuring charges .......................................... -- 4,291 --
Changes in operating assets and liabilities, exclusive of impact of
divestitures and acquisitions:
Receivables, net ............................................... 94,827 122,013 (4,952)
Inventories .................................................... 22,099 21,860 49,078
Accounts payable ............................................... (17,496) (36,673) 29,160
Restructuring accrual .......................................... (1,466) (327) (645)
Prepaid expenses and other current assets and liabilities ...... 27,408 (15,338) (6,868)
Income taxes payable ........................................... (1,485) 2,376 (13,919)
Change in other long-term and non-operating liabilities ........ (37,612) (56) 692
Other, net ..................................................... (186) 4,450 (5,605)
----------- ----------- -----------
Net cash provided by (used in) operating activities .......... 88,541 (69,123) (4,284)
----------- ----------- -----------
Investing Activities:
Capital expenditures ................................................ (37,239) (72,812) (90,194)
Net proceeds from sale of Eastpak business .......................... -- 102,609 --
Purchases of businesses, net of cash acquired ....................... -- (80,941) (4,778)
Proceeds from sale of other assets .................................. 511 9,839 10,451
Other, net .......................................................... -- (757) 22
----------- ----------- -----------
Net cash used in investing activities ........................ (36,728) (42,062) (84,499)
----------- ----------- -----------
Financing Activities:
Net (repayments) borrowings under revolving credit facility ......... (11,133) 146,713 75,971
Net payments of debt obligations .................................... (1,287) (45,949) (3,225)
Deferred financing fees ............................................. (10,294) (4,502) (3,164)
Other, net .......................................................... 924 1,349 (1,432)
----------- ----------- -----------
Net cash (used in) provided by financing activities .......... (21,790) 97,611 68,150
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ......... 30,023 (13,574) (20,633)
Cash and cash equivalents at beginning of year ...................... 27,225 40,799 61,432
----------- ----------- -----------
Cash and cash equivalents at end of year ............................ $ 57,248 $ 27,225 $ 40,799
=========== =========== ===========
See Notes to Consolidated Financial Statements.
6
SUNBEAM CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Voluntary Petition for Relief Under Chapter 11
On February 6, 2001, Sunbeam Corporation and substantially all of its
subsidiaries (the "Subsidiary Debtors" and together with Sunbeam Corporation,
the "Debtors"), filed (the "Filings") voluntary petitions (the "Petitions") with
the United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code"). The case number for the Sunbeam case is 01-40291(AJG) and
the case numbers for the cases of the Subsidiary Debtors, which are being
jointly administered separately from the case of Sunbeam Corporation, are
01-40252(AJG) through 01-40290(AJG). The Debtors are managing their businesses
and properties as debtors-in-possession.
Sunbeam Corporation has been operating with significant debt since March 1998,
when prior management caused Sunbeam Corporation to borrow $2.0 billion under a
bank credit facility (as amended, modified and supplemented through and
including the date of the Filings, the "Pre-Petition Credit Facility"), among
Sunbeam Corporation, the Subsidiary Debtors, as guarantors, and certain
non-debtor subsidiary guarantors, and the lenders (the "Secured Lenders")
parties thereto, and through the issuance of zero coupon debentures due 2018
(the "Debentures"). The $2.0 billion was used to fund the acquisition of The
Coleman Company, Inc. ("Coleman"), Signature Brands, Inc. ("Signature Brands")
and First Alert, Inc. ("First Alert"), and to repay or defease (and pay
associated penalties and premiums) debt at such companies and certain
indebtedness of Sunbeam Corporation.
Since approximately the second quarter of 2000, the sales of Sunbeam Corporation
and its subsidiaries (collectively, the "Company" or "Sunbeam") have been
adversely affected by a reduction in retailer purchases generally, as retailers
sought to reduce their inventories in many of the categories in which the
Company participates, and slowing retail sales of consumer durables generally
since the first quarter of 2000. The Company's sales also were adversely
affected by reduced sales of certain outdoor products, including portable
generators, that had unusually high sales during 1999 due to Year 2000 concerns
("Year 2000 Products") and the absence of severe storm activity during 2000
which also adversely affected sales of Year 2000 Products. The foregoing has
significantly reduced the Company's sales and earnings, and the reduction in
sales coupled with the size of Sunbeam Corporation's debt resulted in Sunbeam
Corporation being unable to support its debt service requirements.
As a result, in late 2000, Sunbeam Corporation determined that the most
effective and efficient manner in which to address its excessive debt
obligations, while at the same time minimizing disruption to the operations and
businesses of the Company, was to effectuate a restructuring of Sunbeam
Corporation and the Subsidiary Debtors under the auspices of Chapter 11 of the
Bankruptcy Code. To that end, Sunbeam Corporation and the Subsidiary Debtors
have reached an agreement with the Secured Lenders as to the principal terms,
conditions and provisions of such restructuring.
Pursuant to the plan of reorganization for Sunbeam Corporation filed by Sunbeam
in the Bankruptcy Court on February 6, 2001, as amended on February 23, 2001 and
April 26, 2001, (the "Sunbeam Corporation Plan"), among other things, the claims
of the Secured Lenders under the Pre-Petition Credit Facility will be converted
into (i) $200.0 million in new secured term debt of reorganized Sunbeam and
$600.0 million of new secured convertible debt of reorganized Sunbeam
(collectively, the "New Secured Debt") and (ii) 100% of the outstanding common
stock of reorganized Sunbeam Corporation, subject to options to be issued to
employees. The Sunbeam Corporation Plan provides, among other things, for no
recovery to (i) the holders of the Debentures and other unsecured creditors of
Sunbeam Corporation, (ii) claimants against Sunbeam Corporation in the various
litigations for securities fraud and other litigation arising out of the events
leading to the restatement of Sunbeam Corporation's financial statements and the
earnings projections made by prior management (see Note 16), and (iii) the
equity holders of Sunbeam Corporation. There can be no assurance that the
Sunbeam Corporation Plan will be confirmed in its present form or that the
transactions contemplated thereby will be consummated. In light of the decline
in the Company's sales and earnings that commenced in 2000, it is likely that
the Sunbeam Corporation Plan will be revised to reduce, and potentially
eliminate, the New Secured Debt.
Pursuant to the joint plan of reorganization for the Subsidiary Debtors filed by
the Subsidiary Debtors in the Bankruptcy Court on February 6, 2001, as amended
on February 23, 2001 and April 26, 2001, (the "Subsidiary Plan" and collectively
with the Sunbeam Corporation Plan, the "Plans"), among other things, (i) the
Subsidiary Debtors will become guarantors of the New Secured Debt (if any)
issued pursuant to the Sunbeam Corporation Plan and will pledge their assets to
secure such debt; (ii) all other secured creditors of the Subsidiary Debtors, if
any, will be rendered unimpaired; (iii) all general unsecured creditors of the
Subsidiary Debtors will be rendered unimpaired; and (iv) all equity interests in
the Subsidiary Debtors, which are held by Sunbeam Corporation or other
Subsidiary Debtors, will be rendered unimpaired. There can be no assurance that
the Subsidiary Plan will be confirmed in its present form or that the
transactions contemplated thereby will be consummated.
7
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Voluntary Petition for Relief Under Chapter 11- (continued)
In conjunction with the filing of the Petitions, the Secured Lenders under the
Pre-Petition Credit Facility have provided Sunbeam Corporation with $285.0
million of debtor-in-possession financing (the "DIP Credit Facility"), primarily
to finance the working capital needs of the Debtors. The size of the facility
was developed to accommodate, among other things, the traditional seasonal
working capital peak, which generally occurs during the second quarter. In
accordance with the terms of that facility, the total allowable commitments
under the Dip Credit Facility were reduced to $160 million as of June 30, 2001,
and were consistent with the Company's working capital needs. To accommodate the
Company's 2002 seasonal work capital peak, commitments under the DIP Credit
Facility were increased to $200 million in March 2002. Consistent with the prior
year, the DIP Credit Facility allowable commitments is reduced to $180 million
on May 1, 2002 and $160 million, effective June 1, 2002. The DIP Credit Facility
is secured by a lien on all property of the Debtors, subject to certain
exceptions for the A/R Securitization Facility (defined and described below) and
certain other limited exceptions. See Note 4.
In addition, Coleman, Sunbeam Products, Inc., BRK Brands, Inc., and Coleman
Powermate, Inc. ("Powermate"), each a Subsidiary Debtor, have entered into a
$200.0 million accounts receivable securitization program (the "A/R
Securitization Facility") with GE Capital Corporation and the other purchasers
that are signatories thereto. See Note 8.
The Company believes that the financial restructuring contemplated under the
Plans (as described above) will reduce Sunbeam Corporation's outstanding debt
obligations to levels more manageable and consistent with the business
operations and projected financial performance of the Company, while minimizing
disruption and harm to the business operations of the Subsidiary Debtors. The
financial restructuring contemplated under the Plans also will enhance the
Company's ability to effectively compete and maintain critical relationships
with its suppliers and retail vendors.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
The recurring losses from operations and the inability of the Company to support
its debt service requirements resulting in the Filings raise substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments relating to recoverability
and classification of recorded asset amounts or the amount and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern. The ability of the Company to continue as a going concern and
the appropriateness of using the going concern basis is dependent upon, among
other things, (i) the Company's ability to comply with the DIP Credit Facility
and the A/R Securitization Facility, (ii) confirmation of the Plans (as such may
be amended) under the Bankruptcy Code, (iii) the Company's ability to achieve
profitable operations after such confirmation, and (iv) the Company's ability to
generate sufficient cash from operations to meet its obligations.
While operating as debtors-in-possession under the protection of Chapter 11 of
the Bankruptcy Code, and subject to Bankruptcy Court approval or otherwise as
permitted in the ordinary course of business, the Debtors may sell or otherwise
dispose of assets and liquidate or settle liabilities for amounts other than
those reflected in the consolidated financial statements. Further, the amounts
and classifications reported in the consolidated historical financial
statements, do not give effect to any adjustments to the carrying values of
assets or amounts of liabilities that might be necessary as a consequence of
consummation of the Plans.
The accompanying consolidated financial statements do not purport to reflect or
provide for the consequences of the Debtors' bankruptcy proceedings. In
particular, such consolidated financial statements do not purport to show (i) as
to assets, their realizable value on a liquidation or sale basis or their
availability to satisfy liabilities, (ii) as to pre-petition liabilities, the
amounts that may be allowed for claims or contingencies, or the status and
priority thereof, (iii) as to stockholder accounts, the effect of any changes
that may be made in the capitalization of the Debtors, or (iv) as to operations,
the effect of any changes that may be made in the business of the Debtors.
Substantially all of the Debtors' pre-petition debt is now in default due to the
Filings. Although the Filings occurred after the 2000 fiscal year end, the
accompanying consolidated financial statements reflect the classification of
such debt as a current liability for the period ended December 31, 2000. This
includes debt under Sunbeam Corporation's Pre-Petition Credit Facility, as well
as the accreted amount of the Debentures.
8
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Voluntary Petition for Relief Under Chapter 11- (continued)
As required by Statement of Position 90-7 ("SOP 90-7"), Financial Reporting by
Entities in Reorganization under the Bankruptcy Code, the Debtors, beginning in
the first quarter of 2001, were required to record their debt instruments at the
allowed amount, as defined by SOP 90-7. Accordingly, the Company accelerated the
amortization of its debt-related costs attributable to the Debtors and recorded
a pretax expense of approximately $40 million in February 2001. This expense is
classified as a Reorganization Cost and is comprised primarily of unamortized
financing costs.
2. Operations and Significant Accounting Policies
Organization
The Company is a leading designer, manufacturer and marketer of branded consumer
products. The Company's primary business is the manufacturing, marketing and
distribution of durable household and outdoor leisure consumer products through
mass market and other distribution channels in the United States and
internationally. The Company also sells certain of its products to professional
and commercial end users such as small businesses, hotels and other
institutions. The Company's principal products include household kitchen
appliances; health monitoring and care products for home use; scales for
consumer use; electric blankets and throws; clippers and trimmers for
professional and animal uses; smoke and carbon monoxide detectors; outdoor
barbecue grills; camping equipment such as tents, lanterns, sleeping bags and
stoves; coolers; backpacks, book bags and other travel related gear; and
portable and standby generators, compressors and pressure washers.
In 1998 the Company acquired an indirect controlling interest in Coleman and all
the outstanding common stock of Signature Brands and First Alert. In January
2000, the Company acquired the remaining interest in Coleman.
Principles of Consolidation
The consolidated financial statements include the accounts of Sunbeam
Corporation and all of its wholly-owned subsidiaries. Prior to the Company's
January 2000 acquisition of the remaining interest in Coleman, the consolidated
financial statements included the accounts of Sunbeam Corporation and
majority-owned subsidiaries that it controlled. All material intercompany
balances and transactions have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates. Significant accounting estimates
include the establishment of the allowance for doubtful accounts, tax valuation
allowances, reserves for sales returns and allowances, product warranty, product
liability, excess and obsolete inventory, litigation and environmental
exposures.
Cash and Cash Equivalents
The Company considers highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Concentrations of Credit Risk
Substantially all of the Company's trade receivables are due from retailers and
distributors located throughout the United States, Europe, Latin America,
Canada, and Japan. Approximately 32% of the Company's sales in 2001 were to its
5 largest customers. The Company establishes its credit policies based on an
ongoing evaluation of its customers' creditworthiness and competitive market
conditions and establishes its allowance for doubtful accounts based on an
assessment of exposures to credit losses at each balance sheet date. The Company
believes its allowance for doubtful accounts is sufficient based on the credit
exposures outstanding at December 31, 2001. However, certain retailers filed for
bankruptcy protection in the last several years and it is possible that
additional credit losses could be incurred if other retailers seek bankruptcy
protection.
9
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Operations and Significant Accounting Policies - (continued)
Inventories
Inventories are stated at the lower-of-cost-or-market with cost being determined
principally by the first-in, first-out method.
In certain instances, the Company receives rebates from vendors based on the
volume of merchandise purchased. Vendor rebates are recorded as reductions in
the price of the purchased merchandise and are recognized in operations as the
related inventories are sold.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation using primarily the straight-line method in amounts that allocate
the cost of property, plant and equipment over the following useful lives:
Buildings and improvements........................ 5 to 45 years
Machinery, equipment and tooling.................. 3 to 15 years
Furniture and fixtures............................ 3 to 10 years
Leasehold improvements are amortized on a straight-line basis over the shorter
of their estimated useful life or the term of the lease.
Long-Lived Assets
The Company accounts for long-lived assets pursuant to Statement of Financial
Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. The Company
periodically evaluates factors, events and circumstances which include, but are
not limited to, the historical and projected operating performance of the
business operations, specific industry trends and general economic conditions to
assess whether the remaining estimated useful lives of long-lived assets may
warrant revision or whether the remaining asset values are recoverable through
future operations. When such factors, events or circumstances indicate that
long-lived assets should be evaluated for possible impairment, the Company uses
an estimate of cash flows (undiscounted and without interest charges) over the
remaining lives of the assets to measure recoverability. If the estimated cash
flows are less than the carrying value of the asset, the loss is measured as the
amount by which the carrying value of the asset exceeds fair value. Effective
for periods beginning after December 15, 2001, the Company will adopt SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, as
discussed below, which supercedes SFAS No. 121, but retains the provisions of
SFAS No. 121 to measure an impairment loss as the difference between the
carrying amount and fair value of the asset. See Note 14.
With respect to enterprise level goodwill, the Company reviews impairment when
changes in circumstances, similar to those described above for long-lived
assets, indicate that the carrying value may not be recoverable. Under these
circumstances, the Company estimates future cash flows using the recoverability
method (undiscounted and including related interest charges), as a basis for
recording any impairment loss. An impairment loss is then recorded to adjust the
carrying value of goodwill to the recoverable amount. The impairment loss taken
is no greater than the amount by which the carrying value of the net assets of
the business exceeds its fair value. Effective for periods beginning after
December 15, 2001, the Company will adopt SFAS No. 142, Goodwill and Other
Intangible Assets, as discussed below, which amends SFAS No. 121 to exclude from
its scope goodwill as well as intangible assets that will no longer be
amortized. SFAS No. 142 retains the provisions of SFAS No. 121 to measure an
impairment loss as the difference between the carrying amount and fair value of
the asset. See Note 14.
As the result of the Company's analysis of the recoverability of long-lived
assets and goodwill, the Company recorded impairment charges of $32.4 million in
2001, $1.1 billion in 2000, and $60.0 million in 1999. See Note 14.
Derivative Financial Instruments
The Company enters into interest rate swap agreements and foreign exchange rate
contracts as part of the management of its interest rate and foreign currency
exchange rate exposures. Effective January 1, 2001, the Company adopted SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, as amended,
which requires that all derivative financial instruments be reported on the
balance sheet at fair value.
10
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Operations and Significant Accounting Policies - (continued)
Prior to the adoption of SFAS No. 133, interest rate differentials to be paid or
received as a result of interest rate swap and cap agreements were accrued and
recognized as an adjustment of interest expense related to the designated debt.
In addition, foreign currency contracts designated and effective as hedges were
marked to market with realized and unrealized gains and losses deferred and
recognized in operations when the designated transaction occurred. Foreign
currency contracts not designated as hedges, failing to be hedges or failing to
continue as effective hedges were included in operations as foreign exchange
gains or losses.
Premiums paid for foreign currency option contracts were amortized to expense
using the straight-line method over the term of the option.
Capitalized Interest
Interest costs for the construction of certain long-term assets are capitalized
and amortized over the estimated useful life of the related asset. Total
interest costs during 2001, 2000, and 1999 amounted to $48.3 million, $217.9
million, and $201.5 million, respectively, of which $0.1 million, $0.4 million,
and $1.3 million, respectively, was capitalized as a cost of the related
long-term assets.
Deferred Financing Costs
Costs incurred in connection with obtaining financing are deferred and amortized
as a charge to interest expense over the terms of the related borrowings using
the effective interest method.
Intangibles
Trademarks, tradenames and goodwill are being amortized on a straight-line basis
over 20 to 40 years. Patents are amortized over their estimated useful lives.
Beginning on January 1, 2002, in accordance with SFAS No. 142, identified
intangibles with indefinite useful lives and goodwill will no longer be subject
to amortization.
Revenue Recognition
The Company recognizes sales of product and related cost of goods sold at the
latter of the time of shipment or when title passes to the customers. In some
situations, the Company has shipped product with the right of return where the
Company is unable to reasonably estimate the level of returns and/or the sale is
contingent upon the resale of the product. In these situations, the Company does
not recognize revenue upon product shipment, but rather when the buyer of the
product informs the Company that the product has been sold. Net sales is
comprised of gross sales less provisions for estimated customer returns,
discounts, promotional allowances, cooperative advertising allowances and costs
incurred by the Company to ship product to customers. Reserves for estimated
returns and deductions for discounts, cooperative advertising and other
allowances are established by the Company concurrently with the recognition of
revenue. Reserves are established based on a variety of factors, including
historical return and deduction rates, estimates of customer inventory levels,
the market for the product and projected economic conditions. The Company
monitors these reserves and makes adjustments to them when management believes
that actual returns or costs to be incurred differ from amounts recorded.
Warranty Costs
The Company provides for warranty costs in amounts it estimates will be needed
to cover future warranty obligations for products sold during the year.
Estimates of warranty costs are periodically reviewed and adjusted, when
necessary, to consider actual experience.
Product Liability
The Company provides for product liability costs it estimates will be needed to
cover future product liability obligations for products sold during the year.
Estimates of product liability costs are periodically reviewed and are primarily
based upon actuarial valuations made by an independent actuarial consultant. The
estimates are updated to consider actual experience, number of claims and other
relevant factors.
11
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Operations and Significant Accounting Policies - (continued)
Legal Costs
The Company records charges for the costs it anticipates incurring in connection
with litigation and claims against the Company when management can reasonably
estimate these costs.
Income Taxes
The Company accounts for income taxes under the liability method in accordance
with SFAS No. 109, Accounting for Income Taxes. The provision for income taxes
includes deferred income taxes resulting from items reported in different
periods for income tax and financial statement purposes. Deferred tax assets and
liabilities represent the expected future tax consequences of the differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. The effects of changes in tax rates
on deferred tax assets and liabilities are recognized in the period that
includes the enactment date.
Advertising Costs
Media advertising costs included in Selling, General and Administrative Expense
("SG&A") are expensed as incurred. Allowances provided to customers for
cooperative advertising are charged to operations, as earned, based on revenues
and are included as a deduction from gross sales in determining net sales. The
amounts charged to operations for media and cooperative advertising during 2001,
2000, and 1999 were $100.4 million, $114.4 million, and $109.8 million,
respectively.
Research and Development
Research and development expenditures are expensed in the period incurred. The
amounts charged against operations during 2001, 2000, and 1999 were $35.6
million, $37.1 million, and $26.8 million, respectively.
Foreign Currency Translation
The assets and liabilities of subsidiaries, other than those operating in highly
inflationary economies, are translated into U.S. dollars at the rates of
exchange in effect at the balance sheet date. The resulting translation gains
and losses are accumulated in a separate component of shareholders' equity
(deficiency). Income and expense items are converted into U.S. dollars at
average rates of exchange prevailing during the year with gains or losses
resulting from foreign currency transactions included in the results of
operations.
For subsidiaries operating in highly inflationary economies (Venezuela),
inventories and property, plant and equipment are translated at the rate of
exchange on the date the assets were acquired, while other assets and
liabilities are translated at year-end exchange rates. Translation adjustments
for those operations are included in other expense (income), net in the
accompanying Consolidated Statements of Operations.
Stock-Based Compensation Plans
SFAS No. 123, Accounting for Stock-Based Compensation, allows either adoption of
a fair value method for accounting for stock-based compensation plans or
continuation of accounting under APB Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations with supplemental disclosures.
The Company has chosen to account for its stock options using the intrinsic
value based method prescribed in APB Opinion No. 25 and, accordingly, does not
recognize compensation expense for stock option grants made at an exercise price
equal to or in excess of the fair market value of the stock at the date of
grant. Pro forma net loss and loss per share amounts as required by SFAS No. 123
are presented in Note 12 as if the fair value method had been adopted; however,
SFAS No. 123 as adopted does not impact the Company's results of operations,
financial position or cash flows.
12
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Operations and Significant Accounting Policies - (continued)
Basic and Diluted Loss Per Share of Common Stock
Basic loss per common share calculations are determined by dividing loss
attributable to common shareholders by the weighted average number of shares of
common stock outstanding. Diluted loss per share is determined by dividing loss
attributable to common shareholders by the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding (all related to
outstanding stock options, restricted stock, warrants and the Debentures).
For the years ended December 31, 2001, 2000, and 1999, shares related to stock
options were not included in diluted average common shares outstanding because
their effect would be antidilutive. Diluted average common shares outstanding as
of December 31, 2001, 2000, and 1999 also excludes 13,242,050, shares related to
the conversion feature of the Debentures, as well as 27,980,000, 27,980,000 and
23,000,000 shares issuable on the exercise of warrants for 2001, 2000, and 1999,
respectively, due to antidilution.
New Accounting Standards
In October 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 144. This Statement supersedes SFAS No. 121 but retains many of its
fundamental provisions. Additionally, this statement expands the scope of
discontinued operations to include more disposal transactions. The provisions of
this statement are effective for financial statements issued for fiscal years
beginning after December 15, 2001. SFAS No. 144 is not expected to have a
material effect on the Company's consolidated financial statements.
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 requires that the fair value of
a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002 with early adoption
permitted. SFAS No. 143 is not expected to have a material effect on the
Company's consolidated financial statements.
In July 2001, the FASB issued SFAS No. 142. Under the provisions of this
statement, goodwill and intangible assets that have indefinite useful lives will
not be amortized but rather will be tested at least annually for impairment.
SFAS No. 142 prescribes that impairment loss be measured as the difference
between the carrying amount and fair value of the asset. The Company has not yet
determined the effect of SFAS No. 142 on the Company's consolidated financial
statements.
In July 2001, the FASB issued SFAS No. 141, Business Combinations. This
statement applies to all business combinations entered into subsequent to June
30, 2001 and requires that all such business combinations be accounted for using
the purchase method of accounting. Effective for periods beginning after
December 15, 2001, the Company will adopt SFAS No. 141. SFAS No. 141 is not
expected to have a material effect on the Company's consolidated financial
statements .
Effective January 1, 2001, the Company adopted SFAS No. 133, as amended, which
requires that all derivative instruments be reported on the balance sheet at
fair value and establishes criteria for designation and effectiveness of hedging
relationships. The cumulative effect of adopting SFAS No. 133 as of January 1,
2001 was not material to the Company's consolidated financial statements.
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (a replacement
of FASB Statement No. 125), which revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain related disclosures. This pronouncement is effective after
March 31, 2001, with respect to its provisions for transfers and servicing of
financial assets and extinguishments of liabilities and after December 15, 2000,
with respect to its provisions for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral. SFAS No. 140 did not have a material effect on the Company's
consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 2001
presentation.
13
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Acquisitions and Divestitures
Acquisitions
On March 30, 1998, pursuant to a merger agreement dated as of February 27, 1998,
the Company, through a wholly-owned subsidiary, acquired approximately 81% of
the total number of then outstanding shares of common stock of Coleman from an
affiliate of MacAndrews & Forbes Holdings Inc. ("M&F"), in exchange for
14,099,749 shares of Sunbeam Corporation's common stock and approximately $160
million in cash. In addition, the Company assumed or repaid approximately $1,016
million in debt. Immediately thereafter, as a result of the exercise of employee
stock options, the Company's indirect beneficial ownership of Coleman decreased
to approximately 79% of the total number of the outstanding shares of Coleman
common stock.
On August 12, 1998, the Company announced that, following investigation and
negotiation conducted by a Special Committee of the board consisting of four
outside directors not affiliated with M&F, the Company had entered into a
settlement agreement with an affiliate of M&F pursuant to which the Company was
released from certain threatened claims of M&F and its affiliates arising from
the Coleman acquisition and M&F agreed to provide certain management personnel
and assistance to the Company in exchange for the issuance to the M&F affiliate
of a warrant expiring August 24, 2003 to purchase up to 23 million shares of the
Company's common stock at a cash exercise price of $7.00 per share, subject to
antidilution adjustments.
In January 2000, pursuant to a second merger agreement dated February 27, 1998
(the "Coleman Merger Agreement"), the Company acquired the remaining publicly
held Coleman shares in a merger transaction in which the remaining Coleman
stockholders (other than stockholders who are seeking appraisal rights under
Delaware law) received 0.5677 of a share of the Company's common stock and $6.44
in cash for each share of Coleman common stock they owned, aggregating 6.7
million shares of the Company's common stock and approximately $87 million in
cash. The approximate $87 million aggregate cash payment included $4.8 million
related to the cash out of remaining stock options held by employees of Coleman,
in accordance with the merger agreement, which occurred in December 1999. See
Note 17. In addition, pursuant to a court approved settlement of litigation by
certain Coleman public stockholders arising out of the acquisition of Coleman by
the Company, the Company issued to such Coleman public stockholders (other than
such stockholders who are seeking appraisal rights under Delaware law), warrants
expiring August 24, 2003 to purchase 4.98 million shares of the Company's common
stock at $7.00 per share less approximately 498,000 warrants issued to the
plaintiffs' attorneys for their fees and expenses. These warrants were issued
when the consideration was paid for the Coleman merger. The total consideration
given for the purchase of the remaining publicly held Coleman shares was valued
at approximately $146 million.
The acquisition of Coleman was accounted for using the purchase method of
accounting and, accordingly, the financial position and results of operations of
Coleman are included in the accompanying Consolidated Financial Statements from
the respective dates of acquisition. Prior to the completion of the merger on
January 6, 2000, approximately 20% of Coleman's results of operations and net
equity allocable to the public shareholders was reported as minority interest.
No pro forma information has been presented for the period ending December 31,
2000 because the transaction occurred at the beginning of the period.
Divestitures
See Note 14 for discussion related to the sale of the Eastpak business.
In January 2000, the Company entered into a long-term licensing agreement with
Helen of Troy Ltd. that will allow Helen of Troy Ltd. to market and distribute
Sunbeam(R) branded retail human hair clippers and trimmers. In connection with
this agreement, Helen of Troy Ltd. purchased the inventory of these retail
clippers and trimmers in the first quarter of 2000 for $4.4 million. Helen of
Troy Ltd. also entered into a licensing agreement to market and distribute
Oster(R) branded retail hair clippers and trimmers through April 30, 2001.
Pursuant to this agreement, the Company continued to manufacture Oster(R)
branded retail hair clippers and trimmers through December 31, 2000. Helen of
Troy Ltd., a marketing and distribution company in the personal care industry,
also holds licenses for other Sunbeam(R) branded personal care products,
including hair dryers, curling irons and personal spa products.
See Note 14 for discussion related to the February 2002 sale of the Company's
Professional Scales business.
14
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Debt
This note contains information regarding the Company's short-term and long-term
debt as of December 31, 2001. As a result of the Filings, no principal or
interest payments were made related to the Pre-Petition Credit Facility after
February 6, 2001. In addition, the Company ceased accruing interest on the
Pre-Petition Credit Facility and ceased amortizing the discount on the
Debentures in accordance with SOP 90-7. The Sunbeam Corporation Plan
contemplates converting a substantial portion of the existing bank debt
described below into the New Secured Debt and equity interests in the
reorganized Sunbeam Corporation. See Note 1. The Sunbeam Corporation Plan also
contemplates the discharge of the Debentures.
In connection with the filing of the Petitions, the Secured Lenders under the
Pre-Petition Credit Facility have provided Sunbeam Corporation with the DIP
Credit Facility. The DIP Credit Facility initially provided for a total
commitment of $285.0 million, with a $120.0 million sub-limit for letters of
credit. The letters of credit outstanding under the Pre-Petition Credit
Facility, discussed below, on the date of the Filings, were rolled into the DIP
Credit Facility. In addition, pursuant to the DIP Credit Facility, the Company
repaid approximately $50 million outstanding under the Supplemental Revolver of
the Pre-Petition Credit Facility described below, as well as certain fees and
expenses of the lenders under the DIP Credit Facility. The aggregate commitment
under the DIP Credit Facility will be permanently reduced by 100% of the net
cash proceeds from asset sales outside of the ordinary course of business. The
aggregate commitments were permanently reduced to $200.0 million on April 30,
2001 and further reduced to $160.0 million on June 30, 2001. The DIP Credit
Facility initially was to terminate at the earlier of (i) February 5, 2002, (ii)
the effective date of the Sunbeam Corporation Plan, or (iii) termination of the
commitments under the DIP Credit Facility. Pursuant to an amendment to the
agreement dated March 13, 2002, the DIP facility was extended through February
5, 2003 and the total commitment was increased to $200.0 million. The aggregate
commitments will be permanently reduced to $180.0 million on May 1, 2002 and
further reduced to $160.0 million on June 1, 2002. Under the terms of the March
13, 2002 amendment, the Company paid an amendment fee of $4.0 million in March
2002. This fee will be amortized to interest expense using the straight-line
method over the one-year period of the amendment. Borrowings under the DIP
Credit Facility accrue interest at LIBOR plus 3.5%, or prime rate plus 2.5%.
The DIP Credit Facility contains various covenants, including (i) a cumulative
consolidated earnings before interest, taxes, depreciation and amortization
("EBITDA") covenant, (ii) a cumulative capital expenditures covenant, (iii) a
minimum domestic accounts payable covenant, (iv) a covenant limiting the amount
of post-petition intercompany receivables due from foreign subsidiaries, and (v)
a covenant regarding compliance with an agreed upon cash budget. In addition,
the DIP Credit Facility provides that the Company is required to fully utilize
borrowing availability under its A/R Securitization Facility, see Note 8, at any
time there are loans outstanding under the DIP Credit Facility.
In addition to the above described EBITDA and other tests and ratios, the DIP
Credit Facility contains covenants customary for credit facilities of a similar
nature, including limitations on the ability of Sunbeam Corporation and its
subsidiaries to, among other things, (i) declare dividends or repurchase stock,
(ii) incur liens or engage in sale-leaseback transactions, (iii) make loans and
investments, (iv) incur additional debt, (v) amend or otherwise alter material
agreements or enter into restrictive agreements, (vi) fail to maximize
utilization of foreign credit facilities, (vii) fail to maintain its trade
receivable securitization programs (viii) engage in mergers, acquisitions or
asset sales, (ix) engage in transactions with affiliates, (x) alter its cash
management system and (xi) alter the businesses they conduct. The DIP Credit
Facility provides for events of default customary for transactions of this type,
including nonpayment, misrepresentation, breach of covenant, cross-defaults,
material adverse change arising from compliance with ERISA, entry of certain
orders by the Bankruptcy Court in the Chapter 11 proceedings or material adverse
judgments.
Borrowings under the DIP Credit Facility are secured by a perfected first
priority lien on all the Debtors' assets subject to certain exceptions for the
A/R Securitization Facility, and certain other exceptions.
Although there can be no guarantee, the Company believes that its financing
capacity under the DIP Credit Facility and the A/R Securitization Facility,
combined with its foreign working capital lines, cash flows from operations and
existing cash and cash equivalent balances will be sufficient to support the
Company's planned working capital needs and planned capital expenditures through
the Debtors' anticipated emergence from Chapter 11. However, there can be no
assurance that the aforementioned sources of funds will be sufficient to meet
the Company's cash requirements on a consolidated basis. If the Company is
unable to satisfy such cash requirements, the Company could be required to adopt
one or more alternatives, such as reducing or delaying capital expenditures,
borrowing additional funds, selling other assets or operations, reducing
expenditures for new product development, cutting other costs, and some of such
actions would require the approval of the Bankruptcy Court, the consent of the
Secured Lenders under the DIP Credit Facility and/or the consent of the
purchasers under the A/R Securitization Facility. There can be no assurance that
any of such actions could be effected, or if so, on terms favorable to the
Company, that such actions would enable the Company to continue to satisfy its
cash requirements and/or that such actions would be permitted under the terms of
the DIP Credit Facility, the A/R Securitization Facility or, with respect to the
Debtors', be permitted by the Bankruptcy Court or the Bankruptcy Code.
15
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Debt - (continued)
Debt at the end of each fiscal year consists of the following (in thousands):
2001 2000
----------- -----------
DIP Credit Facility, average interest rate of 10.43% for 2001............................. $ -- $ --
Pre-Petition Credit Facility:
Term loans, due in installments through 2006, average interest rate
of 9.99% for 2001 and 9.48% for 2000................................................ 1,214,051 1,214,051
Revolving Credit Facility, average interest rate of 9.21% for 2001
and 9.58% for 2000................................................................... 327,948 326,000
Zero coupon convertible senior subordinated debentures, net of unamortized
discount of $1,149,739 and $1,153,958 at December 31, 2001 and 2000, respectively...... 864,261 860,042
Other lines of credit, including foreign facilities....................................... 23,228 36,309
Other long-term borrowings, due through 2012, weighted average
interest rate of 3.91% and 4.13%, at December 31, 2001 and 2000, respectively.......... 10,622 11,021
---------- ---------
2,440,110 2,447,423
Less: Borrowings not subject to compromise classified as current.......................... 32,707 2,446,264
Less: Borrowings not subject to compromise classified as non-current...................... 1,143 1,159
---------- ---------
Long-term debt subject to compromise...................................................... $2,406,260 $ --
========== =========
As a result of losses incurred by the Company during 1998, 1999 and 2000,
certain amendments and waivers to the Pre-Petition Credit Facility were sought
and obtained from the Secured Lenders.
The Company and its Secured Lenders entered into an amendment to the
Pre-Petition Credit Facility on August 10, 2000 in order to, among other things,
provide the Company with a supplemental $50.0 million reducing revolving credit
facility (the "Supplemental Revolver") having a final maturity date of December
31, 2000. The Company paid a facility fee to its Secured Lenders of $62,500 for
the Supplemental Revolver.
The following description of the Pre-Petition Credit Facility reflects the
significant terms of the Pre-Petition Credit Facility, as amended, at December
31, 2000.
In addition to the Supplemental Revolver, the Pre-Petition Credit Facility
provided for aggregate borrowings of up to $1.7 billion pursuant to: (i) a
revolving credit facility in an aggregate principal amount of up to $400.0
million maturing March 30, 2005; (ii) up to $800.0 million in term loans
maturing on March 30, 2005 (all of which had been borrowed, and of which $78.0
million was repaid prior to the Filings) and (iii) a $500.0 million term loan
maturing September 30, 2006 (all of which has been borrowed and of which $7.9
million was repaid prior to the Filings).
Under the Pre-Petition Credit Facility, interest accrued, at the Company's
option: (i) at LIBOR, or (ii) at the base rate of the administrative agent plus
0.50%, in each case plus an interest margin which was 3.00% for LIBOR borrowings
and 1.75% for base rate borrowings at December 31, 2000. Borrowings under the
Pre-Petition Credit Facility are secured by a pledge of the stock of the
Company's material subsidiaries and by a security interest in substantially all
of the assets of the Company and its material domestic subsidiaries, which liens
are subject to the superpriority liens under the DIP Credit Facility. In
addition, borrowings under the Pre-Petition Credit Facility are guaranteed by a
number of the Company's wholly-owned material domestic subsidiaries and these
subsidiary guarantees are secured by substantially all of the material domestic
subsidiaries' assets, which liens and guarantees are subject to the
superpriority liens under the DIP Credit Facility. To the extent extensions of
credit are made to any subsidiaries of the Company, the obligations of such
subsidiaries are guaranteed by the Company. In addition to being entitled to the
benefits of the foregoing described collateral and guaranties, outstanding
borrowings under the Supplemental Revolver were secured by substantially all of
the assets and 100% of the stock of the Company's Canadian subsidiary and were
guaranteed by the Canadian subsidiary.
16
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Debt - (continued)
Under the terms of an April 14, 2000 amendment to the Pre-Petition Credit
Facility, the Company was obligated to pay the Secured Lenders an amendment fee
for the April 14, 2000 amendment of 0.50% of the commitments under the
Pre-Petition Credit Facility as of April 14, 2000, totaling $8.5 million. This
fee was paid on May 26, 2000, the closing date of the sale of the Company's
Eastpak business ("Eastpak"). Furthermore, an amendment fee previously agreed to
for an April 15, 1999 amendment equal to $8.5 million was scheduled to be due on
April 10, 2001. An additional amendment fee relating to the April 15, 1999
amendment equal to $8.5 million was scheduled to be due on June 30, 2001. The
$17.0 million amendment fee associated with the April 15, 1999 amendment was
amortized to interest expense using the straight-line method over the one-year
term of the amendment. The $8.5 million amendment fee associated with the April
14, 2000 amendment was being amortized to interest expense using the
straight-line method over the one year term of that amendment. In February 2001,
this amortization was accelerated in accordance with SOP 90-7 and the
unamortized balance of the fee ($1.6 million) was fully recognized. This expense
is classified as a Reorganization Cost in the Consolidated Statements of
Operations. See Note 6.
In March 1998, Sunbeam Corporation completed an offering of the Debentures at a
yield to maturity of 5.0% (approximately $2,014 million principal amount at
maturity) which resulted in approximately $730 million of net proceeds. The
Debentures were exchangeable for shares of the Company's common stock at an
initial conversion rate of 6.575 shares for each $1,000 principal amount at
maturity of the Debentures, subject to adjustment upon occurrence of certain
events. The Debentures are subordinated in right of payment to all existing and
future senior indebtedness of Sunbeam Corporation.
In July 2000, Sunbeam Corporation announced an offer to acquire all of the
currently outstanding Debentures in exchange for secured notes and shares of
Sunbeam common stock (the "Exchange Offer"). On September 12, 2000, Sunbeam
Corporation withdrew its offer to exchange all of the outstanding Debentures
without accepting and paying for any tendered Debentures. The holders of the
Debentures were unwilling to participate in the Exchange Offer under the terms
proposed. As a result of the termination of the Exchange Offer, Sunbeam
Corporation recognized a charge of $5.4 million in the third quarter of 2000.
This charge included investment banking fees and legal and accounting fees
incurred relating to the proposed transaction.
Sunbeam Corporation's Filings, see Note 1, constituted an event of default under
the terms of the Debentures and the Sunbeam Corporation Plan contemplates no
recovery to holders of the Debentures. Accordingly, at December 31, 2001, and
December 31, 2000, the net amount due under the Debentures is included within
Liabilities Subject to Compromise and current liabilities, respectively, in the
accompanying Consolidated Balance Sheets.
At December 31, 2001, the aggregate annual maturities on short-term and
long-term debt were $2,439.0 million in 2001 and $1.1 million in 2002.
5. Liabilities Subject to Compromise
Amounts representing liabilities of Sunbeam Corporation that are known to the
Company or estimable prior to the Filings for which the Company is seeking
relief pursuant to the Sunbeam Corporation Plan are presented as Liabilities
Subject to Compromise in the accompanying Consolidated Balance Sheets. These
liabilities consist primarily of amounts outstanding under the Company's
Pre-Petition Credit Facility and amounts owed related to the Debentures (net of
unamortized discount), accounts payable, accrued interest, and other accrued
expenses. These amounts represent Sunbeam Corporation's estimate of known or
potential claims to be discharged in connection with the Sunbeam Corporation
Plan. Such claims remain subject to future adjustments, which may result from
(i) actions of the Bankruptcy Court; (ii) further development with respect to
disputed claims; (iii) rejection of additional executory contracts or unexpired
leases; (iv) proofs of claim; (v) amendments or modifications to the Sunbeam
Corporation Plan or (vi) other events. Settlement, discharge and/or payment
terms for these amounts are provided for pursuant to the Sunbeam Corporation
Plan, see Note 1, although there can be no assurance that such plan of
reorganization will be confirmed in its present form or that the transactions
contemplated thereby will be consummated.
17
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Liabilities Subject to Compromise - (continued)
On April 12, 2001, the Bankruptcy Court entered an order establishing May 31,
2001 as the deadline ("Bar Date") for the filing of the proofs of claim in the
Chapter 11 case of Sunbeam Corporation. On April 27, 2001 and April 30, 2001,
Sunbeam Corporation provided notice of the Bar Date to all known creditors of
Sunbeam Corporation as of February 6, 2001. The Company has recently begun the
process of reviewing the proofs of claim in order to determine their respective
merit. Accordingly, the ultimate number and amount of allowed unsecured claims
is not presently known. However, the Sunbeam Corporation Plan provides for no
recovery to unsecured creditors and therefore there is not expected to be any
distribution on any allowed unsecured creditor claim. The Sunbeam Corporation
Plan provides some recovery to secured creditors of Sunbeam Corporation. See
Note 1.
In connection with the Filings, the Company received approval from the
Bankruptcy Court to pay pre-petition employee wages, salaries, benefits and
other employee obligations. The Subsidiary Debtors received approval from the
Bankruptcy Court to pay pre-petition liabilities to vendors and other providers
(other than professionals) in the ordinary course for goods and services
received, and to honor customer service programs, including warranties and
returns.
The principal categories of claims of Sunbeam Corporation classified as
liabilities subject to compromise under reorganization proceedings at December
31, 2001 are identified below (in thousands):
Pre-Petition Credit Facility........ $ 1,541,999
Debentures, net of discount......... 864,261
Accrued interest and fees........... 60,514
Litigation related accruals......... 20,356
Accounts payable.................... 6,694
Accrued expenses and other.......... 5,574
------------
Total............................... $ 2,499,398
===========
Contractual interest expense not accrued or recorded on the Pre-Petition Credit
Facility totaled $144.6 million for the period from the Filings (February 6,
2001) through December 31, 2001. Amortization of discount on the Debentures not
recorded for the same period amounted to $39.9 million.
6. Reorganization Costs
Expenses and income directly incurred or realized as a result of the Filings
have been segregated from the normal operations and are disclosed separately.
The major components of such costs for the period from the Filings (February 6,
2001) through December 31, 2001 are as follows (in thousands):
Deferred financing fees........................ $ 40,048
Professional fees and administrative expense... 19,924
Prepaid amendment fees......................... 1,644
Deferred gain on terminated swaps.............. (1,823)
---------
Total.......................................... $ 59,793
==========
Deferred financing fees
Deferred financing fees represent costs related to the Pre-Petition Credit
Facility and the Debentures, which were being amortized over the expected lives
of the respective instruments. The amortization of these fees was accelerated as
a result of the Filings, in accordance with SOP 90-7.
Professional fees and administrative expense
Professional fees and administrative expense relates to legal, accounting, and
other professional costs directly attributable to the Filings.
18
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Reorganization Costs - (continued)
Prepaid amendment fee
Prepaid amendment fees represent costs incurred in connection with certain
amendments to the Pre-Petition Credit Facility. These costs were being amortized
over the life of the respective amendments. The amortization of these fees was
accelerated as a result of the Filings, in accordance with SOP 90-7.
Deferred gain on terminated swap
The deferred gain on terminated swaps relates to gains realized on interest rate
swap agreements sold during 2000. These gains were being amortized to interest
expense over the original terms of the interest rate swap agreements. As a
result of the Filings, amortization of these deferred gains were accelerated in
accordance with SOP 90-7.
7. Financial Instruments
Fair Value of Financial Instruments
The fair value of the Company's financial instruments as of December 31, 2001
and 2000 was estimated based upon the following methods and assumptions:
Cash and Cash Equivalents - The carrying amount of cash and cash equivalents is
assumed to approximate fair value as cash equivalents include all highly liquid,
short-term investments with original maturities of three months or less.
Receivables and Accounts Payable - The carrying amount of receivables and
accounts payable is assumed to approximate fair value for these instruments
because of their short maturities.
Debt - As of December 31, 2001, the fair value of the Company's fixed and
variable rate debt is not determinable in light of the Filings, see Note 1. At
December 31, 2001, the carrying amounts related to the Pre-Petition Credit
Facility and the Debentures were $1.5 billion and $864.3 million, respectively,
and such amounts are included in Liabilities Subject to Compromise in the
Consolidated Balance Sheets.
Letters of Credit and Surety Bonds - The Company utilizes stand-by letters of
credit to back certain financing instruments and insurance policies and
commercial letters of credit guaranteeing various international trade
activities. In addition, the Company also entered into surety bonds largely to
secure certain benefit plan obligations and as a result of environmental issues
and litigation judgments that are primarily under appeal. The contract amounts
of the letters of credit and surety bonds approximate their fair values. The
contract value of letters of credit were $71.7 million and $68.5 million as of
December 31, 2001 and 2000, respectively. Contract values for surety bonds as of
December 31, 2001 and 2000 were $29.9 million and $69.9 million, respectively.
Derivative Financial Instruments
Interest Rate Swap and Interest Rate Cap Agreements - The Company utilizes
interest rate swap agreements to reduce the impact on interest expense of
fluctuating interest rates on its floating rate debt. The use of derivatives did
not have a material impact on the Company's operations in 2001, 2000, and 1999.
At December 31, 1999, the Company held three floating to fixed interest rate
swap agreements, one with a notional value of $25.0 million and two with
notional amounts of $150.0 million each. The swap agreements were contracts to
exchange floating rate for fixed interest payments periodically over the lives
of the agreements without the exchange of the underlying notional principal
amounts. During 2000, the Company sold all three of the interest rate swap
agreements. As a consequence of this transaction, the Company received net
proceeds of approximately $2 million, and such amount was being amortized to
interest expense over the terms of the related borrowings using the effective
interest method until the Filings. In February 2001, this amortization was
accelerated in accordance with SOP 90-7 and the unamortized balance of the
deferred gain of $1.8 million was fully recognized. This amount is classified as
a Reorganization Cost in the Consolidated Statements of Operations. In 2000,
prior to the sale of the interest rate swap agreements, the Company received an
average floating rate of 6.15%, 6.12% and 6.14%, respectively, and paid an
average fixed rate of 6.12%, 5.75% and 5.58%, respectively. In 1999, the Company
received an average floating rate of 5.38%, 5.22% and 5.22%, respectively, and
paid an average fixed rate of 6.12%, 5.75% and 5.58%, respectively. In addition,
in November 1999, the Company entered into a graduated interest rate cap
agreement for a notional amount of $455.0 million, which expired April 2001. The
interest rate as of December 31, 2000 and 1999 was 7.0% and 6.5%, respectively.
19
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Financial Instruments - (continued)
At December 31, 2001, the Company did not hold any significant derivative
instruments. At December 31, 2000, the fair value of the graduated interest rate
cap was insignificant. This estimate was based upon quotes received from the
Company's banking institutions and represented the cash requirement if the
agreement had been terminated at the end of the year.
8. Accounts Receivable Securitization
Prior to the Filings, certain subsidiaries of Sunbeam Corporation sold trade
accounts receivable pursuant to two separate receivable securitization programs.
The original program, entered into in December 1997, was amended in March 2000
to increase the program from $70.0 million to $100.0 million. This agreement
provided for the sale of certain trade accounts receivable without recourse
through a wholly-owned subsidiary (the "Sunbeam Receivables Program"). In
mid-November 2000, the purchaser under the Sunbeam Receivables Program informed
the Company that it intended to discontinue its operations in mid-February 2001
and consequently ceased purchasing accounts receivable on January 15, 2001. In
April 2000, the Company's Coleman and Powermate subsidiaries entered into an
additional revolving trade accounts receivable securitization program (the
"Coleman Receivables Program"), to sell, without recourse, through a
wholly-owned subsidiary of Coleman, up to a maximum of $95.0 million in trade
accounts receivable.
On February 7, 2001, certain Subsidiary Debtors entered into the $200.0 million
A/R Securitization Facility to replace both the Sunbeam Receivables Program and
the Coleman Receivables Program (collectively the "Pre-Petition Receivables
Programs"). This trade accounts receivable program contains cross-default
provisions that provide the purchasers of the receivables an option to cease
purchasing receivables if, subject to certain grace periods, Sunbeam Corporation
is in default under the DIP Credit Facility. In addition, the A/R Securitization
Facility contains various other covenants customary for these types of programs,
including financial covenants. The Subsidiary Debtors that are party to the A/R
Securitization Facility retain collection and administrative responsibilities
for the receivables sold under such facility.
During 2001, 2000, and 1999, the Company received approximately $1 billion, $906
million and $350 million, respectively, under the Pre-Petition Receivables
Programs and the A/R Securitization Facility. At December 31, 2001 and 2000, the
Company had reduced accounts receivable by approximately $139 million and $97
million, respectively, for receivables sold under these programs. Costs of the
programs, which primarily consist of the purchasers' financing cost of issuing
commercial paper backed by the receivables, totaled $8.9 million, $7.8 million
and $2.8 million during 2001, 2000 and 1999, respectively, and have been
classified as interest expense in the accompanying Consolidated Statements of
Operations.
In March of 2001, a foreign subsidiary of Sunbeam Corporation entered into an
agreement to sell certain trade accounts receivable without recourse. During
2001, the foreign subsidiary received $33.5 million and incurred costs of $0.5
million, which has been classified as interest expense in the accompanying
Consolidated Statements of Operations. At December 31, 2001, the foreign
subsidiary had reduced accounts receivable by $3.2 million.
9. Income Taxes
Loss before income taxes and minority interest, (including reorganization costs
for the year ended December 31, 2001) for each fiscal year is summarized as
follows (in thousands):
2001 2000 1999
----------- ----------- -----------
Domestic ........................................................... $ (123,443) $(1,343,397) $ (329,713)
Foreign ............................................................ 2,236 (63,825) 36,527
----------- ----------- -----------
Loss before reorganization costs, income taxes and minority interest (121,207) (1,407,222) (293,186)
Reorganization costs (domestic) .................................... (59,793) -- --
----------- ----------- -----------
$ (181,000) $(1,407,222) $ (293,186)
=========== =========== ===========
20
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Income Taxes - (continued)
Income tax provisions include current and deferred taxes (tax benefits) for each
fiscal year as follows (in thousands):
2001 2000 1999
--------- ---------- ----------
Current:
Federal............................................................. $ (368) $ (5,505) $ (7,531)
State............................................................... 98 1,151 59
Foreign............................................................. 3,506 3,762 3,245
-------- --------- --------
3,236 (592) (4,227)
-------- ---------- ---------
Deferred:
Federal............................................................. (4,346) (1) (7,777)
State............................................................... (830) -- (1,007)
Foreign............................................................. (4,830) (1,606) 4,187
--------- ---------- --------
(10,006) (1,607) (4,597)
--------- ---------- ---------
$ (6,770) $ (2,199) $ (8,824)
======== ========= ========
The effective tax rate on loss before income taxes and minority interest varies
from the current statutory federal income tax rate as follows:
2001 2000 1999
--------- --------- ----------
Benefit at statutory rate.............................................. (35.0)% (35.0)% (35.0)%
State taxes, net....................................................... (2.6) (0.9) (3.5)
Amortization of intangible assets and goodwill......................... -- 27.2 9.8
Foreign earnings and dividends taxed at other rates.................... 3.7 (0.8) 0.1
Valuation allowance.................................................... 21.0 9.3 26.2
Reorganization costs................................................... 9.5 -- --
Other, net............................................................. (0.3) -- (0.6)
--------- --------- ----------
Effective tax rate benefit............................................. (3.7)% (0.2)% (3.0)%
========= ========= ==========
Significant components of the Company's deferred tax liabilities and assets are
as follows:
December 31, December 31,
2001 2000
----------- ------------
Deferred tax assets:
Receivables..................................................................... $ 12,525 $ 13,680
Post-retirement benefits other than pensions.................................... 12,887 11,830
Reserves for self-insurance and warranty costs.................................. 42,777 44,309
Pension liabilities............................................................. 27,127 24,901
Inventories..................................................................... 19,302 20,451
Net operating loss carryforwards................................................ 518,035 494,112
Tax credits..................................................................... 8,203 8,103
Other, net...................................................................... 70,998 77,307
--------- --------
Total deferred tax assets................................................... 711,854 694,693
Valuation allowance............................................................. 515,391 475,020
--------- --------
Net deferred tax assets..................................................... 196,463 219,673
--------- --------
Deferred tax liabilities:
Depreciation.................................................................... 19,146 35,409
Acquired intangible assets...................................................... 228,677 241,360
Other, net...................................................................... 3,575 7,456
--------- --------
Total deferred tax liabilities.............................................. 251,398 284,225
--------- --------
Net deferred tax liabilities................................................ $ (54,935) $ (64,552)
========= =========
21
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
9. Income Taxes - (continued)
The net deferred tax liabilities above are included in the accompanying
Consolidated Balance Sheets as of December 31, 2001 and 2000, as follows:
December 31, December 31,
2001 2000
----------- ------------
Assets:
Prepaid expenses and other current assets....................................... $ 25,032 $ 24,976
Trademarks, tradenames, goodwill and other, net................................. 14,286 9,100
--------- --------
Total deferred tax assets................................................... 39,318 34,076
Liabilities:
Other current liabilities....................................................... 2,828 482
Deferred income taxes........................................................... 91,425 98,146
--------- --------
Total deferred tax liabilities.............................................. 94,253 98,628
--------- --------
Net deferred tax liabilities................................................ $ (54,935) $(64,552)
========= ========
The Company establishes valuation allowances in accordance with the provisions
of SFAS No. 109. The Company continually reviews the adequacy of the valuation
allowances and recognizes tax benefits when it is more likely than not that the
benefits will be realized. During 2001 and 2000, the Company increased its
valuation allowance to approximately $515 million and $475 million,
respectively, which reflects management's assessment that it is more likely than
not that the deferred tax assets will not be realized through future taxable
income. This assessment was made as a result of the significant leverage
undertaken by the Company as part of its acquisitions, as well as the operating
losses incurred throughout the 2001 and 2000 years.
At December 31, 2001, the Company had net operating loss carryforwards ("NOLs")
of $1.2 billion for domestic income tax purposes and approximately $161 million
for foreign income tax purposes. The domestic NOLs begin expiring in 2017. Of
the foreign NOLs, approximately $11 million will expire in each of the years
ending December 31, 2002 and 2003, and approximately $4 million, $16 million and
$3 million will expire in the years ending December 31, 2004 through 2006,
respectively. Of the remaining foreign NOLs, approximately $28 million will
expire in years subsequent to 2006 and approximately $88 million have an
unlimited life. Under Section 382 of the Internal Revenue Code, annual
limitations may be imposed on the use of net operating loss carryforwards and
certain other tax attributes when a company experiences a greater than 50%
change in ownership. As a result of the Filings, and consummation of the
proposed Plans, it is probable that such a change in ownership will occur.
Consequently, an annual limitation may be imposed on the use of some of the
Company's NOL's and certain tax attributes that exist at the time of the
consummation of the proposed Plans.
The Company has not provided U.S. income taxes on undistributed foreign earnings
of approximately $57 million at December 31, 2001, as the Company intends to
permanently reinvest these earnings in the future growth of the business.
Determination of the amount of unrecognized deferred U.S. income tax liability
is not practicable because of the complexities associated with its hypothetical
calculation.
22
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Employee Benefit Plans
Pension and Other Post-retirement Benefit Plans
The Company sponsors several defined benefit pension plans for Sunbeam Products,
Coleman and BRK Brands, Inc. covering eligible U.S. salaried and hourly
employees, as well as employees and former employees of divested businesses.
Benefits under such plans covering all of Sunbeam Products' U.S. salaried and
most of Sunbeam Products' U.S. hourly employees were frozen at various dates,
all of which were prior to April 1997. Accordingly, no credit in the pension
formula is given for service or compensation of all salaried and most hourly
U.S. Sunbeam Products employees after that date. However, employees continue to
earn service toward vesting in their interest in the frozen plans. One Sunbeam
Products benefit plan for hourly employees remains active and continues to
accrue benefits for service as of December 31, 2001.
The Coleman and BRK Brands, Inc. salaried pension plans accrue benefits under a
cash balance plan. Under the cash balance plan, the Company will credit certain
participants' accounts annually. Benefit plans for hourly employees of Coleman
and BRK Brands, Inc. remain active and continue to accrue benefits for service
as of December 31, 2001. The Coleman hourly plan is the only plan that is open
to new participants. The Coleman salaried employee plans, as well as all BRK
Brands, Inc. plans, are no longer open to new participants.
The Company maintains post-retirement benefit plans that cover retired former
Sunbeam and Coleman employees and certain eligible current Coleman employees.
These plans provide for medical and life insurance benefits, the costs of which
the Company has consistently funded on a pay-as-you-go basis.
The Company funds all pension plans in amounts consistent with applicable laws
and regulations. Pension plan assets include corporate and U.S. government
bonds, corporate stocks, mutual funds, fixed income securities and cash
equivalents.
Employees of non-U.S. subsidiaries generally receive retirement benefits from
Company sponsored plans or from statutory plans administered by governmental
agencies in their countries. The assets, liabilities and pension costs of the
Company's non-U.S. defined benefit retirement plans are not material to the
consolidated financial statements.
23
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Employee Benefit Plans - (continued)
The following table includes disclosures of the funded status and amounts
recognized relating to the domestic defined benefit and post-retirement plans in
the Company's Consolidated Balance Sheets at the end of respective fiscal years
(in thousands):
Post-retirement
Pension Benefits Benefits
---------------- --------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Change in Benefit Obligation:
Benefit obligation at beginning of year.............................. $ 174,251 $ 177,594 $ 38,547 $ 36,012
Service cost......................................................... 2,118 1,926 1,113 828
Interest cost........................................................ 12,476 12,536 2,890 2,595
Amendments........................................................... -- -- (5,930) --
Actuarial (gain) loss................................................ (651) (3,055) 4,326 1,558
Benefits paid........................................................ (14,475) (14,750) (2,509) (2,446)
---------- ---------- ---------- ---------
Benefit obligation at end of year.................................... $ 173,719 $ 174,251 $ 38,437 $ 38,547
========== ========== ========== =========
Change in Plan Assets:
Fair value of plan assets at beginning of year....................... $ 142,923 $ 142,559 $ -- $ --
Actual return (loss) on plan assets.................................. (8,736) 4,856 -- --
Employer contributions............................................... 15,707 10,258 2,509 2,446
Benefits paid........................................................ (14,475) (14,750) (2,509) (2,446)
---------- ---------- ---------- ---------
Fair value of plan assets at end of year............................. $ 135,419 $ 142,923 $ -- $ --
========== ========== ========== =========
Reconciliation of Funded Status:
Funded status........................................................ $ (38,300) $ (31,328) $ (38,437) $ (38,547)
Unrecognized net actuarial loss...................................... 61,885 46,759 5,379 843
Unrecognized prior service cost (benefit)............................ 18 18 (10,089) (7,102)
---------- ---------- ---------- ---------
Net amount recognized................................................ $ 23,603 $ 15,449 $ (43,147) $ (44,806)
========== ========== ========== =========
Amounts Recognized in the Consolidated Balance Sheets Consist of:
Accrued benefit liability............................................ $ (35,976) $ (32,695) $ (43,147) $ (44,806)
Intangible asset..................................................... 18 18 -- --
Accumulated other comprehensive loss................................. 59,561 48,126 -- --
--------- --------- ---------- ----------
Net amount recognized................................................ $ 23,603 $ 15,449 $ (43,147) $ (44,806)
========== ========== ========== ==========
In determining the actuarial present value of the benefit obligation, the
weighted average discount rate used was 7.5% for both December 31, 2001 and
2000; and the expected return on plan assets ranged from 8.0% to 9.0% for both
2001 and 2000. The expected increase in future compensation levels was 4.5% for
Coleman for both 2001 and 2000 and 5.0% for BRK Brands, Inc. for both 2001 and
2000.
The assumed health care cost trend rates used in measuring the accumulated
post-retirement benefit obligation were 10% for pre-age 65 participants and 11%
for post-age 65 participants for the plans for 2001 and were assumed to decrease
gradually to 4.75% for 2008 and years thereafter. For 2000, the assumed health
care cost trend rates were 9.0% and were assumed to decrease gradually to 6.0%
by 2004.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects (in thousands):
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
Effect on total of service and interest cost components.............................. $ 717 $ (570)
Effect on the post-retirement benefit obligation..................................... $ 5,217 $ (4,262)
24
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Employee Benefit Plans - (continued)
Net pension expense and periodic post-retirement expense (benefit) include the
following components (in thousands):
Pension Benefits Post-retirement Benefits
------------------------------ ------------------------------
2001 2000 1999 2001 2000 1999
-------- -------- -------- -------- -------- --------
Components of net periodic pension benefit cost (benefit):
Service cost...................................... $ 2,118 $ 1,926 $1,858 $1,113 $ 828 $ 877
Interest cost..................................... 12,476 12,536 12,271 2,890 2,595 2,516
Expected return on market value of assets......... (9,049) (8,727) (8,775) -- -- --
Amortization of unrecognized prior service cost... 1 1 -- (2,943) (2,944) (2,944)
Recognized net actuarial loss..................... 2,007 1,858 1,936 (232) -- --
-------- -------- -------- -------- -------- --------
Net periodic benefit cost (benefit)............... $ 7,553 $ 7,594 $7,290 $ 828 $ 479 $ 449
======== ======== ======== ======== ======== ========
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the plans with accumulated benefit obligations in excess of
plan assets were $153.4 million, $150.0 million and $117.3 million at December
31, 2001 and $152.2 million, $149.2 million and $121.6 million at December 31,
2000, respectively.
Defined Contribution Plans
The Company provides eligible employees (full time employees with six months or
more of service) the opportunity to participate in its Sunbeam Corporation
401(k) Savings, Profit Sharing and Retirement Plan. Company contributions to
these plans include employer matching contributions as well as discretionary
contributions depending on the performance of the Company, in an amount up to
10% of eligible compensation. The Company provided $5.7 million in 2001, $4.8
million in 2000, and $3.9 million in 1999 for its defined contribution plans.
11. Shareholders' Equity (Deficiency)
Common Stock
At December 31, 2001 and 2000, Sunbeam Corporation had 500,000,000 shares of
$0.01 par value common stock authorized.
See Note 3 for information regarding outstanding stock warrants.
See Note 12 for information regarding employee stock options and awards.
Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss consist of the following
(in thousands):
Minimum
Translation Pension
Adjustments Liability Total
----------- --------- -----
Balance at December 31, 1999............................................... $(25,245) $(48,041) $(73,286)
Balance at December 31, 2000............................................... (37,022) (48,126) (85,148)
Balance at December 31, 2001............................................... (40,210) (59,561) (99,771)
12. Employee Stock Options and Awards
As of the date of the Filings, Sunbeam Corporation had two stock-based
compensation plans, the Amended and Restated Sunbeam Corporation Stock Option
Plan (the "Sunbeam Option Plan") and the Sunbeam Corporation 2000 Stock Option
Plan (the "Sunbeam 2000 Option Plan"). Thalia Products, Inc. ("Thalia"), a
wholly-owned subsidiary of Sunbeam Corporation had the Thalia Products Inc.
Stock Option Plan (the "Thalia Option Plan").
25
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
12. Employee Stock Options and Awards - (continued)
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its stock options. Accordingly, no compensation cost has been recognized for
outstanding stock options. Had compensation cost for the Company's outstanding
stock options been determined based on the fair value at the grant dates for
those options consistent with SFAS No. 123, the Company's net loss and basic and
diluted loss per share would have differed as reflected by the pro forma amounts
indicated below (in thousands, except per share amounts):
2001 2000 1999
----------- ------------- ---------
Net loss:
As reported..................................................... $ (174,230) $ (1,405,278) $(299,519)
Pro forma....................................................... n/a (1,426,062) (331,842)
Basic and diluted net loss per share:
As reported..................................................... (1.62) (13.09) (2.97)
Pro forma....................................................... n/a (13.29) (3.29)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
2000 1999
-------- ---------
Expected volatility........................................ 56.10% 55.90%
Risk-free interest rate.................................... 5.00% 6.49%
Dividend yield............................................. 0.0% 0.0%
Expected life.............................................. 5 years 5 years
No options were granted during 2001.
At the date of the Filings (February 6, 2001) options were outstanding with
weighted-average exercise prices as follows:
Weighted
Average
Shares Exercise Price
------ --------------
Sunbeam Option Plan........................................ 9,999,293 $8.00
Sunbeam 2000 Option Plan................................... 35,000 3.19
Thalia Option Plan......................................... 2,465,000 2.00
Options granted outside the option plans................... 15,975,000 16.34
The Sunbeam Corporation Plan contemplates that Sunbeam Corporation's existing
common stock will be canceled along with all options and warrants to purchase
common stock. Consequently, further detailed information with respect to stock
options is not presented as it is meaningless.
Included in the outstanding and exercisable options issued outside the Sunbeam
Option Plan, as presented above, are options issued to Sunbeam Corporation's
former Chairman and Chief Executive Officer (3,750,000) and former Chief
Financial Officer (1,125,000) in connection with their February 1998 employment
agreements. The Company and these individuals are in dispute regarding the
status of these options. See Note 16.
26
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Supplementary Financial Statement Data
Supplementary Balance Sheet data at the end of each fiscal year is as follows
(in thousands):
2001 2000
---- ----
Receivables:
Trade (net of securitization programs, see Note 8) $ 155,603 $ 242,356
Sundry ........................................... 11,648 24,041
167,251 266,397
Valuation allowance ................................. (35,876) (40,195)
--------- ---------
$ 131,375 $ 226,202
========= =========
Inventories:
Finished goods ................................... $ 273,635 $ 276,144
Work in process .................................. 19,132 26,574
Raw materials and supplies ....................... 84,835 96,982
--------- ---------
$ 377,602 $ 399,700
========= =========
Prepaid expenses and other current assets:
Deferred income taxes ............................ $ 25,032 24,976
Prepaid expenses and other ....................... 17,128 22,031
--------- ---------
$ 42,160 47,007
========= =========
Property, plant and equipment:
Land and improvements ............................ $ 16,128 $ 16,122
Buildings and improvements ....................... 187,981 187,744
Machinery and equipment .......................... 465,336 446,243
Furniture and fixtures ........................... 18,584 21,377
--------- ---------
688,029 671,486
Accumulated depreciation and amortization ........... (326,896) (233,062)
--------- ---------
$ 361,133 $ 438,424
========= =========
Trademarks, tradenames, goodwill and other:
Trademarks and tradenames ........................ $ 647,044 $ 648,106
Goodwill ......................................... 24,603 24,603
Deferred financing costs ......................... 65 54,626
Other intangible assets .......................... 30,145 30,192
--------- ---------
701,857 757,527
Accumulated amortization ......................... (136,292) (127,832)
--------- ---------
565,565 629,695
Other assets ..................................... 25,660 19,398
--------- ---------
$ 591,225 $ 649,093
========= =========
Other current liabilities:
Payrolls, commissions and employee benefits ...... $ 58,922 $ 55,611
Advertising and sales promotion .................. 38,103 40,539
Product warranty ................................. 42,180 43,928
Sales returns .................................... 7,470 8,843
Accrued pension .................................. 5,053 --
Interest and amendment fees ...................... 948 46,188
Other ............................................ 73,178 76,474
--------- ---------
$ 225,854 $ 271,583
========= =========
27
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Supplementary Financial Statement Data - (continued)
2001 2000
---- ----
Other long-term liabilities:
Accrued post-retirement benefit obligation........................................... $ 43,147 $ 44,806
Accrued pension...................................................................... 30,923 32,695
Product liability, product warranty and workers compensation......................... 70,768 78,237
Other................................................................................ 49,337 85,677
--------- --------
$ 194,175 $ 241,415
========= =========
Supplementary Statement of Cash Flows data for each fiscal year are summarized
as follows (in thousands):
2001 2000 1999
-------- --------- ---------
Cash paid during the period for:
Interest (net of interest received).......................................... $17,899 $143,342 $ 163,491
======= ======== ==========
Reorganization items......................................................... $13,084 $ -- $ --
======= ======== ==========
Income taxes (received) paid................................................. $(6,171) $ 2,258 $ (7,461)
======= ======== ==========
14. Asset Impairment, Restructuring and Other Charges
2001 Asset Impairment
The Company accounts for long-lived assets pursuant to SFAS No. 121. In
conjunction with the annual strategic planning process, the Company evaluates
factors, events and circumstances which include, but are not limited to, the
historical and projected operating performance of the business operations,
specific industry trends and general economic conditions to assess whether the
remaining estimated useful lives of long-lived assets may warrant revision or
whether the remaining asset values are recoverable through future operations.
When such factors, events or circumstances indicate that long-lived assets
should be evaluated for possible impairment, the Company uses either appraisals
(when available) or an estimate of cash flows (undiscounted and without interest
charges) over the remaining lives of the assets to measure recoverability. If
the estimated cash flows are less than the carrying value of the asset, the loss
is measured as the amount by which the carrying value of the asset exceeds fair
value.
In the fourth quarter of 2001, as a result of a history of operating losses and
negative cash flows incurred by the Sunbeam Outdoor Grill business (Neosho
Facility), as well as the future prospects of the business, the Company
concluded that an impairment existed as of December 31, 2001 for this business.
A comparison of the fair value of the long-lived assets associated with that
business with the carrying value yielded an impairment charge of $30.9 million.
This fourth quarter of 2001 charge is included in Goodwill and other asset
impairment in the Consolidated Statements of Operations.
Sale of Professional Scales Business
On November 5, 2001, Sunbeam Products, Inc. and Pelstar, LLC ("Pelstar") entered
into a purchase agreement for the sale to Pelstar of substantially all of the
assets and the assumption of certain liabilities of the Professional Scales
business, including, among other items, the license of the Health O Meter(R)
brand name for professional medical scales. Based upon the agreed upon purchase
price, the Company determined that the Professional Scales business was
impaired. Accordingly, during December 2001, the Company adjusted the carrying
value of the Professional Scales net assets to their estimated fair market value
(less estimated costs of the sale) resulting in a non-cash impairment charge of
$1.5 million. This charge is reflected in Goodwill and other asset impairment in
the Consolidated Statements of Operations. Prior to its sale, Professional
Scales was included in the Company's Household business group. The Company will
continue to manufacture and market consumer retail scales under the Health O
Meter, Sunbeam and Counselor brands.
Professional Scales is comprised of the Pelouze scales business, as well as
Health O Meter branded professional medical scales business. Net sales and
operating income from the Professional Scales business were approximately 1% of
consolidated results in 2001.
28
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Asset Impairment, Restructuring and Other Charges - (continued)
2002 Strategic Business Reorganization
During 2001, in connection with the Company's 2002 strategic planning process, a
number of decisions were made that generally consist of cost savings and
productivity enhancement initiatives, business realignment along product brands
on a global basis, and reductions and closures. As a result of the cost savings
and productivity enhancement initiatives, the Company recognized a charge of
$11.4 million in the fourth quarter. This charge results from decisions to: (i)
outsource the production of certain previously manufactured stock keeping units
("SKUs") (coffee makers and blanket controls); (ii) restructure the Household
Products research and development department; (iii) close Powermate's Longmont
research and development office, and (iv) insource the Information Technology
support function for the Household group. This charge consists of severance,
retention and relocation expenses ($6.8 million), fixed asset write-offs ($3.4
million) and contract termination penalties ($1.2 million). These decisions
resulted in the elimination of approximately 300 positions. Substantially all of
these positions were eliminated by December 31, 2001 and substantially all of
the severance obligation will be paid by December 31, 2002. Severance benefits
of $1.3 million were paid during 2001. As of December 31, 2001, the remaining
accrual balance was $6.7 million, primarily relating to severance, other
employee benefits and contract termination penalties. The charge is reflected in
SG&A ($8.0 million), Cost of Goods Sold ($2.6 million) and Other expense
(income), net ($0.8 million).
As part of the realignment of the businesses along product brands on a global
basis, the Company recorded a charge of $4.3 million in the fourth quarter of
2001. The reorganization primarily includes the closing of the office in Brazil,
the transition of the management of the retail scales business from the Health
and Safety business into the Household Products business and headcount
reductions. The $4.3 million charge was recorded in SG&A ($3.8 million) and Cost
of Goods Sold ($0.5 million) and consists of severance and other employee costs
resulting from the elimination of approximately 80 positions ($3.5 million) and
fixed asset and other write-offs ($0.8 million). Severance benefits of $0.3
million were paid during 2001. As of December 31, 2001, the remaining accrual
balance was $3.3 million, primarily relating to severance and other employee
benefits, substantially all of which is expected to be paid by December 31,
2002.
As a result of the decision to initiate certain business reductions or closures,
a $9.3 million charge was recorded in the fourth quarter of 2001 primarily
related to the decision to exit the Timberland branded business and a reduction
of headcount in the Sunbeam Outdoor grills workforce. This charge primarily
relates to the write-down of certain inventory to net realizable value ($3.4
million), severance costs ($2.5 million), fixed asset write-offs ($1.3 million),
contract termination fees ($0.8 million) and the write-off of certain deferred
costs related to attempted sales of businesses that were not consummated ($1.3
million). This charge was recorded in Cost of Goods Sold ($3.4 million) and SG&A
($5.9 million). These decisions resulted in the elimination of approximately 260
positions. As of December 31, 2001, the remaining accrual balance was $2.9
million, primarily relating to severance, other employee benefits, and contract
termination fees, substantially all of which is expected to be paid by December
31, 2002.
2000 Goodwill Impairment
During the fourth quarter of 2000, as a result of the general weakening in the
business from the prior year, combined with significant acquisition related
debt, as well as the future prospects of the businesses, the Company determined
that the goodwill resulting from the acquisitions of Coleman and Signature
Brands was impaired. As a result, based upon estimates of the fair value of
Coleman and Signature Brands, the Company recorded a $1.1 billion charge that is
reflected in the 2000 operating loss in the Consolidated Statements of
Operations. The goodwill impairment charge recorded is comprised of all of the
remaining carrying value of the goodwill associated with the Company's
acquisition of Coleman (approximately $916 million) and Signature Brands
(approximately $136 million).
29
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Asset Impairment, Restructuring and Other Charges - (continued)
2000 European Restructuring Plan
During the fourth quarter of 2000, the Company recorded a $4.3 million charge
associated with a restructuring plan related to its European operations. The
2000 restructuring plan provided for the reduction of warehouses, distribution
centers, manufacturing and distribution headcount, product offerings and SKUs.
The $4.3 million restructuring charge was recorded in SG&A and consists
primarily of severance and other employee costs resulting from the elimination
of approximately 80 positions. During 2001, 23 employees were terminated and
$1.5 million was paid for severance in accordance with this plan. In the second
quarter of 2001, a new management team was put in place in Europe. During the
fourth quarter of 2001, the new management team modified the 2000 restructuring
plan such that the decision to consolidate the warehouses and distribution
centers was largely put on hold. The modified plan includes additional
reductions in manufacturing and sales offices headcount. As a result, $2.4
million of the 2000 restructuring reserve was reversed and the Company recorded
a $2.8 million charge relating to the revised restructuring plan. The remaining
reserve balance as of December 31, 2001 of $3.3 million primarily relates to
severance and employee benefits.
In tandem with the 2000 restructuring plan, the Company discontinued certain
product offerings, and eliminated certain SKUs within product lines. As a
result, a $7.1 million charge was recorded in Cost of Goods Sold in the fourth
quarter of 2000 to state this inventory at the lower-of-cost-or-market, based on
management's best estimate of net realizable value.
2000 Glenwillow Plant Closure
In March 2000, the Company announced its intention to shut down operations at
its Glenwillow facility, which manufactured and distributed Mr. Coffee brand
coffee makers and coffee filters. These operations were fully consolidated into
other existing facilities and the Glenwillow facility was closed as of June 30,
2000. As a result of this decision, the Company recorded a charge of $5.1
million ($3.3 million and $1.8 million in the first and second quarters,
respectively) primarily related to the write-off of fixed assets and leasehold
improvements, severance costs and contract and lease termination fees. This
charge was recorded in SG&A ($0.6 million in each of the first and second
quarters of 2000) and Cost of Goods Sold ($2.7 million and $1.2 million in the
first and second quarters of 2000, respectively). The closing of this facility
resulted in the elimination of approximately 300 positions. The Company incurred
additional incremental costs during the second quarter of 2000 of $2.5 million
(included in Cost of Goods Sold), primarily related to relocation of certain
manufacturing equipment and machinery to other Company manufacturing locations
and higher warehousing costs as a result of increased inventory levels to avoid
customer supply issues during the plant shut-down. Such amounts were charged to
operations as incurred. As of December 31, 2000, substantially all of the
amounts accrued had been paid and the Company did not incur any material
additional costs associated with this plant closure.
2000 Sunbeam Retail Stores Closing
In the first quarter of 2000, in connection with the Company's on-going review
of its businesses, the decision was made to close the remaining Sunbeam retail
stores. As a result of this decision, a charge of $2.5 million, primarily
related to the write-off of leasehold improvements, severance and lease
termination fees was recorded in the first quarter of 2000. This charge was
recorded in SG&A ($2.2 million) and Cost of Goods Sold ($0.3 million). The
majority of these stores were closed during the second quarter of 2000 and
resulted in the elimination of approximately 60 positions. The Company did not
incur any significant additional incremental costs. As of December 31, 2000,
substantially all of the amounts accrued had been paid.
1999 Eastpak Goodwill Impairment
During the fourth quarter of 1999, the Company announced its intent to sell
Eastpak. As a result of this change in the Company's business strategy for
Eastpak, an evaluation for impairment of Eastpak's long-lived assets was
performed pursuant to SFAS No. 121. Based upon this analysis, the Company
determined that the fair market value of Eastpak's long-lived assets, including
intangibles, was less than the carrying value. Accordingly, during the fourth
quarter of 1999, the Company adjusted the carrying value of Eastpak's net assets
to its estimated fair value (less estimated costs of sale) resulting in a
non-cash impairment charge of $52.0 million. This charge reduced the goodwill
associated with Eastpak. The fair market value of Eastpak was determined based
upon the purchase price agreed to between the Company and VF Corporation in a
purchase agreement between Sunbeam Corporation and VF Corporation (the "Eastpak
Sale Agreement"). This fourth quarter charge is reflected in SG&A in the 1999
Consolidated Statement of Operations.
30
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
14. Asset Impairment, Restructuring and Other Charges - (continued)
The sale of Eastpak closed on May 26, 2000, resulting in net proceeds of $89.9
million. The final purchase price was subject to certain post-closing
adjustments and retention of certain liabilities. During the third quarter of
2000, the Company received the post-closing settlement for the sale of Eastpak
of $10.2 million and finalized the accounting for the transaction. The
post-closing settlement resulted in total net proceeds from the sale of $102.6
million and a reduction of $3.2 million to the asset impairment charge
previously recognized for Eastpak. This reduction in the impairment charge
resulted primarily from the Company's ability to sell certain of the Eastpak
manufacturing facilities rather than closing such facilities as was assumed in
the original impairment calculation. This adjustment is reflected in SG&A in the
2000 Consolidated Statement of Operations. Eastpak was acquired by the Company
in March 1998. Net sales from Eastpak were approximately 5% of consolidated net
sales for the periods prior to its disposition. Eastpak's operating income in
2000 and 1999 was not significant. Eastpak's results of operations are included
in the Company's Outdoor Leisure business group through May 26, 2000.
1999 Fixed Asset Impairment and Excess and Obsolete Inventory Charge
In the fourth quarter of 1999, in connection with the completion of the
Company's 2000 strategic planning process, a decision was made to discontinue a
number of products, primarily scales, humidifiers and certain camping stoves,
lights and air mattresses, previously made by the Company, resulting in
equipment and tooling that will no longer be utilized by the Company and
inventory levels in excess of anticipated sales volume. In addition, as a result
of the Company's business planning process, which was completed in the fourth
quarter of 1999, the Company identified certain other assets that would no
longer be required for ongoing operations. Accordingly, a charge of $8.0 million
was recorded in the fourth quarter of 1999 in Cost of Goods Sold to write
certain of these fixed assets down to their estimated fair market values.
Substantially all of this charge related to machinery, equipment and tooling at
the Company's Hattiesburg, Mississippi manufacturing facility. These assets were
taken out of service at the time of the write-down and were not depreciated
further after the write-down. These assets had a nominal salvage value and/or no
significant remaining carrying value as of December 31, 1999 and were disposed
of during 2000. Depreciation expense associated with these assets was $0.9
million in 1999. During the fourth quarter of 1999 the Company also made a
decision to discontinue certain grill and grill accessory SKUs. As a result of
this decision, the Company reduced the economic useful life associated with the
machinery, equipment and tooling used for these SKUs. Approximately $3 million
of additional depreciation expense was recorded over the fourth quarter of 1999
from the time the decision was made to exit the product line until production
ceased at December 31, 1999 and resulted in the affected assets being fully
depreciated. Depreciation expense associated with these assets was $4.6 million
in 1999. These assets were disposed of during 2000, and the Company did not
generate significant proceeds as a result of the disposals. Additionally, as a
result of the Company's decision to discontinue certain camping stoves, lights,
air mattresses, scales and humidifiers, a $3.0 million charge was recorded
during the fourth quarter of 1999 to properly state this inventory at the
lower-of-cost-or-market. The Company also recognized $0.8 million related to
certain other product lines to properly state the inventory at the
lower-of-cost-or-market. These charges for excess inventories were based upon
management's best estimate of net realizable value.
15. Segment, Customer and Geographic Data
Through December 31, 2001, Sunbeam's operations were managed through four
reportable segments: Household, Outdoor Leisure, International and Corporate.
Reportable segments were identified by the Company based upon the distinct
products manufactured (Household and Outdoor Leisure) or based upon the
geographic region in which its products are distributed (International). The
Company's reportable segments were all separately managed.
The Household group consists of appliances (including mixers, blenders, food
steamers, bread makers, rice cookers, coffee makers, toasters, irons and garment
steamers), health products (including vaporizers, humidifiers, air cleaners,
massagers, hot and cold packs and blood pressure monitors), scales, personal
care products (including hair clippers and trimmers and related products for the
professional beauty, barber and veterinarian trade and sales of products to
commercial and institutional channels), blankets (including electric blankets,
heated throws and mattress pads) and through the Company's wholly-owned
subsidiary, BRK Brands, Inc., smoke and carbon monoxide detectors, fire
extinguishers and home safety equipment.
The Outdoor Leisure group includes outdoor recreation products (which encompass
tents, sleeping bags, coolers, camping stoves, lanterns and outdoor heaters),
outdoor cooking products (including gas and charcoal outdoor grills and grill
parts and accessories), Powermate products (including portable and stationary
power generators, air compressors and pressure washers), and Eastpak and
Timberland branded products (including backpacks, bookbags and other travel
related gear). See Note 14 for discussion of the May 2000 Eastpak divestiture.
31
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. Segment, Customer and Geographic Data - (continued)
The International group is managed through five regional subdivisions: Europe,
Latin America, Japan, Canada and Asia. Europe includes the manufacture, sales
and distribution of Campingaz products and sales and distribution in Europe,
Africa and the Middle East of other Company products. The Latin American region
includes the manufacture, sales and distribution throughout Latin America of
small appliances, and sales and distribution of personal care products,
professional clippers and related products, camping products and Powermate
products. Japan includes the sales and distribution of primarily outdoor
recreation products. Canada includes sales of substantially all the Company's
products and Asia encompasses sales and distribution in all areas of Asia other
than Japan of substantially all the Company's products.
The Company's Corporate group provides certain management, accounting, legal,
risk management, treasury, human resources, tax and management information
services to all operating groups and also includes the operations of the Sunbeam
retail stores prior to their closing in the first quarter of 2000.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies, see Note 2. Sunbeam
evaluates performance and allocates resources based upon earnings before
interest expense, income taxes, depreciation and amortization ("EBITDA")
excluding minority interest, reorganization costs, significant and unusual gains
and losses and foreign exchange gains and losses. Intersegment sales and
transfers are primarily recorded at cost.
The following tables include selected financial information with respect to
Sunbeam's four operating segments. Business segment information for prior years
has been reclassified to conform to the current year presentation.
Outdoor
Household Leisure International Corporate Total
--------- ------- ------------- --------- -----
Year Ended December 31, 2001
Net sales to unaffiliated customers...... $ 736,936 $ 797,614 $ 469,665 $ -- $ 2,004,215
Intersegment net sales................... 63,322 101,392 12,419 -- 177,133
Segment EBITDA........................... 42,858 21,810 18,989 (22,531) 61,126
Segment assets........................... 407,726 770,813 258,191 124,013 1,560,743
Segment depreciation expense............. 22,790 40,449 6,495 5,706 75,440
Year Ended December 31, 2000
Net sales to unaffiliated customers...... $ 764,960 $ 780,365 $ 524,844 $ 6,226 $ 2,076,395
Intersegment net sales................... 72,814 117,601 1,838 -- 192,253
Segment EBITDA........................... 60,916 25,621 44,972 (68,523) 62,986
Segment assets........................... 450,544 748,294 250,031 338,782 1,787,651
Segment depreciation expense............. 24,501 35,147 7,490 8,628 75,766
Year Ended December 31, 1999
Net sales to unaffiliated customers...... $ 837,057 $ 966,448 $ 583,684 $ 10,790 $ 2,397,979
Intersegment net sales................... 81,253 150,938 7,050 -- 239,241
Segment EBITDA........................... 60,929 110,815 59,646 (74,077) 157,313
Segment assets........................... 707,436 1,713,045 385,200 326,668 3,132,349
Segment depreciation expense............. 25,986 40,490 6,076 9,658 82,210
32
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. Segment, Customer and Geographic Data - (continued)
Reconciliation of selected segment information to Sunbeam's consolidated totals
for the years ended:
December 31, 2001 December 31, 2000 December 31, 1999
----------------- ----------------- -----------------
Net sales:
Net sales for reportable segments ..................................... $ 2,181,348 $ 2,268,648 $ 2,637,220
Elimination of intersegment net sales ................................. (177,133) (192,253) (239,241)
----------- ----------- -----------
Consolidated net sales ............................................. $ 2,004,215 $ 2,076,395 $ 2,397,979
=========== =========== ===========
Segment EBITDA:
Total EBITDA for reportable segments .................................. $ 61,126 $ 62,986 $ 157,313
Unallocated amounts:
Interest expense ................................................... (48,246) (217,507) (200,181)
Foreign exchange losses (gains) .................................... (3,995) (3,563) 2,293
Depreciation expense ............................................... (75,440) (75,766) (82,210)
Amortization of intangible assets .................................. (20,895) (51,457) (49,796)
Reorganization to global brand basis (Note 14) ..................... (4,283) -- --
Cost savings/ productivity (Note 14) ............................... (11,419) -- --
Exiting businesses (Note 14) ....................................... (9,314) -- --
Impairment charges (Note 14) ....................................... (32,441) -- --
European restructuring charge (Note 14) ............................ (361) (4,291) --
Provision for inventory and fixed assets (Note 14) ................. -- (7,107) (15,068)
Former employees deferred compensation and severance (Note 12) ..... -- (5,713) (4,716)
Goodwill impairment (Note 14) ...................................... -- (1,052,278) (52,000)
Year 2000 and system initiative expenses ........................... -- -- (27,279)
Restatement related charges (Note 16) .............................. 10,507 (39,069) (7,607)
Litigation and environmental and other reserve adjustments (Note 16) -- (1,489) (11,292)
Insurance recovery (Note 16) ....................................... 13,554 10,000 --
Exchange offer expenses (Note 4) ................................... -- (5,409) --
Purchase accounting adjustments .................................... -- (4,280) --
Glenwillow closure (Note 14) ....................................... -- (7,572) --
Retail Stores closings (Note 14) ................................... -- (2,544) --
Other charges ...................................................... -- (2,163) (2,643)
----------- ----------- -----------
(182,333) (1,470,208) (450,499)
----------- ----------- -----------
Consolidated loss before reorganization costs,
income taxes, and minority interest ........................... $ (121,207) $(1,407,222) $ (293,186)
=========== =========== ===========
Enterprise-Wide Disclosures
Net sales on a global basis from the Company's Household products represented
46%, 47% and 43%, of consolidated net sales in 2001, 2000, and 1999,
respectively. Net sales from the Company's Outdoor Leisure products category
represented 54%, 53% and 56% of consolidated net sales in 2001, 2000, and 1999,
respectively.
Years Ended
-----------
2001 2000 1999
-------- --------- --------
Geographic Area Data Net sales to unaffiliated customers:
United States....................................................... $1,534,508 $1,551,552 $1,814,295
Europe.............................................................. 148,080 187,551 239,725
Latin America....................................................... 165,586 165,242 148,108
Other............................................................... 156,041 172,050 195,851
---------- ---------- -----------
Total net sales........................................................ $2,004,215 $2,076,395 $ 2,397,979
========== ========== ===========
Identifiable assets:
United States....................................................... $1,302,552 $1,537,620 $2,747,149
Europe.............................................................. 108,679 116,621 232,896
Latin America....................................................... 78,982 71,183 66,995
Other............................................................... 70,530 62,227 85,309
---------- ---------- -----------
Total identifiable assets.............................................. $1,560,743 $1,787,651 $3,132,349
========== ========== ==========
33
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
15. Segment, Customer and Geographic Data - (continued)
Revenue from one retail customer in the United States in Sunbeam's Household and
Outdoor Leisure segments accounted for approximately 18%, 21%, and 19%, of
consolidated net sales in 2001, 2000, and 1999, respectively. Receivables from
this customer excluding the effect of the Company's receivable securitization
program approximated $48 million and $57 million at December 31, 2001 and 2000,
respectively. The Company establishes its credit policies based on an ongoing
evaluation of its customers' creditworthiness and competitive market conditions
and establishes its allowance for doubtful accounts based on an assessment of
exposures to credit losses at each balance sheet date. The Company believes its
allowance for doubtful accounts is sufficient based on the credit exposures
outstanding.
16. Commitments and Contingencies
Litigation
Commencing in April 1998, lawsuits were filed on behalf of purchasers of Sunbeam
Corporation's common stock against Sunbeam Corporation and some of its present
and former directors and former officers, as well as Arthur Andersen LLP
("Arthur Andersen"), Sunbeam Corporation's independent accountants for the
period covered by the lawsuits, alleging violations of the federal and state
securities laws. The plaintiffs seek an unspecified award of money damages.
Commencing October 1998, lawsuits were filed in the U.S. District Court for the
Southern District of Florida on behalf of certain purchasers of the Debentures
against Sunbeam Corporation, certain of Sunbeam Corporation's former officers
and directors and Arthur Andersen, alleging, among other things, violations of
federal and state securities laws. The plaintiffs seek, among other things,
either unspecified monetary damages or rescission of their purchase of the
Debentures. These lawsuits have been consolidated in the U.S. District Court for
the Southern District of Florida. Except for Sunbeam Corporation, (i) lawsuits
by purchasers of Debentures against Arthur Andersen (ii) and Sunbeam
Corporation, all of these cases have been tentatively settled as to all
defendants, subject to court approval. With regard to the lawsuits against
Arthur Andersen, the Company has been informed that such cases have been
settled. As a result of Sunbeam Corporation's Filing, this case is automatically
stayed under the Bankruptcy Code as against Sunbeam Corporation. Under the
Sunbeam Corporation Plan, if it is confirmed and becomes effective, the claims
of the plaintiffs against Sunbeam Corporation will be discharged with no
recovery for such claims.
In April 1998, a purported derivative action was filed in the Circuit Court for
the Fifteenth Judicial Circuit in and for Palm Beach County, Florida against
Sunbeam Corporation and some of its present and former directors and former
officers. In this action, plaintiffs allege, among other things, that Messrs.
Dunlap and Kersh, Sunbeam Corporation's former Chairman and Chief Executive
Officer and former Chief Financial Officer, respectively, caused Sunbeam
Corporation to employ fraudulent accounting procedures in order to enable them
to secure new employment contracts, and seeks a declaration that the individual
defendants have violated fiduciary duties, an injunction against the payment of
compensation to Messrs. Dunlap and Kersh or the imposition of a constructive
trust on such payments, and unspecified money damages. The defendants have each
moved to dismiss the amended complaint in whole or in part. As a result of
Sunbeam Corporation's Filing, this case is automatically stayed under the
Bankruptcy Code as against Sunbeam Corporation. Pursuant to the Bankruptcy Code
and the Sunbeam Corporation Plan, if it is confirmed and becomes effective, such
derivative actions become assets of Sunbeam Corporation.
Sunbeam Corporation was named as a defendant in an action filed in the District
Court of Tarrant County, Texas, 48th Judicial District, on November 20, 1998.
The plaintiffs in this action are purchasers of the Debentures. The plaintiffs
allege that Sunbeam Corporation violated the Texas Securities Act and the Texas
Business & Commercial Code and committed state common law fraud in connection
with the offering and sale of the Debentures. Sunbeam Corporation specially
appeared to assert an objection to the Texas court's exercise of personal
jurisdiction over Sunbeam Corporation, and the complaint was dismissed without
prejudice for lack of jurisdiction. In October 2000, the plaintiffs also filed a
complaint against Sunbeam Corporation's subsidiary Sunbeam Products, Inc. in the
District Court for Dallas County alleging substantially the same allegations as
the complaint filed against Sunbeam Corporation in Tarrant County. The court in
such case has, on its own motion, closed this case without prejudice, and
provided either party to the case the right to file a motion to reinstate the
case within a 30 day period following the conclusion of the Chapter 11 case of
Sunbeam Products, Inc.
Messrs. Dunlap and Kersh have commenced an action against Sunbeam Corporation in
the Chancery Court for the State of Delaware seeking advancement from Sunbeam
Corporation of their alleged expenses incurred in connection with defending
themselves in the various actions described above in which they are defendants
and the investigation by the SEC described below. As a result of Sunbeam
Corporation's Filing, this case is automatically stayed under the Bankruptcy
Code. Under the Sunbeam Corporation Plan, if it is confirmed and becomes
effective, the claims of Messrs. Dunlap and Kersh for these payments will be
discharged with no recovery for such claims.
34
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. Commitments and Contingencies - (continued)
On February 9, 1999, Messrs. Dunlap and Kersh filed with the American
Arbitration Association demands for arbitration of claims under their respective
employment agreements with Sunbeam Corporation. Messrs. Dunlap and Kersh are
requesting a finding by the arbitrator that Sunbeam Corporation terminated their
employment without cause and that they should be awarded certain benefits based
upon their respective employment agreements. Sunbeam Corporation has filed
counterclaims seeking, among other things, the return of all consideration paid,
or to be paid, under the February 1998 employment agreements between Sunbeam
Corporation and Messrs. Dunlap and Kersh. As a result of Sunbeam Corporation's
Filing, this case is automatically stayed under the Bankruptcy Code. Under the
Sunbeam Corporation Plan, if it is confirmed and becomes effective, the claims
of Messrs. Dunlap and Kersh will be discharged with no recovery for such claims.
Commencing in July 1998, three of the insurers that issued directors and
officers insurance filed suit against the Company requesting a declaratory
judgment that the directors' and officers' liability insurance policy for
coverage issued by such issuers was invalid and/or had been properly canceled.
Two of these cases were transferred to the U.S. District Court for the Southern
District of Florida for coordination and consolidation of pre-trial proceedings
with the various actions pending in that court. One of the cases is pending in
the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County,
Florida. As a result of Sunbeam Corporation's Filing, these cases are
automatically stayed as against Sunbeam Corporation. In April 1999, Sunbeam
Corporation filed an action in the U.S. District Court for the Southern District
of Florida against National Union Fire Insurance Company of Pittsburgh, PA, Gulf
Insurance Company and St. Paul Mercury Insurance Company requesting, among other
things, a declaratory judgment that these insurers are not entitled to rescind
their respective directors' and officers' liability insurance policies issued to
Sunbeam Corporation and a declaratory judgment that Sunbeam Corporation is
entitled to coverage from these insurance companies for the various lawsuits
described herein under directors' and officers' liability insurance policies
issued by each of the defendants. Sunbeam Corporation has settled the National
Union action in 2000 resulting in the recovery of $10.0 million and has settled
the St. Paul and Gulf actions in 2001 resulting recovery of $13.6 million.
By letter dated June 17, 1998, the staff of the Division of Enforcement of the
SEC advised Sunbeam Corporation that it was conducting an informal inquiry into
Sunbeam Corporation's accounting policies and procedures and requested that
Sunbeam Corporation produce certain documents. In July 1998, the SEC issued a
Formal Order of Private Investigation, pursuant to which subpoenas were served
on Sunbeam Corporation requiring the production of certain documents. Sunbeam
Corporation has resolved this investigation and in connection with such
resolution consented to an order which provided that Sunbeam Corporation will
cease and desist from future violations of the antifraud and other provisions of
the federal securities laws, but such order did not provide for the imposition
of monetary penalties.
Sunbeam Corporation and/or its subsidiaries are also involved in various other
lawsuits arising from time to time which Sunbeam Corporation considers to be
ordinary routine litigation incidental to its business. In the opinion of
Sunbeam Corporation, the resolution of these routine matters, and of certain
matters relating to prior operations, individually or in the aggregate, will not
have a material adverse effect upon the financial position, results of
operations or cash flows of Sunbeam Corporation and its subsidiaries.
Amounts accrued for litigation matters represent the anticipated costs (damages
and/or settlement amounts) in connection with pending litigation and claims and
related anticipated legal fees for defending such actions. The costs are accrued
when it is both probable that an asset has been impaired or a liability has been
incurred and the amount can be reasonably estimated. The accruals are based upon
the Company's assessment, after consultation with counsel, of probable loss
based on the facts and circumstances of each case, the legal issues involved,
the nature of the claim made, the nature of the damages sought and any relevant
information about the plaintiffs and other significant factors which vary by
case. When it is not possible to estimate a specific expected cost to be
incurred, the Company evaluates the range of probable loss and records the
minimum end of the range. As of December 31, 2001, Sunbeam Corporation and its
subsidiaries had established accruals for litigation matters of $23.9 million
(representing $11.6 million and $12.3 million for estimated damages or
settlement amounts and legal fees, respectively), and $40.5 million as of
December 31, 2000 (representing $11.7 million and $28.8 million for estimated
damages or settlement amounts and legal fees, respectively). It is anticipated
that the $23.9 million accrual at December 31, 2001 will be paid as follows:
$2.5 million in 2002 and $3.3 million in 2003, and $18.1 million will be subject
to discharge.
35
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. Commitments and Contingencies - (continued)
The Company recorded an additional $39.1 million and $7.6 million for the fiscal
twelve months of 2000 and 1999, respectively, for defense costs for
restatement-related litigation. The Company's estimate of the additional defense
costs was based primarily upon actual defense costs experienced in the second
through fourth quarters of 2000 and a projection of expected future costs
through the various trial dates of such litigations based on such costs to date
(which were considered to be representative of the expected future costs). As a
result of settlements in these cases in the fourth quarter of 2001, certain of
these reserves were reduced by $10.5 million in the fourth quarter of 2001. The
balance of the accruals for the restatement related litigation and other claims
against Sunbeam Corporation as of December 31, 2001 were established prior to
the Filings and do not reflect the effect of any possible discharge under the
Bankruptcy Code of matters for which the reserves were originally established.
The Company believes, based on information available on December 31, 2001, that
anticipated probable costs of litigation matters existing as of December 31,
2001 have been adequately reserved to the extent determinable.
Environmental Matters
The Company's operations, like those of comparable businesses, are subject to
certain federal, state, local and foreign environmental laws and regulations in
addition to laws and regulations regarding labeling and packaging of products
and the sales of products containing certain environmentally sensitive
materials. The Company believes it is in substantial compliance with all
environmental laws and regulations which are applicable to its operations.
Compliance with environmental laws and regulations involves certain continuing
costs; however, such costs of ongoing compliance have not resulted, and are not
anticipated to result, in a material increase in the Company's capital
expenditures or to have a material adverse effect on the Company's competitive
position, results of operations, financial position or cash flows.
In addition to ongoing environmental compliance at its operations, the Company
also is actively engaged in environmental remediation activities, many of which
relate to divested operations. As of December 31, 2001, Sunbeam Corporation or
various of its subsidiaries have been identified by the United States
Environmental Protection Agency ("EPA") or a state environmental agency as a
potentially responsible party ("PRP") in connection with six sites subject to
the federal Superfund Act and eight sites subject to state Superfund laws
comparable to the federal law (collectively the "Environmental Sites"),
exclusive of sites at which Sunbeam Corporation or various of its subsidiaries
have been designated (or expects to be designated) as a de minimis (less than
1%) participant.
The Superfund Act, and related state environmental remediation laws, generally
authorize governmental authorities to remediate a Superfund site and to assess
the costs against the PRPs or to order the PRPs to remediate the site at their
expense. Liability under the Superfund Act is joint and several and is imposed
on a strict basis, without regard to degree of negligence or culpability. As a
result, Sunbeam Corporation or various of its subsidiaries recognize their
responsibility to determine whether other PRPs at a Superfund site are
financially capable of paying their respective shares of the ultimate cost of
remediation of the site. Whenever Sunbeam Corporation or various of its
subsidiaries have determined that a particular PRP is not financially
responsible, it has assumed for purposes of establishing reserve amounts that
such PRP will not pay its respective share of the costs of remediation. To
minimize Sunbeam Corporation's or various of its subsidiaries' potential
liability with respect to the Environmental Sites, Sunbeam Corporation or
various of its subsidiaries have actively participated in steering committees
and other groups of PRPs established with respect to such sites. Sunbeam
Corporation or various of its subsidiaries engage in active remediation
activities at thirteen sites, seven of which are among the Environmental Sites
referred to above, and six of which have not been designated as Superfund sites
under federal or state law. The remediation efforts in which the Sunbeam
Corporation or various of its subsidiaries are involved include facility
investigations, including soil and groundwater investigations, corrective
measure studies, including feasibility studies, groundwater monitoring,
extraction and treatment and soil sampling, excavation and treatment relating to
environmental clean-ups. In certain instances, Sunbeam Corporation or various of
its subsidiaries have entered into agreements with governmental authorities to
undertake additional investigatory activities and in other instances have agreed
to implement appropriate remedial actions. Sunbeam Corporation or various of its
subsidiaries, when necessary, have also established reserve amounts for certain
non-compliance matters including those involving air emissions.
36
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. Commitments and Contingencies - (continued)
Sunbeam Corporation or various of its subsidiaries have established reserves to
cover the anticipated probable costs of investigation and remediation, based
upon periodic reviews of all sites for which they have, or may have remediation
responsibility. Sunbeam Corporation or various of its subsidiaries accrue
environmental investigation and remediation costs when it is probable that a
liability has been incurred, the amount of the liability can be reasonably
estimated and their responsibility for the liability is established. Generally,
the timing of these accruals coincides with the earlier of formal commitment to
an investigation plan, completion of a feasibility study or a commitment to a
formal plan of action. As of December 31, 2001 and December 31, 2000, Sunbeam
Corporation's consolidated environmental reserves were $20.1 million
(representing $18.7 million for the estimated costs of facility investigations,
corrective measure studies, or known remedial measures, and $1.4 million for
estimated legal costs) and $19.3 million (representing $18.1 million for the
estimated costs of facility investigations, corrective measure studies, or known
remedial measures, and $1.2 million for estimated legal costs), respectively.
The reserves for the matters that are the responsibility of the inactive
domestic subsidiaries of Sunbeam Corporation (the "Inactive Subsidiaries") that
have not filed for reorganization under the Bankruptcy Code and liabilities for
reserves that have been established for Sunbeam Corporation that are subject to
discharge under the Sunbeam Corporation Plan total, in the aggregate, $2.8
million as of December 31, 2001; of which $2.2 million represents the estimated
costs of facility investigations, corrective measure studies, or known remedial
measures, and $0.6 million represents the estimated legal costs. Prior to the
Filings, Sunbeam Corporation loaned funds to the Inactive Subsidiaries from time
to time to enable the Inactive Subsidiaries to fund their activities. However,
as a result of Sunbeam Corporation's Filing, the Inactive Subsidiaries may no
longer depend upon Sunbeam Corporation for funding. It is anticipated that the
$17.3 million accrual at December 31, 2001 (which is exclusive of the accrual
for the matters subject to discharge under the Sunbeam Corporation Plan and the
accrual for certain of the Inactive Subsidiaries) will be paid as follows: $4.8
million in 2002, $1.6 million in 2003, $1.3 million in 2004, $0.6 million in
2005, $0.5 million in 2006 and $8.5 million thereafter. Sunbeam Corporation or
various of its subsidiaries accrued its best estimate of investigation and
remediation costs based upon facts known to them at such dates and because of
the inherent difficulties in estimating the ultimate amount of environmental
costs, which are further described below, these estimates may materially change
in the future as a result of the uncertainties described below. Estimated costs,
which are based upon experience with similar sites and technical evaluations,
are judgmental in nature and are recorded at undiscounted amounts without
considering the impact of inflation and are adjusted periodically to reflect
changes in applicable laws or regulations, changes in available technologies and
receipt by Sunbeam Corporation and various of its subsidiaries of new
information. It is difficult to estimate the ultimate level of future
environmental expenditures due to a number of uncertainties surrounding
environmental liabilities. These uncertainties include the applicability of laws
and regulations, changes in environmental remediation requirements, the
enactment of additional regulations, uncertainties surrounding remediation
procedures including the development of new technology, the identification of
new sites for which Sunbeam Corporation and various of its subsidiaries could be
a PRP, information relating to the exact nature and extent of the contamination
at each site and the extent of required cleanup efforts, the uncertainties with
respect to the ultimate outcome of issues which may be actively contested and
the varying costs of alternative remediation strategies. The Company continues
to pursue the recovery of some environmental remediation costs from certain of
its liability insurance carriers; however, such potential recoveries have not
been offset against potential liabilities and have not been considered in
determining their environmental reserves.
Due to uncertainty over remedial measures to be adopted at some sites, the
possibility of changes in environmental laws and regulations and the fact that
joint and several liability with the right of contribution is possible at
federal and state Superfund sites, Sunbeam Corporation and various of its
subsidiaries' ultimate future liability with respect to sites at which
remediation has not been completed may vary from the amounts reserved as of
December 31, 2001. As a result of the Filings, environmental matters, mostly
involving claims for cost recovery or damages, have been automatically stayed
under the Bankruptcy Code as against the Debtors unless an order lifting the
stay is granted. Under the Sunbeam Corporation Plan, if it is confirmed and
becomes effective, the claims for payment of money against Sunbeam Corporation
will be discharged with no recovery for such claims.
The Company believes, based on information available as of December 31, 2001 for
sites where costs are estimable, that the costs of completing environmental
remediation of all sites for which the Company has a remediation responsibility
have been adequately reserved and that the ultimate resolution of these matters
will not have a material adverse effect upon the Company's financial position,
results of operations or cash flows.
Product Liability Matters
As a consumer goods manufacturer and distributor, Sunbeam Corporation and/or its
subsidiaries face the risk of product liability and related lawsuits involving
claims for substantial money damages, product recall actions and higher than
anticipated rates of warranty returns or other returns of goods. These claims
could result in liabilities that could have a material adverse effect on Sunbeam
Corporation's consolidated financial position, results of operations or cash
flows.
37
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
16. Commitments and Contingencies - (continued)
Sunbeam Corporation and/or its subsidiaries are party to various personal injury
and property damage lawsuits relating to their products and incidental to its
business. Annually, Sunbeam Corporation sets its product liability insurance
program which is an occurrence based program based on Sunbeam Corporation and
its subsidiaries current and historical claims experience and the availability
and cost of insurance. The program for 2001 is comprised of a self-insurance
retention generally totaling $3.0 million per occurrence, and is limited to
$25.0 million in the aggregate.
As a result of the Filings, product liability cases existing on the date of the
Filings are automatically stayed under the Bankruptcy Code against the Debtors,
unless an order is granted lifting the automatic stay.
Cumulative amounts estimated to be payable by the Company with respect to
pending and potential claims for all years in which the Company is liable under
its self-insurance retention have been accrued as liabilities. Such accrued
liabilities are necessarily based on estimates (which include actuarial
determinations made by independent actuarial consultants as to liability
exposure, taking into account prior experience, numbers of claims and other
relevant factors); thus, the Company's ultimate liability may exceed or be less
than the amounts accrued. The methods of making such estimates and establishing
the resulting liability are reviewed on a regular basis and any adjustments
resulting therefrom are reflected in current operating results.
Historically, product liability awards have rarely exceeded the Company's
individual per occurrence self-insured retention. There can be no assurance,
however, that the Company's future product liability experience will be
consistent with its past experience. Based on existing information, the Company
believes that the ultimate conclusion of the various pending product liability
claims and lawsuits of the Company, individually or in the aggregate, will not
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
Leases
The Company rents certain facilities, equipment and retail stores under
operating leases. Rental expense for operating leases amounted to $26.6 million
in 2001, $26.3 million in 2000, and $28.9 million in 1999. The minimum future
rentals due under noncancelable operating leases as of December 31, 2001
aggregated to $89.9 million. The amounts payable in each of the years 2002-2006
and thereafter are $18.4 million, $14.3 million, $11.5 million, $7.4 million,
$5.7 million and $32.6 million, respectively.
Certain Debt Obligations
Responsibility for servicing certain debt obligations of the Company's
predecessor were assumed by third parties in connection with the acquisition of
former businesses, although the Company's predecessor remained the primary
obligor in accordance with the respective loan documents. Such obligations,
which amounted to $13.3 million at December 31, 2001, and the corresponding
receivables from the third parties, are not included in the Consolidated Balance
Sheets since these transactions occurred prior to the issuance of SFAS No. 76,
Extinguishment of Debt. Management believes that the third parties will continue
to meet their obligations pursuant to the assumption agreements.
Purchase and Other Commitments
In connection with Coleman Powermate's 1995 purchase of substantially all of the
assets of Active Technologies, Inc. ("ATI"), Coleman Powermate may be required
to make payments to the predecessor owner of ATI of up to $18.8 million based on
Coleman Powermate's sales of ATI related products and royalties received by
Coleman Powermate for licensing arrangements related to ATI patents. As of
December 31, 2001, the amounts paid under the terms of this agreement have been
immaterial.
17. Related Party Transactions
Services Provided by M&F
Pursuant to the settlement agreement with M&F, see Note 3, M&F agreed to make
certain executive management personnel available to the Company and to provide
certain management assistance to the Company. The obligation for M&F to provide
such personnel and services expired during 2001. The Company was not obligated
to reimburse M&F for such services, other than reimbursement of out-of-pocket
expenses paid to third parties.
38
SUNBEAM CORPORATION AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
17. Related Party Transactions (continued)
Liquidation of Options
In accordance with the Coleman Merger Agreement, the unexercised options under
Coleman's stock option plans were cashed out at a price per share equal to the
difference between $27.50 per share and the exercise price of such options. A
significant shareholder of the Company, who held 500,000 Coleman stock options,
received a net payment of $6,750,000 in January of 2000. Coleman stock options
held by employees were cashed out in December 1999. Messrs. Shapiro and Isko and
Ms. Clark, executive officers of Sunbeam Corporation at such time, held 77,500,
20,000 and 25,000 options, respectively, for which they received net payments of
$823,000, $226,099 and $275,005, respectively.
Arrangements Between Coleman and M&F
Coleman and an affiliate of M&F are parties to a cross-indemnification agreement
pursuant to which Coleman has agreed to indemnify such affiliate, its officers,
directors, employees, control persons, agents and representatives against all
past, present and future liabilities, including product liability and
environmental matters, related to the initial assets of Coleman, which Coleman
acquired from such affiliate in December 1991. In addition, pursuant to this
cross-indemnification agreement, the M&F affiliate has agreed to indemnify
Coleman and its officers, directors, employees, agents and representatives
against all other liabilities of such M&F affiliate or any of its subsidiaries,
including liabilities relating to the assets it did not transfer to Coleman in
December 1991. This cross-indemnification agreement survived the Coleman merger.
Coleman previously was included in the consolidated tax group for the M&F
companies and was a party to a tax sharing agreement with a M&F affiliate,
pursuant to which Coleman paid to such affiliate the amount of taxes which would
have been paid by Coleman if it were required to file separate federal, state or
local income tax returns. The tax sharing agreement was terminated upon the
acquisition of Coleman; however, the acquisition agreement provides for certain
tax indemnities and tax sharing payments among the Company and the M&F
affiliates relating to periods prior to the acquisition.
39
EXHIBIT D
TO BE FILED PRIOR TO HEARING
EXHIBIT E
SUMMARY OF SIGNIFICANT ASSUMPTIONS
- ----------------------------------
The financial projections included in this Disclosure Statement are dependent
upon the successful implementation of the business plans of Sunbeam Corporation
and its subsidiaries and the validity of the other assumptions contained
therein. These projections reflect numerous assumptions, including confirmation
and consummation of the third amended plans of reorganization for Sunbeam and
the Subsidiary Debtors as filed with the Bankruptcy Court on September 6, 2002,
in accordance with their terms, continued access to the DIP Facility and the A/R
Securitization Facility during the pendency of the Chapter 11 and successor
working capital and receivables facilities after the plan effective date, the
anticipated future performance of the reorganized debtors, retail and industry
performance, certain assumptions with respect to competitors of the Company,
general business and economic conditions and other matters, many of which are
beyond the control of Sunbeam and its subsidiaries. In addition, certain (i)
risk factors, (ii) unanticipated events, and (iii) circumstances occurring
subsequent to the preparation of the projections may affect the actual
consolidated financial results of Sunbeam and its subsidiaries. Although the
projections were prepared in good faith, variations between actual financial
results and these projections may occur and be material.
The Company's projections include the following assumptions:
o No divestitures or acquisitions of businesses have been assumed.
o Approximately $10 million has been included in the projections related
to the continued rationalization of operations. This cash expense is
offset by projected cash insurance gains of $10 million from a fire in
one facility.
Fresh Start Accounting:
- -----------------------
The financial projections assume that Sunbeam and the Subsidiary Debtors will
emerge from Chapter 11 in 2002 and adopt the provisions of Fresh Start
Accounting. These principles are contained in the American Institute of
Certified Public Accountants Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code," ("SOP 90-7"). Adoption of
Fresh Start Accounting requires that assets and liabilities be restated to
reflect their reorganization value, which approximates fair value at the date of
emergence from Chapter 11. The assumed reorganization value of Sunbeam and its
consolidated subsidiaries is approximately $0.8 billion. The projected
reorganization value of Sunbeam and its consolidated subsidiaries is estimated
to be lower than the pre-reorganization value by $244 million. Lower PP&E and
intangibles, and increased liabilities relating to pensions and post-retirement
benefits and increased deferred tax assets were the key adjustments. The
adjustments on a net basis result in excess fair value of net assets over
reorganization value of approximately $80 million. This excess fair value over
reorganization value was allocated on a pro rata basis to property, plant and
equipment ($41 million) and intangible assets ($39 million). The restructuring
of Sunbeam's and the Subsidiary Debtors' capital structure and resulting
discharge of pre-petition debt will result in an extraordinary gain of $1.9
- --------------------------------------------------------------------------------
billion. The Fresh Start Accounting adjustments included in the following
projections are preliminary estimates.
New Accounting Pronouncement:
- ----------------------------
In July 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible
Assets," ("SFAS 142"), which the Company must adopt as of January 1, 2002. Under
the provisions of this statement, goodwill and intangible assets that have
indefinite useful lives will not be amortized but rather will be tested at least
annually for impairment. Identifiable intangible assets deemed to have
indefinite lives must be tested for impairment as of the beginning of the fiscal
year in which SFAS No. 142 is initially applied. That transitional intangible
asset impairment test must be completed in the first interim period in which
SFAS No. 142 is initially applied (March 31 for Sunbeam). SFAS No. 142
prescribes that an impairment loss be measured as the difference between the
carrying amount and fair value of the asset. SFAS No. 142 requires the
completion of the first step of the transitional goodwill impairment test
(whereby the fair value of reporting units is compared to the carrying value,
including goodwill) no later than 6 months (June 30th for Sunbeam) after initial
adoption. If there is indication of impairment, the second step (comparing the
implied fair value of the reporting unit goodwill with the carrying amount of
that goodwill) must be completed by the end of the fiscal year. Given that
Sunbeam is in the process of obtaining a business-by-business valuation for
Fresh-Start Accounting purposes, we will be delaying the completion of these
transitional impairment tests until the valuation process has been completed.
Reorganization Value:
- --------------------
See Section X. "Valuation", of this Disclosure Statement.
Reorganized Sunbeam Group Stock Option Plans:
- --------------------------------------------
The Plan of Reorganization (Section VI in the disclosure statement) provides for
an aggregate of approximately 11% of the outstanding shares of Reorganized
Sunbeam common stock to be available for the issuance of options and equivalent
incentive awards to employees. (Section VIII.C provides a description of the
Reorganized Sunbeam Group Stock Option Plans.) In light of the recent corporate
and accounting reform bill passed by Congress and the increased scrutiny by the
SEC, NYSE and Congress relating to employee stock compensation plans, the
Company is currently evaluating the adoption of the fair value method of
accounting for stock options as prescribed by SFAS No.123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). Adoption of SFAS No.123 would require
the recognition of compensation expense for employee stock option grants. The
Company currently applies APB Opinion No. 25 and related interpretations in
accounting for its stock options, which does not require the recognition of
compensation cost for stock options granted with an exercise price at fair
market value, as of the grant date. It appears probable that the strike price
related to the stock options described above will be granted with a strike price
somewhat below fair market value. Therefore, the Company will have to recognize
expense under either the SFAS No. 123 approach or with the APB 25 approach. The
2
- --------------------------------------------------------------------------------
expense associated with these options is estimated to be at least approximately
$2.4 million and is not included in the pro forma financial statements.
Net Sales:
- ---------
Net sales are projected to increase 2% in 2003 and 7% in 2004 and 2005. The
increases in net sales for 2002 through 2005 are driven primarily by new product
development, as well as the recapture of distribution that was lost in 2001 and
2002 as a result of the Chapter 11 filing. The increase in net sales for 2003 as
compared to 2002 is partially offset by lower projected sales for the Sunbeam
grills business primarily as a result of lower sales of excess and obsolete
inventory in this business unit.
Gross Margin:
- ------------
Gross margin as a percentage of net sales is projected to improve from 23.5% in
2002 to 26.3% in 2005. This improvement in the gross margin percentage is
primarily driven by cost savings as a result of continued rationalization of
operations and cost savings resulting from Six Sigma and other initiatives. The
improvement in the gross margin percentage is also attributable to favorable
product mix from both existing products and from new product introductions.
SG&A:
- ----
Selling, general and administrative ("SG&A") expenses as a percentage of net
sales are projected to improve from 22.0% in 2002 to 21.3% in 2005. This
improvement is primarily attributable to the leverage arising from increasing
net sales, as well as various initiatives to lower SG&A expense.
Income Taxes:
- ------------
The projections assume that Sunbeam no longer requires a valuation allowance for
US deferred tax assets since it is expected that these assets will be
recognizable at a future date. In addition, these projections assume that
Sunbeam will fully utilize US net operating losses and credits in connection
with the debt extinguishment from the proceeding. The weighted average worldwide
effective tax rate is estimated at 39%.
Reorganization Items:
- --------------------
Expenses and income directly incurred or realized as a result of the Chapter 11
Filings have been segregated from the normal operations and are disclosed
separately. Reorganization items include professional fees and other related
expenses.
EBITDA:
- ------
EBITDA represents earnings from continuing operations before interest and
financing charges, income taxes, reorganization items, depreciation and
3
- --------------------------------------------------------------------------------
amortization. EBITDA as measured by the Company may not be comparable to
similarly titled measures reported by other companies.
Capital Expenditures:
Capital expenditures relate primarily to new product development, productivity
enhancements, replacement costs and safety related modifications.
Working Capital:
Components of working capital are projected on the basis of historic patterns
applied to projected levels of operations.
2003 includes cash spending with respect to the rationalization of operations,
as well as higher disbursements for certain liabilities for which disbursements
were lower during the Chapter 11 proceedings.
Receivables are presented net of the securitization programs. The domestic
securitization program includes a post-emergence increase in the advance rate of
5%.
4
Sunbeam Corporation and Subsidiaries
(Debtors-in-Possession)
Projected Consolidated Statements of Operations
(in thousands)
Year Ended December 31,
--------------------------------------------------------
Fresh Start &
Debt Discharge
2002 Adjustments 2002
---------------- ---------------- -----------------
(pre-emergence) (post-emergence)
Net sales $ 1,970,318 $ - $ 1,970,318
Cost of goods sold 1,506,563 - 1,506,563
---------------- ---------------- -----------------
Gross margin 463,755 - 463,755
Selling, general and administrative expense 433,592 - 433,592
---------------- ---------------- -----------------
Operating earnings 30,163 - 30,163
Interest expense, net 18,406 - 18,406
Other expense, net 6,002 - 6,002
---------------- ---------------- -----------------
Earnings before reorganization costs, fresh start
valuation charges, income taxes and extraordinary item 5,755 - 5,755
Reorganization items 8,782 - 8,782
Fresh start valuation charges - 324,656 (d) 324,656
---------------- ---------------- -----------------
(Loss) earnings before income taxes and extraordinary item (3,027) (324,656) (327,683)
Income tax provision 1,587 - 1,587
---------------- ---------------- -----------------
(Loss) earnings before extraordinary item (4,614) (324,656) (329,270)
Extraordinary gain on discharge of debt, net of income taxes - 1,933,014 (a) 1,933,014
---------------- ---------------- -----------------
Net (loss) earnings $ (4,614) $ 1,608,358 $ 1,603,744
================ ================ =================
EBITDA $ 100,000 $ 100,000
================ =================
** TABLE CONTINUED.... **
Year Ended December 31,
------------------------------------------------------
2003 2004 2005
--------------- --------------- ---------------
Net sales $ 2,010,385 $ 2,144,492 $ 2,291,838
Cost of goods sold 1,497,636 1,580,182 1,688,558
--------------- --------------- ---------------
Gross margin 512,749 564,310 603,280
Selling, general and administrative expense 442,178 468,059 487,835
--------------- --------------- ---------------
Operating earnings 70,571 96,251 115,445
Interest expense, net 24,436 (c) 25,610 (c) 25,843 (c)
Other expense, net 2,074 2,079 2,079
--------------- --------------- ---------------
Earnings before reorganization costs, fresh start
valuation charges, income taxes and extraordinary item 44,061 68,562 87,523
Reorganization items - - -
Fresh start valuation charges - - -
--------------- --------------- ---------------
(Loss) earnings before income taxes and extraordinary item 44,061 68,562 87,523
Income tax provision 14,186 26,980 33,974
--------------- --------------- ---------------
(Loss) earnings before extraordinary item 29,875 41,582 53,549
Extraordinary gain on discharge of debt, net of income taxes - - -
--------------- --------------- ---------------
Net (loss) earnings $ 29,875 $ 41,582 $ 53,549
=============== =============== ===============
EBITDA $ 137,000 $ 162,000 $ 183,000
=============== =============== ===============
See Notes to Consolidated Projected Financial Statements
Sunbeam Corporation and Subsidiaries
(Debtors-in-Possession)
Projected Consolidated Balance Sheets
(in thousands)
Year Ended December 31,
------------------------------------------------------------------------
Debt Discharge Fresh Start
2002 Adjustments Adjustments 2002
---------------- --------------- --------------- ----------------
ASSETS (pre-emergence) (post-emergence)
Current assets:
Cash and cash equivalents $ 103,098 $ - $ - $ 103,098
Receivables, net 137,920 - - 137,920
Inventories 348,958 - - 348,958
Prepaid expenses and other current assets 55,074 - - 55,074
---------------- --------------- --------------- ----------------
Total current assets 645,050 - - 645,050
Property, plant and equipment, net 333,702 - (69,245) (d) 264,457
Trademarks, tradenames & other intangibles 543,513 - (307,760) (d) 235,753
Goodwill 15,564 - (15,564) (d) -
Other assets 30,252 - 42,049 (d) 72,301
---------------- --------------- --------------- ----------------
$ 1,568,081 $ - $ (350,520) $ 1,217,561
================ =============== =============== ================
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt $ 35,124 $ - $ (6,325) (e) $ 28,799
Accounts payable 127,612 - - 127,612
Other current liabilities 222,951 - (1,401) (d) 221,550
---------------- --------------- --------------- ----------------
Total current liabilities 385,687 - (7,726) 377,961
Long-term debt, less current portion 7,900 72,357 (a) 6,325 (e) 86,582
Other long-term liabilities 284,787 - 78,000 (d) 260,324
(102,463) (d)
2,498,065 (2,498,065) (b) - -
Liabilities subject to compromise (1,608,358) 492,694 (a) (324,656) (1,440,320)
- 1,933,014 (a) - 1,933,014
---------------- --------------- --------------- ----------------
Shareholders' (deficiency) equity (1,608,358) 2,425,708 (324,656) 492,694
---------------- --------------- --------------- ----------------
$ 1,568,081 $ - $ (350,520) $ 1,217,561
================ =============== =============== ================
** TABLE CONTINUED.... **
Year Ended December 31,
----------------------------------------------------
2003 2004 2005
--------------- --------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 97,308 $ 133,569 $ 200,041
Receivables, net 141,504 149,802 158,524
Inventories 363,842 386,278 408,596
Prepaid expenses and other current assets 57,244 55,242 53,239
--------------- --------------- ---------------
Total current assets 659,898 724,891 820,400
Property, plant and equipment, net 255,644 249,694 229,996
Trademarks, tradenames & other intangibles 234,281 232,807 231,334
Goodwill - - -
Other assets 71,485 71,268 71,054
--------------- --------------- ---------------
$ 1,221,308 $ 1,278,660 $ 1,352,784
=============== =============== ===============
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt $ 27,134 $ 39,784 $ 39,784
Accounts payable 128,840 135,839 143,371
Other current liabilities 205,627 216,477 226,952
--------------- --------------- ---------------
Total current liabilities 361,601 392,100 410,107
Long-term debt, less current portion 95,278 90,587 99,342
Other long-term liabilities 241,859 231,820 225,633
Liabilities subject to compromise - - -
522,570 564,153 617,702
- - -
--------------- --------------- ---------------
Shareholders' (deficiency) equity 522,570 564,153 617,702
--------------- --------------- ---------------
$ 1,221,308 $ 1,278,660 $ 1,352,784
=============== =============== ===============
See Notes to Consolidated Projected Financial Statements
Sunbeam Corporation and Subsidiaries
(Debtors-in-Possession)
Projected Condensed Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
------------------------------------------------------------
Fresh Start &
Debt Discharge
2002 Adjustments 2002
------------------ ------------------ ------------------
Operating activities: (pre-emergence) (post-emergence)
Net (loss) earnings $ (4,614) $ 1,608,358 $ 1,603,744
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 69,756 - 69,756
Non-cash interest charges 4,535 - 4,535
Gain/loss on sale of assets 2,634 - 2,634
Deferred income tax provision (3,379) - (3,379)
Gain on debt discharge and fresh start adjustments, net - (1,608,358) (1,608,358)
Changes in operating assets and liabilities:
Receivables, net (15,354) - (15,354)
Proceeds from receivables securitization 8,809 - 8,809
Inventories 28,643 - 28,643
Accounts payable 3,478 - 3,478
Prepaids and other current assets and liabilities (15,964) - (15,964)
Other long-term and non-operating liabilities (3,126) - (3,126)
------------------ ------------------ ------------------
Net cash provided by operating activities 75,418 - 75,418
Investing activities:
Capital expenditures (46,272) - (46,272)
Proceeds from sale of assets 8,102 - 8,102
Other, net (148) - (148)
------------------ ------------------ ------------------
Net cash used for investing activities (38,318) - (38,318)
Financing activities:
Net borrowings under credit facilities 9,174 - 9,174
Deferred financing fees (4,771) - (4,771)
Other, net 4,347 - 4,347
------------------ ------------------ ------------------
Net cash provided by investing activities 8,750 - 8,750
Net increase (decrease) in cash and cash equivalents 45,850 - 45,850
Cash and cash equivalents beginning of the period 57,248 - 57,248
------------------ ------------------ ------------------
Cash and cash equivalents end of the period $ 103,098 $ - $ 103,098
================== ================== ==================
** TABLE CONTINUED.... **
Year Ended December 31,
-------------------------------------------------------
2003 2004 2005
------------------ ------------------ ---------------
Operating activities:
Net (loss) earnings $ 29,875 $ 41,582 $ 53,549
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 65,934 65,259 67,065
Non-cash interest charges 9,236 9,959 10,755
Gain/loss on sale of assets - - -
Deferred income tax provision 1,313 1,777 24
Gain on debt discharge and fresh start adjustments, net - - -
Changes in operating assets and liabilities:
Receivables, net (5,871) (19,474) (20,816)
Proceeds from receivables securitization 2,287 11,177 12,094
Inventories (14,884) (22,436) (22,318)
Accounts payable 733 7,000 7,531
Prepaids and other current assets and liabilities (15,433) 12,701 12,394
Other long-term and non-operating liabilities (23,754) (13,681) 6,857
------------------ ------------------ ---------------
Net cash provided by operating activities 49,436 93,864 127,135
Investing activities:
Capital expenditures (55,226) (57,603) (60,663)
Proceeds from sale of assets - - -
Other, net - - -
------------------ ------------------ ---------------
Net cash used for investing activities (55,226) (57,603) (60,663)
Financing activities:
Net borrowings under credit facilities - - -
Deferred financing fees - - -
Other, net - - -
------------------ ------------------ ---------------
Net cash provided by investing activities - - -
Net increase (decrease) in cash and cash equivalents (5,790) 36,261 66,472
Cash and cash equivalents beginning of the period 103,098 97,308 133,569
------------------ ------------------ ---------------
Cash and cash equivalents end of the period $ 97,308 $ 133,569 $ 200,041
================== ================== ===============
See Notes to Consolidated Projected Financial Statements
Sunbeam Corporation and Subsidiaries
(Debtors-in-Possession)
Notes to Projected Consolidated Financial Statements
(in thousands)
The pro forma adjustments reflect the total assumed fair market values of the
enterprise and are based upon the valuation analysis prepared by DKW. See
Section X, "Valuation." The DKW valuation is based upon a number of assumptions,
including a successful reorganization of the Debtors' businesses in a timely
manner, the achievement of the forecasts reflected in the financial projections,
the continuation of current market conditions through the Effective Date and the
Plan becoming effective in accordance with its Terms. See Section XI, "Certain
Risk Factors to be Considered."
The pro forma adjustments valuing certain long-lived assets at fair market value
are based upon preliminary estimates. These estimates do not purport to be based
upon an independent appraisal value or necessarily reflect the values which may
be realized if the assets are sold. These fair market value adjustments will be
revised when additional information concerning asset and liability valuation
becomes available. Adjustments, which could be significant, will be made during
the period of time allowable in accordance with SOP 90-7 based upon detailed
reviews of the fair values of assets and liabilities as of the Effective Date.
The pro forma adjustments footnoted in the accompanying Projected Consolidated
Financial Statements are derived as follows:
(a) To reflect the issuance of new debt and new stock to the pre-petition
creditors as follows:
Assumed fair value of New Secured Notes $ 72,357
Assumed fair value of reorganized Sunbeam Corporation common stock 492,694
---------------
Fair value of consideration 565,051
Carrying value of discharged pre-petition liabilities (2,498,065)
---------------
Extraordinary gain on discharge of debt $ (1,933,014)
===============
The reconciliation of fair value above to the DKW valuation follows:
DKW valuation $ 760,000
Less:
Foreign debt (32,586)
Other debt, including Industrial Revenue Bonds (9,729)
Receivables securitization outstanding (152,634)
---------------
Assumed fair value of consideration $ 565,051
===============
(b) To reclassify pre-petition liabilities to non-current liabilities subject
to compromise:
Bank Credit Facility (1) $ 1,541,999
Accrued interest on Bank Credit Facility 43,539
Accrued commitment fees on Bank Credit Facility 16,975
Subordinated Convertible Notes 864,261
Other long term liabilities 31,291
---------------
$ 2,498,065
===============
(1) Actual outstanding borrowings as of the Commencement Date, including
letters of credit of $72.1 million was $1.653 billion, including a $50
million supplemental revolver, which was repaid immediately with funds
from the DIP financing.
Sunbeam Corporation and Subsidiaries
(Debtors-in-Possession)
Notes to Projected Consolidated Financial Statements
(in thousands)
(c) Interest assumptions are as follows:
A/R securitization:
The projections assume an annual interest rate of 6%, which is applied to
the outstanding investment balance. Fees of $1.0 million are amortized
through December 31, 2005, the expected term of the AR Securitization.
The A/R Securitization includes an unused facility fee of 0.375%.
Working Capital Facility:
The projections assume an annual interest rate of 7%, which is applied to
the outstanding balance. Fees of $5.0 million are amortized through
December 31, 2005, the expected term of the Working Capital Facility. The
Working Capital Facility includes an unused facility fee of 0.5%.
Secured Notes:
The Secured Notes are assumed to be issued at principal amount of $100
million, stated interest rate of 5% Pay In Kind and 7 year maturity. The
fair value of the Secured Notes are assumed to be $72.4 million as of the
emergence date, with a fully accreted value of $141.0 million. The annual
effective interest rate is approximately 10% on this non-cash pay debt.
A SUMMARY OF THE TERMS OF THE SECURED NOTES AND THE WORKING CAPITAL
FACILITY ARE SET FORTH IN SECTIONS VI.A (6) AND VI.I (1) OF THE SUNBEAM
CORPORATION DISCLOSURE STATEMENT.
Projected interest expense in 2003 - 2005 is calculated as follows:
2003 2004 2005
------------- ------------- -------------
Cash expense related to Working Capital Facility $ 2,143 $ 2,143 $ 2,143
Non-cash expense related to Secured Notes 7,236 7,959 8,755
Cash expense related to AR Securitization 10,459 11,170 11,945
Other 4,598 4,338 3,000
------------- ------------- -------------
$ 24,436 $ 25,610 $ 25,843
============= ============= =============
(d) To reflect the adjustment of certain long-lived assets to the estimated
fair market value:
Allocation of
Estimated Excess FV
Fair Value over Reorg
Adjustments Value (1) Total
---------------- ---------------- ----------------
Property, plant and equipment $ 27,922 $ 41,323 $ 69,245
Trademarks and tradenames 268,707 39,053 307,760
Pension/OPEB liabilities 78,000 - 78,000
Goodwill 15,564 - 15,564
--------------- --------------- ---------------
390,193 80,376 470,569
Deferred income taxes (2) (145,913) - (145,913)
--------------- --------------- ---------------
Total Fresh Start Valuation Charge $ 244,280 $ 80,376 $ 324,656
=============== =============== ===============
(1) The adjustments for the excess fair value over Reorganization
Value are based on a pro rata allocation of the excess to
long-lived assets.
(2) Represents the reversal of tax valuation reserves and establishment
of a deferred tax assets in connection with Fresh Start Valuation
Charges and was computed using a 39.0% tax rate.
The deferred tax adjustment is reflected on the balance
sheet as follows:
Other assets $ 42,049
Other current liabilities 1,401
Other long-term liabilities 102,463
-----------
$ 145,913
These adjustments result in an annual reduction in depreciation expense
of $5 million and increased pension/OPEB expense of $2.6 million.
(e) In addition to the pre-petition debt outlined in Note (b) above,
substantially all of the Company's other pre-petition debt was in default
as a result of the Chapter 11 filings resulting in the classification in
the balance sheet as current. This adjustment represents the
reclassification of such debt to non-current. Upon the Effective Date, the
pre-petition debt outlined in Note (b) above is no longer outstanding.
EXHIBIT F
SUNBEAM CORPORATION/SUNBEAM SUBSIDIARIES
ESTIMATED LIQUIDATION ANALYSIS
------------------------------
(IN $000)
METHODOLOGY:
- ------------
For purposes of this analysis, it was assumed that, on 12/31/02 ("the Filing
Date"), a chapter 7 trustee is appointed.
The estimated recovery ranges noted in the accompanying liquidation analysis are
based upon two alternative hypothetical liquidation scenarios: 1) continuation
of operations and going concern sales of Sunbeam's business units by 6/30/03
("high" recovery); or 2) closure of facilities and liquidation of assets by
6/30/03 ("low" recovery). Discounts have been applied to the liquidation value
of major operating properties and non-operating assets to account for the nature
and timing of the liquidation process. Further, it is assumed that the chapter 7
administration process, including claims resolution, Bankruptcy Court reporting
and distributions to creditors could be completed within about 6 months (i.e. by
6/30/03).
There can be no assurance that the liquidation would be completed within the
time frames specified. It is possible that the disposition of the Debtors'
operating business units and remaining financial assets could reasonably exceed
6 months, potentially causing an adverse impact on recoveries depicted herein.
The liquidation analyses represent the Debtors' best estimate of liquidation
values and recovery percentages based upon a hypothetical chapter 7 liquidation.
There can be no assurance that the actual liquidation values or recoveries would
fall within the ranges represented as such estimates may not prove to be
accurate. Variances from the estimates may be caused by the following factors:
1. Nature and timing of liquidation process - Under section 704 of the
Bankruptcy Code, an appointed chapter 7 trustee must, among other
duties, collect and convert the property of the estate, as
expeditiously as is compatible, with the best interests of the
parties-in-interest. The Sunbeam operating businesses share brand
names and, to a limited extent, facilities. The sale of individual
businesses would necessarily involve negotiations regarding the
future use of these brand names and facilities. It has been assumed
that there would be pressure to complete the sales process within six
months. The need to convert property to cash and to conclude brand
name and facility use negotiations rapidly may have an adverse impact
on the proceeds realized from the sale of the Sunbeam operating
businesses.
2. Impact on Debtors' operations of a chapter 7 liquidation - It is
probable that a chapter 7 proceeding and the sudden pendency of the
sales would have adverse effects on employee morale, customer
willingness to order goods and vendor willingness to ship supplies
and extend trade credit.
3. Estimated claims and their priority - Claim amounts included in this
analysis primarily represent estimated obligations as of the Filing
Date. In addition, the Debtors' have various potential liabilities
under environmental laws, which they believe can be addressed in the
ordinary course of business after consummation. By contrast, in a
chapter 7 liquidation, significant uncertainty would surround
responsibility for these exposures. The Debtors have made no studies
of chapter 7 environmental exposures in this chapter 7 scenario. In
addition, at the time of the sale of these businesses, there would be
a high degree of uncertainty about the potential exposure of the
purchasers to future transferee liability for future product
liability claims which may not be addressed in a chapter 7
proceeding.
4. Estimated liquidation costs - It is possible that operating costs and
other expenses during the liquidation process could result in
liquidation costs being greater or less than the estimated amounts.
Such costs are, in part, dependent on the duration of the liquidation
process, and the extent to which the liquidation process may be
contested by parties-in-interest.
5. Tax liabilities - For purposes of this liquidation analysis,
management has estimated that no significant tax liabilities would be
incurred by the Debtors from the disposition of businesses and
assets, due to the application of available tax benefits.
SUMMARY OF ESTIMATED RECOVERIES - HOLDING COMPANY & SUNBEAM SUBSIDIARIES
COMBINED (IN $000):
- ------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Est. Liquidation Value
----------------------
Low High
--- ----
Proceeds from going concern
sale of operating businesses $ 610,000
Proceeds from liquidation of
operating assets $ 368,000
Proceeds from
Environmental and litigation claims 0 5,000
----------- ----------
TOTAL ESTIMATED NET PROCEEDS FROM ASSETS $ 368,000 $ 615,000
=========== ==========
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Recovery % Recovery $
Estimated ---------- ----------
Allowed Claims Low High Low High
-------------- --- ---- --- ----
TOTAL ESTIMATED NET PROCEEDS FROM ASSETS $ 368,000 $ 615,000
Repayment of chapter 7 "DIP" financing obligation 38,000 116,000
Chapter 7 administrative expenses 20,000 23,000
---------- ----------
NET PROCEEDS AVAILABLE FOR SECURED CLAIMS (NOTE 1) 310,000 476,000
---------- ----------
Secured bank claims $ 1,650,000 18% 28% 300,400 462,400
Other secured claims 9,600 100% 100% 9,600 9,600
NET PROCEEDS AVAILABLE FOR UNSECURED CLAIMS
Priority claims (to be determined) 0% 0% 0 0
General unsecured claims (to be determined) 0% 0% 0 0
Subordinated note claims 850,000 0% 0% 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Note 1: Excludes amounts that will be required for key employee
retention and severance programs.
OVERVIEW OF KEY ASSUMPTIONS (IN $000):
- --------------------------------------
The draft Liquidation Analyses have been developed based upon the following
significant assumptions:
2
Going Concern Sale scenario ("high" recovery):
- ----------------------------------------------
1. The Company assumes that the Bankruptcy Court will not approve an
"all pay" order relating to pre-petition obligations due to employees
and suppliers of goods/services to Sunbeam's operating businesses.
Accordingly, it is assumed that significant chapter 7 business
disruption would occur, including: a) COD vendor payment terms; and
b) cash flow deterioration equal to approximately 32% of assumed
sales erosion of 10% (Coleman) or 15% (all non-Coleman operations) of
projected gross sales. As a result of this disruption, recoveries
from sale of these operating businesses would be materially lower
than under an "all pay" scenario.
2. Each of the operating businesses are assumed to be sold as going
concerns, generating the following estimated sale proceeds of
$610,000 (Note 1):
Note 1: The valuations noted above are based upon EBITDA multiple
valuations. The assumed recovery ranges include the impact of: a)
corporate overhead costs, along with projected vs. trailing EBITDA
results, that buyers would assume in developing purchase offers; b)
transaction and closing costs, including sale commissions,
professional fees, environmental studies and environmental
remediation; and c) discounts attributable to conducting the sale
process in a chapter 7 environment.
3. Sunbeam's international operations are assumed to be sold as going
concerns along with Coleman or Sunbeam Products (as described below),
with any foreign obligations assumed to be paid in the ordinary
course of business:
o Coleman business - Canada (about 50% of its business),
Europe (substantially all), Latin America (minimal),
Japan, and Asia (substantially all) are assumed to be sold
along with Coleman's domestic business, including the
working capital related to such operations.
o Sunbeam Products business - Canada (about 50% of its
business) and Latin America (substantially all), are
assumed to be sold along with Sunbeam Product's domestic
business, including the working capital related to such
operations.
o International operations of First Alert and Powermate are
minimal and no recovery is assumed for a sale of these
operations.
4. Financing for Sunbeam's domestic and international operating
businesses for January to June 2003 is assumed to be consistent with
the Company's current projections, except for the following chapter 7
impacts: a) COD vendor payment terms (domestic businesses only); b)
cash flow deterioration equal to 30% of assumed sales erosion of 10%
(Coleman) or 15% (all non-Coleman operations); and c) 75% reduction
in capital expenditures. This liquidation analysis excludes amounts
for retention programs that will be required to retain key operations
management and employees through the assumed sale of these operations
as of 6/30/03. Cash provided from/(required for) business operations
until they are sold as going concern businesses include changes in
working capital.
5. Corporate office and International headquarters expenses are based
upon the Company's projections, and reduced for the phased-in
termination of certain employees not essential to the chapter 7
process. This liquidation analysis excludes amounts for retention
programs that will be required to retain key operations management
and employees through the assumed sale of these operations as of
6/30/03.
6. During the ninety day (90) period prior to the Commencement Date, the
Debtor paid $40,309,488 to or for the benefit of creditors pursuant
to arrangements with those creditors for goods provided and services
performed or to be performed. Conceivably, a portion of such payments
may technically constitute voidable preferences under the Bankruptcy
Code. The recipient of any such preferential transfer may have valid
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defenses, including that such transfer was made in the ordinary
course of business. The Debtors believe that the recovery, if any, on
account of potential preferences would be inconsequential to the
estate as a whole based upon, among other considerations, (i) the
Banks have a duly perfected security interest in the proceeds of any
avoidance action and (ii) the subordination provisions set forth in
the Subordinated Notes. The Debtors are unaware of any avoidance
actions which, if successfully prosecuted, would result in a greater
distribution to any creditors other than the Banks.
7. The Debtors do not believe that the potential recoveries from the
claim against PricewaterhouseCoopers LLP, after associated expenses,
would be sufficient to pay in full the Debtors' chapter 7 financing
costs, the chapter 11 financing costs and the adequate protection
claims and secured claims of the Banks.
8. The Debtors assume that the potential recoveries with respect to
certain environmental insurance recovery actions will be within a
range of $0 to approximately $5 million. A number of factors affect
the potential range of recoveries, most importantly the limited time
frame in which to resolve such actions.
Asset Liquidation scenario ("low" recovery):
- --------------------------------------------
1. It is assumed that Sunbeam's other operating businesses would cease
production immediately after the Filing Date and the operations wind
down process would be completed by 6/30/03. Operating and financial
assets would be converted to cash by 6/30/03 and the chapter 7
administrative process completed by 6/30/03.
2. Recoveries from liquidation of domestic operating, financial and
non-operating assets are assumed to be as follows:
Estimated
Net Book Value Recovery Liquidation
of Assets Percentage Value
--------- ---------- -----
(Note 1)
Cash $ 91,071 100% $ 91,071
Accounts receivable (Note 2) -0 - 70% - 0 -
Inventories 261,534 37% 96,768
Fixed assets 295,714 10% 29,571
Trademarks 554,271 (Note 3) 150,913
Other, including deferred taxes 53,996 0%
------------ ----------
Total $ 1,256,586 $ 368,323
============ ==========
Note 1: Asset balances at the beginning of the
hypothetical chapter 7 liquidation are assumed to be
consistent with projected balances as of 12/31/02, per
Sunbeam's financial forecast.
Note 2: A/R balances are presented net of $68,000 of
setoff exposure (obligations due to retailers). Since the
set-off obligations are larger than the aggregate accounts
receivable, no recovery is assumed to be available.
Note 3: Estimated value of trademarks is computed assuming
royalty rates 2 to 4% against 2002 projected revenues, a
useful life of 20 years, discounted at 16% (assumed high
range of weighted average cost of capital used in
enterprise valuation performed by MBL).
3. Proceeds generated from liquidating assets owned by foreign
subsidiaries are assumed to be utilized to pay the liabilities and
wind down costs associated with those foreign subsidiaries. It is
assumed that net proceeds, if any, available for distribution to U.S.
creditors would not be material.
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Cash required during the business operations wind down process is
assumed to approximate 25% of the projected "normal and ordinary"
administration costs of the business. The above analysis excludes
amounts for retention programs that will be required to retain key
operations management and employees through the assumed sale of these
assets as of 6/30/03.
Corporate office and international headquarters expenses are assumed
to be between 25 and 50% of such expenses under the "high" recovery
range, depending upon the departmental function.
The above analysis excludes amounts for retention programs that will
be required to retain key corporate office and international
headquarters management and employees through the assumed sale of
these assets as of 6/30/03.
Chapter 7 Administrative Expenses:
- ----------------------------------
The chapter 7 Trustee fee is assumed to range from 2% ("high" recovery) to 3%
("low" recovery) of all asset recoveries. The chapter 7 administration process,
including: a) claims resolution; (b) preparation of financial reports and tax
returns; and c) distributions to claimants, is assumed to be completed by
December 31, 2003.
1. Professional fees and other bankruptcy costs during the
12-month chapter 7 process, on average, are assumed to
range from $1.0 million ("high" recovery) to $1.5 million
("low" recovery), per month.
Secured Claims:
---------------
1. Bank Group Debt - It is assumed that the Bank Group will
agree to a carve-out from its liens to pay chapter 7
administration costs under a chapter 7 financing
arrangement, including use of cash collateral plus a
financing facility sufficient to fund working capital
requirements, provide letters of credit and otherwise
maintain the business operations as going concerns until
7/31/01 (i.e. assumed timing for sale of such operations)
in the "high" recovery scenario and to finance wind down
costs in the "low" recovery scenario.
2. Other Secured Debt - Mortgage debt of $9.6 million
relating to an Industrial Revenue Bond ("IRB"), which is
collateralized by the Hattiesburg, MS facility, is assumed
to be paid from the proceeds of the sale of Sunbeam
Products in the "high" recovery scenario and from the
proceeds of sale of the Hattiesburg facility in the "low"
recovery scenario.
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